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Source link: http://archive.mises.org/5721/rothbards-money-podcast-part-4/

Rothbard’s Money Podcast, Part 4

October 6, 2006 by

Murray Rothbard first wrote What Has Government Done to Our Money? in 1964. A decade later, he wrote that ‘the chickens of the monetary interventionalists have come home to roost. The world monetary crisis of February–March 1973, followed by the dollar plunge of July, was only the latest of an accelerating series of crises which provide a virtual textbook illustration of our analysis of the inevitable consequences of government intervention in the monetary system.’

He continued:

To understand the current monetary chaos, it is necessary to trace briefly the international monetary developments of the twentieth century, and to see how each set of unsound inflationist interventions has collapsed of its own inherent problems, only to set the stage for another round of interventions. The twentieth century history of the world monetary order can be divided into nine phases. Let us examine each in turn.…


Rothbard presents the ‘The Monetary Breakdown of the West’ in 9 phases:

  1. The Classical Gold Standard, 1815–1914
  2. World War I and After
  3. The Gold Exchange Standard (Britain and the United States), 1926–1931
  4. Fluctuating Fiat Currencies, 1931–1945
  5. Bretton Woods and the New Gold Exchange Standard (the United States), 1945–1968
  6. The Unraveling of Bretton Woods, 1968–1971
  7. The End of Bretton Woods: Fluctuating Fiat Currencies, August–December, 1971
  8. The Smithsonian Agreement, December 1971–February 1973
  9. Fluctuating Fiat Currencies, March 1973–?

Murray Rothbard’s ‘The Monetary Breakdown of the West’ is now available for podcast or free download, read by Jeff Riggenbach.

This week’s chapter marks the end of What Has Government Done to Our Money? But it’s not the end of the podcast! Next week we present Rothbard’s detailed reform proposal, ‘The Case for a 100% Gold Dollar,’ Part 1.


Björn Lundahl October 12, 2006 at 3:57 pm

Recessions and The Great Depression were caused by Government Interventions!

In a purely free market (without Government intervention), the rate of interest is determined by people’s “willingness to save and invest” (which is called people’s time preferences) for future use, as compared to how much they are “willingly to consume now”. If people change their “willingness to save” (time preferences) and want to save more, the additional savings will cause the rate of interest to fall (increased supply of savings), and businesses will borrow and invest these additional savings. When the Central Bank (for example The Federal Reserve) increases the money supply and expands bank credit (which Central Banks does everywhere and all the time and always “out of thin air”), it initially lowers the rate of interest and thereby misleads businessmen to act in a manner as if true savings have increased, which in turn leads businessmen to invests those supposed savings in capital goods. New projects that were not profitable before, will now suddenly with this lower interest rate, be profitable. While this process is working, the economy is in an inflationary boom phase (expansion). Capital goods such as stocks, real estate etc, will be more demanded and invested in, and prices of those will rise faster and more intensely in relation to consumption goods. As these supposed savings have worked their way through the economy, prices of goods, services and wages have generally increased to a height which prices for them would have not reached without these supposed savings.

As mentioned, people’s “willingness to save and invest” have not changed (people’s time preferences have not changed) for it was only the Central Bank that increased, out of thin air, additional “savings”. When supposed savings have worked their way through the economy and are received, finally, in increased wages, people still spend their real wages in the same manner as before. They save/ consume in real terms and in same proportion to each other, as before mentioned increase in supposed savings. Because of this, a lack of savings will occur and the rate of interest will rise. Projects that businessmen have invested in and that seemed to be profitable when the rate of interest was lowered are now revealed to be unprofitable. All those investments are revealed to be malinvestments. Businessmen will stop investing in those projects and lay off workers. Prices of capital goods, real estate, stocks etc, will fall sharply and relatively to the fall in prices of consumer goods. The economy is in a depression phase. When those investments are liquidated, the economy is adjusted to people’s “willingness to save and invest” and to consume. The economic structure corresponds to the ratio which people want to save and consume. The economy is now healthy again.

Now then, in the 1920s the Federal Reserve, in the US, increased the money supply and bank credit, which in the 30s resulted in The Great Depression. The same story goes with Japan during the 1980s, which during the 90s, resulted in a depression (go to; http://en.wikipedia.org/wiki/Japanese_asset_price_bubble).
In Sweden we had banks lending out heavily during the late 80s, which also, led to a depression in the 90s.
All business cycles are caused by the same phenomenon. Economic crisis can occur because of other factors such as wars, boycotts, oil prices etc, but pure business cycles have in common the same cause.

I have tried, in a very few words and in a easy manner, to explain Ludwig von Mises business cycle theory, which is also called the Austrian theory of the business cycle. All faults are mine. Friedrich August von Hayek elaborated this theory and received in 1974 the Nobel Prize for this. Go to;

If you want to know more about this theory, go to;

And to;

Björn Lundahl
Göteborg Sweden

Björn Lundahl October 12, 2006 at 4:17 pm

I posted a link to Wikipedia with some information about Japans economic depression during the 90s, was no good! I will try again. Go to;

Björn Lundahl
Göteborg, Sweden

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