What Has Government Done to Our Money?

Monetary policy is—aside from war—the primary tool of state aggrandizement. It ensures the growth of government, finances deficits, rewards special interests, and fixes elections. Without it, the federal leviathan would collapse, and we could return to the republic of the Founding Fathers.

Our monetary system is not only politically abusive, it also causes inflation and the business cycle. What is to be done?

In answer to that question, the Mises Institute is pleased to present this fourth and slightly expanded edition of Murray N. Rothbard’s classic What Has Government Done to Our Money?.

First published in 1964, this is one of Professor Rothbard’s most influential works, despite its length. I can’t count the number of times academics and nonacademics alike have told me that it forever changed the way they looked at monetary policy. No one, having read this book, hears the pronouncements of Fed officials with awe, or reads monetary texts with credulity. What Has Government Done to Our Money? is the best introduction to money, bar none. The prose is straightforward, the logic relentless, the facts compelling—as in all of Professor Rothbard’s writings.

His themes here are theoretical, political, and historical. On theory, he agrees with Ludwig von Mises that money originated through voluntary exchanges on the market. No social contract or government edict brought money into being. It is a natural outgrowth of individuals seeking economic relations more complex than barter.

But unlike all other commodities, an increase in the stock of money confers no social benefit, since money’s main function is to facilitate the exchange of other goods and services. Indeed, increasing the stock of money through a central bank like the Fed has horrific consequences, and Professor Rothbard provides the clearest explanation available of inflation.

In policy, he argues that the free market can and should be charged with the production and distribution of money. There is no need to make it a monopoly of the U.S. Treasury, let alone of a public-private banking cartel like the Fed.

A successful money needs only a fixed definition rooted in the commodity most suited to a monetary use, and a legal system that enforces contracts and punishes theft and fraud. In a free market, the result has been, and would be, a gold standard.

In such a free-market system, money would be convertible domestically and internationally. Demand deposits would have 100% reserves, while the reserve ratios for time deposits would be subject to the economic prudence of bankers and the watchful eye of the consuming public.

It is, however, the historical dimension of Professor Rothbard’s work that makes it so persuasive. Starting with the 19th-century classical gold standard, he ends with the likely emergence of a European Currency Unit and an eventual world fiat money. Especially notable are his explanations of the Bretton Woods system and the closing of the gold window in the early 1970s.

Professor Rothbard shows that government has always and everywhere been the enemy of sound money. Through banking cartels and inflation, government and its favored interests loot the people’s earnings, water down the value of the market’s money, and cause recessions and depressions.

In mainstream economics, most of this is denied or ignored. The emphasis is always on the “best” way to use monetary policy. What should guide the Fed? The GNP? Interest rates? The yield curve? The foreign exchange value of the dollar? A commodity index? Professor Rothbard would tell us that all such questions presuppose central planning, and are the root of monetary evil.

May this book be distributed far and wide, so that when the next monetary crisis arrives, Americans will, finally, refuse to put up with what the government is doing to our money.

Llewellyn H. Rockwell

The Ludwig von Mises Institute

Auburn University

November 1990