Murray sums it up in this way: “The power to create money means that it is far more tempting to print it than to work for it. It means that the counterfeiter can pay his debts, spend more money, give more money to his friends and associates. In the case of government, the power to counterfeit means that government’s debts can be paid without levying taxes, that government spending can increase, and that political allies can be purchased and maintained.”

This is one of those activities that cannot exist (for long) in a free society. Ron Paul’s campaign and new book, The Revolution: A Manifesto, has been a success in educating millions of individuals all over the world. 

For further information on Ron Paul’s efforts check out his Campaign for Liberty. 

As an addendum to this post on the importance of abolishing the Federal Reserve, check out Lew Rockwell’s recent speech at the Mises Institute’s Supporters Summit.

When my father-in-law asked me for one succinct article to describe what libertarianism is and why it should even matter, this is the first one I came across. After further discussions, I found out he is voting Libertarian (which in this case is unfortunately Bob Barr), which is a fairly big deal. Rothbard is extremely persuasive and the logic is compelling. Say what you will about libertarians (i.e., anarcho-capitalists), at least their position is consistent.

Rothbard asks a question I have often asked myself: “When life is short and the moment of victory far in the future, why go through all this?” It is true that being a libertarian can easily create a cynical attitude. To this I refer you to the quote of George Bernard Shaw: “The power of accurate observation is commonly called cynicism by those who haven’t got it.” I see libertarianism as an accurate reflection of reality. It helps you to think logically and to see how beautiful the market is and how evil the state is.

Rothbard has set the example for libertarians. He talks of the necessity of a movement to advance the idea of Liberty. This is easily demonstrated by looking at Rothbard’s career. In addition to writing articles for many different publications throughout his lifetime, he started the Left & Right journal, then The Libertarian, also organizing the first libertarian conference, and then the Rothbard-Rockwell Report. He also started the Review of Austrian Economics journal and the Journal of Libertarian Studies. (I am probably missing a few, e.g., CATO, Center of Libertarian Studies, but you get the idea.)

Murray looked to both the left and right on the political spectrum and aligned himself with anyone who would listen, essentially creating “big tent” libertarianism. The Wikipedia article says, accurately, that he was engaged in “‘intellectual entrepreneurship’ in building a Libertarian intellectual superstructure.”

Libertarianism has to do with justice (and injustice). It is due to seeing such injustices performed by the state that the cynical attitude may come across. I prefer to see this as accurately seeing reality. Justice is not based on a utilitarian philosophy which disregards rights. This, Rohtbard says, must be “the mainspring of our drive, the armor that will sustain us in all the storms ahead, not the search for a quick buck, the playing of intellectual games or the cool calculation of general economic gains.”

So what is the true test of whether you are a libertarian? Now is a great time to ask this question. How many libertarians would push the button to eliminate unjust government programs (or do I repeat myself?)? For example, there are many people, including many libertarians, or at least so-called “free marketeers,” who seem to view the current financial crisis as the result of Federal Reserve policies, but still advocate, reluctantly, that something must be done. Government, ultimately, must “do something.” And they are.

Rothbard wants to know how many libertarians would push the button to eliminate injustices and State oppression. How many would immediately push the button to eliminate the Federal Reserve? This is the test. This reminds me of one of the Presidential debates where the candidates were asked which Departments of Government they would get rid of (something like that). After the other candidates said some mumbo-jumbo, Ron Paul immediately said the Department of Energy, the Department of Homeland Security, and others. It was a great moment. He would push the button. I guess he would ”blister [his] thumb pushing that button!”

There is so much in this article to be commented on. For example, Rothbard, here and in other places, has talked about the importance of distinguishing libertarian goals from libertarian strategy. In other words, goals should not be decided based on their probability of attainment. Once the goal has been decided upon, the separate question of how to attain it can be discussed.

I have decided lately that a major problem that plagues the world today is not anger or any sort of hostile (or “bad”) feelings, but a lack of feeling, i.e., indifference (not the Austrian view of indifference). It is when people are indifferent that they don’t care about justice or injustice. Rothbard was all but indifferent, and extremely passionate and optimistic–and radical. 

Rothbard ends the article by showing the spirit in which men should undertake the goal of liberty, exactly as William Lloyd Garrison had said in the 19th century: “I have need to be all on fire, for I have mountains of ice about me to melt.”

Read “Bank Crisis” online here.

Of course, the title of this article shows why Rothbard is still relevant. This is where the saying–those who do not learn from history are doomed to repeat it–is so important. Reading through this article, this paragraph almost jumps out:

What is the reason for this crisis? We all know that the real estate collapse is bringing down the value of bank assets. But there is no ‘run’ on real estate. Values simply fall, which is hardly the same thing as everyone failing and going insolvent. Even if bank loans are faulty and asset values come down, there is no need on that ground for all banks in a region to fail.

Put more pointedly, why does this domino process affect only banks, and not real estate, publishing, oil, or any other industry that may get into trouble? Why are what Samuelson and other economists call ‘good’ banks so all-fired vulnerable, and then in what sense are they really ‘good’?

Murray’s question must be answered: Why is it that only banks are affected so negatively, i.e., why do so many just fail, as opposed to just their asset values dropping and going through a business fluctuation? The answer: fractional-reserve banking. Fractional-reserve banks, because they are inherently bankrupt, depend so much on the public’s confidence in them. 

Here is Murray on this issue:

That is why, unlike any other industry, the continued existence of the banking system rests so heavily on ‘public confidence,’ and why the Establishment feels it has to issue statements that it would have to admit privately were bald lies. It is also why economists and financial writers from all parts of the ideological spectrum rushed to say that the FDIC ‘had to’ bail out all the depositors of the Bank of New England, not just those who were ‘insured’ up to $100,000 per deposit account. The FDIC had to perform this bailout, everyone said, because ‘otherwise the financial system would collapse.’ That is, everyone would find out that the entire fractional-reserve system is held together by lies and smoke and mirrors, that is, by an Establishment con.

Rothbard has reminded libertarians that sometimes there are two common (and related) mistakes that libertarians make:

1. Anything that is private must be okay.
2. If we can privatize all public “goods” and “services,” that would be a good thing.

Rothbard points out why he was not a proponent of privatizing the banking industry–because even as a private institution they are fraudulent. Why else would the banking industry need insurance?

As we’ve heard from current Austro-libertarians about the current financial crisis: “It would be far better to suffer a one-shot deflationary contraction of the fraudulent fractional-reserve banking system, and go back to a sound system of 100% reserves.”

Rothbard’s writings are still extremely relevant today. Here are some of the most relevant I’ve found (I plan to comment on them in the next posts):

Inflationary Recession, Once More

Lessons of the Recession

Money Inflation and Price Inflation

Bank Crisis

Anatomy of the Bank Run

Inflation Redux

Alan Greenspan: A Minority Report on the Fed

The Mysterious Fed

Economic Depressions: Their Cause and Cure

Reading this article shows how clearly Rothbard expressed himself. In only a few paragraphs in the first section he explains the benefits of trade, defines direct (barter) and indirect exchange, and how money comes into existence in a free market, including how it makes economic caluclation possible. He does all of this through hypothetical and historical examples. I find it extremely impressive. 

I’ll just summarize and make some comments on this article below.

Gold or Government Paper

Rothbard defines the “moneyable” qualities, i.e., what makes gold and silver more saleable than other commodities:

1. Rare (relative) supply to maintain a stable value;
2. A high value per unit weight, making it easily transportable;
3. Their durability, which is virtually forever;
4. Their value does not diminish over time (in the sense of their physical characteristics);
5. They are easily divisible, without losing value.

Rothbard reduces the choice to either gold or government paper. Gold is expensive to dig out of the ground. He points out that any existence of gold is optimal since an increase does not confer a social benefit, except as a consumer good (e.g., jewelry). Contrast this with government paper which is essentially costless, and prone to inflation, which only dilutes (or robs) the purchasing power of each piece of paper in existence. In fact, it is just a waste of perfectly good paper and ink.

Rothbard seems to take a similar position as Hans Hoppe when he points out that kings could at least earn revenue by selling their lands, or through highway taxes. Any large increase in taxes would lead to an increased possiblity of revolution against the king. With the ability of a government to print money into existence without (direct) taxation, the chance of revolution is lower. Perhaps this chance is only limited by the extent to which government increases the money supply, i.e., the government can’t deceive people forever.

In the US, people are voicing their opinions on these issues more than I’ve ever seen. This can be partly attributed to the Ron Paul campaign (aptly named the Ron Paul Revolution; Rothbard mentions Ron Paul later in the article for his efforts in making it legal for Americans to own gold).

Rothbard lists some problems with inflation:

1. Destoying the value of the currency;
2. Increasing prices (notice how, in a distortion of cause and effect, inflation used to mean an increase in the money supply and now just refers to an increase in prices);
3. Crippling economic calculation;
4. Damaging the workings of the economy.

On Counterfeiting

The analogy of the highway robberman is on point. The highwayman robs an individual whereas the government counterfeiter robs everyone in society. The highwayman typically takes your money and leaves without asking you to pay for his services. The govt bureaucrat insists you pay for his thievery. 

I have heard Lew Rockwell state in a podcast, in an attempt to reveal the true nature of the US central bank, the Federal Reserve, that Ben Bernanke should be walking around in a devil suit for his actions. Similarly, Rothbard says, amazingly, that people hail these manipulators instead of throwing tomatoes and rotten eggs.

So, who does this counterfeiter damage the most? Fo one, those with fixed incomes (typically older, retired persons), and the poor. Now let’s think about the effects of this. In some unbelievable twist on reality, most people seem to think government exists to protect and help the elderly and poor. Yet these are the ones who need their money to still retain value. Talk about calling evil good!

Fractional Reserve and Central Banking

Without a central bank, eventually banks that practiced fractional reserve banking would go bankrupt. So you can guess who were the ones pushing for a cartelization of the banking industry–the bankers themselves.

Here’s a quote that demonstrates why reading Rothbard is so enlightening, and relevant:

The Fed bails out banks in trouble, and it centralizes and coordinates the banking system so that all the banks, whether the Chase Manhattan, or the Rothbard or Rockwell banks, can inflate together. Under free banking, one bank expanding beyond its fellows was in danger of imminent bankruptcy. Now, under the Fed, all banks can expand together and proportionately.

Back to Gold–Abolishing the Fed

Again, this is the amazing ability of Rothbard to anticipate and answer questions the reader may have that arise naturally from earlier parts of the article. Occassionally, I have discussions with people who finally come to see the negative effects of a central bank, but who are content to leave the system as is. Or, some will ask: “How could we go back to a gold standard?” Rothbard is explicit (not necessarily in this order):

1. Liquidate the entire Fed;
2. Parcel out its assets to its creditors;
3. Write off US Govt. securities;
4. Write off the Treasury currency;
5. Abolish SDRs;
6. A corollary–abolish the FDIC.

The Fed’s liabilities, which consist of Federal Reserve Notes in circulation and notes owed to member banks, should be paid off using the Fed’s stock of gold. Since the Fed values its gold at an arbitrary fixed price, far lower than the price of gold on the market, this should be raised to a price which will cover its liabilities. Rothbard points out that any initial definition of the dollar will do, assuming it is adhered to from then on. The gold could then be minted into gold coins and creditors paid off, including member banks. Gold would then be the circulating medium. Gold (re)established and the Fed abolished!

Conclusion

Here are some great quotes from this article:

The only thing that could save the banks in such a mighty bank run is if the Federal Reserve prints the $1.6 trillion in cash and gives it to the banks–igniting an immediate and devastating runaway inflation and destruction of the dollar.

Sound familiar?

And finally:

To accomplish that task, we must once again have money that is produced on the market, that is gold rather than paper, with the monetary unit a weight of gold rather than the name of a paper ticket issued ad lib by the government. We must have investment determined by voluntary savings on the market, and not by counterfeit money and credit issued by a knavish and State-privileged banking system. In short, we must abolish central banking, and force the banks to meet their obligations as promptly as anyone else.

Amen to that.