murrayrothbard.com

Read this article online here.

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.