Tribute To A Classic For Our Times

In our largely postmodern world, it is possible, even likely, that a college graduate with a non-technical degree may have but one piece of ironclad knowledge: he knows that he knows nothing, and neither does anyone else.  This graduate is also likely to be untroubled by this bit of self-contradiction, even if he's aware of it.  This brand of blithe skepticism works well for the amoral type; there is no right or wrong, no correct or incorrect.  All judgments are equally valid, and, one would suppose, therefore equally invalid.  

For those who find the postmodern worldview bankrupt, as it is, and want to enter the world of actual knowledge about the human condition, I suggest reading one thin volume, What Has Government Done to Our Money? by Murray Rothbard.  For better worse, as you may judge, this is the book which made me what I am today.

From the introduction:

"Few economic subjects are more tangled, more confused than money...If we immerse ourselves wholly in day-to-day affairs, we cease making fundamental distinctions, or asking the really basic questions. Soon, basic issues are forgotten, and aimless drift is substituted for firm adherence to principle...This is particularly true in our economy, where interrelations are so intricate that we must isolate a few important factors, analyze them, and then trace their operations in the complex world."

Peaceful, voluntary exchange is the basis of civilization, all other human interactions are the antithesis of civilization.  Rothbard starts by explaining exchange among free people; in the process he gives a concise course in basic economics that anyone can understand.  The basic lessons that the modern reader may find surprising are: 1) money's origins are the free market, not government, 2) increasing the supply of money does not benefit society generally, and 3) hoarding money has none of the ill effects Keynesians claim.  Last, Rothbard introduces the idea of the warehouse to store money, which will evolve into what we know as a bank.

Enter the agent of sanctioned societal violence, government, we call it.  Rothbard calls this section "Government Meddling with Money".  "Meddling" is the right word, for it perfectly connotes the abusive relationship between the government and money.  The first step to understanding government is by contrasting the way government gets money with the way money is gained in a free market.  Government takes its money by force through taxation whereas free marketeers must rely on voluntary exchanges to get money.  People who get their money by force or fraud are called criminals; groups who do the same are usually called governments.  

Among the best parts of the book is the part on the economic effects of the hidden tax, inflation: 1) inflating the money supply benefits first users at the expense of later users-- it redistributes wealth toward the rich, 2) inflation distorts business calculation making some businesses appear to be profiting when they are actually consuming their capital, 3) monetary inflation causes distortions in the structure of production which lead to boom and bust cycles, and 4) "The quality of work will decline in an inflation for a more subtle reason: people become enamored of "get-rich-quick" schemes, seemingly within their grasp in an era of ever-rising prices, and often scorn sober effort. Inflation also penalizes thrift and encourages debt, for any sum of money loaned will be repaid in dollars of lower purchasing power than when originally received. The incentive, then, is to borrow and repay later rather than save and lend. Inflation, therefore, lowers the general standard of living in the very course of creating a tinsel atmosphere of "prosperity.""  When inflation is targeted at certain assets, like housing, we get the last decade or so.  We are living now in the period where the "tinsel atmosphere" of housing-fueled prosperity has gone "bust".

Rothbard details the entire dastardly procedure by which government, in the name of protecting money from the private fraud, takes control of money and banking, becoming itself the monetary defrauder in chief, money that was good as gold being turned into mere paper and blips on a computer screen.  The origins of central banking are traced through banks' original purpose as money warehouses to today's central bank, the modern citadel of central planning in a supposedly capitalist system.  Rothbard rips the cover off the facade of central banks as inflation fighters.  Far from being such, central banks are created to inflate; inflation is their very raison d'etre.  We can now see that Ben Bernanke's promise to print money ad infinitum is no aberration.  Bernanke is now risking destroying the dollar to prevent our inflation-inspired, debt-ridden society from experiencing deflation.  However, like all central planners, Bernanke is fighting a losing battle against economic reality.  

Finally, Rothbard applies his theory to the last century, beautifully explaining the destruction of the classical gold standard by central bank inflation in his section, "The Monetary Breakdown of the West".  We are living what may be the end of the modern fiat, or paper, standard, what Jim Grant calls the "faith in government standard".  The question is, what will replace it?  A global fiat currency?  Some form of gold standard? Until the people finally become "Fed" up with what government is doing to our money, the outlook is bleak.