This slim book (just 119 pages of main text in this edition) was originally published in 1963 when the almighty gold-backed United States dollar was beginning to crack up under the pressure of relentless deficit spending and money printing by the Federal Reserve. Two years later, as the crumbling of the edifice accelerated, amidst a miasma of bafflegab about fantasies such as a “silver shortage” by Keynesian economists and other charlatans, the Coinage Act of 1965 would eliminate sliver from most U.S. coins, replacing them with counterfeit slugs craftily designed to fool vending machines into accepting them. (The little-used half dollar had its silver content reduced from 90% to 40%, and would be silverless after 1970.) In 1968, the U.S. Treasury would default upon its obligation to redeem paper silver certificates in silver coin or bullion, breaking the link between the U.S. currency and precious metal entirely.
All of this was precisely foreseen in this clear-as-light exposition of monetary theory and forty centuries of government folly by libertarian thinker and Austrian School economist Murray Rothbard. He explains the origin of money as societies progress from barter to indirect exchange, why most (but not all) cultures have settled on precious metals such as gold and silver as a medium of intermediate exchange (they do not deteriorate over time, can be subdivided into arbitrarily small units, and are relatively easy to check for authenticity). He then describes the sorry progression by which those in authority seize control over this free money and use it to fleece their subjects. First, they establish a monopoly over the ability to coin money, banning private mints and the use of any money other than their own coins (usually adorned with a graven image of some tyrant or another). They give this coin and its subdivisions a name, such as “dollar”, “franc”, “mark” or some such, which is originally defined as a unit of mass of some precious metal (for example, the U.S. dollar, prior to its debasement, was defined as 23.2 grains [1.5033 grams, or about 1/20 troy ounce] of pure gold). (Rothbard, as an economist rather than a physicist, and one working in English customary units, confuses mass with weight throughout the book. They aren’t the same thing, and the quantity of gold in a coin doesn’t vary depending on whether you weigh it at the North Pole or the summit of Chimborazo.)
Next, the rulers separate the concept of the unit of money from the mass of precious metal which it originally defined. A key tool in this are legal tender laws which require all debts to be settled in the state-defined monetary unit. This opens the door to debasement of the currency: replacing coins bearing the same unit of money with replacements containing less precious metal. In ancient Rome, the denarius originally contained around 4.5 grams of pure silver. By the third century A.D., its silver content had been reduced to about 2%, and was intrinsically almost worthless. Of course, people aren’t stupid, and when the new debased coins show up, they will save the old, more valuable ones, and spend the new phoney money. This phenomenon is called “Gresham’s law”, by which bad money chases out good. But this is entirely the result of a coercive government requiring its subjects to honour a monetary unit which it has arbitrarily reduced in intrinsic value.
This racket has been going on since antiquity, but as the centuries have passed, it has become ever more sophisticated and effective. Rothbard explains the origin of paper money, first as what were essentially warehouse receipts for real money (precious metal coins or bullion stored by its issuer and payable on demand), then increasingly abstract assets “backed” by only a fraction of the total value in circulation, and finally, with the advent of central banking, a fiction totally under the control of those who print the paper and their political masters. The whole grand racket of fractional reserve banking and the government inflationary engine it enables is explained in detail.
In the 1985 expanded edition, Rothbard adds a final twenty page chapter chronicling “The Monetary Breakdown of the West”, a tragedy in nine acts beginning with the classical gold standard of 1815–1914 and ending with the total severing of world currencies from any anchor to gold in March, 1973, ushering in the monetary chaos of endlessly fluctuating exchange rates, predatory currency manipulation, and a towering (and tottering) pyramid of completely unproductive financial speculation. He then explores the monetary utopia envisioned by the economic slavers: a world paper currency managed by a World Central Bank. There would no longer be any constraint upon the ability of those in power to pick the pockets of their subjects by depreciating the unit of account of the only financial assets they were permitted to own. Of course, this would lead to a slow-motion catastrophe, destroying enterprise, innovation, and investment, pauperising the population, and leading inevitably to civil unrest and demagogic political movements. Rothbard saw all of this coming, and those of us who understood his message knew exactly what was going to happen when they rolled out the Euro and a European Central Bank in 1991, which is just a regional version of the same Big Con.
This book remains, if I dare say, the gold standard when it comes to a short, lucid, and timeless explanation of monetary theory, history, the folly of governments, and its sad consequences. Is there any hope of restoring sanity in this age of universal funny money? Perhaps—the same technology which permits the establishment of cryptocurrencies such as Bitcoin radically reduces the transaction costs of using any number of competing currencies in a free market. While Gresham’s Law holds that in a coercive un-free market bad money will drive out good, in a totally free market, where participants are able to use any store of value, unit of account, and medium of exchange they wish (free of government coercion through legal tender laws or taxation of currency exchanges), the best money will drive out its inferior competitors, and the quality of a given money will be evaluated based upon the transparency of its issuer and its performance for those who use it.
This book may be purchased from Amazon in either a print or Kindle edition, and is also available for free from the publisher, the Ludwig von Mises Institute, in HTML, PDF, and EPUB formats or as an audio book. The PDF edition is available in the English, Spanish, Danish, and Hungarian languages. The book is published under the Creative Commons Attribution License 3.0 and may be redistributed pursuant to the terms of that license.
Rothbard, Murray. What Has Government Done to Our Money? Auburn, AL: Ludwig von Mises Institute, [1963, 1985, 1990, 2010] 2015. ISBN 978-1-61016-645-4.