Murray Rothbard’s book, What Has Government Done to Our Money?, is available as a free audiobook or a free download from the Mises Institute. I’ve listened to most of it and want to recommend it as an easy to understand source that explains where money originated in history and how we have gotten to the point we are now with government controlled fiat currencies. Part IV “The Monetary Breakdown of the West” goes through the history of gold standards in the United States from when there was gold backing the dollar to after Nixon took us totally off the gold standard.
Rothbard points out through multiple illustrations from history that governments have always sought to inflate the money supply to generate a new source of funding (in a democracy a 100% tax usually doesn’t work but deceptive taxes might not be noticed). The colonies did this during the Revolutionary War and our government has continued to do it throughout its history – especially in times of war. When the government does not have the money to pay its way, it has throughout its history printed more. The consequence of this inflation for every government is always a devaluation of whatever the currency is at the time. A second consequence is that the artificial booms this easy money creates in certain sectors of the economy will always eventually lead to a bust such as happened in the economic downturns of 1819, 1873, 1918, 1929, 1973, and what is happening now in 2008.
Inflation is a hidden and intentionally deceptive form of taxation. Governments love to be off the gold standard and use fiat currencies that allow them to inflate without controls (especially when all the other governments are also on fiat currencies).
Inflation of the money supply is what the Fed does. When the government needs more money it sells assets to the Fed (usually government securities). The Fed “invents” the money to pay for these. It doesn’t need to print new money because the transaction just increases the amount of money the government has in the bank (and it can use to pay people with).
Because of this new money in the system, all of your money is worth less – increased supply of money raises prices (that’s why housing prices have risen so high after cash was pushed into the housing market through easy loans).
You have now been taxed twice. The government takes a high percentage of your money out of your paycheck. It may give a little back on April 15. It has also taken more of your income by making what you have left worth less. This is a hidden, deceptive tax. The Fed does not protect from inflation, it causes it.
Democrats in the house are now talking about socializing 401(k) plans. The plan that is being put forward would stop tax breaks on your 401(k) and would begin “redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.” I assume these guaranteed retirement accounts would never fail just like social security is never going to fail? Too many people in Congress and the Presidency like the socialist democrats and the socialist republicans don’t have a clue. They are either ignorant or liars for thinking that we have some kind of “free market” that is failing the nation. We haven’t had anything close to a free market for at lease 100 years. The government regulates basically everything (think banking, money, housing, the stock market, oil production, oil exploration, gas prices, gas taxes, property taxes, licensing of plumbers, etc.), and then we pretend to have a free market. Those in Washington are using this current crisis which they caused to get more power to themselves. Until the American public is willing to wake up and quit believing the lies we are told daily by most of the republicans and democrats in Washington, things will continue to get worse. Some Christians believe that it is inevitable that things get worse based on their theology. They must remember that their theology doesn’t also teach that they are to be the cause – does it?
Note: I first heard about this on Rush Limbaugh today.
The important fact to remember when considering the current economic crisis is to remember that people like Ron Paul, who hold to austrian economics, predicted it. They pointed out years ago that what Greenspan was doing would cause such a crisis eventually.
The Wall Street Journal has some interesting facts concerning Monday’s 11% gain in the market. The article, Dow Takes Giant Leap as Bailouts Snap Gloom, explains that this was the fifth biggest percent gain in the history of the Dow. The other dates on the list are even more interesting. The top 10 dates except one in 1987 and this one in 2008 all occurred during the Great Depression between 1929 and 1933. The third highest occurred October 30, 1929 which is just six days after the crash of October 24, 1929 that is usually credited as the start of the Great Depression.
The current economic crises involving Fannie Mae, Freddie Mac, AIG, and the government has caused a host of activity by the federal reserve and the treasury. Most people are looking to the government to solve the problem. If only the government would step in to “save” us from the evils of capitalism. We are led to believe that the government has nothing but good intentions at heart and is also omniscient to solve the problem. Unfortunately government and those in it are not even able to look back less than 100 years to see that their solutions have been tried before and failed. Murray Rothbard concludes his book America’s Great Depression with this condemnation of the policies of the Hoover administration:
Mr. Hoover met the challenge of the Great Depression by acting quickly and decisively, indeed almost continuously throughout his term of office, putting into effect “the greatest program of offense and defense” against depression ever attempted in America. Bravely he used every modern economic “tool,” every device of progressive and “enlightened” economics, every facet of government planning, to combat the depression. For the first time, laissez-faire was boldly thrown overboard and every governmental weapon thrown into the breach. America had awakened, and was now ready to use the State to the hilt, unhampered by the supposed shibboleths of laissez-faire. President Hoover was a bold and audacious leader in this awakening. By every “progressive” tenet of our day, he should have ended his term a conquering hero; instead he left America in utter and complete ruin—a ruin unprecedented in length and intensity.
What was the trouble? Economic theory demonstrates that only governmental inflation can generate a boom-and-bust cycle, and that the depression will be prolonged and aggravated by inflationist and other interventionary measures. In contrast to the myth of laissez-faire, we have shown in this book how government intervention generated the unsound boom of the 1920s, and how Hoover’s new departure aggravated the Great Depression by massive measures of interference. The guilt for the Great Depression must, at long last, be lifted from the shoulders of the free-market economy, and placed where it properly belongs: at the doors of politicians, bureaucrats, and the mass of “enlightened” economists. And in any other depression, past or future, the story will be the same.
Unfortunately in the 30s Roosevelt continued to follow and expand upon the policies that Hoover had started. If government and the fed had left the economy alone the great depression would probably have never happened. If they decided to not try and “fix” the problem it would have ended quicker. Too bad most of our current crop of politicians and unelected buerocrats have not learned anything from history.
Recent Comments