Money and the State

In the introduction to What Has Government Done to Our Money, Murray Rothbard – one of last century's most brilliant economists – made an incisive observation. Rothbard noticed that most people, including most of those who consider themselves free marketers, “never think of state control of money as interference in the free market.”

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Rothbard's point is almost universally applicable to those of us who call ourselves conservatives today. Many of us believe that government cannot do things aright and that eventually it wreaks havoc on everything it puts its hand to. This is confirmed by endless empirical evidence as well as by theoretical analysis of how government works. The inner dynamics and workings of bureaucracies are conducive neither to efficiency nor to wisdom. And even if they were, they would still be counterproductive because life is simply too complex to be run by technocrats. It is, therefore, no surprise that government agencies and departments do not solve problems. They only make existing problems worse and create new ones in the process. Ronald Reagan got it exactly right when he remarked: “The nine most terrifying words in the English language are: I'm from the government and I'm here to help.” In light of this, we need to ask this question: How is that we who hold such low view of government see nothing wrong with the the fact that it runs and controls the very lifeblood of our economy – money. Think about it. We believe that government cannot do anything well, and yet we never question its ability to manage the currency. This issue is not even on our radar screen. In other words, we do not even see that there is a problem. But we most definitely need to see it, because it is a huge problem. If our underlying view of government is correct, then the government will eventually destroy our money. Given our worldview, this is the inevitable consequence of the way things are at the moment. This notion can be expressed in the form of a simple propositional argument:

Government eventually ruins that which it controls and manages. Government controls and manages our currency. Therefore, government will eventually ruin our currency.

If the initial premise is true, sooner or later the dollar will be destroyed. The conclusion follows logically from the first premise. A number of writers have written about the dollar's long term decline, since the federal government began its takeover in 1913 with the establishment of the Federal Reserve System. (I previously touched on the subject here.) Thirty-nine years ago the federal government finally succeeded in gaining complete control over our money by severing its last link to gold. The results of all this government interference have been both dire and predictable: The dollar is worth less than one tenth today of what it was worth in 1913. The downward slide has been especially pronounced since the closing of the gold window in 1971. Having been in steady decline for decades, the dollar is now entering the end game. Weighted with colossal debts that cannot be paid, a sharp devaluation awaits at some point in the not-too-distant future. The dollar will suddenly lose much of its already diminished value. It will be a mess and there will be a lot of pain. Our currency's fate has been sealed the moment it came under governmental control. Most conservatives are blind to this and assign blame wrongly. They assume that irresponsible politicians are responsible for the dollar's travails. We tend to think that once we vote the good guys in everything will be all right. But this is the same as to say that the Soviet Union and the Eastern Block did so poorly, because the wrong people were in charge. The problem lay obviously much deeper. Its root was state control of everything, and everything that the state controls will eventually come to grief. That's why those countries collapsed. The American state controls the dollar. Hence its decline and impending doom. Conservatives almost invariably fail to make that connection. Rothbard's observation about free-marketers being unconcerned about state control of money lays bare a glaring inconsistency – if not an outright contradiction – in the prevailing conservative worldview. We would do well to ponder this point carefully.