Murray Rothbard has put us all in his debt not only by his long, masterly textbook, Man, Economy and State and other volumes, but by his no less masterly pamphlets, particularly his model of reasoning and exposition, What Has Government Done to Our Money? He puts us further in his debt by this new pamphlet.
We live in an era of unparalleled confusion of thought on monetary questions. The overwhelming majority of professional economists now advocate fiat paper money. But almost as bad, the handful of economists who do favor a return to a gold standard cannot agree among themselves about what kind of gold standard they want.
The gold-standard advocates may be roughly divided into four groups, with numberless disagreements within these:
Those who favor returning to the restricted gold-exchange standard prevailing under the IMF system from 1946 to 1971, with the dollar again made convertible into gold either at $35 an ounce or some indefinitely higher figure, but still convertible only by foreign central banks or official institutions.
Those who favor returning to a fractional-reserve gold standard, with dollars convertible into gold by anyone who holds them and with a specified minimum percentage gold reserve or maximum expansion of deposits or notes — this means those who would return to the pre-1933 form of the gold standard. This probably includes the majority of present gold-standard advocates. A few of them favor abolition of the Federal Reserve System or any central bank; most do not. There is no agreement among them on the gold-conversion rate, the minimum percentage gold reserve or the maximum permitted expansion of bank deposits or notes.
Those who favor a “locked” gold standard, with no future increase in deposits or notes permitted except dollar-for-dollar for an increased domestic gold supply.
Those who favor a full gold standard, consisting only of gold coins or gold certificates 100-percent backed by gold.
Murray Rothbard puts himself in the last group — he is possibly its sole present member. This may look at first glance like the most extreme, deflationary, and impractical position that could be imagined. But Professor Rothbard defends it brilliantly — not only with prodigious historical, legal, and economic scholarship but also with unrelenting logic.
He traces the origin of the fractional-reserve system back to the practice of the old goldsmiths who, he contends, simply perpetrated a fraud by in effect issuing and lending out warehouse receipts for far more gold than they actually held. Modern banks simply continued to practice this fraud, and modern states to sanction it. The truth, he asserts, is that “fractional reserve banking is disastrous both for the morality and for the fundamental bases and institutions of the market economy.”
Rothbard’s conclusion, in sum, is that
the soundest monetary system and the only one fully compatible with the free market and with the absence of force or fraud from any source is a 100 percent gold standard. This is the only system compatible with the fullest preservation of the rights of property. It is the only system that assures the end of inflation, and with it, of the business cycle.
There will be loud and angry answers to this conclusion, but Rothbard has anticipated most of them. He explains why, for example, there is never any need for a larger supply of money than that already in existence.
This reviewer agrees with practically all the recommendations that Professor Rothbard makes except those concerning when and how to get back to a full gold standard. Here I would classify myself with the tiny group I have labeled “3.” But what needs to be emphasized here is not detailed differences in opinion, but that Murray Rothbard has given us another provocative, informative, and elegantly reasoned economic tract.
This article first published in the Inflation Survival Letter and later republished in Libertarian Review January 1975, vol 4. no 1. p. 1.
