Murray Rothbard:

What Has Government Done to Our Money?


Murray Rothbard (1926–95) was an American public intellectual, a polymath who made original contributions in the fields of economics, history, political philosophy and legal theory. He had a PhD in economics from Columbia University, and was a leading figure in libertarian philosophy and Austrian economics in the last quarter of the twentieth century. He established the Journal of Libertarian Studies in 1977 and the Quarterly Journal of Austrian Economics (originally the Review of Austrian Economics) in 1987. Rothbard was one of the founders of the Cato Institute, and was closely associated with the Ludwig von Mises Institute from its founding in 1982, serving as its Academic Vice-President until 1995.


Rothbard’s Man, Economy, and State (1962), began as a textbook to explain Mises’ Human Action to college students, but became a central work in Austrian economics in its own right. His other books on economics are Power and Market (1972), The Mystery of Banking (1983), Economic Thought Before Adam Smith and Classical Economics (1995), and Logic of Action (posthumously in 1997). His books on history are America’s Great Depression (1963), A History of Money and Banking in America (posthumously in 1999) and a four-volume series Conceived in Liberty (1975–79). On political philosophy, he wrote The Ethics of Liberty (1982).


Murray Rothbard’s short book, What Has Government Done to Our Money? (1963) is a primer on monetary theory. Rothbard explains how the need for money arises from the need for indirect exchange in an economic system of division of labour, why gold and silver became the chosen commodity for this purpose, that the American dollar, British pound, French franc and the German mark were originally units of weight of gold and silver, and that the price of money is its purchasing power in terms of all goods in the economy. He discusses whether or not there is a need to increase the supply of money to meet the needs of an expanding economy, the problem of hoarding and whether or not the price level should be stabilised. He explains how banks began as gold warehouses and how their warehouse receipts – called bank notes – came to function as money substitutes to avoid the transfer of physical gold, and how this led to the further efficiencies of bank deposits and cheque accounts.


Rothbard’s views on fractional reserve banking may be surprising and concerning. Banks accept people’s deposits and promise to repay them at call whenever they want them. Knowing that all depositors will not want their deposits at the same time, they lend depositors’ money to other clients. Rothbard considers that this is fraud. If the bank’s depositors collectively lose faith then there is a run on the bank and it will fold. Fractional reserve banking effectively means that the same deposit may be lent multiple times. The consequences are that the money supply is increased and money is devalued. That is inflation. Fractional reserve banking is not to be confused with the legitimate offering of credit where the depositor lends his money to the bank for a given time at interest and the bank lends this money to another client for a similar period.


Governments now control money. Rothbard describes the adverse effects. Unwilling to tax in order to pay for all their spending, governments resort to counterfeiting – the creation of money out of thin air. Modern-day methods are much more sophisticated than the debasement of coins that occurred in the past. The main institution used is the Central Bank, which is granted a monopoly over the issue of notes and is the lender of last resort for the whole banking system. It sets interest rates and determines the supply of money. The resulting inflation has deleterious economic impacts. It distorts economic calculation, encourages speculation, penalises thrift and rewards debt. It disadvantages those on fixed incomes. It encourages short-term approaches to business and relationships. To achieve their ends, it is also necessary for statist governments to deny citizens the use of a competing currency. Not only do they need to go off the gold standard, they need to outlaw citizens from holding gold.


Rothbard concludes his book with a review of the international monetary developments of the twentieth century. As Jörg Guido Hülsmann says in the introduction to the fifth edition in 2005:

Rothbard’s chronicle of decline ends with the breakdown of Bretton Woods and a prediction that the future portends continued exchange-rate volatility, debt accumulation, inflation, crises, bailouts, and a political drive to further centralize control of money and credit.


What Has Government Done to Our Money? is an informative introduction to money which can be read with profit by both economists and lay readers. It is still accurate and relevant fifty years after its first publication.



Peter Francis Fenwick       Writer      Melbourne     Australia