Money and Banks

There has been a veritable revolution in the attitude of the nation's economists, as well as the public, toward our banking system. Ever since 1933, it was a stem dogma—a virtual article of faith—among economic textbooks, financial writers, and all establishment economists from Keynesians to Milton Friedman, that our commercial banking system was super-safe. Because of the wise establishment of the Federal Deposit Insurance Corporation in 1933, that dread scourge—the bank run—was a thing of the reactionary past.

Murray N. Rothbard responds to five questions regarding the savings and loan industry.

International statists have long dreamed of a world currency and a world central bank. Now it looks as if their dream may come true.

A central bank is incompatible with a free society. For the sake of our economy and our liberty, and of simple justice, we should abolish the Monster, and sow salt in the earth where it stood. In its place we need a real gold standard and non-fraudulent free banking, as Ludwig von Mises outlined, and as the Founding Fathers intended.

The press is resounding with acclaim for the accession to Power of Alan Greenspan as chairman of the Fed; economists from right, left, and center weigh in with hosannas for Alan's greatness, acumen, and unparalleled insights into the "numbers." The only reservation seems to be that Alan might not enjoy the enormous power and reverence accorded to his predecessor, for he does not have the height of a basketball player, is not bald, and does not smoke imposing cigars. 

The astute observer might feel that anyone accorded such unanimous applause from the Establishment couldn't be all good, and in this case he would be right on the mark. I knew Alan thirty years ago, and have followed his career with interest ever since. 

Mises demonstrated, as early as 1912, that no good can become a medium of exchange, much less a money, unless it has a previous non-monetary usefulness on the market. In short, money can only emerge as a commodity on the market, and cannot be imposed by the government, by social contract, or by various schemes of economists or other observers. Such plans have elsewhere been labeled correctly by Hayek himself as "constructivist." In short, media of exchange and therefore money can only arise "organically" out of market processes and cannot be imposed by outside schemers.

September 1986 is an historic month in the history of United States monetary policy. For it is the first month in over fifty years—thanks to the heroic leadership of Ron Paul during his four terms in Congress—that the United States Treasury has minted a genuine gold coin. 

In the last few months, the Reagan administration seems to have achieved the culmination of its "economic miracle" of the last several years: while the money supply has skyrocketed upward in double digits, the consumer price index has remained virtually flat. Money cheap and abundant, stock and bond markets booming, and yet prices remaining stable: what could be better than that? Has the President, by inducing Americans to feel good and stand tall, really managed to repeal economic law? Has soft soap been able to erase the need for "root-canal" economics?

When will we realize that only a genuine gold standard can bring us the virtues of both systems and a great deal more: free markets, absence of inflation, and exchange rates that are fixed not arbitrarily by government but as units of weights of a precious market commodity, gold?