Review of the book ROTHBARD, Murray N. O que o governo fez com o nosso dinheiro? Tradução de Leandro Augusto Gomes Roque. 1. ed. São Paulo: Instituto Ludwig von Mises Brasil, 2013. 106 p.
The belief that money should be supplied by the government is widely held and firmly established in contemporary societies. Only a small share of the population questions the central bank’s ability to manage the currency and to set the most appropriate monetary policy. Most people believe it to be natural and inevitable that governments hold a monopoly over the production of money. The main contribution of Murray Rothbard in his book O que o governo fez com o nosso dinheiro is to question this premise. The tradition of the Austrian School of Economics teaches us that, since money is a commodity chosen by the individual agents of the free market and a tool that enhances voluntary exchange, it should not be a state monopoly. Rothbard explains how governments managed to centralize the power of monetary issuance and argues against the government monopoly on the basis of Austrian theory. Rothbard presents a brief history of the emergence of money, consistent with two foundational concepts of the Austrian School. First, human action, or praxeology, the purposeful behavior of individuals who choose means to attain desired ends: as a result of the need to exchange products among themselves, commodities with a greater degree of marketability emerge, which were chosen and facilitated these exchanges. In addition, Hayek’s concept of spontaneous order explains the natural and spontaneous emergence of institutions such as language, the market, money, and law out of free human action, not out of a central plan or design. No person or government directs this process. The fundamental economic problem, therefore, would not be to discover which state authority is best able to manage money, but to question whether there is any need for a monopolistic authority to perform this function. Rothbard shows several goods that have performed the function of commodity money throughout history: salt, stones, shells, cattle, etc. Through free competition and human action, people came to prefer gold and silver because these proved superior in respects such as divisibility, durability, portability, and scarcity. Ludwig von Mises’s so-called regression theorem seeks to explain how the purchasing power of a currency can be traced back historically to a moment when the commodity that comes to perform the monetary function already had exchange value independent of its use as money. Thus, Austrian theory rejects the idea that a currency can simply be created by decree and immediately acquire purchasing power by administrative fiat. Money is, above all, a market institution that depends on the choices and expectations of individuals. For centuries, and contrary to established belief, commodity money, gold and silver, was supplied privately by minters who competed in the free market. As with any product, market participants chose the coins of highest quality, based on purity and accuracy of the stated weight. According to Rothbard, “private minters can guarantee the quality of a coin at least as effectively as the state mint” (ROTHBARD, 2013, p. 23). From there, Rothbard presents the historical process of state appropriation of money. Governments progressively came to monopolize coinage and, later, to debase coins, reducing the amount of precious metal they contained. Debasement is presented as a form of indirect taxation: the state could reduce the metal content of coins and use the remaining metal to finance its own expenditures. The French livre tournois, for example, fell from 98 grams of pure silver in 1200 to only 11 grams around 1600. In the case of the Spanish dinar, the coin contained 60 grains of gold in the twelfth century but was reduced to 14 grains at the beginning of the thirteenth century (ROTHBARD, 2013, p. 53-54).
Rothbard’s critique becomes even broader when he analyzes legal tender laws and the formation of the centralized banking system. State intervention not only replaces competition with monopoly but also creates incentives for further interventions. This feature is particularly consistent with the Austrian tradition of criticizing interventionism: an initial intervention tends to produce unforeseen consequences, and subsequent interventions are then used to correct the problems created by the previous one. The connection between Rothbard’s argument and the Austrian business cycle theory developed by Mises and later by Hayek is also clear. The Austrian critique of the manipulation and artificial expansion of credit is not limited to rising inflation. Monetary expansion can distort relative prices and the signals entrepreneurs use in their decisions, leading to malinvestment and economic discoordination. Thus, the problem of monetary manipulation lies not only in the loss of the currency’s purchasing power but also in the distortions it can cause in the structure of production. Rothbard points to the creation of central banks around the world and the end of the convertibility of state currencies into gold as the moment of the complete state capture of the monetary system. Little by little, the gold standard was left behind. Rothbard explains: “Throughout the first half of the twentieth century, governments simply chose to ‘go off the gold standard’ when confronted with heavy demand for the metal” (ROTHBARD, 2013, p. 68). Rothbard makes clear that the problem was not gold, which allowed the economy to function fully, but the trust required to believe that governments would keep their promises and not expand the money supply excessively. The First World War played a fundamental role in this process, since the need to finance extraordinary expenditures gave governments incentives to expand the money supply and later to abandon the constraints imposed by the gold standard. Undesirable consequences arise as a result of centralizing state interference with the medium of exchange that should be spontaneously chosen by the agents of the free market. However, this inflationary and corrosive process goes unnoticed by a large part of the population, which suffers a decline in its standard of living. State currencies reduced global trade, led to wars on a scale never seen before, wiped out the purchasing power of populations, and made an inflation tax possible. Here one of the critical issues of the book arises. Rothbard’s narrative rightly emphasizes the economic incentives created by the monetary monopoly, but his interpretation may seem excessively linear when it presents the expansion of state power over money almost exclusively as the result of a progressive and deliberate appropriation. Various nuances of political and economic interest came into play over time for the state to take this monopoly for itself. Wars, financing needs, and financial crises also contributed to monetary centralization. Recognizing these factors does not mean agreeing with the state monopoly, but it allows us to understand that its historical formation was more complex than a simple decision to appropriate. Just as this appropriation did not occur suddenly, we should not expect the state to relinquish this power suddenly. However, there is today a technological and monetary innovation that offers individuals a possibility that did not exist under the same conditions for most of history: Bitcoin. Once again we have a form of money that does not depend on a central issuer and that can be chosen voluntarily by market participants. Bitcoin can be understood as a cyber commodity. Unlike gold, it does not exist physically and therefore cannot be confiscated in the same way that a physical good can be confiscated. Moreover, it allows global transfers without the need for a traditional financial institution as an intermediary, has a money supply predetermined by its protocol, and exhibits a scarcity that, according to its rules, is absolute. These characteristics make Bitcoin particularly interesting when analyzed from Rothbard’s perspective.
It would not be methodologically correct to claim that Rothbard would necessarily approve of Bitcoin, since he died before the creation of the digital currency and we cannot know what his assessment would be. We can, however, use his theory to analyze the phenomenon. The emergence of Bitcoin bears some important similarities to Rothbard’s own explanation of the origin of money: it was not created by state decree, it has no central issuer, and its use depends on the voluntary decision of individuals. In this sense, Bitcoin can be interpreted as a contemporary attempt to recreate some of the desirable properties of a commodity money, especially scarcity, divisibility, and independence from a central issuer. Nevertheless, Bitcoin also presents challenges that cannot be ignored. Programmed scarcity does not automatically guarantee that a commodity will be chosen as money. Monetary acceptability depends on liquidity, network effects, transaction costs, infrastructure, and people’s willingness to use it. Moreover, states still have enormous capacity to regulate exchanges, intermediaries, and financial systems. Therefore, the existence of a private alternative does not mean that the separation of state and money is complete. Even so, the existence of Bitcoin represents a highly relevant conceptual challenge to the state monopoly. For much of modern history, imagining private money meant thinking of a return to gold and silver or of the creation of currencies issued by private financial institutions. Bitcoin presents a third possibility: a scarce digital commodity, transferable globally and without a central issuer. This possibility is particularly interesting within the Austrian tradition because it brings back into discussion a question that Rothbard poses very clearly: why must the state necessarily control money? If money emerged spontaneously to facilitate exchange among individuals, there is no evident reason to conclude that its production must necessarily be monopolized by a political authority.
The main contribution of O que o governo fez com o nosso dinheiro? lies precisely in this change of perspective. Rothbard does not merely present a history of money; he questions the very need for the state monopoly. His analysis shows how an institution that originally emerged from voluntary relations can be progressively captured by the state and used as an instrument for financing and expanding government power. The book also has an important limitation: its introductory character. It does not offer the same theoretical depth as works such as The Theory of Money and Credit, by Ludwig von Mises. However, this characteristic is also one of its greatest qualities. Rothbard manages to present the reader, in a direct way, with a question that usually goes unnoticed: why do we accept as inevitable that the state holds a monopoly over what we use as money? I conclude, therefore, that the separation of state and money is not only an economic question but also a question of individual liberty. If money emerged spontaneously from the needs of individuals and if its function is to facilitate voluntary exchange, there does not seem to be sufficient economic justification for its control to be necessarily handed over to a monopolistic authority. The historical experience presented by Rothbard shows the risks associated with the concentration of this power, while the Austrian tradition provides the tools to understand why monetary institutions can emerge spontaneously from human action. Bitcoin, although it cannot be considered a definitive confirmation of the whole of Rothbardian theory, represents an extremely relevant contemporary experience within this debate. More important than simply defending gold or Bitcoin is recovering the broader principle present in the Austrian tradition: monetary choice need not necessarily belong to the state. The free market may not produce a perfect solution, but competition allows different alternatives to be tested and chosen by individuals. If today we have a monetary alternative that did not exist when Rothbard wrote his book, it is up to individuals, and not the state, to decide whether it has value.