The Case for Sound Money
by Aaron Steelman

Murray Rothbard had a remarkably prolific career. He authored over 20 books, wrote thousands of articles for the scholarly and popular press, and lectured throughout the United States. More importantly than the sheer mass of his writings, however, was the nature of his output; his work spanned the entire spectrum of the social sciences. In addition to his work as an economist, Rothbard ventured into political philosophy, writing such engaging tracts as The Ethics of Liberty and For a New Liberty; and into history, writing a magisterial four volume series entitled, Conceived in Liberty, which chronicled the colonial and revolutionary period of the United States. He was truly an outstanding interdisciplinary scholar.

To try to rank the importance of his work is nearly impossible. Quite simply, without Rothbard, the libertarian movement, as we know it, would not exist. Virtually every person active in the libertarian movement today was either directly influenced by Rothbard, or by some other Rothbardian. Nevertheless, in the wake of his untimely death, it is necessary to come to an understanding of his work, and to place it in context with the work of the other great libertarians of the twentieth century. And I believe that the proper place to begin this process is with Rothbard's work on monetary policy; for when all is said and done, this will be the area of his scholarship where his impact will be most long lasting. Rothbard's first major work on monetary policy was his doctoral dissertation, The Panic of 1819, which was later to be published by Columbia University Press. During the time he was completing his dissertation, Rothbard began attending Ludwig von Mises' famed seminar at NYU. It was here that Rothbard was first introduced to Austrian theory; it was quite an awakening, "All the problems I had had with economic theory -- e.g. the fact that each school of thought seemed vulnerable to criticisms of its rivals -- were speedily cleared up. I read Human Action at a fever pitch; all of a sudden, all of economics made sense, and fit together into a mighty and coherent system, all leading to individualism and human liberty." On the strength of this glorious experience, Rothbard decided to incorporate Mises' theory of the business cycle into his dissertation, making it a more complete and powerful work, but also making politically unpalatable to a very important member of his dissertation committee, Arthur F. Burns. It was only after Burns left Columbia to chair the Council of Academic Advisors that Rothbard was able to get his dissertation approved.

Following his work on the first great economic panic America faced, namely that of 1819, Rothbard took on an even more ambitious project: to explain, using Misesian business cycle theory again, the causes of the Great Depression. Rothbard, in the aptly titled America's Great Depression, pinned the blame on the organization he would devote his life to discrediting: the state. It was his contention that the 1929 crash was a result of Federal Reserve credit expansion. This view was not only in great contrast to the standard view presented by mainstream economists, but it was also in conflict with the other ostensibly free market explanation Ñ the one offered by Milton Friedman and Anna Schwartz in A Monetary History of the United State, 1867-1960.

In addition to offering his critique of the fed in that book, Rothbard also took on a sacred icon of the right - Herbert Hoover. When America's Great Depression was first published in 1963, Hoover was still considered, by many, to be a laissez faire conservative. Rothbard took exception with such a view, arguing that Hoover only exacerbated the depression by meddling in the economy. He argued, "If we define the 'New Deal' as an antiÑdepression program marked by extensive governmental economic planning and intervention ... Herbert Clark Hoover must be considered the founder of the New Deal in America. Hoover, from the start of the depression, set his course unerringly toward the violation of all laissez faire canons."

In the tradition of America's Great Depression and The Panic Of 1819, comes Rothbard most recent work on monetary policy, The Case Against the Fed (Ludwig von Mises Institute, 1994, 158 pages). Published just a few short months before his death, The Case Against the Fed is just that Ñ Rothbard's systematic analysis of what is wrong with the federal reserve system.

Rothbard places the establishment of central banks around the world in historical perspective, looking in detail at the establishment of the Central Bank of England and the Central Bank of the United States, namely the federal reserve system. Rothbard sees the establishment of the federal reserve in the United States as nothing more than a power play by nefarious politicians looking to enhance their own power at the expense of sound banking and sound public policy. He writes, "The Central Bank has always had two major roles: (1) to help finance the government's deficit; and (2) to cartelize the private commercial banks in the country, so as to help remove the two great market limits on their expansion of credit, on their propensity to counterfeit: a possible loss of confidence leading to bank runs; and the loss of reserves should any one bank expand its own credit." Rothbard then looks at critical points in American monetary history since the establishment of the fed in 1913, and sees the root cause of these problems being the fed itself. Indeed, Rothbard contends, "if the public knew what was going on, if it was able to rip open the curtain covering the inscrutable Wizard of Oz, it would soon discover that the Fed, far from being the indispensable solution to the problem of inflation, is itself the heart and cause of the problem."

What path does he suggest the United States take instead of continuing with the present system? He contends, "There is only one way to eliminate chronic inflation, as well as the booms and busts brought by that system of inflationary credit: and that is to eliminate the counterfeiting that constitutes and creates the inflation. And the only way to do that is to abolish legalized counterfeiting: that is, to abolish the Federal Reserve System, and return to the gold standard, to a monetary system where a market-produced metal, such as gold, serves as the standard of money, and not paper tickets printed by the Federal Reserve." In short, Rothbard calls for a complete separation of government and money, a complete separation of money from politicians who will work to manipulate the monetary system for their own gains. Unlike the current system, a Rothbardian monetary system would be one that would be truly "independent of politics."

Murray Rothbard's premature death at the age of 68 was a great tragedy. Had he lived into his nineties, as did Mises and Hayek, he may have been able to see his work gain the recognition it so deserved. And more importantly, he would have been able to complete the work he had already begun but was unable to finish: his multiÑvolume history of economic thought. Nevertheless, Murray Rothbard left us with an outstanding legacy of scholarship - a legacy that is made richer by the publication of The Case Against the Fed.