GovMonThe second of my four purchased Economics books is What Has Government Done to Our Money, written by Murray Rothbard.  The book is actually a really great explanation of what “money” is and how it is established and manipulated by different people and government as well.

I touched on a primary concept of the book in a previous post, that money was made in order to overcome the issues with traditional barter (coincidence of need/want and divisible trading blocks.)  The book then goes on to describe how the government wants to inflate the system to gather more resources.  The offering is a really nice extrapolation of the effects of supply and demand on money itself, and especially inflation.

I’m really uncertain if I agree with the idea that the Government wants inflation to happen, but at the same time, we DO experience inflation year by year and it is because we are increasing the supply of money on an ongoing basis.  In the 1930’s, the US went away from the gold standard and the author believes that this movement enables the government to increase inflationary pressure, and in turn ability to collect resources.

One EXCELLENT explanation in the book is regarding banking and how they serve to inflate our monetary system as well.  I had always thought that banks loaned out the money they had gotten from users.  And they do.  But the author of the book points out that this style of banking, known as fractional reserve banking, is technically fraud.  The reason is that they are not able to pay up to their debts should all users of their system ask for their money.  The likelihood of all bank patrons wanting all of their funds back simultaneously may seem odd, but it can happen when the value of money as a commodity seems scarce and lowering.  People will rush the banks to buy things of REAL value.  Anyway, all commercial banks practice fractional reserve banking now based on a reserve ratio decided on by the US Central Bank.  The original point was to be that banks used to further lend money they didn’t have as bank notes.  Bank notes were new money that had never existed and banks did this for the same reason they can today practice fractional reserve, that likelihood is extremely low that all users would ask for their money back at one time.   So by lending out new money that didn’t exist, they are naturally increasing the supply of money available and therefore are lowering the value of money already in circulation.

The author believes that going back to a gold standard would be the best thing for the United States.  It was written in 1977 and it was very informative.  I don’t know that I agree with him on his thoughts but it is enlightening to read these works.  I can see how people believe that the government should be focused on the individual and not the groups, which though now twisted beyond belief, seems to be some of the basic tenants of the conservative politicos.  This also is very worth reading and shouldn’t take a huge amount of time.