Since becoming a student of Austro-Libertarian economic and political thinking, I've been intrigued with the Great Depression. How did it occur, why, and what transformed it from the typical sort of depression America had previously and regularly seen, into something which was truly Great?
Murray Rothbard's, "America's Great Depression" is a wonderful book for answering all these questions. If you're the sort of standard-candle Keynesian product of our present economic post-secondary education machine, this book will provide you with the first major cracks in your Keynesian castle walls. If you don't consider yourself much of an economic thinker, or just haven't travelled in such circles before, Rothbard's book will lay for you a sound small foundation and likely pique your interest in learning more about what the Austrian School has to say on the fundamentals of any economy.
If "America's Great Depression" has a fault, however, in my view it's in failing to address the question which naturally follows after reaching its end, "What ended the Great Depression?"
Although not obvious from the start of the book, apparently it was not the book's aim to talk about the end of the depression, but to explain how it happened and why it became so intense.
Whenever I get into discussions with family and friends on these sorts of topics, however, my potential converts to the Austrian School always want most to know, "What ended the Great Depression then, huh, smartypants?"
To them (and me too in my time before learning about Austrian School theory), of course the New Deal led us though the dark years and eventually returned us to prosperity.
One thing Rothbard's book does show, is that the New Deal did nothing of the sort, it added the Great to the depression.
Only by integrating the knowledge I'm building up on Austro-Libertarianism, am I slowly coming to the answer to that question on my own. That quest got a nice boost this week while watching the Glenn Beck TV program.
I watch a lot of Glenn Beck, so the specific people to credit are lost to me now, but one of his guests, when confronted in interview with that question said that Franklin Delano Roosevelt's death was what ended the depression. That and the offshoring of unemployment.
So I thought on that a moment, and it makes sense. WWII gets the credit usually for ending the GD, but I think often for the wrong reasons. The conventional wisdom is that massive gov't spending to wage war juiced up the economy, and that this coupled with the New Deal programs already ongoing, lifted the USA out.
No. The New Deal only made things worse, before the war. But though the war harmed us, the war did set the stage to pull us out, but not the way we normally think.
Military service was a viable option to many otherwise unemployed Americans. Initially, there was tremendous enlistment. Later we instituted a draft, but the effect was to sweep virtually all the unemployed out of the economy and set them to work fighting the war.
I think, ultimately, this is no different than the idea of using gov't funded public works to end unemployment, and in that way is unsound from the Austrian viewpoint. But for now, I will give wartime offshoring of unemployment a little bit of credit because of its sheer scale. People had the opportunity to mentally reset and view labor properly again as another marketable good.
Scarce domestic labor led to reflating of wages and demand for women to enter as replacements. This was an apparent prosperity boom for them, were it not for the fact that rationing for the war effort cause there to be little the women could do with the money they were making, other than buy war bonds, or pay dramatically up for goods made more scarce by the war on black markets. Real wealth was hardly any better than during the pre-war depression period.
With the end of the war came the realization that the country would soon be flooded with labor, and the gov't demand for military materiel (financed with wealth transferred from the public) would drop off. This should have had the effect of resuming the effective depression. It didn't, and the argument Glenn Beck's guest made was that with the demise of FDR, the public understood that the private sector would be allowed to operate more freely and less encumbered by gov't regulation than had been the case during his Presidential tenure.
It was this reality, ignited by the flush of optimism having just won major victories and the banishment of uncertainties which would've continued to linger had FDR still been around to command the economy, which actually pulled the economy out of depression.
My argument is that the depression persisted all throughout the war period itself. Americans still at home had to work long and hard and sacrifice much to enable the war machine to be funded. This was not wealth creation, but a transfer of wealth to the gov't to rain down as needed on the war machine.
But this work ethic decayed slowly after the war. Americans allowed themselves a little rest of course from that austere grind, but that productive effort was not all dissipated, and the fruits of that labor were now allowed to be redirected back at the working people via a less encumbered free-market. Investment in longer-dated factors of production made possible grander economies of scale and great productivity boosts, allowing people to get what they desired, while at the same time working less.
The result was the new modern American middle class. The hard-work and savings ethos took time to fade over the post-war span. While it largely endured, private saving and investment in business (the stock market became popular again, with stocks bought more with cash than thin-air created margin, this time) financed the productivity gains needed to make future life incrementally better.
So it wasn't the New Deal, or the war itself, but rather the knock-on intangible effects the war period induced in people. It primed us mentally. FDR's death and the war's end then set the stage for renewed real growth via lowered uncertainties about future gov't interference in the market, and a willingness (even eagerness) on the part of the public to continue to work and save for a brighter tomorrow.
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Later...gov't would step back into the picture with Cold War era spending. This would distort the market yet again and foster an illusion of greater prosperity via increased economic activity in the military-industrial complex.
Once again, though, that's not real, it's just transfer. Conspicuous consumption by gov't in this period translated into ceaselessly growing gov't debt, borne on the public by increasing taxes, persistent inflation, and the post Bretton-Woods era of pure fiat money, in a final decoupling of the US dollar from gold by Nixon. This has lead to staggering inflation, and necessary busts have been succesively sold into the future via increases in interventionism and inflationary monetary-base expansion. Each time recession hearalds our arrival in the present, to that point to which the prior treatened bust was sold, a new and larger gov't effort is undertaken to sell the bust still further forward. The ossilations growing each time, to the present crisis.
-----
Adjunct comments on inflation.
My dad grew up in the early post-war years. As a child I was amazed by his tales of Coke and Pepsi available for 15 and then 20 cents. In my childhood, this was more like 50 cents at the vending machines. Now, it's more like $1.50-$2 at many vending machines, or around 75-99 cents in the grocery.
Assuming no benefits from improvements in the cola industry, $1 USD, in cola terms has lost as much as 92.5% of its value ($1 buying 6 2/3 Cokes from the vendor in my dad's day, vs 1/2 a Coke from a vending machine today)!!!
Family legend has it that my grandfather has stashed away a small fortune in cash in some unknown location in the basement of his home (the regular production of musty-smelling fivers from the 50s in birthday cards being the fodder for the legend). To think of that rumored pile, buying now less than a tenth of the stuff it could have bought when it was stashed...debilitating. Government and public policy have passively removed the other 9/10ths of real stuff that cash could have bought, and squandered it on largesse and social programs.
This is inflation. If the dollar were not merely paper, but backed up by something impossible to counterfeit, like gold, the real economies of scale and productivity increases we've actually seen in the cola industry would have translated into less expensive drinks, perhaps say 10 or 12 cents. We'd all also be making way less money in dollar terms, but if one translates wages into colas (or any other real commodity), you can then see how even though you appear nominally worse off in dollar terms, you're actually much better off because what few dollars you have would actually buy you way more stuff than they do in our present, inflationary, reality.
Showing posts with label austrian school. Show all posts
Showing posts with label austrian school. Show all posts
Friday, April 3, 2009
Monday, February 2, 2009
The kernel of the argument: liquidate the Federal Reserve
[...the supply of money is indifferent or "neutral" to the real processes of the economy. But, unfortunately, changes in the supply of money can have untoward and even devastating effects on the real processes of production.]
The Federal Reserve System is a central bank created to manage our currency. It's creation was supposed to be for our benefit, among its roles is one to ensure that cash can be obtained by banks to satisfy demands for cash from a bank's depositors. It was conceived as a way to "help" the free market operate.
Its very presence offered a new tool of influence by our government on the economy of the nation. It enables the government to change the supply of money within the economy. While this was possible even under a money made of and/or backed by gold (and silver) coin, the final disconnection of our US dollar from such intuitively limited and scarce commodities as precious metals finally allowed our government to control the supply of money with full, unrestrained freedom.
In a free and unfettered market (one in which regulation may either not exist, or exist only to facilitate exchange, enforce lawful agreements and protect property) grounded on hard money (such as gold coin), the money substitutes we enjoy for convenience (electronic bank card transactions, paper checking, paper banknotes) self-regulate and attain a stable equilibrium and purchasing power (or value) with respect to their backing.
Market forces beneficially conspire to keep participants and banks from magically creating too much credit. If people begin to feel that their checking deposits and private banknotes on a bank are going to be difficult to redeem for real, hard money, such individuals will act quickly to compel redemption. A bank run may ensue as rumor spreads, in the aftermath of which the bank will be found to be solvent and trustworthy, or it will be found a fraud and its assets seized upon by depositors and quickly liquidated, thus rapidly removing fraud.
In such an environment, it becomes very difficult to change the money supply. Only the convenient substitutes can be manipulated, and then only to the extent that a wary public is willing to trust their financial institutions to conduct business honestly.
With a stable money supply, the value of money is likewise stable. Inflation vanishes permanently (to be rigorous, inflation would only occur to the extent by which new supplies of the underlying hard money commodity, i.e. gold, could be mined, and even then, only a finite amount of the metal exists, whether in accessible bullion, coin, or inaccessible in minuscule ore deposits). To the extent by which technology and population available increase supplies of goods and services and productivity by which they're produced, a natural and gentle deflation persists!
We've been taught in the mainstream to believe that both inflation and deflation are bad things. What's bad is manipulation of the money supply! In the aggregate of the whole economy, with a fixed and unchanging money supply, modest deflation represents increases in efficiency and productivity with respect to production. The value of your dollar would be increasing. You savings, whether in a bank or under a matress, would still reflect the real value of our work when saved, and an appreciation of the increase in bounty that better productivity has afforded.
Rather than tales to your grandchildren of a can of Coca-Cola costing $0.75, and they being in awe of how cheap that price level seems to them in the present, they could instead be in awe of what it says about our economic fitness and vibrancy that Coca-Cola is now less expensive at, say, $0.40.
New young employees entering into the workforce to do your job would be hired at lower wage rate in dollar terms, but those dollars would be stronger and represent an increased purchasing power to what they had when you started.
Arguments for central-banking and its supposed necessary roles of fostering price-level stability and lender of last resort to banks are all nonsense. If a money supply is fixed and an economy growing, that growth will be manifest to the extent to which natural deflation is occurring. An economy that's stagnant will have a naturally stable price-level. And one which is shrinking will see inflation.
The Keynesian model views an economy and seeks to maintain an economy in a fixed state. Even if that could work, which it cannot and does not, a fixed economy would represent the end of human growth and achievement. We would have thus reached the limits of our abilities and from that point on, any improvement in any one area would have to be paid for by effacement in one or more other areas. Nobody could become rich without making others poor.
It's that last part to which Keynesians play for your political support. Every gain is another's loss.
But this isn't true. You participate and buy what you want to satify your own needs and desires. You're happy to make the trade because, to you in that moment, it represents a better alternative than remaining as you were. Maybe that was a new, more comfortable pair of shoes. Maybe that was at last a satiation of long endured hunger. Whatever the circumstance, you benefitted. In the end you may be compelled to work to earn money to facilitate similar exchanges. You want to work (even though there is a possibility you might not "like" your work), because the alternative is less appealing. Perhaps you striven and sacrificed and succeeded finally in finding work you absolutely love. Congratulations! And still this truth holds, you want to work because the alternative is less appealing. In so doing, whether you're enjoying your work or not, you're providing others with the things they want, and enabling yourself to acquire what you want in exchange.
Keynesianism, in the final analysis, is only a mechanism facilitating a race to live at the expense of, rather than in support of, others. You become dis-incentivized to support your fellow man because some or all of your wealth will now be given to you without any contribution on your part. Or, from the opposite end, some of the wealth derived from your work (which supports others) is now confiscated to support still others without your consent. You're deprived of the benefit your work earned. The harder you work the more you're deprived of those added benefits, so your incentive is suddenly to work less.
Both the wealthy and poor are similarly incentivized to work less. Now we all become poorer, because as a result of less work, there will be less stuff available. The best Keynesianism can hope for is stagnation, but more often you'll see recession and a growth industry in misery.
The Federal Reserve System is a central bank created to manage our currency. It's creation was supposed to be for our benefit, among its roles is one to ensure that cash can be obtained by banks to satisfy demands for cash from a bank's depositors. It was conceived as a way to "help" the free market operate.
Its very presence offered a new tool of influence by our government on the economy of the nation. It enables the government to change the supply of money within the economy. While this was possible even under a money made of and/or backed by gold (and silver) coin, the final disconnection of our US dollar from such intuitively limited and scarce commodities as precious metals finally allowed our government to control the supply of money with full, unrestrained freedom.
In a free and unfettered market (one in which regulation may either not exist, or exist only to facilitate exchange, enforce lawful agreements and protect property) grounded on hard money (such as gold coin), the money substitutes we enjoy for convenience (electronic bank card transactions, paper checking, paper banknotes) self-regulate and attain a stable equilibrium and purchasing power (or value) with respect to their backing.
Market forces beneficially conspire to keep participants and banks from magically creating too much credit. If people begin to feel that their checking deposits and private banknotes on a bank are going to be difficult to redeem for real, hard money, such individuals will act quickly to compel redemption. A bank run may ensue as rumor spreads, in the aftermath of which the bank will be found to be solvent and trustworthy, or it will be found a fraud and its assets seized upon by depositors and quickly liquidated, thus rapidly removing fraud.
In such an environment, it becomes very difficult to change the money supply. Only the convenient substitutes can be manipulated, and then only to the extent that a wary public is willing to trust their financial institutions to conduct business honestly.
With a stable money supply, the value of money is likewise stable. Inflation vanishes permanently (to be rigorous, inflation would only occur to the extent by which new supplies of the underlying hard money commodity, i.e. gold, could be mined, and even then, only a finite amount of the metal exists, whether in accessible bullion, coin, or inaccessible in minuscule ore deposits). To the extent by which technology and population available increase supplies of goods and services and productivity by which they're produced, a natural and gentle deflation persists!
We've been taught in the mainstream to believe that both inflation and deflation are bad things. What's bad is manipulation of the money supply! In the aggregate of the whole economy, with a fixed and unchanging money supply, modest deflation represents increases in efficiency and productivity with respect to production. The value of your dollar would be increasing. You savings, whether in a bank or under a matress, would still reflect the real value of our work when saved, and an appreciation of the increase in bounty that better productivity has afforded.
Rather than tales to your grandchildren of a can of Coca-Cola costing $0.75, and they being in awe of how cheap that price level seems to them in the present, they could instead be in awe of what it says about our economic fitness and vibrancy that Coca-Cola is now less expensive at, say, $0.40.
New young employees entering into the workforce to do your job would be hired at lower wage rate in dollar terms, but those dollars would be stronger and represent an increased purchasing power to what they had when you started.
Arguments for central-banking and its supposed necessary roles of fostering price-level stability and lender of last resort to banks are all nonsense. If a money supply is fixed and an economy growing, that growth will be manifest to the extent to which natural deflation is occurring. An economy that's stagnant will have a naturally stable price-level. And one which is shrinking will see inflation.
The Keynesian model views an economy and seeks to maintain an economy in a fixed state. Even if that could work, which it cannot and does not, a fixed economy would represent the end of human growth and achievement. We would have thus reached the limits of our abilities and from that point on, any improvement in any one area would have to be paid for by effacement in one or more other areas. Nobody could become rich without making others poor.
It's that last part to which Keynesians play for your political support. Every gain is another's loss.
But this isn't true. You participate and buy what you want to satify your own needs and desires. You're happy to make the trade because, to you in that moment, it represents a better alternative than remaining as you were. Maybe that was a new, more comfortable pair of shoes. Maybe that was at last a satiation of long endured hunger. Whatever the circumstance, you benefitted. In the end you may be compelled to work to earn money to facilitate similar exchanges. You want to work (even though there is a possibility you might not "like" your work), because the alternative is less appealing. Perhaps you striven and sacrificed and succeeded finally in finding work you absolutely love. Congratulations! And still this truth holds, you want to work because the alternative is less appealing. In so doing, whether you're enjoying your work or not, you're providing others with the things they want, and enabling yourself to acquire what you want in exchange.
Keynesianism, in the final analysis, is only a mechanism facilitating a race to live at the expense of, rather than in support of, others. You become dis-incentivized to support your fellow man because some or all of your wealth will now be given to you without any contribution on your part. Or, from the opposite end, some of the wealth derived from your work (which supports others) is now confiscated to support still others without your consent. You're deprived of the benefit your work earned. The harder you work the more you're deprived of those added benefits, so your incentive is suddenly to work less.
Both the wealthy and poor are similarly incentivized to work less. Now we all become poorer, because as a result of less work, there will be less stuff available. The best Keynesianism can hope for is stagnation, but more often you'll see recession and a growth industry in misery.
Saturday, November 8, 2008
A bit of review on "The Mystery of Banking"
I recently finished Murray Rothbard's, "The Mystery of Banking."
That was such an eye-opening and exciting book (if you are the type of person who _can_ derive feelings of excitement from a book on economics)!
The overall aim of the book is to discredit the worth of the US Federal Reserve System, and fractional-reserve banking as facilitated by central banking in general.
In this, Rothbard puts forward some very well-reasoned and common sense practical arguments. I came away from the read with a new appreciation for economics as a field, and recognized now that the subject is perhaps overthought by most modern scholars. Economics isn't any sort of system so much as it's what results when groups of people act when influenced by just a few rather simple rules.
Anyway, Rothbard sets up his critique of the Fed and central banking by offering an easy-to-follow primer on some basic economics and history of money: how it developed, how people use it, how it is both supplied and demanded just like other products in an economy, and how those forces influence prices.
This first section of the book is crucial for non-economist folks to at least review. It assumes zero starting knowledge, and in short order will have you up to speed with a working knowledge of the mechanics of money. It also gives thorough treatment to the concepts it introduces. Once they become clear to you, it may start to feel redundant. I was able to skim over the final pages of this section. It begins historically, and you'll understand how a society gradually comes to the use of a modern coin-commodity money as its culture and technology and sheer size develop.
After the concepts primer, the following sections deal with how an evolved commodity money system is gradually influenced and ultimately usurped by government to transform into a fiat currency. This can only be done in complex societies where trust in institutions has been built up with the people for eons, or the culture will not ascribe value to the currency and merely recognize it for what it intrinsically is: valueless slips of paper (albeit with fun and artful printing).
A scholarly worth with detailed footnotes and citations, the book wonderfully fuses history with the theory to demonstrate and support concepts. The reader learns about the development of paper currency; its backing by hard money in gold and silver coin; and its use in banking to make hard money more convenient and secure.
The reader then is shown how the backing on paper currency, which makes it acceptable as money stand-in, is gradually removed via various mechanisms and interests until one is ultimately left with a money which a value "declared" by government, or fiat, rather than a thing with some intrinsic worth all on its own, the mere stand-in for hard money is declared to itself be the money, by fiat.
We then are shown how, after the conversion over to a fiat currency is complete, how now there exists possibilities for its value to be manipulated, and how these manipulative effects generally tend to harm society by subjecting it to booms of credit expansion, followed by busts as worthless credit is exposed and recessions and depressions result.
We by this point get to a crucial and cynical rub. Who benefits from a fiat currency? No one but government. Its unique properties offer levers of control which power-brokers may use to influence people and business. It also enables government to more readily pay for its operation. If all else fails, it may simply print more paper money and spend it. So long as the population continues to accept it. In this way fiat currency is the true source of inflation (along with fractional-reserve banking) and represents a hidden tax on populations as the purchasing power of their fiat paper slips is eroded.
The book does not necessarily advocate movement away from paper money or checkable deposit accounts, these do provide great security and flexibility benefits. Rothbard's concluding section does, however, advocate replacing the fiat nature of our currency with its former commodity backing in gold, re-imbueing true intrinsic worth to our dollar.
To this end, the book lays out a surprisingly straightforward plan to return our money to a gold-coin and bullion standard (note: not a gold exchange standard, which is very different). If implemented, we would wake up with the ability to go to our bank and redeem our paper dollars and checkable deposit amounts for a share of the real gold held in our treasury. This gold would be distributed to banks to back our deposits and to be offered in exchange for our paper notes.
Once done, our current paper money (in its current Federal Reserve Note form) would be redeemed for the gold and retired. The Federal Reserve System would then be liquidated and done away with. Our money would be gold on deposit with our local banks. Paper money could and probably would still exist, but as a type of gold certificate (like it had been before the Great Depression). Gold would be the real money, on deposit at a bank of our choosing (a competitive process) and used to back any contrived paper or card or electronic system we might develop to serve our desired for flexibility and convenience.
The point is that the heavy hand of government would once more be divorced from the value of money. We would be free to redeem our gold deposits and transfer them to another bank at any time and for any reason. Loan and deposit banking would again be separated. Fractional-reserve banking might not be outlawed (it would be difficult to enforce even if it was), but market competitive forces and depositor faith would keep banks honest about the redeemability of their gold reserves, lest customer fear of the irredeemability of their gold start a run and force a bank to reveal their insolvent standing.
The first section of the book shows you why such a state would be a good thing, if you don't see now the advantage. Among the claims by Rothbard is the notion that the business cycle is a side-effect of fiat money and fractional-reserve banking's ability to create new money out of thin air. Without this, all money has real worth, so business cannot be puffed up by "Monopoly" money for the relatively short boom periods when we ascribe this "thin-air" money the same temporary worth as money backed by real reserves. The waking up we do to the true valuelessness of this thin-air credit expansion is what drives the bust which follows.
After reading the book, my cynical nature cannot believe a time where we might ever return to hard money from government fiat money. Nothing short of a revolution and formation of a new nation could achieve this, in my view. Once government aquires the power to print a fiat money from its people, the vast new power this confers makes it a practical impossibility for government to then be asked to give up. It's like the "One Ring to Rule Them All".
To the government it is, "the precious." Even the honest reformers within government would come under grave pressure to keep the scope of their ideal reform strictly limited. What government voluntarily gives up its own power? The best we could hope for would be some sort of "custodial" relationship where government merely pledges not to use the power it will still have. That'd be like letting the alcoholic keep their Scotch bottle if he agrees never to take the cap off again. At some point he'd have himself a three-fingers of the delicious liquid, and he'd have a great excuse why.
"The Mystery of Banking," makes a great, entertaining, and enlightening introductory book to the Austrian School of Economics.
That was such an eye-opening and exciting book (if you are the type of person who _can_ derive feelings of excitement from a book on economics)!
The overall aim of the book is to discredit the worth of the US Federal Reserve System, and fractional-reserve banking as facilitated by central banking in general.
In this, Rothbard puts forward some very well-reasoned and common sense practical arguments. I came away from the read with a new appreciation for economics as a field, and recognized now that the subject is perhaps overthought by most modern scholars. Economics isn't any sort of system so much as it's what results when groups of people act when influenced by just a few rather simple rules.
Anyway, Rothbard sets up his critique of the Fed and central banking by offering an easy-to-follow primer on some basic economics and history of money: how it developed, how people use it, how it is both supplied and demanded just like other products in an economy, and how those forces influence prices.
This first section of the book is crucial for non-economist folks to at least review. It assumes zero starting knowledge, and in short order will have you up to speed with a working knowledge of the mechanics of money. It also gives thorough treatment to the concepts it introduces. Once they become clear to you, it may start to feel redundant. I was able to skim over the final pages of this section. It begins historically, and you'll understand how a society gradually comes to the use of a modern coin-commodity money as its culture and technology and sheer size develop.
After the concepts primer, the following sections deal with how an evolved commodity money system is gradually influenced and ultimately usurped by government to transform into a fiat currency. This can only be done in complex societies where trust in institutions has been built up with the people for eons, or the culture will not ascribe value to the currency and merely recognize it for what it intrinsically is: valueless slips of paper (albeit with fun and artful printing).
A scholarly worth with detailed footnotes and citations, the book wonderfully fuses history with the theory to demonstrate and support concepts. The reader learns about the development of paper currency; its backing by hard money in gold and silver coin; and its use in banking to make hard money more convenient and secure.
The reader then is shown how the backing on paper currency, which makes it acceptable as money stand-in, is gradually removed via various mechanisms and interests until one is ultimately left with a money which a value "declared" by government, or fiat, rather than a thing with some intrinsic worth all on its own, the mere stand-in for hard money is declared to itself be the money, by fiat.
We then are shown how, after the conversion over to a fiat currency is complete, how now there exists possibilities for its value to be manipulated, and how these manipulative effects generally tend to harm society by subjecting it to booms of credit expansion, followed by busts as worthless credit is exposed and recessions and depressions result.
We by this point get to a crucial and cynical rub. Who benefits from a fiat currency? No one but government. Its unique properties offer levers of control which power-brokers may use to influence people and business. It also enables government to more readily pay for its operation. If all else fails, it may simply print more paper money and spend it. So long as the population continues to accept it. In this way fiat currency is the true source of inflation (along with fractional-reserve banking) and represents a hidden tax on populations as the purchasing power of their fiat paper slips is eroded.
The book does not necessarily advocate movement away from paper money or checkable deposit accounts, these do provide great security and flexibility benefits. Rothbard's concluding section does, however, advocate replacing the fiat nature of our currency with its former commodity backing in gold, re-imbueing true intrinsic worth to our dollar.
To this end, the book lays out a surprisingly straightforward plan to return our money to a gold-coin and bullion standard (note: not a gold exchange standard, which is very different). If implemented, we would wake up with the ability to go to our bank and redeem our paper dollars and checkable deposit amounts for a share of the real gold held in our treasury. This gold would be distributed to banks to back our deposits and to be offered in exchange for our paper notes.
Once done, our current paper money (in its current Federal Reserve Note form) would be redeemed for the gold and retired. The Federal Reserve System would then be liquidated and done away with. Our money would be gold on deposit with our local banks. Paper money could and probably would still exist, but as a type of gold certificate (like it had been before the Great Depression). Gold would be the real money, on deposit at a bank of our choosing (a competitive process) and used to back any contrived paper or card or electronic system we might develop to serve our desired for flexibility and convenience.
The point is that the heavy hand of government would once more be divorced from the value of money. We would be free to redeem our gold deposits and transfer them to another bank at any time and for any reason. Loan and deposit banking would again be separated. Fractional-reserve banking might not be outlawed (it would be difficult to enforce even if it was), but market competitive forces and depositor faith would keep banks honest about the redeemability of their gold reserves, lest customer fear of the irredeemability of their gold start a run and force a bank to reveal their insolvent standing.
The first section of the book shows you why such a state would be a good thing, if you don't see now the advantage. Among the claims by Rothbard is the notion that the business cycle is a side-effect of fiat money and fractional-reserve banking's ability to create new money out of thin air. Without this, all money has real worth, so business cannot be puffed up by "Monopoly" money for the relatively short boom periods when we ascribe this "thin-air" money the same temporary worth as money backed by real reserves. The waking up we do to the true valuelessness of this thin-air credit expansion is what drives the bust which follows.
After reading the book, my cynical nature cannot believe a time where we might ever return to hard money from government fiat money. Nothing short of a revolution and formation of a new nation could achieve this, in my view. Once government aquires the power to print a fiat money from its people, the vast new power this confers makes it a practical impossibility for government to then be asked to give up. It's like the "One Ring to Rule Them All".
To the government it is, "the precious." Even the honest reformers within government would come under grave pressure to keep the scope of their ideal reform strictly limited. What government voluntarily gives up its own power? The best we could hope for would be some sort of "custodial" relationship where government merely pledges not to use the power it will still have. That'd be like letting the alcoholic keep their Scotch bottle if he agrees never to take the cap off again. At some point he'd have himself a three-fingers of the delicious liquid, and he'd have a great excuse why.
"The Mystery of Banking," makes a great, entertaining, and enlightening introductory book to the Austrian School of Economics.
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