The Monetary Breakdown of the West
by Murray N. Rothbard
Excerpted from What Has Government Done to Our Money? An MP3 audio file of this article, read by Jeff Riggenbach, is available for download.
To understand the current monetary chaos, it is necessary to trace briefly the international monetary developments of the 20th century, and to see how each set of unsound inflationist interventions has collapsed of its own inherent problems, only to set the stage for another round of interventions. The 20th-century history of the world monetary order can be divided into nine phases. Let us examine each in turn.
Phase I: The Classical Gold Standard, 1815–1914
We can look back upon the “classical” gold standard, the Western world of the 19th and early 20th centuries, as the literal and metaphorical Golden Age. With the exception of the troublesome problem of silver, the world was on a gold standard, which meant that each national currency (the dollar, pound, franc, etc.) was merely a name for a certain definite weight of gold. The “dollar,” for example, was defined as 1/20 of a gold ounce, the pound sterling as slightly less than 1/4 of a gold ounce, and so on. This meant that the “exchange rates” between the various national currencies were fixed, not because they were arbitrarily controlled by government, but in the same way that one pound of weight is defined as being equal to sixteen ounces.
The international gold standard meant that the benefits of having one money medium were extended throughout the world. One of the reasons for the growth and prosperity of the United States has been the fact that we have enjoyed one money throughout the large area of the country. We have had a gold or at least a single dollar standard within the entire country, and did not have to suffer the chaos of each city and county issuing its own money, which would then fluctuate with respect to the moneys of all the other cities and counties. The 19th century saw the benefits of one money throughout the civilized world. One money facilitated freedom of trade, investment, and travel throughout that trading and monetary area, with the consequent growth of specialization and the international division of labor.