Notes on Radio Rothbart Lecture: History of State Building and Monetary Control

Overview

• Presenter: Ryan McMakon, Executive Editor at the Ludwig von Mises Institute
• Focus: Historical exploration of how states have built power by controlling money and financial institutions.

Key Topics Covered

State Control Over Money

• Historical Context: The state-building project over the last 400-500 years involved states seizing control of money.
• Central Role: States replacing private sector money with state-controlled money to expand spending and borrowing flexibility, especially during wars and emergencies.

Early State Efforts in Monetary Control

• Ancient Empires: Romans minted their own money and devalued currency.
• Middle Ages Europe: Weak civil governments couldn't enforce monetary monopolies.
• Coin Shortages: Limited coin supply led to bartering in medieval Europe.

Rise of Banking and Private Sector's Role

• Later Middle Ages: Urbanization and increased agricultural surplus led to a financial system with coins and banknotes, dominated by private sector institutions.
• Banking Systems: Italian bankers and later private institutions played a key role.

Centralization Attempts by Monarchs

• England (1222): Royal monopoly on money changing and bullion trade.
• France (16th Century): Mixed results in creating a national monetary regime with diverse coin circulation.

State Building and War

• Impact of War: 30 Years War and other conflicts drove currency debasement by monarchs to fund war efforts.
• Currency Competition: Limited debasement due to risks of merchants switching to more stable foreign or black market currencies.

Central Banks and Gold Standard

• Bank of Amsterdam (1609): Played a crucial role in currency valuation and was akin to a central bank.
• Gold Standard Development: Classical gold standard solidified state monetary power but also facilitated international trade.
• Critiques: While better than fiat, the classical gold standard still reinforced state control over monetary systems according to critics like Hayek.

Transition to Paper Money

• Challenges: Early attempts at paper money by states often failed due to lack of trust.
• Bank of England (1694): Foundation for central banks and note issuing.

Modern Central Banks and State Monopoly

• 19th Century: States established central banks, increasing control over financial systems.
• Classical Gold Standard: Facilitated trade but also entrenched state power over money.

Economic and Political Implications

• National Currencies: Rise of national currency systems was a government strategy to control monetary policies.
• Currency Standardization: Helped states reduce transaction costs and enhance control over economic activities.

Future Directions

• Conclusion: Advocates suggest moving towards privatization and decentralization of currencies.
• Classical Gold Standard Limitations: Despite being better than fiat systems, it still subjected monetary control to state influence.

Additional Information

• Website: For more content and updates, visit mises.org.
• Conference: Upcoming event on the Revisionist History of War at the Mises Institute campus, focusing on classical liberal and libertarian perspectives on war.

Key Takeaway

The history of state control over money is a complex narrative of power consolidation, marked by significant efforts in state-building through control of monetary systems, with ongoing debates about the ideal role of the state in currency management.