welcome back to Radio Rothbart i'm Ryan McMakon executive editor at the Ludvik Van Mises Institute and here on Radio Rothbart we often take some deep dives uh into some real details on topics related to history to economics to international relations and this is going to be one of those more historical episodes we're going to really look at the history of state building and how states built themselves up built up their power as institutions by seizing control of money and financial institutions this has been just central to the state building project that has been going on for 400 and 5 or 500 years now depending on how you date it uh so we're gonna we're going to look at the the process that we're still dealing with in terms of state inflation state control of the dollar of money uh the the way the state got rid of precious metals as backing on currency and how did the how did that all happen over a longer period of time and this has been something the state has done on purpose in order to build up its own power and this process has been so successful that in discussions surrounding the world's monetary systems today there's usually one thing almost everyone can agree on that money should be controlled by the organizations we call states or sometimes sovereign states maybe even the nation state nowadays when we call when we say the US dollar we mean the currency issued by the US government when we say the British pound we mean the money issued by the regime of the United Kingdom this assumed need to have stateisssued money has not always been the reality of course indeed the history of the rise of the state is a history replete with efforts by states to replace private sector money with state controlled money the reasons for this are numerous control of the money supply usually complemented by intervention in the private in the financial sector allows states much more flexibility in expanding state spending and state borrowing perhaps most importantly this allows states to spend prodigiously in times of war and other quote unquote emergencies as we will see this struggle between the state and private finance has been a long one it took many centuries for regimes to secure the sort of legitimacy and regulatory power necessary to claim a monopoly over money and even today states are still somewhat constrained by the realities of international competition between currencies they are also constrained by the continued existence of quasi monies that function as stores of value such as gold silver and cryptocurrencies yet it is impossible to deny that the state has made enormous gains in recent centuries when it comes to taking control of money the order of these events also reminds us of another important aspect of states and money the rise of states was not conditional on kings and princes seizing control of the production and regulation of money rather the causation runs in the other direction as states became more powerful they used that power to also take control of money now let's look at some of the early efforts by by regimes by states by uh nent states to take control of the money supply now in the ancient world the despotic empires of old under which we would include the Roman Empire were c careful to mint their own money and to control what other primitive financial systems existed the Romans famously devalued their currency for long periods of time most notably under Diolesian leading to the ro the ruin of many Roman citizens according to David Glasner the quote prerogative of the sovereign over the coinage was preserved after the fall of Rome unquote but this was really only in theory the civil governments of this period were far too weak to enforce a monopoly over money martin Vanreled writes quote given the decentralized nature of the political system and its instability that that is in the early middle ages European rulers during the middle ages were generally in no position to imitate their oriental counterparts unquote in the Persian Mongol and Chinese empires moreover there wasn't that much money to go around in Western Europe coins were often in short supply and the agrarian nature of Western Europe meant much trade was done through bartering now that began to change in the later Middle Ages as Europe urbanized and began to produce an increasing agricultural surplus driven largely by Italian bankers who set up uh what we might call branch offices in France Spain and the Low Countries a financial system took shape which included the production of both coins and banknotes yet the monetary system was dominated by the private sector and Vanreble reminds us that a sizable amount of money in this period quote was produced not by the slowly emerging state but by private institutions before 1700 attempts to develop credit systems succeeded only in the places where private banking and commerce were so strong as to virtually exclude royal authority in other words where merchants were the government common wisdom held that whereas the merchants could be trusted with money kings could not concentrating both economic and coercive power in their own hands all too often they used it either to debase the coinage or to seize their subjects treasure." unquote the kings of Europe sought to control money nonetheless one of the earliest meaningful attempts materialized in England where monarchs early on developed a more centralized and cohesive national regime thus after the early date of 1222 in England according to John Monroe quote money changing and trade in bullion was a strictly enforced royal monopoly exercised by the royal exchanger enforcement consisted of government officials engaged in acts designed to as Monroe says suppress private trade in precious metals to purchase or confiscate foreign coins and to deliver them to the Tower of London Mint for recoinage," unquote it's unclear how well this was enforced but some concerted efforts at national regulation were far more haphazard in much of Europe for example the French state the largest and most centralized state on the continent sought in earnest to take control of the money supply by the 16th century the results were mixed efforts to hammer together a national monetary regime began in the late middle ages yet France was not unified monetarily uh silver circulated in the west after the middle of the 16th century gold coin before and copper in the east infiltrating from Germany in practice national kings needed to buy off uncooperative nobles with monopoly privileges rights to tax and the sale of titles kings relied on manpower supplied by nobles to carry out royal prerogatives as late as the 16th century as Charles Kinberger writes "In principle only the king has the right to coin precious metals but in practice he farmed out this privilege as was also the case in the exploitation of the royal domain and tax collection because kings apart from Prussia had only limited bureaucratic staff achieving a central monopoly of the coinage took two centuries moreover national borders were porous and foreign coins circulated freely a French edict of 1557 counted 190 coins of different sovereigns in use in France the lack of national monetary monopolies in most cases did not stop nent European states from engaging in two centuries of state building by the 16th century France was already building an absolutist state even in the midst of ongoing currency competition by the mid-7th century of course the state had come into its own with absolutism gaining ground in France Spain Sweden and other parts of the continent in England although the Stearts failed to achieve their muchdesired absolute monarchy the state progressed far in the direction of a centralized consolidated state during this period indeed by the mid7th century Europe's 30 years war what might be called Western Europe's first era of total war ended with the consolidation of the state system throughout Western Europe indeed war and state building two things that were often one and the same drove efforts to build government revenues through debasements of the coinage it was war with Scotland that drove Henry VIII to begin a multi-year period of debasing the currency in 1542 which continued into the reign of Edward V 6th war drove other monarchs to similar ends and on the continent Charles V devalued the gold tailor in 1551 in the 17th century European monarchs engaged in quote progressive debasement in anticipation of the 30s 30 years war unquote that was Kindleberger saying that and here he concludes with quote "Many princes in the 16th and 17th centuries did a roaring business in currency depreciation." Unquote now what were the effects of this continued monetary competition spain France and other rising states of the period accomplished all this without establishing true monopolies over the money supply yet currency competition limited what states could get away with even if national states had been able to sol to solidify dur monopoly control of money within their own borders the sovereigns money still faced competition from currencies and neighboring states and principalities just as dozens of different types of coins circulated within France it was always possible for merchants financiers and more mobile classes of individuals to move their wealth in such a way as to avoid using the more heavily devalued currencies thus monarchs were cognizant of the risks that devaluation brought too much you know depending on how you define that too much debasement of the currency would cause merchants and even residents to flee to competing imported or black market currencies practical limitations controlled how much a regime could debase its currency thus when Henry VIII began his campaign of debasement he combined it with a broader wartime policy of confiscating goods and church property and compelling loans in the 17th century the ability to escape debased national currencies was further facilitated by the advent of the Bank of Amsterdam established by the city of Amsterdam in609 the bank which was technically a government bank of sorts calculated the values of the no fewer than 341 silver and 505 golden coins circulating in the Dutch Republic the bank helped merchants identify which coins were quote unquote good and which were debased the bank then provided credit based on coins real value regardless of the coins claimed nominal value the bank issued coins known as bank gilders which became the world's most used currency at the time and perhaps even it was a reserve currency of a similar status to the US dollar today this was not due to any moral righteousness on the part of Dutch politicians it is likely that the Dutch regime would have also preferred to manipulate its own currency for gain but the smallalness of the Dutch Republic and its reliance on foreign trade greatly limited the regime in this regard thus the Dutch were essentially forced to become a reliable competitive financial center in order to compete with larger states now states then also in addition to asserting control over money tried to do the same with the financial system as a whole and with banks uh control of the coinage was only one aspect thus of the state's fights to control money after all much of the money being handled by Europe's banks during this period was in the form of bills of exchange which facilitated the movement of funds across Europe without the need for physically moving metallic money these bills began to function as money as well and even as states were asserting greater control over coinage in the 15th and 16th century private institutions were thus beginning to develop paper money according to Kindleberger quote begun early in the 13th century the functions of the bill of exchange expanded in the 16th century as it became successively assignable transferable negot negotiable and from the 1540s discountable bridging time and space serving as private money as distinct from specy which was the money of the prince," unquote banks proved to be essential providing access to money in many cases since even as late as the 18th century in many places coinage was in short supply these shortages may have been especially acute where wage work had replaced subsistence farming and agricultural barter the new breed of employers needed money of various types bank created paper money thus served an important role in providing a medium of exchange where coins were either unreliable or unavailable this diminished the dependence on the sovereigns coinage and princes came to view these banks as troublesome competitors moreover banks unlike ordinary consumers had the knowledge and the means to more carefully evaluate regime money and to accept devalued coins only at a discount unhappy about the fact banks could often do an end run around the king's oin uh the king's coinage states then sought to compel payments in metals which the sovereign could more easily control glazner writes quote "The tension between the state monopoly over coinage and private banking is manifested in legislation that was frequently enacted to restrict the creation of notes and deposits by banks in the 15th century for example hostile legislation in the low countries caused virtually all banking activity to cease," unquote the downside of crippling apolit's banking sector is sizable so eventually the state abandoned this strategy and learned to love paper money but getting the public to accept governmentissued paper money would be a long uphill battle van Creled places the first government attempt at paper money in the 1630s when the Spanish Duke of Olivarees in need for funds yet again for the 30 years war confiscated silver and provided quote interest bearing letters of credit unquote in theirstead given the reputation of princes for debasing the currency by this time the paper money swiftly depreciated only a few years later Sweden attempted a similar scheme but this also quickly failed it was not until 1694 with the Bank of England that is after more than 300 years of modern state building that the foundations were laid for a true note issuing central bank and even then the Bank of England did not begin as an institution that creates money and did not have a monopoly on issuing banknotes until 1844 rather the Bank of England initially financed the government's deficit by issuing shares these shares not surprisingly were very popular given the fact that the bank also enjoyed a monopoly on government deposits a national bank in France the Bank Royale followed in 1718 but like the Bank of England the Bank Royale did not possess a functioning monopoly on issuing banknotes this did not stop the French bank from printing a great many notes however and it did so sparking a financial crisis in the wake of the Mississippi bubble now how did uh what was the role that these central banks had in the eventual development of the gold standard it was not until the 19th century that Europe states established and wielded the sorts of central banks and money issuing powers that we now associate with state monopoly powers over monetary systems according to Van Krebble quote "By 1870 or so not only had central banks monopolized the issue of notes in most countries but they were also beginning to regulate other banks." unquote the rise of these central banks throughout much of Europe provided states with unprecedented powers in terms of issuing new debt and financing explosive government spending in times of emergency the regulatory role of central banks further solidified the regime's control of their financial systems overall ironically however it was also in the 19th century that states faced mounting opposition to state monopoly powers in the form of the classical gold standard this was a result of the rise of lazair liberalism in the 19th century which was especially notable in Britain France and the US increasingly in western Europe the liberals who we now often call classical liberals and uh and they together with the commercial class insisted according to Glasner on a quote obligation to maintain the convertability of gold or silver at a fixed parody unquote these formal definitions of a currency's value in metals were important in that they made it easier to see the extent and effect of government manipulation of the currency that's all to the good but it offered no challenge to the state's growing monopoly over money after all the gold standard could be and repeatedly was suspended for reasons of war sus and of course suspended by the state not by any private institution in other words it would be a mistake to regard the era of the classical gold standard as a period of state weakness in financial and monetary matters on the contrary the classical gold standard was built on a firm foundation of state power limited only by legislation the legitimacy of the state's prerogative to ultimately oversee the monetary system was not in question by the end of the 19th century in Britain and in many other key polities the days of privately issued banknotes and privately minted coins were over the US lagged this trend somewhat but the outcome was eventually the same that is there were no institutions left that could realistically challenge the state in terms of issuing and creating money the 19th century did present obstacles to the state ability to inflate and debase the currency but states nonetheless remain very much the victors over private money private banks and private mints it should not surprise us that the classical gold standard was followed by the gold exchange standard a system thoroughly dominated by state actors the total abandonment of precious metals soon followed but now let's take a closer look at the classical gold standard's role in solidifying state monopoly power now the contention that the classical gold standard did not really strike at the heart of the state will strike many libertarians and free market advocates as an odd position to take after all throughout much of the past century the idea of a gold standard for national currencies has been routinely linked with lazy fair economics and with classical liberalism also known as libertarianism in many cases it's not difficult to see why during the the second half of the 19th century as free market liberalism was especially influential in much of Western Europe it was the liberals who pushed for the adoption of the system we now know as the classical gold standard or we which we'll hear call the CGS sometimes and this reigned supreme in Europe for from approximately 1870 to 1914 the liberals pushed for this change at the time for several reasons the Liberals believe that the CGS would facilitate globalization and international trade while reducing so-called transaction costs the gold standard also created a more transparent monetary system in the sense that national currencies were explicitly tied to a specific amount of gold moreover the CGS eliminated the alleged inefficiencies of by metalism today free market liberals continue to be linked to the classical gold standard and to commodity based money in general because the classical gold standard potentially limits the degree to which a state regime can debase the currency yet is also easy to overstate the degree to which the classical gold standard can be described as lazy fair or as a system that truly works the against the interest of state power rather the classical gold standard was key in solidifying state control over national monetary systems this was understood by the nationalists of the time who viewed the gold standard as an instrument of increasing national prestige sovereignty and state power although many liberals apparently hoped that the classical gold standard would render national currencies irrelevant in a truly globalized world economy this did not happen instead the CGS appears to have in many ways set the stage for what came later bretton Woods and floating fiat currencies that is total paper money systems these two developments of course finalized total state control over currency in the financial system an analysis of these historical trends brings us to an important conclusion it is not enough to wax nostalgic about the classical gold standard to seek a return to nothing more than goldbacked national currencies rather the very idea of national currencies must be abandoned altogether while embracing true currency competition and private commodity money now uh this could be considered then a classical gold standard could certainly be considered better than our current system of fiat currencies but still not by any means ideal if our standard is privatization and true decentralization of political power hi uh FA Hayek certainly uh expressed opinions of this nature when he identified the central role of the state in the classical gold standard when he wrote in the denationalization of money quote I still believe that so long as the management of money is in the hands of government the gold standard with all its imperfections is the only tolerably safe system but we certainly can do better than that though not through government in other words a gold standard of the classical variety would clearly be an improvement over today's status quo but it is ultimately a monetary system that remains in the hands of the state so what is the ideal hayek concludes quote "If we want free enterprise and a market economy to survive we have no choice but to replace the governmental currency monopoly and national currency systems by free competition between private banks of issue." unquote in order to understand this contrast between goldbacked national currencies and truly private money it is helpful to look at the monetary situation that existed before the rise of the classical gold standard and we've done that a little bit here right we looked at the role of uh the private sector banks uh private monies that were in circulation and although princes attempted to exert some control over this monetary system it was limited and they had to submit to really a lot of outside competition from foreign banks and uh from nobles who were issuing their own currency and that sort of thing so there was a lot more competition then and there was truly no real national monopoly over the money supply uh now in that older system right as we note there was still government intervention uh but competition existed so how did this system really come to be uh what we now call the gold standard now many of the earlier monetary millus were very different from the 19th century situation now generally known simply as the gold standard yet many opponents of fiat money today often fail uh in thinking that labeling any sort of metal-based money is a gold standard uh this is quite typical in explanations of the history of money above uh among both supporters and detractors of the use of commodity money uh that is right metallic uh standards a backing up of money consider a uh there's online a quote unquote educational video titled the gold standard explained in one minute now this video provides a fairly typical example of the problem the video follows the usual timeline employed in these summaries of money's history it goes like this thousands of years ago people began minting gold coins then they put those coins in vaults then in 1945 that ended with the bread and wood system then gold's linked to money was abolished altogether in 1971 now we use fiat money the end this is imprecise to say the least rather most of monetary history is more accurately described as a decentralized system of competition that we've described above and these were these were private banknotes and this is really uh happened from the middle ages until the 19th century now as Eric Holliner describes it quote "Before the introduction of the gold standard countries usually had rather heterogeneous and often quite chaotic monetary systems under which the state exercised only partial control," unquote historically coins could be minted by private mints or by mints granted government monopolies but coins from a wide variety of jurisdictions circulated uh however the most frequently used coinage was often silver and not gold in fact much of the world from the 16th century to the 19th century was closer to being on a silver standard than a gold standard an important example of this is the silver Mexican dollar which circulated freely in the Americas and in East Asia into the 19th century it was not until the 1870s that the world abandoned Mexican dollars and other types of silver monies in order to embrace the emerging gold standard now as we saw earlier there's an important distinction here to be made between a truly private monetary system of competing monies and the system of national currencies this is why Hayek just above told us about while the gold standard is better than the current system it's still not a true free market system and he's right of course uh but what do we mean by national currencies uh they are the currencies we now refer to by their national names the US dollar the British pound the French Frank this idea of a national money was central to the system of what we now call the glass the classical gold standard but this idea of a national currency was essentially a trick foisted on ordinary people by governments themselves the rise of national currencies under the gold standard augmented state power in two ways first the CGS system helped accustom the public to using token money second the consolidation of the national monetary systems under a single national currency solidified the power of central banks so first let's look at the rise of token coins before the classical gold standard most coins that circulated were quote full weight coins in which the assigned value of the coin was equivalent to the value of the metals contained within the coin with the rise of the classical gold standard and national currencies however a key change took place according to Heliner this was quote the creation of a subsidiary token coinage that is a coinage where the face value of lower denomination coins no longer derived from their metallic content but from a value assigned by a state visav gold to maintain their value the supply of the token coins became closely managed by the state for example in the year 1905 an American might carry around a $10 gold coin with which he or she might make purchases this person also might have a silver dollar that silver dollar however was not equal to onetenth the value of the $10 gold piece in terms of its metal content the silver dollar was a token money its value was assigned by a central bank or regime to correspond to a certain amount of the national currency token coinage enabled the regime to supply uh to simply create coinage out of metals that were far less valuable than the gold these coins represented secondly the regime no longer had to deal with the problem of undervalued competing currencies being withdrawn from the marketplace as often happened in the past this was convenient for nearly everyone since Europe had long been plagued by shortages of coins for small-cale payments and for payments of wages this problem became more acute as more people moved away from agriculture into industrial wage work the availability of the state's token coinage thus helped end the use of both foreign coins and full weight coins as this token coinage came into daily use the public learned to use coinage in which the metal contents had little to do with the legally defined purchasing power more importantly the public learned to trust that the value of these coins always denominated in national currencies like pounds and dollars would be reliably managed by the regime meanwhile central banks began issuing banknotes which grew increasingly distant from the underlying gold in the minds of most ordinary citizens martin Van Creled writes quote "In theory any person in any of these countries was free to walk into the bank and exchange his notes for gold except in London though those who had the nerve to try were likely to be sent away empty-handed whenever the sums in question were anything but trivial." This however did not lead to runs on banks to convert banknotes into gold rather ordinary people in domestic commerce learned to associate the regime's paper money with gold but without insisting on possessing the gold itself more importantly it was convenient to use paper money rather than carry around heavy and bulky metal coins as the public embraced this easy to use paper money more and more of the gold supply flowed into bank vaults including the allimportant vaults of central banks in the early 1860s during the period of bi metalism the world's species supply was overwhelmingly in private hands but then this began to change mark Flandro writes quote probably the most radical effect of biatalism's replacement by the gold standard was that it took the primary responsibility for managing the global monetary system away from private concerns the uniformization of the monetary base meant that exchange rate stability could now be achieved by correctly behaved monetary authorities the time was now ripe for central banks to commandeer an everinccreasing proportion of international bullion assets a trend which accelerated after 1873 this increasing control also allowed regimes to put even more power in the hands of central banks van Creled writes quote "Regardless of whether they were privately or publicly owned originally each such central bank had been one note issuing institute among many albeit one that serving as the sole haven for the state's own deposits led a charmed life that could hardly fail to grow at the expense of the rest by 1870 or so not only had they monopolized the issue of notes in most countries but they were also beginning to regulate other banks given that the central bank's reserves easily outstripped those of all the rest it was inevitable that they should come to be treated as lenders of last resort." As central banks took over large denomination banking they also sought to even dominate smaller everyday transactions by issuing paper pocket change this encouraged the public to keep even less gold on hand van Kre continues quote "At as time went on the central banks of various countries vied with each other to see who could print the smallest notes in Sweden that is for example one croner notes worth scarcely more than one British shilling or 25 cents were issued thus causing even more bullion to disappear into their own vaults," unquote this process of replacing gold and silver with things called shillings and croner and dollars by the way was very important murray Rothbart saw this switch for what it was in his book The Mystery of Banking Rothbart identifies how labeling precious metals as equivalent to some government currency denomination helped national governments pass off government currency as the same thing as gold rothbard writes quote "If the kings could obtain a monopoly right to print paper tickets and call them the equivalent of gold coins then there was an unlimited potential for acquiring wealth if the money unit had remained as a standard unit of weight such as gold ounce or gold grain then getting away with this act of ledger domain would have been far more difficult but the public had already gotten used to pure name as the currency unit an habituation that enabled the kings to get away with debasing the definition of the money name the next fatal step on the road to chronic inflation was for the government to print paper tickets and using impressive designs and royal seals call the cheap paper the gold unit and use it as such thus if the dollar is defined as 12th gold ounce paper money comes into being when the government prints a paper ticket and calls it a dollar treating it as the equivalent of a gold dollar or 120th gold ounce if the public will accept the paper dollar as equivalent to gold then the government may become a legalized counterfeitter and the counterfeiting process comes into play." unquote thus we see the importance of affixing a new government affiliated name to some amount of gold it has long allowed the state to manipulate money in a way that had not been previously possible now this slight of hand of renaming gold as some other currency unit unfortunately went handinand with the system we call the classical gold standard the next step was in defining these new currencies strictly in terms of gold and not silver or anything else and abandoning the remaining elements of biometallic that is gold and silver monetary standards david Glasner explains quote although ancient currencies were made of precious metals the concept of a formal monetary standard was an innovation of the 18th and 19th centuries before 1816 the pound had never been legally defined by Parliament as a specific weight of either gold or silver from 1717 England had been on a de facto gold standard but that standard was due to the undervaluation of gold relative to silver at the point at the mint decreed by Sir Isaac Newton this gold standard was not due to a legal definition of the pound in terms of gold." unquote consequently the British government continued free silver coinage in 1798 and adopted an exclusive dur gold standard with 1816's Coinage Act on the continent regimes gradually abandoned silver and batalism due to a series of market events and government interventions thanks to the relatively new practice of governments imposing a fixed ratio for the prices of gold and silver as opposed to embracing free floating market prices this meant that either gold or silver was undervalued in relation to the other the undervalued metal would then be hoarded rather than used as a general medium of exchange throughout the first half of the 19th century a relatively high level of silver production combined with a fixed ratio meant gold was legally undervalued gold then disappeared into hordes and France for instance entered a de facto silver standard but after the middle of the century thanks in part to gold discoveries in Alaska and Australia gold coins became both more numerous and relatively overvalued this meant gold became the preferred medium of exchange and silver was hoarded or switched to non-money purposes many of the world's regimes thus moved more rapidly toward a gold standard embracing a gold standard was also useful in facilitating trade with Great Britain the world's economic powerhouse at the time residents of countries on a gold standard could more readily and easily trade with residents from other countries that were also on a gold standard by the 1860s Switzerland Italy Belgium and France formed a common currency block and moved increasingly toward a gold standard in 1871 Germany switched to a gold standard as well beginning the era of the classical gold standard throughout most of Europe the United States would follow suit in 1894 in this process national governments were themselves very much involved these regimes were able to manipulate the relative prices of gold and silver through policies governing the free m free minting of silver while working to avoid situations that would result in large exports of gold so governments wanted the gold standard over time they're they they decided that this was the way they were going to go and they were going to use policy to get this gold standard the most important factor of this move to a gold standard lies less in the fact that it was an embrace of gold per se and more in the fact it constituted an embrace of mono metallic uh money standards in the political debate over monetary policy both nationalists and liberals in the regime could see the benefit of this since as Heliner contends quote moving on to the gold standard was often seen as the key monetary reform that could lead to a more unified and homogeneous monetary order controlled by the state." unquote for liberals this meant simplifying economic calculation for bankers merchants and government agents under a monometallic gold standard it would not be necessary to deal with the potential confusion that comes with calculating real values in terms of both silver and gold this also simplified international trade many liberals hope this would move the world's regimes toward a truly international monetary unit that abandoned national currencies altogether this internationalist view is key to understanding the liberal views on the value of the classical gold standard but the nationalists and state builders took a view more connected to domestic politics heliner writes quote "Although economic liberals saw the gold standard in primarily economic and internationalist terms nationalists saw it in a more domestic and political manner as useful for their goals in strengthening state power and its control over the economy cultivating a sense of collective national identity and consolidating the internal economic coherence of the nation." And then there were the advantages of the gold standard to the regime itself the old order of competing currencies created uncertainties that higher transaction costs for the that uh created higher transaction costs for the state in terms of tax collections and state surveillance of economic activity the consolidated monetary order of the new gold standard reduced these costs for both the general public and the regime but this system was fundamentally a system that relied on states to regulate matters and make monetary standards uniform while attempting to create an efficient monetary system for the market economy the free market liberals ended up calling on the state to ensure the system facilitated market exchange as a result Flandro concludes quote the emergence of the gold standard really paved the way for the nationalization of money this may explain why the gold standard was with respect to the history of western capitalism such a brief experiment bound soon to give way to managed money now it all comes to an end with the first world war and this paves the way then to all these later experiments so uh nonetheless at the time the ordinary consumer who was using it who was in the midst of the classical gold standard had no way of guessing where this was all headed it was headed toward the end of gold convertability in the face of the first world war it was then that the gold standard regimes realized they could cash in on all that trust they had gained during the period of the classical gold standard once the war broke out the facade of regime devotion to quote unquote sound money immediately melted away the gold standard had succeeded in growing state power over the issuance of banknotes over coinage and over physical control of specy during the war states became very interested in using that power to enrich themselves van Creled concludes quote within a matter of days of the outbreak of the war all belligerent showed what they really thought of their own paper money by taking it off gold thus leaving their citizens essentially empty-handed draconian laws were pushed through requiring those who happen to own gold coins or bullion to surrender them next the printing presses were put to work and started turning out their product in previously unimaginable quantities." After fewer than 45 years of Europe's classical gold standard the result was the seizure of gold the empowerment of central banks and money printing on a never-beforeseen scale these measures of course were all sold as temporary and they were indeed temporary in the short term but it all became permanent as the former regimes of the gold standard switched to the debauched gold exchange standard and then to the Bretonwood system it's significant that when Franklin Roosevelt outlawed the private possession of gold in 1933 he relied on 1917 wartime legislation passed to severely limit the use of private gold now this created uh a political problem not an economic one it is important to note that the adoption of the classical gold standard was a boon in terms of offering stable reliable money that enhanced international trade that is it was good in economic terms as Joseph Solerno has shown attempts to blame the classical gold standard for depressions and economic calamities are baseless such were the economics of the move to a gold standard in the 19th century that had co coincided with quote a century of unprecedented material progress and peaceful relations between nations unquote yet as Hayek understood the classical gold standard represented a step away from true market competition in currency and toward currency nationalization and manipulation when viewed through the lens of state building we find many reasons why in spite of ostensible limits placed by the gold standard on regime power the ultimate effect of the classical gold standard was state growth the new state powers extended over the monetary system uh were justified by economic liberals and by economists on the grounds of these measures increased efficiency and standardization while reducing transaction costs the ultimate how the ultimate outcome however has been anything but efficient the movement towards state controlled money over the past century is just part of a larger process of the state monopolization of money really for the past 500 years states have become increasingly bold in asserting total control over the money supply and the financial system in general the CGS was part of this process although one that was certainly less than optimal from the state's perspective in the century since the decline of the gold standard however states have managed to gain almost total control of money and this is not a power states are going to give up easily thank you for listening to Radio Rothbart i hope this uh history of state building and money uh has been interesting to you uh if you're interested in any uh notes and links that might go along with this we'll post that online at mises.org that is mises.org and I encourage you to visit the website uh just for a lot more content written and audiovisisual along these lines and also you can subscribe to our daily or if you prefer weekly newsletter that will let you know about new posted content that you just go to mises.org and click on subscribe so thanks for listening all of you out there and we'll see you next time [Music] one last thing Radio Rothbard listeners you might be interested in our upcoming Revisionist History of War conference that's coming May 15th through 17 at our Mises Institute campus in Auburn Alabama got an exciting lineup of Misesian and Rothbart and speakers this includes Colonel Douglas McGregor USS Liberty Survivor Phil Torney many others uh plus me yours truly Ryan McMac I'll be speaking there as well and uh war right it's uh if we look at the great history of hardcore free market classical liberals and libertarians universally among them was opposition to war and the warfare state going back uh 200 years and so this is a chance to look also at some of that scholarship and also look at how the regime has pushed for more war in recent years and how that has helped the ruling classes in many ways so you can register for this if you're a member it's 300 bucks non-member registration is 325 you can go do that now at mises.orgw that's mises.orgrhw