"The modern democratic State is essentially a means for coercively redistributing income from producers to politicians, bureaucrats, and special interest groups" — Murray Rothbard

I've started reading the A HISTORY OF MONEY AND BANKING IN THE UNITED STATES: THE COLONIAL ERA TO WORLD WAR II by Murray Rothbard and would like to share some quotes from the introduction by Joseph T. Salermo with you, as I find the wording very profound and powerful. I hope it will get you into reading the whole book as well. I will post more about it during the next couple of weeks. There are links available at the bottom of the post.

The foregoing analysis leads Rothbard to conclude that the exercise of political power is inherently an oligarchic enterprise. The small minority that excels in wielding political power will tend to coalesce and devote an extraordinary amount of mental energy and other resources to establishing and maintaining a permanent and lucrative hegemonic bond over the productive majority. Accordingly, since politics is the main source of their income, the policies and actions of the members of this oligarchic ruling class will be driven primarily by economic motives. The exploited producing class, in contrast, will not expend nearly as many resources on politics, and their actions in the political arena will not be motivated by economic gain to the same degree, precisely because they are absorbed in earning their livelihoods in their own chosen areas of specialization on the market. As Rothbard explains: 

"the ruling class, being small and largely specialized, is motivated to think about its economic interests twenty-four hours a day. The steel manufacturers seeking a tariff, the bankers seeking taxes to repay their government bonds, the rulers seeking a strong state from which to obtain subsidies, the bureaucrats wishing to expand their empire, are all professionals in statism. They are constantly at work trying to preserve and expand their privileges." 

The ruling class, however, confronts one serious and ongoing problem: how to persuade the productive majority, whose tribute or taxes it consumes, that its laws, regulations, and policies are beneficial; that is, that they coincide with “the public interest” [...].

Here is where the intellectuals come in. It is their task to convince the public to actively submit to State rule because it is beneficial to do so, or at least to passively endure the State’s depredations because the alternative is anarchy and chaos. In return for fabricating an ideological cover for its exploitation of the masses of subjects or taxpayers, these “court intellectuals” are rewarded with the power, wealth, and prestige of a junior partnership in the ruling elite. Whereas in preindustrial times these apologists for State rule were associated with the clergy, in modern times—at least since the Progressive Era in the U.S.—they have been drawn increasingly from the academy.
Politicians, bureaucrats, and those whom they subsidize and privilege within the economy thus routinely trumpet lofty ideological motives for their actions in order to conceal from the exploited and plundered citizenry their true motive of economic gain.
[...]
the modern democratic State [i]s essentially a means for coercively redistributing income from producers to politicians, bureaucrats, and special interest groups[...]

Free PDF available on the Mises.org web site.

The Austrian Economics solution to the crisis.

A very well known and respected Austrian economist offers a solution to the crisis. I have edited his statement to make it shorter and have added emphasis (no emphasis was present in the original text, all emphasis is mine). Please read until the very bottom.

[...]
For forty years we have been told, in the textbooks, the economic journals, and the pronouncements of our government's economic advisors, that the government has the tools with which it can easily abolish inflation or recession. We have been told that by juggling fiscal and monetary policy, the government can "fine-tune" the economy to abolish the business cycle and insure permanent prosperity without inflation. [...]

Confronted with this stark destruction of all their hopes and plans, surrounded by the rubble of their fallacious theories, the nation's economists have been plunged into confusion and despair. Put starkly, they have no idea of what to do next, or even how to explain the current economic mess. [...] Some economists, union leaders, and businessmen, despairing of any hope for the free-market economy, have in fact begun to call for a radical shift to a collectivized economy in America [...].

In the midst of this miasma and despair, there is one school of economic thought which predicted the current mess, has a cogent theory to explain it, and offers the way out of the predicament—a way out, furthermore, which, far from scrapping free enterprise in favor of collectivist planning, advocates the restoration of a purely free enterprise system that has been crippled for decades by government intervention. This school of thought is the "Austrian" theory [...]. The Austrian view holds that persistent inflation is brought about by continuing and chronic increases in the supply of money, engineered by the federal government. Since the inception of the Federal Reserve System in 1913, the supply of money and bank credit in America has been totally in the control of the federal government [...].

The Austrian theory further shows that inflation is not the only unfortunate consequence of governmental expansion of the supply of money and credit. For this expansion distorts the structure of investment and production, causing excessive investment in unsound projects in the capital goods industries. [...] The recession periods of the business cycle then become inevitable, for the recession is the necessary corrective process by which the market liquidates the unsound investments of the boom and redirects resources from the capital goods to the consumer goods industries. The longer the inflationary distortions continue, the more severe the recession-adjustment must become [...].

What, then, should the government do if the Austrian theory is the correct one? In the first place, it can only cure the chronic and potentially runaway inflation in one way: by ceasing to inflate: by stopping its own expansion of the money supply by Federal Reserve manipulation, either by lowering reserve requirements or by purchasing assets in the open market. The fault of inflation is not in business "monopoly," or in union agitation, or in the hunches of speculators, or in the "greediness" of consumers; the fault is in the legalized counterfeiting operations of the government itself. For the government is the only institution in society with the power to counterfeit—to create new money. So long as it continues to use that power, we will continue to suffer from inflation, even unto a runaway inflation that will utterly destroy the currency. At the very least, we must call upon the government to stop using that power to inflate. But since all power possessed will be used and abused, a far sounder method of ending inflation would be to deprive the government completely of the power to counterfeit: either by passing a law forbidding the Fed to purchase any further assets or to lower reserve requirements, or more fundamentally, to abolish the Federal Reserve System altogether. We existed without such a central banking system before 1913, and we did so with far less rampant inflations or depressions. Another vital reform would be to return to a gold standard—to a money based on a commodity produced, not by government printing presses, but by the market itself. [...]

As for avoiding depressions, the remedy is simple: again, to avoid inflations by stopping the Fed's power to inflate. If we are in a depression, as we are now, the only proper course of action is to avoid governmental interference with the depression, and thereby to allow the depression-adjustment process to complete itself as rapidly as possible, and thus to restore a healthy and prosperous economic system. Before the massive government interventions of the 1930s, all recessions were short-lived. [...] When the stock market crash arrived in October, 1929, Herbert Hoover intervened so rapidly and so massively that the market-adjustment process was paralyzed, and the Hoover-Roosevelt New Deal policies managed to bring about a permanent and massive depression [...].

In this time of confusion and despair, then, the Austrian School offers us both an explanation and a prescription for our current ills. It is a prescription that is just as radical as, and perhaps even more politically unpalatable than, the idea of scrapping the free economy altogether and moving toward a totalitarian and unworkable system of collectivist economic planning. The Austrian prescription is precisely the opposite: we can only surmount the present and future crisis by ending government intervention in the economy, and specifically by ending governmental inflation and control of the money supply, as well as interference in any recession-adjustment process. In times of breakdown, mere tinkering reforms are not enough; we must take the radical step of getting the government out of the economic picture, of separating government completely from the money supply and the economy, and advancing toward a truly free and unhampered market and enterprise economy.

MURRAY N. ROTHBARD
Palo Alto, California
May 1975
Introduction to the Third Edition,
America's Great Depression

Yes, ladies and gentlement, this extract was written in 1975 and yet, as you can see, all the facts match our current issues perfectly. I am sure you could show this extract to your friends/family/colleagues and tell them it's from November 2008 and no one with have doubted.

Everything that happened during the great depression is happening again, the same mistakes are getting done again. At least, we now know where we are headed. It's going to be ugly, and we can all thank our incompetent politicians and economists for putting us on the highway to the 2nd Great Depression.

You can read Murray Rothbard's book online on the Mises.org institute web site, download and print the PDF version, or just buy the book and save the environment while contributing to the Mises Institute - all from the same links just a few lines above.

As usual, comments are welcome :-)

The Economic Effect of Inflation, Rothbard

In the section The Economic Effect of Inflation of his thesis What Has Government Done to Our Money, Murray Rothbard wrote:

As a result, business accounting will seriously overstate their profits during inflation — and even consume capital while presumably increasing their investments. Similarly, stockholders and real estate holders will acquire capital gains an inflation that are not really "gains" at all. But they may spend part of these gains without realizing that they are thereby consuming their original capital.

Does this ring any bell?? What happened in the whole world due to the "wealth effect" of the real estate bubble? And in the US and the UK mainly where people not only have negative saving rates but have been using their "equity release" schemes to spend the money they didn't have?

By creating illusory profits and distorting economic calculation, inflation will suspend the free market's penalizing of inefficient, and rewarding of efficient, firms. Almost all firms will seemingly prosper.

Remind you of anything? With almost no defaults for the past whole 2003-2006 period and until mid 2007, and CDS spreads close to 0 bps??

The general atmosphere of a "seller's market" will lead to a decline in the quality of the goods and of the services to consumers, since consumers often resist price increases less when they occur in the form of downgrading of quality. [...]

Interestingly, I believe this is the general idea most people have, specially in the UK, where nothing works correctly, and service is very poor, but everything is amazingly expensive.

Inflation also penalizes thrift and encourages debt[...] The incentive, then, is to borrow and repay later rather than save and lend. Inflation, therefore, lowers the general standard of living in the very course of creating a tinsel of atmosphere of "prosperity".

Feels like hitting a wall at 100 km/h?

Who can objectively deny that all the previous facts have been happening for the past 10-15 years? Who can believe in the tremendous "global growth" that has been spreading so much poverty and misery around the globe during that same period? Who can pretend that the Americans, the British, the Spanish are better off now sinking in depth and with no saving and no money in their account than they were 15 years ago? Who can pretend that the quality of life and of manufactured products or food has been increasing for the average people?

Interestingly, these are not several excerpts but a single one, from a single paragraph, which sums ups exactly what we have been going through since the start of the Internet bubble in late 1990's. Even more interesting is the fact that Rothbard passed away in 1995, so it's not like he was living it when trying to forecast it. This is just what happens when reckless and dangerous people get to make the policy of our nations.

What has the Governement done to our Money?

In his book What has the Governement done to our Money? (first edition in 1963), Murray N. Rothbard writes:

Fractional reserve banks, therefore, are inherently inflationary institutions. (page 56)

-> I am not necesseraly agreeing with this. I would say that the excess brought by the fractional reserve banks make them inflationary. It would be more like a consequence of greed and excess.

And, in a truley free society, those who know the truth about the real insolvency of the banking system will be able to form the AntiBank Leagues to urge clients to get their money out before it is too late. In short, leagues to urge bank runs, or the threat of their formation, will be able to stop and reverse the monetary expansion.

-> I think this is the conclusion of many of those who understand what is going on already... Unfortunately, there isn't much you can do with your money, since the currencies are falling in real terms, the stock markets and real estate markets are already in bubble. Remains gold as the only choice left. But that's the King of the Currencies we are talking about, so that's the best choice anyway.