Skip to main content

A Review of Gary North's "What is Money?"

The inaugural installment of this collection of essays first appeared on LewRockwell.com on September 29, 2009 - fittingly, Ludwig von Mises' birthday. Dr. North is one of the foremost Austrian economists and economic historians working today, and has gained a wide following with his writing and lectures. These essays are virtually impossible to overrate; they clear up so much of what is misunderstood about money and banking.

Our civilization depends on sound money and honest banking. As North makes emphatically clear, we have neither.

A few excerpts should get my point across:

"The heart of the modern monetary system is fractional reserve banking. This system is based on fraud. At the very heart of the modern economy is fraud -- fraud on a gigantic scale. What is the nature of this fraud? Counterfeiting. Banks are government-licensed institutions that issue bogus IOUs. Because these IOUs function as money, they are counterfeit money. This is the heart, mind, and soul of all modern banking."

"Counterfeiting is universally condemned by civil governments. Wherever we go, a national civil government has passed a law imposing serious sanctions against anybody who would counterfeit the national monetary unit. Why do governments do this? Because they are all counterfeiters, and they deeply resent an invasion of their turf. Laws against counterfeiting in today's world are a form of gang warfare."

"To reform central banking is to perpetuate it. To perpetuate it is to accept the fundamental premise of modern economics: money is different. Money is not governed by the same laws of supply and demand that govern the rest of the economy. Money requires experts to administer it. Private contracts are not sufficient."

"Someday, perhaps, central banks will stop subsidizing their respective Treasury Departments. On that glorious day, governments will move rapidly toward bankruptcy, interest rates on government debt will rise, the markets will begin to crash, consumer prices will begin to fall, and the mother of all bank runs will begin. Get there early."

"The powers that be will cease to be powers if money dies. They have based their political control and their wealth on their control of digital money. This is the line to which the hook of state power is attached. To destroy the currency is to break this line. Better a new Great Depression than hyperinflation, if you are a central banker.

"If money dies, a lot more than money will die. This includes Bernanke's pension. He knows this."

I suppose one could be critical of the author for writing so informally about a subject that many would say cannot be translated into everyday language; that any attempt to translate it corrupts it and renders it misleading or just plain wrong.  But one of the hallmarks of Austrian School economics is the clarity of its expositors, a trait that seems to annoy the Keynesians who understand money only in the context of aggregates, equations, and central planning.  But if thought is to be a guide to individual action, then clarity of thought is indispensable, and North, in these essays, offers the reader a remarkable degree of lucidity.

There are other popular essays that delve into the nature of money.  Bastiat's What is Money? is instructive and entertaining, and Thomas Paine's attack on paper money lays bare what we've forgotten.
Having no real value in itself it depends for support upon accident, caprice, and party; and as it is the interest of some to depreciate and of others to raise its value, there is a continual invention going on that destroys the morals of the country.
Also highly recommended is Ron Paul's three-part lecture series, What is Money?

The sophisticated elites who run the monetary system proudly admit they don't know what money is, though they do concede that being unable to define money makes it difficult to manage. In a sense I can empathize with them.  Money - the commodity - was removed from the economy completely in 1971.  It is indeed hard to manage something that no longer exists, and if it did exist, would not require managing.  As Milton Friedman once wrote,
If a domestic money consists of a commodity, a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple.  There aren't any.  The commodity money takes care of itself.  [p. 356]
North, borrowing from Mises, tells us what money is in six words, then proceeds to build on it.  Not very sophisticated, but infinitely usable.

Comments