For more than two hundred years, practically all of the leading advocates of individual liberty and free markets have assumed that money and banking were different from other types of goods and markets. From Adam Smith to Milton Friedman, the presumption has been that competitive markets and free consumer choice are far better than government control and planning – except in the realm of money and financial intermediation. They have been wrong on this important issue.
This year marks one hundred years since the beginning of the First World War in the summer of 1914. The Great War, as it used to be called, brought great devastation in its wake. Millions of human lives were lost on the battlefields of Europe; vast amounts of accumulated wealth were consumed to cover the costs of combat; and battles and bombs left a large amount of physical capital in ruins. But the “war to end war,” as it was called, also resulted in another weapon of economic mass destruction – an orgy of paper-money inflations.