Libertarians understand that government interference in our lives generally makes things worse. This holds true in any area, but particularly in economics. We know that when the government taxes or regulates, it harms free individuals trying to freely associate. Taxes and regulations harm employers, employees, customers, etc. and they also distort production.
One thing that is overlooked outside of Austrian economic circles is the importance of the monetary system. You can have a limited government as far as taxes and regulations, but if the monetary system is bad, then the economy will suffer greatly.
The United States saw the greatest growth in productivity and living standards in the 19th century as ever before. People who have some grasp of free market economics attribute this to the low taxes and regulations during that time. And while this aspect was certainly important, I believe the monetary system was even more so.
During the 1800’s, the U.S. had a fairly stable monetary system. It was not exactly an Austrian economist’s dream, but it was definitely a lot better than what we have today. There was not a complete free market in money and there wasn’t even a pure gold standard. But it was still a monetary system based on gold and silver. Although it had its flaws (due to government interference), the monetary system of the 19th century kept a very strict limit on government inflation and debt.
The 19th century provided the people of the U.S. with price deflation (oh the horror). But this was not deflation like during the Great Depression. This was an increase in purchasing power for the average guy. He was able to buy more with his money as technology and productivity increased. Capital was accumulated and invested like never before. People saw their standard of living increase, even though the early 20th century really exploded off of the capital investment and technology from before.
The fact that the monetary system was reliable and predictable really set the stage for booming business. Although there were “panics” and mild swings in the 19th century (again, usually caused by government), it was actually a much more stable time. Since the Federal Reserve was formed in 1913, we have seen booms and busts like crazy. These wild swings are attributable to the Fed’s monetary policies.
If the U.S. (and any other country) really want great prosperity going forward, the first thing that needs to happen is to get rid of the central bank and allow a free monetary system. To start this process, we should all advocate the repeal of legal tender laws. We should all be allowed to do business with whatever currency or other form of money we wish to use. The Fed should not have a monopoly on money. This should be a major goal for those who love liberty.