Every financial crisis in history has one thing in common: government control of money and the temptation to manipulate it. From ancient Rome to modern America, the story repeats with eerie precision — and the people who suffer most are always those who trusted the system to protect their savings.
Government Control of Money: A Brief History of Central Banking
Central banks are a relatively modern invention. The Bank of England was founded in 1694 — not to serve the public, but to fund a war against France. The US Federal Reserve was created in 1913 after a series of banking panics, sold to the public as a stabilizing force that would prevent financial crises. In the 110+ years since, the US has experienced the Great Depression, stagflation, the dot-com bust, the 2008 financial crisis, and the 2020 monetary explosion. The institution designed to prevent crises has presided over all of them.
The core issue isn’t incompetence — it’s incentive structure. Central banks serve governments first and citizens second. When a government needs to fund spending beyond what taxes provide, the central bank can create the difference. This is politically convenient because it avoids the backlash of raising taxes or cutting spending. The cost — inflation — is diffuse, delayed, and difficult for voters to attribute to any single policy decision.
The Playbook: Print, Spend, Devalue
The pattern is consistent across centuries and continents. A government takes on debt to fund wars, social programs, or crisis response. Debt grows faster than the economy. Eventually, the debt becomes unsustainable through normal repayment. The government then faces three options: default (politically catastrophic), austerity (politically painful), or inflation (politically invisible). They almost always choose inflation.
France did it with the assignat during the Revolution, printing currency backed by seized church lands until the money became worthless. The Weimar Republic printed marks to pay World War I reparations until a loaf of bread cost billions. Zimbabwe’s government printed trillions to fund a land reform program and military spending. Venezuela’s government printed bolivars to cover oil revenue shortfalls. In every case, ordinary citizens lost their life savings while government obligations shrank in real terms.
The American Version
The United States follows the same pattern at a slower pace — so far. The national debt exceeds $35 trillion. Annual deficits regularly exceed $1 trillion. The Federal Reserve now holds over $7 trillion in government bonds purchased through QE programs. This is debt monetization: the government borrows, and the central bank buys the debt with newly created money. The mechanics are more complex than Zimbabwe’s printing press, but the economic effect is identical.
The dollar’s unique position as the world’s reserve currency has allowed this to continue longer than it otherwise would. Global demand for dollars absorbs some of the supply expansion. But reserve currency status isn’t permanent — the British pound, Spanish real, Dutch guilder, and Roman denarius all held that position before losing it. History suggests that the privilege erodes precisely when a government overuses it.
Separation of Money and State
Austrian economists have long argued that money is too important to leave in the hands of governments. Friedrich Hayek proposed competing private currencies in his 1976 work The Denationalization of Money. His argument was simple: if currencies had to compete on quality — stability, scarcity, trustworthiness — governments would lose. They’d be unable to inflate because people would simply switch to a better currency.
For most of history, this was a theoretical exercise. Then Bitcoin was created in 2009 — a currency with rules enforced by mathematics instead of policy, with a supply that no government can alter, running on a network that no authority can shut down. It’s the first practical implementation of what Hayek described: money that competes on merit, not mandate. Whether it succeeds on a global scale remains to be seen, but the experiment is live and growing.
Go Deeper
The relationship between governments and money is one of the most consequential and least understood dynamics in economics. These videos explore different aspects of that relationship:
- Economics in One Lesson — Foundational thinking on government intervention and unintended consequences.
- Sound Money and Austrian Economics — The intellectual case for separating money from government control.
- The Problem With Money — How government monetary policy creates systemic fragility.
Want to model what happens when your retirement is denominated in sound money instead of government currency? Run the Bitcoin Retirement Calculator. To understand how the Fed works step by step, see our infographic: The Fed Explained in 60 Seconds.