In writing this book Tony Abbott, a former minister in the Howard Government who is now on the opposition front bench in the federal parliament, seems to have taken on the role of defining where the battlelines should be drawn in the approach to the next election.

One of the things Abbott is clearly trying to do in this book is to identify enduring values that will continue to bind the Liberal Party together. In the process he does a reasonably good job of minimizing the differences between Hayekian liberals and Burkean conservatives. At one point he writes: “Following Adam Smith, Liberals tend to think that government is necessary to keep the peace but otherwise should let people make mutually beneficial arrangements with each other” (p 82). If I believed that was a statement of conservative philosophy, I would not mind being called a conservative. In other places in the book, however, Abbott displays the contempt for personal freedom that is associated with traditional conservative values. For example: “The basic problem is that most Western countries have privatised the next generation. Having children tends to be regarded as a personal choice rather than a social good” (p 97).

Having now reminded myself why I am not a conservative, let me turn to Abbott’s views on federalism. The essence of his argument is as follows:

• When nothing else seems to solve problems, voters always expect the central government to ‘do something’.
• After more than 50 years of increasing federal government involvement in matters that were formerly the exclusive responsibility of the states, the federation has become dysfunctional. “There are few problems in contemporary Australia that a dysfunctional federation doesn’t make worse”.
• Current attempts to end the “blame game” between different levels of government are not going to work. Someone has to have the legal power to take responsibility.
• The only credible way to fix the problem is to give the central government the legal power to call the shots i.e. to over-ride the states.
• The argument that the states form a bulwark against the potential tyranny of the national government is “far-fetched”. Australia has states because this was the price of becoming a nation, not because the fathers of federation thought that an intermediate level of government was necessary to avoid tyranny.

I agree, more or less, with the first three points, but disagree with the last two. What reason do we have for thinking that a government attempting to run schools and hospitals out of Canberra would do a better job than one trying to run them from some office in a state capital? Absolutely none! And I think that Tony Abbott agrees with me. What he has in mind is that if the federal government was able to over-ride the states on health and education the most likely result would be for public hospital and school services to be “provided on a contestable basis by a range of independent and autonomous organisations as well as by state-government instrumentalities” (p 129). That sounds to me like a move in the right direction, but we can’t be sure that some control freak in charge of the central government would not attempt to intervene more directly in the management of hospitals and schools if he/she had the power to do so.

As I see it, the main problem of the federation arise from the stupidity of the central government in its choice of forms of intervention. The basic problem in both hospitals and schools prior to federal intervention was that people were unhappy with the services that state governments were providing from tax revenues. Instead of giving state governments more money to waste, the central government should have given people back some of the money they had paid in taxes so that they could purchase alternative services.

The central government does not need additional power in order to achieve contestable service provision. It just needs to stop propping up inefficient state bureaucracies and give power back to the people.

In concluding I would like to commend Tony Abbott for presenting his views in a forthright manner. It is nice to be able to disagree with quite a lot of the things he has written and yet still feel that, as politicians go, Tony Abbott is not a bad bloke.

But what the media failed to recognize is that many party members don’t consider libertarianism to be a branch of conservatism but, instead, its diametric opposite. These libertarians refused to embrace Barr and, instead, rallied behind the candidacy of party stalwart Mary Ruwart during the Libertarian National Convention on May 25. It took six ballots before Barr was finally able to win the party’s nomination with just over 51% of the vote, and the rift now between the “reformers” who backed Barr and the “radicals” who supported Ruwart is bitter—and largely economics related.

In Brian Doherty’s 2007 book Radicals for Capitalism, which chronicles the history of the libertarian movement, five figures are cited as essential: Ludwig von Mises, Friedrich Hayek, Milton Friedman, Murray Rothbard and Ayn Rand. All but Rand were economists. And if we eliminate Rand, who was a philosopher, from the discussion (both Barr and Ruwart said she was their favorite philosopher during a debate), the four economists can be easily divided among the “reform” and “radical” camps—Hayek and Friedman to the reformers, Mises and Rothbard to the radicals. Monetary theory was the key difference between Hayek/Friedman and Mises/Rothbard, and this difference is a microcosm for the larger ideological divide within the Libertarian Party.

Two Different Sides…of the Same Coin?

Friedman, a hero to the reformers, was critical of the Federal Reserve System but not of fiat currency in general. Fiat currency is money that’s given value by government decree and “legal-tender” status—meaning people must accept it by law. The most popular alternative, commodity-backed currency, has usually been based on gold. Under a gold standard, paper notes may be redeemed for gold coins or bullion, and thus money is valued for the gold it represents. Friedman saw monetary gold as unproductive since resources were expended to mine gold out of the ground in one part of the world only to have it stored in underground bank vaults in another part of the world.

Rothbard, a disciple of von Mises and an early LP “radicalizer,” strongly disagreed. He supported the Austrian economist Carl Menger’s theory of the origin of money which stipulated that money came into being “organically” in the course of prehistoric barter. For example, a shoemaker and a butcher who wanted to make a trade would have a need for money if the butcher already had enough shoes. The butcher would be willing to accept an “exchange commodity” even if he didn’t want the particular commodity for himself because he knew he could trade it to someone else for something he did need.

Gold, in Menger’s theory, became the “most commonly accepted means of exchange” (i.e., money) due to its durability, divisibility, portability and homogeneity or sameness. Butter, by contrast, would not have been a good form of money since it is perishable and significant values of it would be hard to carry in one’s wallet. Diamonds would also make bad money since they aren’t easily divisible and vary widely in quality.

Closing the “Gold Window”

To Rothbard and others who believe in this origin theory, the governments of the world have played a sinister trick on their citizens. People only accept U.S. dollars because they had value yesterday. Trace things back far enough, and you’ll get to August 15, 1971. The day before that, the dollar was convertible into gold. But on that day, President Nixon closed the “gold window,” making the U.S. dollar a purely fiat currency.

People still accept the dollar, according to Rothbard, because they’ve been conditioned to do so. But a fiat currency could never arise naturally in the marketplace. Thus, the U.S. monetary system, based on the fiat dollar, is fraudulent and, according to Rothbard and his followers, designed to redistribute wealth from the poor and working people to the rich and politically connected. This “principled populism” is a far cry from right-wing conservatism which is often labeled as being for Big Business and against the poor and laboring classes.

Ron Paul, the maverick Republican congressman and former 2008 presidential candidate, was a disciple of Rothbard and Mises and was himself the Libertarian Party’s presidential nominee in 1988. Both the reformers and the radicals of the LP claim Paul as one of their own. But he has made a career of criticizing the Federal Reserve and advocating a return to gold as money. With the reform wing’s victory over the radicals this election year, the LP’s presidential ticket will likely be silent on this issue.

Reformers wish to deal with the “practical,” just as Friedman and Hayek, both Nobel laureates, did. The radicals hold fast to principles no matter the political cost, much like Mises and Rothbard. But as the U.S. dollar continues on a seemingly perpetual slide, the radical position of abolishing the Fed and restoring the gold standard is looking more and more like a practical reform.