Money is never an object when you have a legal counterfeiting racket at the center of the economy, yet counterfeiting, provided it has monopoly power and conducted by the “best and the brightest,” is virtually unchallenged as necessary for economic growth.
How did this fraud come about? First, some basics:
- We are all under State rule, meaning under the rule of a monopoly of force that most people cherish in principle as a necessary precondition for civilization, however that might be defined. Monopoly, meaning “single seller,” meaning no competition allowed, is regarded as wrong by most people. Yet it is saluted worldwide when it arrives in the form of a State.
What is it that the State alleges to sell? Protection. As the story goes, the Constitution protects us from our protector:
- States extract their funding by force, called taxation. Since WWII the US has put personal income taxes on a periodic payment plan called withholding. It’s easier, and less subject to revolt, to pay taxes when the money you earn never reaches your hands and instead goes directly into government coffers.
- State rulers, being relatively small in number, need allies, and it acquires these by dispensing favors or issuing often tacit threats. Both kinds lock in the recipient’s obedience, and the State in effect grows. Corporate media becomes the primary disseminator of State propaganda.
- As they expand, States need more funding than they dare collect with taxes, so they legalize a counterfeiting operation and call it a central bank. The American public was told a central bank was needed to eliminate those embarrassing Panics of the 19th century and the one in 1907. So we got one. Today it’s usually called the Fed.
Payoff was almost immediate as it helped finance US entry into Europe’s Great War, on the grounds that there was nothing like massive slaughter of all life forms to ensure lasting peace. Civilian and military casualties were driven to astronomical levels by central bank funding of governments. It takes lots of “money” to kill at that level, “money” no longer being gold but fiat bills that can be produced virtually without limit.
“Panic” was also abandoned as a word to make way for all the calamities the Fed has created since its inception, though only a small band of economists lay the blame on Fed counterfeiting. Incredibly, for the Great Depression, the Fed accepts blame for not counterfeiting enough.
Fed allies called court economists justify the counterfeiting as necessary for a growing economy. How the economy grew in the days before the counterfeiting is not a question they’re eager to address. Nor do they call it counterfeiting, of course; the preferred phrase is “monetary policy.”
The counterfeiter is engaged in the exchange of nothing for something. But how did this come to be a highly-profitable policy for government and done so in a manner that not “one man in a million” knows or even cares about? Murray Rothbard provides a compelling narrative in What Has Government Done to Our Money?:
For government to use counterfeiting to add to its revenue, many lengthy steps must be travelled down the road away from the free market. Government could not simply invade a functioning free market and print its own paper tickets. Done so abruptly, few people would accept the government’s money. . .
Until a few centuries ago, there were no banks, and therefore the government could not use the banking engine for massive inflation as it can today. What could it do when only gold and silver circulated?
The first step, taken firmly by every sizable government, was to seize an absolute monopoly of the minting business. That was the indispensable means of getting control of the coinage supply. . . .
Having acquired the mintage monopoly, governments fostered the use of the name of the monetary unit, doing their best to separate the name from its true base in the underlying weight of the coin. This, too, was a highly important step, for it liberated each government from the necessity of abiding by the common money of the world market. Instead of using grains or grams of gold or silver, each State fostered its own national name in the supposed interests of monetary patriotism: dollars, marks, francs, and the like [emphasis mine]. The shift made possible the preeminent means of governmental counterfeiting of coin: debasement. . ..
Sometimes, the government committed simple fraud, secretly diluting gold with a base alloy, making shortweight coins. More characteristically, the mint melted and recoined all the coins of the realm, giving the subjects back the same number of “pounds” or “marks,” but of a lighter weight. The leftover ounces of gold or silver were pocketed by the King and used to pay his expenses. . ..
The switch from weights of gold to patriotic names drew monetary power away from owners of money. But since it was patriotic, few complained, and fewer still understood the implications:
Once such a label replaces the recognized world units of weight, it becomes much easier for governments to manipulate the money unit and give it an apparent life of its own ….
With the name of the country’s currency now prominent in accounting instead of its actual weight, contracts began to pledge payment in certain amounts of “money.” Legal tender laws dictated what that “money” could be [e.g., dollars, francs] . . ..
Money substitutes become money
Governmental control of money could only become absolute, and its counterfeiting unchallenged, as money-substitutes came into prominence in recent centuries. The advent of paper money and bank deposits, an economic boon when backed fully by gold or silver, provided the open sesame for government’s road to power over money, and thereby over the entire economic system.
Banks are required to redeem their sworn liabilities on demand. Yet with the practice of fractional-reserve banking, no bank can fulfill its liabilities.
Panics arose when the public caught on and started pulling their money out of banks. If only we had an elastic currency that could be stretched to satisfy demanding clients, bankers complained. Gold or silver were grossly deficient for this purpose. Thus, in 1910 big bankers got together with a government official at Jekyll Island, Georgia and concocted a scheme that could provide emergency credit to troubled banks. Not every bank, but at least the biggest ones. The scheme was a central bank, though it wasn’t called that, and all that was needed to perfect it was to get rid of actual money — the gold — and declare the money substitutes — the paper receipts known as dollars — as the new money.
Honesty would dictate imprinting the Jolly Roger instead of Washington’s face, but no one wanted to be honest.
The Triumph of Monetary Fraud
The new money would be under exclusive control of a closed society known as the Federal Open Market Committee (FOMC) that would, from time to time, decide how much of it to create or destroy. Their decision-making is called monetary policy. We must always remember, FOMC monetary policy is hard stuff.
Yet, one of the most astute insights into monetary theory came from Milton Friedman, no friend of gold, who 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. (Quoted in Salerno)
Imagine that. If we had a free market-determined money like gold, we would be in charge of our economic lives and not the counterfeiters on the FOMC.
Monetary economists outside the Austrian school believe that economic bliss is price stability. Small price rises they call inflation are okay, but a general price decline, called deflation, is the stuff of nightmares. The price declines of the late 19th century, one of the most prosperous periods in human history, is a puzzle they have yet to solve. Yet lower prices are the natural outcome of an unfettered market. So are the price declines/high profits in high tech since the introduction of the integrated circuit in the 1960s.
Conclusion
The Fed’s biggest ally is the ignorance of the general public. They don’t know about the Fed and have no interest in learning about it. As a presidential candidate Ron Paul educated the public in the destructiveness of the federal reserve but the public has gone back to sleep. Or to the extent that it hasn’t they’re concerned about how the Fed will do its duty and fight the inflation we’re dealing with today. The creator of inflation is called on to become its avenger.
The best way to stop the ravages we experience is to undo their source. A government with its legal monopoly power removed could never get away with creating a monstrosity like the federal reserve. Call it anarchy if you like, but such a government is what we’ve known for a long time, an unrestrained free market.
