Wednesday, June 4, 2008

How to cheat the middle classes

For institutionalized cheating, nothing beats a central bank and fiat money. Setting up the institution takes time, but the tools are right at hand.

Promote a central bank as the solution to fractional reserve banking's periodic economic crises, though without blaming or even mentioning the fractional reserve nature of banking. Instead, blame the crises on a lack of an "inelastic" currency, i.e., one that can be created by a central authority at the touch of a finger on the government's printing press. Get the country's leaders to talk up a central bank, then when most of the country isn't watching, say, around Christmas, ram the bill creating the central bank through the national legislature. After the bill is signed into law, have your pundits continue to reassure the public their financial worries are over.

Later, when the public starts to grumble that their currency doesn't buy as much as it used to, tell them speculators are ripping them off. Pass laws regulating speculators and give it headline prominence. When the next financial crisis arrives, blame it on the market again. Attack speculators for evading the laws you passed. Blame people for hoarding their gold. As punishment, take the gold out of their hands, threatening them with prison and a heavy fine if they refuse to give it up. Hoard it in government fortresses instead.

This would normally be called plunder. A few hidebound economists will in fact call it that. Dismiss them as hopelessly orthodox or as enemies of the people. Reassure the public that the better economists have thoroughly refuted the orthodox superstitions supporting a gold standard. Confiscating the people's gold, therefore, is not an act of theft. It is enlightened monetary policy. From now on money is whatever government says it is. From this point forward government will see to it that money isn't scarce.

And from this point forward the financial life of the middle class is ruled by counterfeiters who have the prestige of being called the country's bankers.

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