Wednesday, June 15, 2022

The Triumph of Monetary Fraud

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 come about?  First, some basics:

1.  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.  Protection from assaults on us, its citizens.  It kills terrorists overseas so we can sleep better.  To further protect us it has created all manner of agencies that watch our every move, in case some of us turn rogue. 

2.  States extract their funding by force, called taxation.  Since WWII the US has put personal income taxes on a monthly 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.  

3.  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, the primary disseminator of State propaganda, finds the federal trough irresistible

4.  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 a central bank under the name “Federal Reserve System,” aka the Fed, and the future looked rosy to some.  

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 (around 40 million) 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.  For the big one, the Great Depression, the Fed accepts blame for not counterfeiting enough.

State 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. 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.  The fixed gold-silver ratio, known as bimetallism, accomplished this task very neatly. It did not, however, fulfill its other job of simplifying the nation's currency. . . . {As market ratios change] the fixed bimetallic ratio inevitably becomes obsolete. Change makes either gold or silver overvalued. . . .

Finally, after weary centuries of bimetallic disruption, governments picked one metal as the standard, generally gold. Silver was relegated to “token coin” status, for small denominations, but not at full weight. . . .  Bimetallism created an impossibly difficult situation, which the government could either meet by going back to full monetary freedom (parallel standards) or by picking one of the two metals as money (gold or silver standard). Full monetary freedom, after all this time, was considered absurd and quixotic; and so the gold standard was generally adopted. . . .

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 becomes money substitutes

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 a 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.  Gold couldn’t be created at will.  Paper currency could.  It was magical.  It could absolve all sins.  It would be available to fund government wars, handouts, and special favors.  

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.  As you can imagine this thing called monetary policy is a very complex and challenging process.  

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 something to be strictly avoided.  The price declines of the late 19th century, one of the most prosperous periods in human history, is an enigma to these guys.  Yet lower prices are the natural outcome of a free market.  So are the price declines/high profits in high tech since the introduction of the integrated circuit in the 1960s.


Will we ever stop monetary fraud?  The Fed has many powerful allies not least of which is the federal government.  It also has most of the economics profession.  But perhaps its biggest ally is the ignorance of the general public.  They could care less about the Fed.  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 now dealing with, where “inflation” is understood as runaway prices.  

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 way with creating a monstrosity like the federal reserve. Call it anarchy if you like, but to me such a government is what we’ve known for a long time, an unrestrained free market.

George Ford Smith is a former mainframe and PC programmer and technology instructor, the author of eight books including a novel about a renegade Fed chairman (Flight of the Barbarous Relic), a filmmaker (Do Not Consent), and an advocate of stateless market government.  He welcomes speaking engagements and can be reached at


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