The state cannot get a cent for any man without taking it from some other man, and the latter man must be a man who has produced and saved it. The latter is the forgotten man.
William Graham Sumner, 1863
If the government is spending it, you or your descendants have paid or will pay for it. There is no other possibility. The government cannot create wealth. It is taking our wealth, and spending it for us. The government has monopolized the ability to create paper money, (or electronic money now) - but that is not creating wealth; that is watering down the value of your wealth so they can spend it without your knowledge or consent.
Let’s look at this more closely.
Over numerous millennia, common people concocted the notion of transportable wealth. True, a farmer could drive his cow to market and trade it for beans, but he could also trade it for a hard currency recognized for holding value. Shells, pretty stones, axes, cigarettes, chocolate, nylons… all sorts of mechanisms were experimented upon over the centuries, but eventually, for a number of very practical reasons, the clear winner came out most of the time as gold, and to a lesser degree, silver. These metals are durable, pretty, useful, measurable, and had to be mined and refined to exist, making them hard to counterfeit.
“Money in the form of coinage was invented (or constructed) in the first millennium BCE in western Anatolia (the modern Turkey) toward the very end of prehistory in that area. Indeed, the adoption of a money economy marked the end of prehistory in so many parts of the world that we could take it as the best indicator of the dawn of history.”
Colin Renfrew, “Prehistory: the making of the Human Mind”, 2007
One problem with gold and silver, of course, is that they are heavy things, so what also evolved, [in a “Darwinian market evolution” over time] was the use of paper backed by gold and silver.
Take the story back a step. Paper had been used as “IOU’s” since the middle ages, both by bankers communicating between countries, goldsmiths, and on a personal level, between friends, just like today. Now, IOU’s are only worth what the person giving it is worth, right? If he’s bankrupt, the IOU is useless. But if the paper is guaranteed by a pound of gold, well, that’s a different story of course. And if merchants needed to get a payment for goods from Scotland to Milan, it was a heck of a lot easier to carry a piece of paper over the Alps, rather than a bucket of gold. That’s how paper money evolved. In fact, it was the Exchequer of England which issued the first “official” national bill backed by the British government’s stash of gold, in the 1690’s; but bankers had been using bills for centuries before any government got into the act.
“From its foundation in 1694 the Bank had issued notes or receipts in exchange for deposits of cash, that is to say coin, made at its counters. Gradually these pieces of paper … began to circulate: they were the forerunners of today’s bank notes. People were prepared to accept these promises to pay because of the confidence they had in the Bank itself… Furthermore, paper was much more convenient than bags of coin whose value could be… diminished by clipping or filing.”
The Bank of England 5 Note: a brief history Bank of England Museum, 2003 at 2
But what also evolved was banking. Originally, banks would issue a piece of paper representing a pound of gold, because they had the gold in storage (some Duke gave it to them to look after it, and the piece of paper was basically a receipt). But because they didn’t need to prove they really had the gold very often, and could work in secrecy, they could issue two such pieces of paper, both backed by the same pound of gold, and generally get away with it. Now, they had twice the “spending” power, as long as no one actually asked to see “both” pounds of gold [when there was really just the one] at the same time.
“The Bank hath benefit of interest in all moneys which it, the Bank, creates out of nothing.”
Bank of England’s initial Prospectus, 1694, in “Tragedy and Hope: A History of the World in our Time” 1966, cited in The Creature from Jekyll Island, by G. Edward Griffin, 3rd ed, 1998 at 176
Through the 1800’s, governments found it amusing to issue more and more pieces of paper representing a specific amount of real gold; and as long as no one called them on it, they could get away with far more “credit” than their stash of gold really justified. In fact, one famous protest of the British government occurred in 1830, with the popular slogan “To stop the Duke, go for gold” [referring to the Prime Minister, the Duke of Wellington, famous for defeating Napoleon at Waterloo]. Basically, (so went the plan), by creating a run on the Bank of England by everyone demanding their gold at the same time, the banks would have to go bankrupt, and the government would collapse. Everyone knew that the Bank didn’t have as much gold as their outstanding IOU's said they did. Thus, the people had a means to oppose the Duke [the Prime Minister at the time].
To prevent that kind of public power, the governments passed laws such as Canada’s “Currency Act”, which provides the simple notion that the piece of paper in your wallet is “legal tender”. Take a moment and read one. Britain passed that law in 1833, shortly after the protest against the Duke. “Legal tender” means you have to accept the paper, and are not legally allowed to demand to see any underlying asset. Thus, there can be no more runs on the bank to squeeze a government. Better yet, once that law was established, it frankly makes the underlying asset [the gold or the silver or anything else worthwhile having] completely irrelevant. You have to accept the paper issued by the government. That’s their law. You’re stuck.
This plan worked really well for the governments of the nineteenth and twentieth centuries, who needed to solve the problem of their fantastically expensive wars. As I suggested above, the problem with gold and silver, (if you are a government), is that they have to be mined and refined – they are hard to counterfeit. That’s what made it valuable in the first place; it represented real work, and was useful, like the farmer’s cow or beans in the first place. In the last half of the twentieth century, starting in 1944 during World War II, the hugely overdrawn governments of the west decided that the “gold standard” of currency should be formally abandoned in favour of only paper money. The process was completed in 1971 when President Nixon decreed that the United States’ government would no longer back its paper money [the world’s yardstick currency] with gold. The world economy has since been based on paper. Not gold, not cows...just paper.
“An ounce of gold is still an ounce of gold even centuries after a promise to pay has been contracted. The concept “ounce of gold” has a definite meaning. In today’s financial markets, however, you can’t make a long-term contract in terms of “dollars” and have any confidence that the term will mean the same thing in the future.”
Joe Cobb, 1982
From that point on, a government could print as much paper money as it wanted, without requiring any underlying value except its own “good name”. Right back to the days of an IOU without any guarantee. Except, of course, governments have the power to tax you –that’s what makes the paper hold any worth whatsoever; it is backed by a nation’s guarantee of your ongoing sacrifice. Take a look at life in Greece, Iceland, Portugal, now that it's been made obvious their governments' IOU's are worthless.
“Behind the troubled banks and the increasingly troubled insurance agencies stands “the full faith and credit” of the Government – in effect, a promise, sure to be honoured by Congress, that all citizens will chip in through taxes or through inflation to make all depositors whole.”
“How Safe are your Deposits?” Consumer Reports, 1988, cited in The Creature from Jekyll Island, by G. Edward Griffin, 3rd ed, 1998 at 71
Governments have had a hard time throughout history raising taxes. People protest, and fight back, and even have Revolutions – they can see that their money is being taken from them and they don’t like it. So what a clever idea it becomes, instead of raising taxes, to simply print more money. Printing money, for goodness sake, how bad can that be?
“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate secretly and unobserved, an important part of the wealth of their citizens…Lenin was certainly right. The process engages all the hidden forces of economic law on the side of destruction, and does so in a manner which only one man in a million is able to diagnose.”
“John Maynard Keynes, 1931
“It was to Lenin that Keynes attributed the insight that “there is no subtler, no surer means of overturning the existing basis of society than to debauch the currency”. No record survives of Lenin saying any such thing, but his fellow Bolshevik Yevgeni Preobrazhensky did describe the banknote-printing press as “that machine-gun of the Commissariat of Finance which poured fire into the rear of the bourgeois system.”
“The Ascent of Money; a Financial History of the World”, Niall Ferguson, 108
Very bad, is the answer. If your parents have a certain amount of savings for their retirement, say $100,000, and then the government issues as much paper currency as was already floating around the world, the $100,000 just got watered down to half of its spending power. That’s the same result as a 50% asset tax, which would cause a revolution if people understood what was happening. So every time the government issues new paper or electronic money, it is reducing the value of your savings. This is generally called “inflation”. Whenever you hear the term, think “hidden tax”. Inflation is not just the price of goods going up due to demand – it is also the value of your money going down, which makes those goods more expensive but without any increased demand. Bailing out General Motors or banks, for instance, just made your retirement more expensive.
“We used to think that you could just spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you, in all candor, that that option no longer exists; and that insofar as it ever did exist, it only worked by injecting bigger doses of inflation into the economy followed by higher levels of unemployment as the next step. That is the history of the past twenty years.”
British Prime Minister James Callaghan, 1976
“Government, like any family, can for a year spend a little more than it earns. But you and I know that a continuance of that habit means the poorhouse.”
Franklin D. Roosevelt, 1932
“The true measure of taxation is not the apparent taxes paid, but the government spending.”
A Liberty Primer, 163
Now, the good news: if you owe money, your debt would have been chopped in half too; as money becomes more and more worthless, paying down debt becomes cheaper to do. So, printing money hurts people with savings, but benefits those in debt. Interesting. So who is the biggest debtor benefitting from this scam? Oh yeah – Government! What a great idea to borrow your money at today’s value, and pay you back later that debt, but with watered down money. Borrow two cows, but pay back just one.
“The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit…. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation…. Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”
Alan Greenspan, “Gold and Economic Freedom” in Capitalism, the Unknown Ideal, 1967, cited in The Creature from Jekyll Island, by G. Edward Griffin, 3rd ed, 1998 at 149
Look at it another way. If the printing of money, and inflation, were such a good thing, why don’t we all just add on a few zero’s to the end of our money? Turn those $5 bills into $50’s or $500’s? With the mere stroke of a pen, we could all be millionaires! Because of course the real value, our spending power, would be exactly the same.
“Money is worth only what someone else is willing to give you for it. An increase in its supply will not make society richer, though it may enrich the government that monopolizes the production of money. Other things being equal, monetary expansion will merely make prices higher.”
“The Ascent of Money; a Financial History of the World”, Niall Ferguson, 27
There really ought to be a law to prevent the government just spitting out more paper “legal tender”. In fact, there are many people advocating a return to the gold standard, to force governments to control their spendthrift ways; currently in the US there is a Bill to compel the Federal Reserve to make its actions accountable to the legislative branch: and in fact a proposed law is being fought.
No one has figured out how to print gold; but governments have come the closest to the ambitions of the ancient alchemists. All they did was convince you that a piece of paper is as “good as gold” – and you chose to agree.
I sure am glad I am not an American right now, the way they are printing money down south these days. All those massive bank “too big to fail” cash injections - with a stroke of the Presidential pen - without one ounce of honest sweat to create the wealth they need - transferred to the backs of the responsible savers of the country. To put it another way, “the US dollar has lost more than 95% of its worth since the Fed was established in 1913” [Globe and Mail, December 11, B2]. Archie Bunker was right when he sang about the good old days, when “fifty dollars paid the rent” and you could “have yourself a dandy day that cost you under a fin”: “I don’t know just what went wrong. Those were the days.”
What can you do about this? For one thing, don’t invest in Canada Savings Bonds – they are printed nonsense and designed to devalue your wealth.
Own cows, or beans. Or gold. 5000 years of history tell you this works. Only modern governments of the last 50 years tell you otherwise.
Lastly, if you still think this is all nonsense, think about this fact: most families work harder and harder to make ends meet. Two income families struggle financially, no matter how many hours they are putting in. How the heck did our parents get away with just dad going to work and mom staying at home? And why did this seem to end after 1970?