The Value Of Counterfeit Money

Wouldn’t it be nice to have as much money as you wanted? It is expensive to have a family, with food, clothing, taxes, mortgage payment, college costs and so on. There is never enough money for everything we want.

Imagine that you had a printing press in your basement. Whenever you needed to pay that $40,000 college bill, you could just print a bunch of hundreds dollar bills and send them along to the college. When you had to pay the $150 grocery tab, just go downstairs and spin off a few more dollars. Also, imagine that everyone was required to accept your money as payment. There would be no need to do anything productive. Your work could be printing up new dollar bills. Think of how wealthy you could be.

Now suppose your neighbor also had a printing press in his basement and everyone was required to accept his bills for payment. He also has college costs and teenagers with big appetites and pressing needs, like X-box 360’s. It would be nice for him if he could also go to the basement to get whatever money he needed.

Going further, imagine that everyone in the country had their own printing presses. Think of how wealthy and prosperous everyone would be. They would be able to afford anything because they could just print money as they needed it. Poverty would be ended because even the poor could print money to pay for anything their hearts desired.

The absurdity of this scenario should be pretty obvious. If everyone just printed money without producing any value to back it up, there would quickly be so much money in circulation that it would take wheelbarrows full of money to buy a loaf of bread, just as it did in Weimar Germany. Money made out of thin air has no real value and dilutes the buying power of money already in circulation. That is why it is illegal to make counterfeit money. You would be cheating whoever you pay because you are getting value and giving no real value in return.

Consider now the modern, legal method of making money. The Federal Reserve Bank and fractional reserve banks are the only legal source. Consider, now, where the Fed gets it’s dollars. Instead of making new money out of thin air in the basements of millions of homes, it makes it out of thin air in a nice, convenient, centralized location. Under the current system, there is no need to have any value backing up the dollars. However, everyone in this country is required to take the counterfeit money as legal payment.

As with the basement printing presses, the government printing presses allow their owners to buy things without giving anything of value in return. The official process is much more complex, with a host of intermediaries, but the overall concept is simple, and just as destructive.

Government can only spend money it raises in taxes, what it incurs in debt or what it makes out of thin air. Taxation is the most obvious and is under scrutiny by taxpayers. Politicians have to be careful with using taxation. Overuse can get them un-elected.

The second method is transferring the obligation to pay to future generations. By borrowing the money, the government can buy things on credit. Like people who overuse their credit cards, at some point in time the lenders are going to realize that the ability to pay is exceeded, and shut them off. Eventually, someone will have to pay the price, but, lately, that doesn’t seem to bother the folks in charge.

The last method is the silent tax. Making money out of thin air to pay bills is nearly invisible to most people. Expanding the money supply is the only way that a general inflation can occur, but our crafty central bankers have persuaded people to believe that inflation comes from those bad oil producing countries or greedy business people raising prices or hurricanes or frosts. As more valueless dollars are pumped in, the existing dollars are worth less, and prices of goods and services move ever higher. This process is the reason that the dollar has been decreasing in value by over 30% per decade.

Through this process, everyone loses, except those close to the central banking system. The government and financial insiders gain at everyone else’s expense. The poor are hurt most by the inflation tax. Maybe that was the exploitation that Karl Marx mistook for genuine free markets and capitalism.

Counterfeit money does have some value, however. It can teach us some valuable lessons about the ethics of centralized government. The lessons aren’t pretty.

1 comment to The Value Of Counterfeit Money

  • Amber Haeussler

    To tell the truth, I don’t really understand all of this. I try not to be too dense, but it’s just escaping me at the moment.

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