The Perfect Protection of Prodding and Printing, Part II
PART II:
I caught up to Ben in his basement where he had begun feverishly scanning Federal Reserve Notes onto his hard drive. He was mumbling something about how he was going to “show them how you fix an excess demand for money!” Although it was generally dangerous to interfere with him when he was in one of these frenzies, I felt compelled to ask him of his plans.
It was, unfortunately, as simple as it looked on the surface. He was going to begin printing money. I asked him about the morality of such a plan; I asked him about the legality; I asked him about what he intended to effect with such a plan. Though he was still engrossed in his work, he answered me over his shoulder.
“Well,” he began, “first of all, it’s completely moral.” He held up, as his first (and, to him, seemingly self-evident) justification of its morality, the fact that he was doing no less than what the government does every day. And “what is prudence in the conduct of every government, can scarcely be a folly in that of an individual![i]”
I took his point, but something didn’t quite sit right in that statement, so I pressed on. Wasn’t he counterfeiting; isn’t this act universally condemned? His point about government had made me uneasy with my assumption – is there something that is moral for a government to do, but immoral for a man? I would have to return to this later, I thought – and so I asked, “But what about whoever accepts your homemade cash? Won’t you have stolen from them?”
“In what sense?” he replied, putting down for the moment the lid of the scanner and turning toward me. “Well, in the sense that the money isn’t real.” “But of course it is!” he retorted haughtily. “Say I take it to the shoe shop. Then what it will buy me will be real; I will have a new pair of shoes! And what it will buy the shoemaker why, that will be real as well. In fact, if he uses it to buy leather and laces enough to make two new pairs, he will be twice as well off as now. How can it not be real if it buys real goods?”
But what about the last person who tries to use it; what if they try to deposit it in the bank? When it is finally discovered someone will have lost the entire value of the notes. This person will have paid for your shoes, and there will be no net gain. But again he was ready:
“Have you seen my printer? These notes would get past the Treasury Secretary himself… Well,” he caught himself, “whoever is paying attention over there. They’ll be perfect copies, guaranteed to be indistinguishable from those in circulation! No one will be left ‘holding the bag.’ Unless, of course, that is what they purchased with my bills,” he smirked, and got back to work.
“But if there are now more dollars chasing the same amount of goods, won’t that cause inflation? Doesn’t that just mean, as prices generally rise, that we are all paying for your shoes, and merely spreading the cost over millions instead of concentrating it on one?” “Well of course, but isn’t that a sacrifice you’re willing to make? Think of it. For the contribution of a penny, you’ve all put shoes on my feet and bread on the cobbler’s table. And after a while a penny will be worth so little that the cost will be next to nothing! Besides, soon enough it will be your turn. In fact, here, you can take the first batch.”
At this point I had to admit that he was starting to make a suspicious kind of sense. Something began tugging at my conscience at that point, however: what about those who don’t get the fresh injection of “liquidity”? In the final tally, wouldn’t they be paying for it all? I thought of my grandmother on her fixed income of Social Security; I thought of my friend living on disability checks; then I thought of something his older brother Alan had talked about – when he was younger. He had said that the holder of the “bank created paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets…” meaning that “prices must eventually rise[ii].”
I could solve that by sending my granny some of the cash, but what about everyone else’s grandmothers? How would they protect themselves; what would happen to the value of their savings if prices were rising all the time? If money could just be printed without any relationship to a tangible, physical, and finite asset, winners and losers would be created every day – and who the winners were would just be a function of who was closest to the printing press, as I was today. Didn’t we used to have the money supply attached to gold? Again, I heard the young Alan’s voice in my ear:
“In the absence of a gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal…[iii]”
Remembering these words, and filled now with a sense of confidence, I reminded Ben that “you will just be creating inflation and stealing from others through the murky mechanism of price inflation! Why, the fact that your notes will be indistinguishable doesn’t make it any better at all!”
“You fool,” he replied, “printing money doesn’t cause prices to rise. Don’t you know that it is the fault of all of those monopolies out there! They corner the market and then use their power to gouge us all. Big Business, with their ‘Trusts’ and monopolies, they are the ones that are stealing from us!”
It was going to be a long day…
(Part III in two weeks…)
[i] With apologies to Adam Smith! (paraphrasing his famous line from The Wealth of Nations)
[ii] Rand, p. 107
[iii] Rand, p. 107
Rand, A. (1967). Capitalism: The Unknown Ideal. New York City, Signet
Photo credit: Hoffman/Bloomberg
