The State and Monetary Debasement
Posted by Orrin Woodward on September 25, 2013
There is probably no area of government where the Five Laws of Decline (FLD) are harder at work than in the monetary system. I cannot emphasize enough for citizens in every society to understand how the monetary system works and how to check the FLD from destroying justice. Simply stated, justice within society leads to production and prosperity. In contrast, injustice within society leads to exploitation and poverty. Everywhere we identify the FLD at work is an area where injustice is destroying society’s prosperity. Therefore, men and women of character must ensure the injustice stops and society provides justice for all.
The second way that government damages the distribution of goods is through manipulation of the monetary units. Although many believe the state created the monetary units within society, in fact, as Ludwig von Mises demonstrated, money originated through the free market process of bartering. Therefore, the only valid governmental function, with respect to money, is to ensure an honest Bureau of Weights and Measures to protect against the debasement of society’s money. Unfortunately, as Murray Rothbard, so aptly explained in his classic book Mystery of Banking, government routinely violates this sacred responsibility:
The problem is that governments have systematically betrayed their trust as guardians of the precisely defined weight of the money commodity. If government sets itself up as the guardian of the international meter or the standard yard or pound, there is no economic incentive for it to betray its trust and change the definition. For the Bureau of Standards to announce suddenly that 1 pound is now equal to 14 instead of 16 ounces would make no sense whatever. There is, however, all too much of an economic incentive for governments to change, especially to lighten, the definition of the currency unit; say, to change the definition of the pound sterling from 16 to 14 ounces of silver. This profitable process of the government’s repeatedly lightening the number of ounces or grams in the same monetary unit is called debasement.
In other words, the government delegated to protect against debasement and ensure justice has, instead, monopolized the monetary system and debased currency for the political leaders benefit. Regretfully, because society’s remains woefully ignorant of government’s systematic fraud, governments increasingly have used debasement to meet its financial obligations. In fact, the Five Laws of Decline thrive within most nation’s monetary systems as debasement and inflation lead to further exploitation. Rothbard, again, cogently explained how debasement leads to the state accumulating unjust profits when he wrote:
How debasement profits the State can be seen from a hypothetical case: Say the rur, the currency of the mythical kingdom of Ruritania, is worth 20 grams of gold. A new king now ascends the throne, and, being chronically short of money, decides to take the debasement route to the acquisition of wealth. He announces a mammoth call-in of all the old gold coins of the realm, each now dirty with wear and with the picture of the previous king stamped on its face. In return he will supply brand new coins with his face stamped on them, and will return the same number of rurs paid in. Someone presenting 100 rurs in old coins will receive 100 rurs in the new.
Seemingly a bargain! Except for a slight hitch: During the course of this recoinage, the king changes the definition of the rur from 20 to 16 grams. He then pockets the extra 20 percent of gold, minting the gold for his own use and pouring the coins into circulation for his own expenses. In short, the number of grams of gold in the society remains the same, but since people are now accustomed to use the name rather than the weight in their money accounts and prices, the number of rurs will have increased by 20 percent. The money supply in rurs, therefore, has gone up by 20 percent, and, as we shall see later on, this will drive up prices in the economy in terms of rurs. Debasement, then, is the arbitrary redefining and lightening of the currency so as to add to the coffers of the State.