If any of the following confuses you, please read, or re-read, Private Enterprise Money until the following makes sense to you.
A little further along in the story, I Want The Earth Plus 5%, we find the following words:
One of the Governors questioned, "Some people can dig gold and make coins for themselves", he said.
"This would be most unfair", Fabian was ready with the answer. "Only those coins approved by the Government can be used, and these will have special marking stamped on them."
The function of certifying the content and purity of coins was one that was originally performed by the goldsmiths. Eventually a number of goldsmiths were caught "shaving" the coins so that they actually contained less gold than stated. The reaction to this situation was to assign that function to government. A seemingly innocuous action, this set the stage for much greater government involvement later on when things started to go wrong.
When paper currency started to become popular, it was only natural that the government should be given the function of printing it and controlling the counterfeiting of it. After a while, it became part of "common sense" that only the government could print currency or mint coins. Unfortunately, due to a muddy concept of what money and currency actually are and how they relate to each other, this soon translated into the "common sense" idea that only government could "issue" or "create" money. "So," you say, "what's wrong with that? Isn't it true that only government can, or should, create money?"
If you have read and understood Riegel's book, Free Enterprise Money, you will know that the only way that money, the abstract accounting concept, can be created is by the act of buying something. The money you create then is a claim on a portion of the wealth of the trading community of which you are a part. This means that you have agreed to back the money you have issued by selling something you own or produce in exchange for money. Not necessarily the same money you issued but money from the same trading community. This means that the only way you can create money is by creating a debt for yourself. No one else can create this debt for you and no one can discharge this debt except you. And the only way you can discharge the debt is by selling something in exchange for the same kind of money you created earlier.
If we say that only government can create money, then the government has to create it in the same way as you would. The government must buy something. Printing up a bunch of currency won't do it. Until it is spent into circulation, it does not represent money. So, in order to get more money into circulation, the government must buy something. Unfortunately, government does not produce anything so it can never discharge the debt it has created. Instead, government claims that it is issuing currency in your name and is thus creating a debt that you must discharge.
There are at least two problems with this process. First, the govenment has no way of knowing how much of a debt you are capable of discharging nor how much of a debt created by someone else you are willing to discharge. If government guesses wrong, it will create inflation, if too much money is created, or depression, if too little. The second, and more serious, problem is that a government doesn't produce anything, or at least not much, so a government has no way of discharging the debt and when you discharge the debt for the government, you end up losing your assets. This process eventually results in the government owning everything. In a system where the government owns everything, the government must provide everything. This, in its most benign form, is socialism or, to use a generic term, collectivism. And notice that this happens automatically, every time, provided only that the original mistake is made.
In the next article, we will examine why this has not happened in the US.
So the second mistake the people in the story made was agreeing to let government get involved in issuing money.
Copyright at Common Law, West El Paso Information Network, 1998