11 - From Gold & Silver Money to Worthless Paper Substitutes

“The one who discovered that if he could decree what was money, he himself could issue the money and gain real wealth in exchange for it.”⁵

Before a government can successfully embark on the path to inflation it must overcome a number of obstacles...

Seize a Monopoly of the Minting Business

The first step is to take control of the minting business and to outlaw the production of private coinage.

Next a government must slice through the notion that gold and silver are money. Remember that money is a commodity and its unit of measure is quoted as its weight in gold or silver. This limits a government’s ability to inflate the currency since the government cannot create more gold or silver than it has title to.

In order to commence an inflation the government must move away from quoting money in terms of weight, instead choosing to create a “national name” for the currency: dollars, marks, francs, and the like.

Declare What is Legal Tender

To ensure that no other coins circulate in competition with those of the State, a Government must decree what is “Legal Tender”. The cementing of its own national currency in law is accompanied by the abolition of coins minted by rival governments. Usually a “Central Bank” is created and this institution is granted monopoly of the note issue by the government.

Move Away from Gold & Silver Backing

“The most important thing about money is to maintain its stability….You have to choose between trusting the natural stability of gold and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold." George Bernard Shaw

Despite the name changes and the abolition of rival coins, a government is still shackled to the disciplines of gold and silver money through its trade with other nations. Before it can have unlimited power over the money of a nation it must unshackle itself from these constraints. Unfortunately for us, governments’ ability to do so became significantly easier in the twentieth century with the proliferation of money substitutes and electronic banking.

Once a government has full control over its money and has removed any precious metal backing it is free to do as it wishes. It can spend as much money as it wishes because it can print as much money as it wishes and it can expropriate as much public wealth as it wishes because it is in full control of that money printing process.

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