Okay, so today I’m continuing my odyssey in Murray Rothbard’s Case Against the Fed, taking about monetary inflation and counterfeiting and yes, our Libertarian North Columbians in Lord of Columbia managed to escape such destructive inflation.
Let’s take a look as to why this is the case.
Rothbard begins by proposing this scenario: Gold becomes society’s money, and its weight becomes the currency unit (we’ll just say ounces).
In such a scenario, we will only see gradual increases in the supply from gold mines, but the supply of gold is limited, especially due to the costs of gold mining.
The currency in gold remains a stable value as a result and to further the prosperity, the increased output of goods will more than offset the gradual increase in money.
The Results of Zero Inflation?
In the gold scenario listed above, the following benefits occur:
1. Gradual falls in price level.
2. Year after year increase in purchasing power (unlike inflation via fiat currency).
3. Being that we have more purchasing power, the encouraging of saving and investing in future production increases.
4. With increased purchasing power and falling prices due to the lack of inflation and increases in production, the standard of living rises.
Look at number four: Isn’t that what everybody wants?
I know I do.
But what typically happens in society?
Particularly American society?
1. Inflation leads to increases in prices.
2. Regulation increases the costs of production and can even cause businesses to either go under or get sold to a larger, more powerful company.
3. With lesser competition means lesser innovation, lower wages due to lesser competition, and output also stagnates.
4. And the standard of living falls.
But when there’s a sound currency like gold as society’s money?
The cost of living falls while money and wage rates remain the same – meaning an increase in purchasing power.
Meaning the standard of living goes up for workers.
Meaning more jobs are created and more businesses can enter the market.
Meaning better production, better products, and benefits all around.
A History Lesson
Don’t believe me about the falling prices?
This can never happen in real life, Todd!
Well, think again.
Consider the Industrial Revolution, wherefrom the late-eighteenth century until 1940, prices did fall except during times of war when prices increased due to governments radically inflating the money supply.
Yet such prices gradually fell once again.
But this does not mean depression, as many would lead you to believe.
Instead, prices fell due to an increase in productivity – more supply meant lower prices.
The above scenario is also the basis of Libertarian North Columbia in my Lord of Columbia Series.
But what’s going on in Southpoint-controlled Gaia?
Let’s take a look.
The Snake of Eden
Okay, so Rothbard wants us to imagine a snake appearing in this Eden of a society where sound money and successful monetary calculation dominates society.
This snake attempts to counterfeit, fooling the populace into believing its valueless object is also a money-commodity.
So what happens?
1. The total supply of money increases, thereby driving up the prices of goods and driving down purchasing power.
2. Who gains control of the counterfeit money? Well, the ones making it. The entire distribution of income and wealth changes and the counterfeiters gain a disproportionate amount of the money supply.
But, suppose the counterfeiters granted everyone a wish and doubled their money supply with this counterfeit money.
Well, as Rothbard states when everyone rushes out to spend their doubled money supply, they find the prices more than doubled with the value of their true money being cut in half.
It’s because productivity never increased to offset the supply of goods.
Therefore demand rises, goods become more scarce, and prices skyrocket.
Counterfeiting in Real Life
As mentioned in an earlier section, counterfeiting is always a process in which the counterfeiter gets the money first.
The counterfeiter then buys various goods and services.
The retailers receive the counterfeit money selling goods to the counterfeiters.
And on and on, through the pockets of various people does the new money travel. The increase in money supply now allows retailers to bid up goods and services.
As this process continues and prices rise, those who haven’t yet received the new money suffer. The prices of goods they’re buying have gone up, but at the same time the prices of the goods they’re selling remain the same, meaning their incomes won’t increase.
Those receiving the new money in its early stages gain and those who receive the new money, in the end, will lose every single time. It’s practically a hidden “tax,” as Rothbard points out.
The earliest receivers gain the most and the latest receivers lose the most.
This, in short, is how the Fed operates, creating money out of thin air. The creators will always receive the new money and channel it through the economic food chain, where those receiving the money later in the chain will always have to contend with increased prices, increased demand, and zero if any increases in productivity.
Ron Paul might say it the best, as prices increase and wages can’t keep up.
If you ever heard him utter this sentence, this is exactly what he means.
An increase in money supply will always result in changes in the distribution of income and wealth. This ripple effect alters the state of prices, and of the kinds and quantities of goods that will be produced. This is because the counterfeiters will always have different preferences and spending patterns than the late receivers who are “taxed” by these early receivers.
This results in a permanent change in income distribution, spending, relative pricing, and production.
But per Rothbard, what is the worst offense of such counterfeiting?
It cripples the moral and property rights of any free-market society.
Remember, in our free-market society of North Columbia, there are only three ways one can capture more money:
1. Mining more gold, silver, diamond, and other hard forms of currency.
2. Selling a good or service in exchange for gold owned by someone else.
3. Receiving gold as a voluntary gift.
But when a counterfeiter appears and creates fake gold coins, he can acquire money in a fraudulent manner where he can bid resources away from legitimate owners of gold. He does this through the method I described above; by purchasing products from retailers, who acquire the new money pumped into society. The retailers spend the money for more goods than what is normally purchased since they have means to purchase more, which will lessen supply in the market of identical goods from other retailers.
This forces such retailers to raise their prices, demanding more money in exchange for their commodities, but by this point the new counterfeit money is now being circulated through the market to its latter stages. However, the counterfeiter creates more and more money before the new money fully circulates the market which creates even higher price increases, and the process continues.
The result is a distorted increase in pricing before the original counterfeit money reaches its endgame.
And it’s what we see in the US, or in my works, how the Southpoint-controlled monetary system via central banking works to fuel its empire.
Who gets the newly created money first?
The Southpoint government.
Who buys the commodities first, these being military weapons from high-end manufacturers?
The Southpoint government.
Who now demands more supplies to build the weapons, which the government is demanding more of?
The weapons manufacturers.
But as Southpoint spreads its imperial fist, what’s the government doing?
Creating more money to buy more military supplies.
And who ends up getting the money last?
The common people, whose standards of living have decreased substantially due to hyperinflation.
But what’s the most alarming aspect of this entire ruse?
Well, since our Southpoint government is the one doing the counterfeiting, such counterfeiting is legalized.
Let’s take a look.
As you can see in the above section and as Rothbard points out in Chapter Four of The Case Against the Fed, legalized counterfeiting from government becomes a ‘grave economic and social problem.’
Because at this point there is no one go guard our guardians against the depredations of private property.
What are the types of legalized counterfeiting?
You might know this one:
Government paper money: Now, if the paper notes are treated on the market as equivalent to gold, such paper adds to the total money supply.
However, and as so often happens, the government prints more money than what they have in gold stock. If there are only ten-million dollars equivalent to gold in stock (let’s say 1/100th of an ounce of gold equals one dollar), but they print twenty million dollars of paper money, such counterfeiting will lead to the scenario I depicted above.
Let’s say the government gets the money first and the government’s friends and relatives head the military-industrial complex and get the money next to Southpoint can spread its imperial fist or in real-life where the US can sell weapons to Saudi Arabia, Israel, the UAE, and Qatar, guess who’s getting the money first?
The government who just printed our money.
Who gets it next?
Raytheon, Boeing, Lockheed, or in Lord of Columbia terms, Leis Industries.
Is this the fate of the dollar?
Has this happened in America before?
Yes. Ever hear of the Continental?
During its day, the Colonial government printed so much of it which was non-redeemable due to the fact they printed more than was backed by gold. It became radically discounted to the point it became worthless. If you ever heard the phrase ‘Not worth a Continental,’ this is where it came from.
In Lord of Columbia
In Northern Knights I take the reader through South Columbia, which is a Southpoint-controlled territory. Here, they can see the poverty-stricken region that mounds upon mounds of inflation decimated to help fund the empire. Though your upper classes exist, they’re often the politically and economically well-connected to the Southpoint government, which the reader will see more of in Book II, Swords of Destiny.
However, when we arrive in North Columbia which is the primary setting for Northern Knights, we see a far different society. We see a society backed by a diamond standard, with gold, silver, copper, bronze, and other metals making up the rest of the currency market.
As a result, the North Columbians are a prosperous group of people, producing, consuming, and selling goods where the only oversight is the North Columbian people themselves, not government who tends to pick and choose our winners and losers via policy and decisions on who’s next in line for the loot.
I hope you enjoyed this presentation covering Chapters Three and Four of Rothbard’s ‘The Case Against the Fed’ and how it relates to Lord of Columbia.