“The question, are there valid laws of economics, or is economics an area of pragmatic practice and social convention, is then a question with reference to the existence of God. And the biblical position is that every sphere, economic, political, educational, social, marital, scientific, and all others are governed by the absolute laws of God and are set within a context of law.”1 —Rousas John Rushdoony
In 1965, just before I turned eleven, my father taught my sisters and me how to examine every dime, quarter, and half-dollar we received. Every silver coin (those minted before 1965) we were instructed to keep and never spend, because silver was valuable and would become even more so, while the new coins were what he called “slugs.” About that time he encouraged us to get our savings together and buy gold coins. I managed to scrape together, I believe, just under fifty dollars, and he bought me a one-ounce U.S. twenty-dollar “double eagle” gold coin.
My father did not restrict his advocacy to family. In the late 1960s my father gave crash courses on money and inflation to many people. He facilitated their purchases of silver and gold through a dealer he knew and trusted. He took delivery of bags of silver and gold coins at the air freight terminal at Los Angeles Airport and delivered them to the buyer. At the time he drove a 1960 Cadillac Coupe de Ville. Years later he would laugh at how he wrecked the rear springs of that car hauling coins. For this he took no fee or commission. His purpose was the empowerment of Christians by preserving their wealth in inflationary times.
What Is Money?
Historically, there have been five necessary prerequisites for any money to gain widespread acceptance. Money needs to be scarce, durable, divisible (into fractional units), transportable (and hence easily transferred), and easily recognized. From our earliest records gold and silver have fulfilled these requirements and served well as money.
Money is commonly defined as a medium of exchange or a representation of wealth, yet these definitions invite statist, fiat money.2 Silver and gold have been used as money not because they have been arbitrarily decreed to have the utility of the five characteristics but because they have these characteristics that have historically caused the marketplace to regard them as an honest medium of exchange.
If I barter my beef for your set of chairs, we have exchanged items we each regard as valuable—value has been voluntarily exchanged for value. The chairs do not represent the beef or vice versa—each has value. If you give me gold or silver for my beef, I have also received something that throughout all of human history has itself been valued.
Fiat money, however, has no historic value. Therefore, it is generally necessary that the government mandates its acceptance as money through legal tender laws.3
If money merely represents wealth, or if it is merely a medium of exchange, then paper could serve that purpose. Legal tender laws could then decree any commodity as money. Why is such action wrong?
Economic law is a subset of God’s law, and all God’s law is by definition moral law, for God only speaks in terms of moral certainty. If we jump off a cliff, we can be certain that the laws of physics apply. When we create fiat money and by statist force order it to be accepted in the marketplace for things of real value, the laws of economic certainty will apply.
The fundamental law of economics is “Thou shalt not steal,” and fiat money and legal tender laws constitute theft because they demand the acceptance of nothing for something. Fiat money would naturally have no value in the marketplace. Its “value” is by order of state authority.
Managed Money, Managed Men
This presumption to the right of theft is the basis for the state’s presumption of innocence when the effect of fiat money becomes noticeable. Inflation is the increase of fiat money, which decreases the value of all the money.4 Just as adding water to milk decreases its value, adding more fiat money decreases the value of all other monetary units in circulation. Because its right to produce money and the nobility of its intentions are presumed by the state, blame for rising prices (which result from an increasingly worthless monetary unit) must be placed elsewhere. The statist creators of fiat money will define inflation as rising prices and ignore the fact that such prices are the market’s response to the increase of monetary units. Business or labor is then blamed for inflation by its actual perpetrators, who offer relief in more government control of the economy.
A managed money means that the entire economy and all wealth represented by that money is managed by the state. Hard money (of precious metals, particularly gold and silver) cannot be created by the state; it comes from a great deal of investment and work. Hard money thereby limits the power of the state. Hard money is money controlled by the market (i.e., people). Individuals then have wealth and power.
Fiat currency is not controlled merely in its creation. It is also controlled in its value. The production of new money dilutes the value of all money, so one’s managed money means one’s wealth and savings are being destroyed. Inflation is often called the hidden tax. Though the government is not taking your money physically, it is taking the value of that money. This is only possible with managed money. Individuals are left to try to create more spending power with their money than they lose to inflation. This creates investment bubbles, which are speculations that grow in popularity and price beyond any logic of real value. When the bubble bursts, the “sure thing” drops precipitously in value. The reason for such recklessness is that investors become gamblers when they know their money is declining in value. They know they have to hit it big quick or they will lose it progressively to the decline of the value of their monetary unit. Character and thrift are also casualties of fiat money.
The state is empowered when it creates money in exactly the same way a counterfeiter is when he trades his fiat money for things of value. This is why there has never been a fiat currency that was not inflated. Fiat money allows the state the ability to be every special interest’s “sugar daddy,” increase its civil servants (and control of its people), fight wars, and more. Like other counterfeiters, the state spends its fiat money at current value and receives top value for it. The people who get the money late spend it when prices are inflated. Managed money is thus a means of exerting statist power that is taken from the people.
An Artificial Economy
When I was in high school, my history teacher said the Great Depression was caused by reckless speculation in the stock market (i.e., the stock market crash caused the depression). In reality, the stock market crash of 1929 itself was caused by the money management decisions of the Federal Reserve. The 1920s was a boom economy caused by the Federal Reserve’s rapid expansion of the money supply. Money was easily available. Economically, this meant a great deal of money was put into the stock market, causing prices to soar. Culturally, the easy money led to a “good times” mentality, the “Roaring ’20s.” When the Federal Reserve decided to slow the availability of money, the bubble burst. A depression is the correction to inflation. The government tried to stimulate the economy with public spending and debt (which decapitalizes a people). Their efforts did not return prosperity. The massive spending during WWII was another inflationary round that repressed, or hid, the depression.
Since WWII the U.S. economy has gone through periods of boom and bust. The booms are when fiat dollars are easily available. The holders of those new dollars need a place for them, so they spend and speculate (savings makes no sense when the currency is losing purchasing power). These boom periods look like prosperity, and politicians take credit for them.
Soon enough, however, it becomes obvious that the new dollars have caused rising prices. When this becomes a political concern, money managers slow the input of dollars and credit. The effect is like rain on the local fair—no dollars mean no more good times. The artificial boom turns into a bust. The bust is called a recession, which is repressed depression. The answer of the Federal Reserve and our political leaders is another round of inflation in order to avoid a return to depression and bring about another boom.
The economic history of the U.S. since the Great Depression has been an avoidance of the consequences of managed money. Our policy has been a balancing act of boom and bust. The 1990s was a boom period; its speculative bubble was stocks, particularly the dot-coms. It got Bill Clinton elected twice (remember “It’s the economy, stupid”?), but the recession of 2000–2001 was instrumental in turning voters to George W. Bush. The boom of the Bush years involved speculation in stocks and the real-estate bubble. The bust that put us in the current recession helped propel Barack Obama and the Democrats to power. Obama’s inflationary stimulus has thus far failed to produce a boom, which his declining popularity reflects.5
A fiat currency is always a managed currency, which takes liberty from the individual and fuels a powerful state.
A fiat currency is always an inflated currency, which robs everyone of his wealth and subsidizes a parasitic state.
A fiat currency is not going to lead us to socialism; it is the socialistic system within which Washington, D.C., and the Federal Reserve presently rule us.
The good news is that the system is failing. Booms and busts are getting closer together and more pronounced. The dollar is so inflated its utility is now commonly called into question.
The bad news is that our wealth and our liberty decline with the dollar.
The economic laws, which are applications of “Thou shalt not steal,” will prove insurmountable. Do not look to politicians or bankers to solve the problem. The solution will come in spite of them, and it will be a difficult one. Our managed fiat money represents a socialistic revolution in U.S. history. Changing to an honest money will be no less a momentous change, however necessary and overdue.
1. R. J. Rushdoony, Politics of Guilt and Pity (Vallecito, CA: Ross House Books, 1970, 1995), 234.
2. Fiat money is something declared money by the power of the state without any intrinsic value.
3. Legal tender laws are necessary to fiat money. Without them, the marketplace would not accept the state’s notes in trade.
4. Legal tender laws mean “good” money becomes a commodity and is no longer circulated as currency because its market price is increased.
5. One reason the massive inflation represented by the Bush-Obama stimulus packages has not yet produced inflation is that much of those fiat dollars have not found their way into the economy. Much of it was used by banks to recapitalize themselves. When those dollars begin to be loaned, the influx of dollars will be noticeable and an inflationary boom will likely result.