Creature From Jekyll Island by G. Edward

handled—a process known as coin clipping—and then having the shavings melted down into new coins. Before long, the king's treasury began to do the same thing to the coins it received in taxes.

In this way, the money supply was increased, but the supply of gold was not. The result was exactly what we now know always happens when the money supply is artificially expanded. There was inflation. Whereas one coin previously would buy twelve sheep, now it would only be accepted for ten. The total amount of gold needed for twelve sheep never really changed. It's just that everyone knew that one coin no longer contained it.

As governments became more brazen in their debasement of

the currency, even to the extent of diluting the gold or silver content, the population adapted quite well by simply 'discounting' the new coins. That is to say, they accepted them at a realistic value, which was lower than what the government had intended.

This was, as always, reflected in a general rise in prices quoted in terms of those coins. Real prices, in terms of labor or other goods or even of gold itself remained unchanged.

Governments do not like to be thwarted in their plans to exploit their subjects. So a way had to be found to force people to accept these slugs as real money. This led to the first legal-tender laws. By royal decree, the 'coin of the realm,' was declared legal for the 1 Groseclose, Money and Man, p. 13.

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THE CREATURE FROM JEKYLL ISLAND

settlement of all debts. Anyone who refused it at face value was subject to fine, imprisonment, or, in some cases, even death. The result was that the good coins disappeared from circulation and went into private hoards. After all, if the government forces you to accept junk at the same rate of exchange as gold, wouldn't you keep the gold and spend the junk? That is what happened in America in the '60s when the mint began to issue cheap metal tokens to replace the silver dimes, quarters, and half-dollars.

Within a few months, the silver coins were in dresser drawers and safe-deposit boxes. The same thing has happened repeatedly throughout antiquity. In economics, that is called Gresham's Law:

'Bad money drives out good.'

The final move in this game of legal plunder was for the

government to fix prices so that, even if everyone is using only junk as money, they can no longer compensate for the continually expanding supply of it. Now the people were caught. They had no escape except to become criminals, which most of them, incidentally, chose to do. The history of artificially expanding money is the history of great dissatisfaction with government, much lawlessness, and a massive underground economy.

GOLD IS THE ENEMY OF THE WELFARE STATE

In more modern times, rulers of nations have become more

sophisticated in the methods by which they debase the currency.

Instead of clipping coins, it is done through the banking system.

The consequences of that process were summarized in 1966 by Alan Greenspan who, a few years later, would became Chairman of the Board of Governors of the Federal Reserve. Greenspan wrote: The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit....

The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods-When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes....

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.... The financial policy of the THE BARBARIC METAL

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welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the ' h i d d e n '

confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.

Unfortunately, when Greenspan was appointed as Chairman of the Federal Reserve System, he became silent on the issue of gold.

Once he was seated at the control panel which holds the levers of power, he served the statists well as they continued to confiscate the people's wealth through the hidden tax of inflation. Even the wisest of men can be corrupted by power and wealth.

REAL COMMODITY MONEY IN HISTORY

Returning to the topic of debasing the currency in ancient times, it must be stated that such practices were by no means universal. There are many examples throughout history of regents and kingdoms which used great restraint in money creation.

Ancient Greece, where coinage was first developed, is one of them.

The drachma became the defacto monetary unit of the civilized world because of the dependability of its gold content. Within its borders, cities flourished and trade abounded. Even after the fall of Athens in the Peloponnesian War, her coinage remained, for centuries, as the standard by which all others were measured.2

Perhaps the greatest example of a nation with sound money, however, was the Byzantine Empire. Building on the sound monetary tradition of Greece, the emperor Constantine ordered the creation of a new gold piece called the solidus and a silver piece called the miliarense. The gold