U.S. Government Printing Counterfeit Currency (Part 1)
If George Washington were alive today, he would be angry to see his likeness being used on counterfeit currency. There are trillions of dollars of U.S. currency of all denominations in circulation today, most bearing the portraits of various dead presidents. They are all counterfeit. And the U.S. coins you have in your pocket or purse? They’re counterfeit as well.
This is not the work of a huge nefarious counterfeiting ring. Nor is it a plot by some foreign government intent upon destabilizing the U.S. government (although that sort of thing did happen during World War II). No, the United States of America started counterfeiting its own money in 1913. It showed a little more restraint with its coins; it didn’t start counterfeiting them until 1965.
How did we come to this sorry state of affairs? Strangely enough, it all started with the Romans. Like the politicians of today, the Roman senators had huge egos. They wanted to build monuments to themselves, and they needed to keep the masses happy. So they constructed huge public works projects, they provided public entertainment (like lions eating Christians), and they even had a welfare system. The problem was that this all cost money – more money than they had. Like all politicians, their first thought was to raise taxes, and raise taxes they did – right up to the point where if they raised them any further there would have been armed rebellion.
Then one politician (the Roman equivalent of a Liberal, I am sure) came up with a brilliant idea: “Let’s start debasing the coins.” Now, let’s stop right here and clear a few things up. The reason the Romans didn’t just print more money like Ben Bernanke, the Chairman of our Federal Reserve System, likes to do, is that paper money hadn’t yet been invented. Money was real back then – mainly Silver or Gold coins that were not so easy to counterfeit as the worthless paper I.O.U.’s our government issues today.
The second point is that we use the word “debasement” today in relation to currency, or paper money. When we say that a government “debases” its currency, we mean that it has issued more dollars (or Euros or Pounds) backed by nothing, making all the other currency in circulation more worthless. The word “debase” was originally used for coins, when a government added “base” (worthless) metals to the precious metals in its coins, thus “debasing” them. Coins meant for circulation are seldom pure Gold or Silver. For instance, pure Gold is so soft that if it were handled daily, as coins used for money would be, it would wear down, bend, and be easily nicked. So an alloy, usually containing a small percentage of copper, was used for Gold coins intended for circulation by most nations.
Now, back to Rome. As I mentioned, twenty centuries ago their politicians had the same problems ours do today, but they had to be more creative with their counterfeiting. They decided to “clip” their coins. This meant that they shaved a small amount of Silver from the edge of the coins as they circulated through the Roman Treasury. Then they used the shavings to make additional coins. This worked for a while until the people realized that the coins no longer contained the same amount of Silver. Then they stopped accepting them, or they required more of them to purchase the same item. For instance, if the price of a loaf of bread were two Silver denari, the baker would accept two unclipped coins or three clipped coins.
Take a moment and look at your loose change for a clue as to how the Romans solved this problem. You will notice that your cheaper “base” metal coins – the copper pennies, and the five cent pieces made of nickel – have smooth edges. But your dimes, quarters, and half dollars, which used to be precious metals made of Silver (that’s right, I said “used to be”) have ridges on the edges called “reeding.”
The Roman people starting cutting notches in the edges of their coins so that it would be obvious if they had been clipped. This practice was the inspiration for the eventual invention of the process of reeding that is used by most nations for their precious metal coins (and by many to make their people think certain coins are precious when they are not). In the case of Rome, once the people realized their coins were being clipped, the government stopped using that particular scam. However, they still needed to inflate the money so they could spend more and more and more. So the government criminals figured out a new way to rip off the citizens they were supposed to serve. They started debasing the coinage in earnest.
In 54 A.D. the main coin of the Roman Empire, the Silver denarius, was 940 fine, meaning that it was 94% Silver. The other 6% was base metal used to create a harder alloy. Since the people had caught them in their clipping scam, the government started melting down the Silver coins as they circulated through the treasury and adding more and more base metals so that they could produce more and more counterfeit coins. By 218 A.D. the denarius had been reduced from 94% Silver to only 43% Silver. By 268 A.D. it contained less than 1%. There are many theories as to the reason for the fall of the Roman Empire, but economic historians say the primary reason is obvious. The Roman soldiers grew tired of fighting and getting paid with worthless money. They started deserting and going home to farm so they could feed their children. It’s hard to defend a far-flung empire without soldiers.
Today, the Federal Reserve System of the United States and the Central Banks of most of the world’s developed nations have refined the Roman scam to the point where it’s like comparing a horse-drawn chariot to the space shuttle. Listen to Ben Bernanke, current Chairman of the U.S. Federal Reserve, describe with his smirk how the U.S. can keep printing money: “The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.” By saying this he was acknowledging that our money is worthless. In this speech in November 2002, he also said that it was in the interest of the U.S. Government to create inflation, because it, in effect, reduced the National Debt.
As long as we allow our government to continue printing debt money backed by nothing, it will continue to decline in purchasing power. It will become worth less and less until eventually it becomes worthless.