The Mystery of Banking

benefit at the expense of
those who get it late or not at all. The
first producers or holders of the new money will find their stock
increasing before very many of their buying prices have risen. But,
as we go down the list, and more and more prices rise, the peo-
ple who get the money at the end of the process find that they
lose from the inflation. Their buying prices have all risen before
their own incomes have had a chance to benefit from the new
money. And some people will never get the new money at all:
either because the ripple stopped, or because they have fixed
incomes—from salaries or bond yields, or as pensioners or hold-
ers of annuities. 
Counterfeiting, and the resulting inflation, is therefore a
process by which some people—the early holders of the new
money—benefit at the expense of (i.e., they expropriate) the late
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receivers. The first, earliest and largest net gainers are, of course,
the counterfeiters themselves. 
Thus, we see that when new money comes into the economy
as counterfeiting, it is a method of fraudulent gain at the expense
of the rest of society and especially of relatively fixed income
groups. Inflation is a process of subtle expropriation, where the
victims understand that prices have gone up but not why this has
happened. And the inflation of counterfeiting does not even con-
fer the benefit of adding to the 
non
monetary uses of the money
commodity. 
Government is supposed to apprehend counterfeiters and
duly break up and punish their operations. But what if govern-
ment 
itself
turns counterfeiter? In that case, there is no hope of
combating this activity by inventing superior detection devices.
The difficulty is far greater than that. 
The governmental counterfeiting process did not really hit its
stride until the invention of paper money. 
3. G
OVERNMENT
P
APER
M
ONEY
The inventions of paper and printing gave enterprising gov-
ernments, always looking for new sources of revenue, an “Open
Sesame” to previously unimagined sources of wealth. The kings
had long since granted to themselves the monopoly of minting
coins in their kingdoms, calling such a monopoly crucial to their
“sovereignty,” and then charging high seigniorage prices for coin-
ing gold or silver bullion. But this was piddling, and occasional
debasements were not fast enough for the kings’ insatiable need
for revenue. But if the kings could obtain a monopoly right to
print paper tickets, and 
call them
the equivalent of gold coins,
then there was an unlimited potential for acquiring wealth. In
short, if the king could become a legalized monopoly counter-
feiter, and simply issue “gold coins” by printing paper tickets with
the same names on them, the king could inflate the money supply
indefinitely and pay for his unlimited needs. 
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If the money unit had remained as a standard unit of weight,
such as “gold ounce” or “gold grain,” then getting away with this
act of legerdemain would have been far more difficult. But the
public had already gotten used to pure 
name
as the currency unit,
an habituation that enabled the kings to get away with debasing
the definition of the money name. The next fatal step on the road
to chronic inflation was for the government to print paper tickets
and, using impressive designs and royal seals, 
call
the cheap paper
the gold unit and use it as such. Thus, if the dollar is defined as
1/20 gold ounce, paper money comes into being when the gov-
ernment prints a paper ticket and