Fiat: Let There Be Blight!!


Fiat money has got to be the best racket around. A few years ago I calculated that the interest earned on the national debt amounted to roughly a billion dollars per working day. That’s a pretty good return — mathematically, an infinite return — on "money" created out of thin air by the lender, who does so pursuant to no law that I know of permitting him — a private individual — to create what passes for United States money.

But there are problems, which multiply and become ever more severe as the fiat accumulates. For one thing, it loses its "purchasing power," which is as close as you can come to fixing a value for an intangible "money." That means that continued lending, which is essential if the system is not to implode, becomes more difficult, as the burden of debt accumulates, and the return on future investment may not be sufficient to retire it. And foreigners, holding huge dollar amounts, may be reluctant to acquire any more of the stuff, and dump some of their cache while it will still purchase something. Bad news for dollar creators; if people won’t use/save the stuff, there’s less profit in printing it.

And, of course, there’s the latest problem, recently in the news. The coins, admittedly an insignificant part of the money supply, achieve a value, thanks to their metal content, which exceeds their face value. Embarrassing!

The mint stopped using copper for pennies some years ago, but even with that metal comprising only 2.5% of the coin’s weight, the metal in the coin is still worth more than a cent. Specifically, the "cent" is worth 1.12 cents. Older cent coins, minted prior to 1982, and containing 95% copper, are worth about 2.12 cents.

Today’s nickel contains 75% copper. It’s worth almost 7 cents.

These facts illustrate another problem with fiat: there can be no monetary standards when the "money" has no physical existence. You cannot speak of the weight or purity of modern money. Thus, we have the situation, really incredible or laughable — or both — that a "cent" is worth 1.12 cents, or, depending upon its age, 2.12 cents. Or a nickel is worth 6.99 cents. What’s going on here? How can one cent be 2.12 cents? Or five cents be seven? Fortunately for the money-creators, few people give this any thought, and even fewer care. How sad, since no problem faced by our society is more serious.

How is the government responding to this situation? Not surprisingly, with bluster, threats, and lies. Obviously, it would be advantageous to melt down pennies, thus realizing about a 10% profit, before expenses, unless the pennies were pre-1982, in which case there’s be a 100% pre-expense profit. Uncle Sam wants to make this a crime. "We are taking this action because the nation needs its coinage for commerce. We don’t want to see our pennies and nickels melted down so a few individuals can take advantage of the American taxpayer," declared mint Director Edmund Moy. Huh? It isn’t immediately obvious how the "American taxpayer" would suffer from the melting down of pennies. Besides, if the pennies actually belong to the persons melting them down, they’re melting their own property. It’s a bit hard to see how government, to save the banker’s face, can make it a crime to melt your own property. No doubt the U.S. is encouraged by the fact that, in the 1930s, when it became a crime for Americans to own their own (gold) money, there were few objections to the "law," and the people allowed themselves to be robbed.

The mint also complains that it now costs more to make pennies and nickels than they’re worth. Do you believe that? The mint can purchase whatever it needs, and pay the salaries of its employees, with Federal Reserve Notes produced by its partner in crime, the Bureau of Engraving and Printing. Federal Reserve Notes cost nothing to produce, since they will pay the cost of their own production. Just print a few extra ones, and give them to the suppliers, workers, etc. Use the rest of this free "money" to buy copper, zinc, nickel, and pay the mint workers. Thus, we, the people, foot the bill, not the mint. The hapless citizen’s savings grow increasingly worthless, and the buying power of his income shrinks, but Uncle has no savings, and he can always supplement his income by boosting taxes, and/or printing more of the "money." This will continue until the stuff becomes so useless that the jig’s up. Then they’ll switch to a new size and color bill and start over. Unmentioned in the mint’s press releases, incidentally, is the profit from its other coins, which cost significantly less than their face value to manufacture.

If anything reveals the duplicitous and dishonest nature of government, it’s the way it treats money.

Dr. Hein [send him mail] is a retired ophthalmologist in St. Louis, and the author of All Work & No Pay.