Today we take it for granted that our central bank, the Fed, can print money out of thin air, supposedly for our own good. When I say it "can" print money, I mean that in two ways. One, that it has the technical ability to print money, and two, that it has the legal and moral right to print money. Yes, the Fed can and does create money out of thin air. But I challenge the notion that it has either the legal or moral right to do so.
What Is Theft?
I am confident that all who read this article will agree that theft is a crime. Taking something that belongs to someone else is the definition of theft. If I lift your wallet and steal your money, I have committed a crime. But what if I steal from you S-L-O-W-L-Y so that you barely notice it at the time? I could do this very carefully, so that for some time you do not know what has happened. Perhaps you may not notice that I took only part of your money, believing that you must have spent it. Nevertheless, whether or not you notice that you have been robbed, I have committed the crime of theft.
Is Inflation Theft?
Now, let's examine what happens when the central bank expands the money supply. It is the stated goal of the central bank to create some inflation. By inflation, I am not speaking in Austrian economic terms. For Austrians, inflation means only one thing--expansion of the money supply not redeemable in specie (gold, silver, etc.). For the layman and for the central bankers, inflation means higher prices.
The Fed has engaged in a systematic attempt to keep prices higher than the unhampered market would establish. Since the fall of 2008 the Fed has expanded the money supply tremendously. M1 has increased by fifty-four percent and M2 has increased by twenty-three percent. So, the question remains: does this increase in the money supply represent theft by those running the Fed?
Austrian Monetary Theory Clarifies the Issue
To answer this question, let us examine monetary theory. Money is a medium of exchange and arises spontaneously in the market. It becomes a medium of exchange by the fact that it is the market's most marketable commodity, meaning that it is accepted by most market participants first for consumption and then for exchange for some other good at a later time. Only commodities can arise spontaneously as mediums of exchange, because only commodities have prior intrinsic or industrial value. Pieces of paper with fancy ink engravings do not have intrinsic or industrial value at all. As Murray N. Rothbard has outlined in his wonderful book What Has Government Done to Our Money?,the fiat money that we all use today was gradually and systematically forced upon the public by the coercive police powers of government. Why did it do this?
The answer clearly is that government wanted to be able to expand the money supply. It especially wanted to be able to bail out the big banks when their depositors grew concerned that they would not be able to withdraw their money on demand. But the government had a problem. It could not tax the country to provide for these funds--the public would not support such a blatant act of protecting the rich from their own foolishness. So it had to eliminate the NEED to tax the public. Thusly, over several decades it eliminated gold money, that it could not expand, and replaced it with fiat money that it could expand in infinite amounts.
Ben Bernanke has famously stated that the Fed cannot go bankrupt, because it can produce legal tender in whatever amounts are necessary. His statement is prima facie evidence that the purpose of fiat money expansion is to give purchasing power to some who have done nothing to earn it. This, of course, is theft.
By lowering the interest rate or engaging in quantitative easing, the Fed allows some economic units to purchase real goods and services that they would not have been able to purchase in the absence of fiat money expansion. These are goods and services that will be denied to current money holders at the price that would have pertained in the absence of fiat money expansion. It is irrelevant to the question of whether or not the Fed has committed the crime of theft to ask if prices are higher. It is irrefutable that prices are higher than they would have been in the absence of fiat money expansion. Paying this higher price means that the public has been robbed of something real. The lowered purchasing power of the public's money means that people can buy fewer units of goods and services.
The Founding Fathers on the Crime of Money Debasement
Our Founding Fathers understood the evil of money expansion much better than our so-called sophisticated modern central bankers. The 1792 Coinage Act made it a capital crime--i.e., death penalty--for debasing money! They understood that money debasement was a crime against all the nation's citizens, not just picking one or two pockets. They were unconcerned about the price level; the crime was tied directly to money debasement, a crime against property. Notice this: money IS property.
It is no exaggeration to claim that fiat money expansion is a criminal act, conducted purposefully in order to give purchasing power to some at the expense of all others. If anyone other than the Fed prints money out of thin air, he is prosecuted for the crime of counterfeiting. So why is the same act legal when perpetrated by the Fed?
I addressed this very question to a panel of Fed representatives touring the country on a public relations campaign in the summer of 2009. My question was "If it is beneficial for the economy, as you say, for the Fed to expand the money supply, why does the government prosecute counterfeiters?" To my astonishment and delight, my question was greeted with cheers from the audience. The Fed panelists squirmed in their seats and quickly called an end to the meeting!
For the Fed to claim that it acts legally according to an act of Congress does not eliminate the crime. During the Nazi era the Germans legally and democratically passed the infamous Nuremberg Laws that persecuted the Jews. Frederic Bastiat would not have been impressed with either the acts establishing the Fed or the Nuremberg Laws. He understood that "...the law may be diverted from its true mission, that it may violate property rather than securing it,..." Such is the case with the acts establishing the Federal Reserve Bank and expanding its power to debase money.
Expanding fiat money is a criminal act and should be prosecuted as such, just as the infamous Nuremberg Laws gave no legal cover to those who persecuted the Jews. We may be reluctant to admit that our government has committed, and continues to commit, acts that our Founding Fathers would punish with the death penalty. But such is the case.
All those who have participated and continue to participate in the criminal act of robbing hundreds of millions of Americans of their rightfully earned wealth that is held in the form of dollar assets must be brought to justice.