Money: The Basics– Part III: “Currency Debasement”

In the first installment of this series, we discussed what money is. In Part II, we analyzed why historically, gold and silver make the most stable forms of money. In this installment, we will begin to discuss how governments ruin money.

Currency Debasement

Throughout the history of civilization, governments have sought control over their civilization’s money supply. In practically every case that they have achieved this monopoly, catastrophe has followed.

In the days before fiat currency and central banking, governments primarily used a process called currency debasement in order to raise money for their state projects–usually warfare. In this process, the king/emperor/czar (pick your poison) called for a re-coinage of all the kingdom’s money supply.

Throughout the process of reissuing the currency, the state reduced the precious metal content of the coins and added it to the treasury. They then gave the same amount of debased coins back to the populace with a new stamp on them. Theoretically, everyone received the same amount of coins as they initially had given. The king then used the gold he stole to mint extra coins for his own use. Through spending this coin, he essentially increased the overall supply of money.

Because the king was the entity that first introduced the new coins into the money supply, he was able to enjoy low pre-inflation prices. Once he spent his stolen loot however, the effects of this increase in the supply of money then drove prices up for everyone to the tune of whatever percentage that he stole from the populace during the debasement process. As you may imagine, this process affected the middle class and the poor most of all because they were the last to get their hands on the new money.

As the money inflated, the lower classes continued to become destitute. The value of their money (or savings, if they had any) depreciated because the number value of their holdings did not increase in accordance with the increase in the money supply. Rinse and repeat this process ad nauseam  and people began to lose faith in the value of the kingdoms money. Pretty soon no one would accept the money and the kingdom would collapse from internal or external means.

Thankfully, the process of currency debasement was a relatively inefficient way to steal from the public. The process was long and tedious and therefore only performed once or twice in a generation. Unfortunately, governments have wised up since then.

In this installment of our series, we discussed the process of currency debasement. In our next issue, we will begin to tackle the horrific evils of central banking.

As always, thanks again for reading and check out the source material through my Amazon affiliate link:

The Mystery of Banking; Murray Rothbard                                          Chapters I-IV

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