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162 THE CREATURE FROM JEKYLL ISLAND
FOOL'S GOLD 163
Even Benjamin Franklin began to see the light. In a mood of
sarcasm, he wrote:
This Currency, as we manage it, is a wonderful machine. It
performs its Office when we issue it; it pays and clothes Troops and
provides Victuals and Ammunition; and when we are obliged to issue
a Quantity excessive, it pays itself off by Depreciation.
When speaking of deficit spending, it is common to hear the
complaint that we are saddling future generations with the bill for
what we enjoy today. Why not let those in the future help pay for
what will benefit them also? Don't be deceived. That is a misconception
encouraged by politicians to calm the public. When money
is fiat, as the colonists discovered, every government building,
public work, and cannon of war is paid out of current labor and
current wealth. These things must be built today with today's labor,
and the man who performs that labor must also be paid today. It is
true that interest payments fall partly to future generations, but the
initial cost is paid by those in the present. It is paid by loss of value
in the monetary unit and loss of purchasing power for one's wages.
INFLATION IS A HIDDEN TAX
Fiat money is the means by which governments obtain instant
purchasing power without taxation. But where does that purchasing
power come from? Since fiat money has nothing of tangible
value to offset it, government's fiat purchasing power can be
obtained only by subtracting it from somewhere else. It is, in fact,
"collected" from us all through a decline in our purchasing power.
It is, therefore, exactly the same as a tax, but one that is hidden from
view, silent in operation, and little understood by the taxpayer.
In 1786, Thomas Jefferson provided a clear explanation of this
process when he wrote:
Every one, through whose hands a bill passed, lost on that bill
what it lost in value during the time it was in his hands. This was a real
tax on him; and in this way the people of the United States actually
contributed those... millions of dollars during the war, and by a mode
of taxation the most oppressive of all because the most unequal of all-
1 Letter to Samuel Cooper, April 22, 1779, quoted by Albert Henry Smyth, ed., The
Writings of Benjamin Franklin, (New York: Macmillan, 1906), Vol. VII, p. 294.
2. Thomas Jefferson, Observations on the Article Etats-Unis Prepared for the
Encyclopedia, June 22, 1786, from Writings (New York: G.P. Putnam's Sons, 1894),
Vol. IV, p. 165.
ENTER PRICE CONTROLS AND LEGAL TENDER LAWS
As prices skyrocketed, the colonies enacted wage and price
controls, which was like plugging up the whistle on a tea kettle in
hopes of keeping the steam from escaping. When that failed, there
followed a series of harsh legal tender laws. One law even invoked
the specter of treason. It said: "If any person shall hereafter be so
lost to all virtue and regard for his Country as to refuse to receive
said bills in payment-he shall be deemed, published, and treated
as an enemy in this Country and precluded from all trade or
intercourse with the inhabitants of these colonies." 1
Rhode Island not only levied a heavy fine for non-acceptance of
its
notes but, upon a secmd offense, an individual was stripped of
citizenship. When a court declared the act unconstitutional, the
legislature called the judges before it and summarily dismissed the
offenders from office.
ENTER ECONOMIC CHAOS AND INSURRECTION
If the ravages of war were a harsh burden for the colonies to
bear, the havoc of fiat money was equally so. After the war,
inflation was followed by deflation as reality returned to the
market place. Prices fell drastically, which was wonderful for those
who were buying. But, for the merchants who were selling or the
farmers who had borrowed heavily to acquire property at inflated
wartime prices, it was a disaster. The new, lower prices were not
adequate to sustain their fixed, inflated mortgages, and many
hard-working families were ruined by foreclosure. Furthermore,
most people still did not understand the inflation process, and
there were many who continued to advocate the "paper money
cure." Several of the states were receptive to the pressure, and their
printing presses continued to roll.
Historian Andrew McLaughlin recalls a typical scene in Rhode
Island at that time as witnessed by a visiting Frenchman:
A French traveler who passed through Newport about this time
gives a dismal picture of the place: idle men standing with folded arms
at the corners of the streets; houses falling to ruins; miserable shops
offering for sale nothing but a few coarse stuffs;...grass growing in the
streets; windows stuffed with rags; everywhere announcing misery,
| David Ramsay, History of the American Revolution (London: Johnson and Stock-
Jale, 1791), Vol. II, pp. 134-36.
2
- Merrill Jensen, The New Nation (New York: Vintage Books, 1950), p. 324.