WEBVTT NOTE 14. The (Non-Government) Counterfeiter 1 00:00:00.000 --> 00:00:03.000 PART FIVE FINANCIAL 2 00:00:03.000 --> 00:00:08.000 CHAPTER XIV. THE NON-GOVERNMENT COUNTERFITTER 3 00:00:08.000 --> 00:00:24.000 The dictionary defines counterfeit as forged, false, fabricated without right, made in imitation of something else with a view to defraud by passing the false copy for genuine or original. 4 00:00:24.000 --> 00:00:29.400 Thus, counterfeiting is a special case of fraud. 5 00:00:29.400 --> 00:00:35.840 In a general case of fraud, the falseness consists of passing some good or article off 6 00:00:35.840 --> 00:00:40.280 in return either for another good or for money. 7 00:00:40.280 --> 00:00:46.700 In the case of counterfeiting, what is passed off as genuine is not a commodity or an article, 8 00:00:46.700 --> 00:00:48.820 but money itself. 9 00:00:48.820 --> 00:00:54.860 This special case of fraud constitutes theft, just as fraud in general does. 10 00:00:54.860 --> 00:00:58.940 But with counterfeiting, there are certain complications. 11 00:00:58.940 --> 00:01:04.580 The effects of counterfeiting depend entirely upon whether or not the counterfeit money 12 00:01:04.580 --> 00:01:07.480 is ever exposed as such. 13 00:01:07.480 --> 00:01:12.960 If it is, then the theft takes place in a rather straightforward way. 14 00:01:12.960 --> 00:01:17.980 If the falseness is discovered before the counterfeiter himself can pass it off to the 15 00:01:17.980 --> 00:01:47.700 Mr. B has given up a genuine good or service for a piece of paper which is then discovered to be fraudulent and worthless. 16 00:01:47.700 --> 00:01:53.700 The piece of paper is destroyed and the first recipient is left with nothing. 17 00:01:53.700 --> 00:01:59.620 If the discovery is made after the first recipient has passed it off unknowingly to a second 18 00:01:59.620 --> 00:02:06.120 recipient, but before the second has had a chance to pass it along to a third, then this 19 00:02:06.120 --> 00:02:09.880 second recipient takes the loss. 20 00:02:09.880 --> 00:02:15.340 The second recipient loses because he has given the first recipient something of value 21 00:02:15.340 --> 00:02:21.660 and has gotten nothing in return. If he can unearth the first recipient, the incidence 22 00:02:21.660 --> 00:02:26.620 of the loss would be complicated by the fact that the first recipient is innocent of any 23 00:02:26.620 --> 00:02:34.220 wrongdoing. The loss would probably have to be shared between the two recipients. Of course, 24 00:02:34.220 --> 00:02:40.540 if the original passer of the false money can be found and made to pay, no loss will 25 00:02:40.540 --> 00:02:46.700 will have taken place, since in effect no counterfeiting will have taken place. 26 00:02:46.700 --> 00:02:52.780 But if none of the previous passers can be found after the fact, the recipient who is 27 00:02:52.780 --> 00:02:58.580 discovered with the counterfeit money in his possession will bear the full loss, no matter 28 00:02:58.580 --> 00:03:02.860 how many times it has already been passed. 29 00:03:02.860 --> 00:03:08.380 If the counterfeit money is never discovered, the situation is radically different. 30 00:03:08.380 --> 00:03:15.000 The losses due to counterfeiting are incurred not by any one individual, but by the entire 31 00:03:15.000 --> 00:03:19.160 society in a rather complicated way. 32 00:03:19.160 --> 00:03:25.160 The losses are not immediately apparent, for there is no one recipient who loses the total 33 00:03:25.160 --> 00:03:30.740 value of the commodity given up in return for the counterfeit money. 34 00:03:30.740 --> 00:03:37.040 But it is easy to see that there are losses, for the counterfeiter has gained a value without 35 00:03:37.040 --> 00:03:41.600 without adding to the store of value of the rest of society. 36 00:03:41.600 --> 00:03:46.840 Since there are only so many goods in the society at any one time, and the counterfeiter 37 00:03:46.840 --> 00:03:53.040 has gained some through fraud, there must be others who have lost out. 38 00:03:53.040 --> 00:03:59.100 The way the loss is spread out through the society depends upon the rise in prices caused 39 00:03:59.100 --> 00:04:04.580 by the extra money, the counterfeited money, now in circulation. 40 00:04:04.580 --> 00:04:11.900 That prices will rise in response to the activities of the counterfeiters is a foregone conclusion, 41 00:04:11.900 --> 00:04:17.260 for counterfeiting increases the amount of money in circulation while the amount of goods 42 00:04:17.260 --> 00:04:20.800 and services remains the same. 43 00:04:20.800 --> 00:04:26.580 Prices will not rise all at once, nor will they rise smoothly and regularly. 44 00:04:26.580 --> 00:04:32.960 Rather, prices will rise in waves, as does the water in a pool in response to a stone 45 00:04:32.960 --> 00:04:35.720 and Disturbing the Equilibrium. 46 00:04:35.720 --> 00:04:41.040 They will first be driven up in the industry or area of which the first recipient of the 47 00:04:41.040 --> 00:04:44.360 counterfeit money is a member. 48 00:04:44.360 --> 00:04:50.440 Prices will be driven up because the counterfeit money spent in the industry is extra, that 49 00:04:50.440 --> 00:04:55.240 is, in the absence of the counterfeiting it would not have been spent. 50 00:04:55.240 --> 00:04:58.560 Therefore, the first recipient benefits. 51 00:04:58.560 --> 00:05:04.120 He has received money which would not have been forthcoming but for the counterfeiting, 52 00:05:04.120 --> 00:05:10.600 and he is able to spend this extra money in an area where prices have not yet risen. 53 00:05:10.600 --> 00:05:16.080 The first recipient gains this incremental difference, though it may be substantial, 54 00:05:16.080 --> 00:05:20.580 it is in no way comparable to the counterfeiter's gain. 55 00:05:20.580 --> 00:05:27.240 The second recipient also gains, as do all other recipients at the beginning of the ever-spreading 56 00:05:27.240 --> 00:05:33.240 Banking Ripple Effect. For these people all receive the new money before prices have had 57 00:05:33.240 --> 00:05:40.640 a chance to be pushed up by the extra money put into circulation by counterfeiting. However, 58 00:05:40.640 --> 00:05:47.160 in time there will be a recipient of the imitation money who will just come out even. He will 59 00:05:47.160 --> 00:05:53.520 receive money at a time when it is still possible to spend part of it in an area which has not 60 00:05:53.520 --> 00:06:00.200 not yet had a counterfeit-induced price rise. If he spends his money in an area which has 61 00:06:00.200 --> 00:06:07.200 not yet received a boost in prices, he will gain slightly from the inflation. If not, 62 00:06:07.200 --> 00:06:13.600 he will lose. On the average, people in this phase of the monetary expansion will be neither 63 00:06:13.600 --> 00:06:20.440 greatly benefited nor greatly harmed from the counterfeiting. People receiving the counterfeit 64 00:06:20.440 --> 00:06:26.320 Counterfeit money after this stage bear the losses of the monetary expansion. 65 00:06:26.320 --> 00:06:31.080 Before they receive any extra money, prices will have risen. 66 00:06:31.080 --> 00:06:36.940 When the counterfeit money finally filters down to them, they will be net losers. 67 00:06:36.940 --> 00:06:42.400 There are some groups, such as widows and retired people, who will always lose from 68 00:06:42.400 --> 00:06:48.240 counterfeiting because during the spread of the counterfeit-induced inflation, their incomes 69 00:06:48.240 --> 00:06:50.480 are fixed. 70 00:06:50.480 --> 00:06:56.920 If all this is true, how can the counterfeiter be considered a hero? Given that the main 71 00:06:56.920 --> 00:07:02.900 result of counterfeiting, which is eventually discovered, is to bilk the person caught holding 72 00:07:02.900 --> 00:07:09.420 the bag, and that the main result of undiscovered counterfeiting is inflation, which eventually 73 00:07:09.420 --> 00:07:18.020 harms many of us, it does indeed seem strange to call the counterfeiter a hero. The justification 74 00:07:18.020 --> 00:07:24.260 The reason for calling the common private counterfeiter heroic is that there is a prior counterfeiter 75 00:07:24.260 --> 00:07:30.620 in action, and that the money falsified by the private counterfeiter is not really legitimate 76 00:07:30.620 --> 00:07:31.620 money. 77 00:07:31.620 --> 00:07:35.920 Instead, it is itself counterfeit. 78 00:07:35.920 --> 00:07:41.360 It is one thing to say that counterfeiting genuine money amounts to theft. 79 00:07:41.360 --> 00:07:48.120 It is quite another thing to say that counterfeiting counterfeit money amounts to theft. 80 00:07:48.120 --> 00:07:52.160 Perhaps an analogy will clarify this point. 81 00:07:52.160 --> 00:07:58.320 Taking someone's rightfully owned property is theft and therefore unjustified, but no 82 00:07:58.320 --> 00:08:05.360 such prescription holds for taking the wrongfully owned, stolen property of the thief. 83 00:08:05.360 --> 00:08:10.360 Indeed, such an activity need not even be called theft. 84 00:08:10.360 --> 00:08:17.060 In other words, an act which seems to be seemingly identical with theft is not illegitimate at 85 00:08:17.060 --> 00:08:23.000 all if the victim has no legitimate claim over the articles taken. 86 00:08:23.000 --> 00:08:30.600 If B steals something from A and then C takes it away from B, we cannot hold C guilty of 87 00:08:30.600 --> 00:08:32.200 theft. 88 00:08:32.200 --> 00:08:37.860 For the sake of simplicity, we can assume that the original owner, A, cannot be found 89 00:08:37.860 --> 00:08:38.860 by C. 90 00:08:38.860 --> 00:08:46.140 A forced transfer of goods is illegitimate only if the original owner was the rightful 91 00:08:46.140 --> 00:08:47.500 owner. 92 00:08:47.500 --> 00:08:52.660 If he was not, there was nothing untoward about the transfer. 93 00:08:52.660 --> 00:08:57.860 In like manner, we can see that it does not follow from the fact that counterfeiting genuine 94 00:08:57.860 --> 00:09:04.100 money is illegitimate that counterfeiting counterfeit money is illegitimate. 95 00:09:04.100 --> 00:09:09.420 If the claims can be substantiated that the counterfeiting of counterfeit money is not 96 00:09:09.420 --> 00:09:16.220 itself illegitimate, and that if the original money is indeed counterfeit, then it will 97 00:09:16.220 --> 00:09:22.220 have been demonstrated that the private enterprise counterfeiter is not guilty of wrongdoing 98 00:09:22.220 --> 00:09:26.460 and can perhaps be considered heroic. 99 00:09:26.460 --> 00:09:32.340 The claim that the counterfeiting of counterfeit money is not itself illegitimate is based 100 00:09:32.340 --> 00:09:38.120 Based on our understanding that such an activity is identical in form with stealing from a 101 00:09:38.120 --> 00:09:39.720 thief. 102 00:09:39.720 --> 00:09:46.680 The original dictionary definition of counterfeiting spoke of fabricating without right, and of 103 00:09:46.680 --> 00:09:51.420 passing the false copy for genuine or original. 104 00:09:51.420 --> 00:09:57.440 But if what is being copied is itself counterfeit, then the counterfeiter is not passing the 105 00:09:57.440 --> 00:09:59.760 false copy for genuine. 106 00:09:59.760 --> 00:10:03.680 He is only passing off another false copy. 107 00:10:03.680 --> 00:10:10.040 And if fabricating without right means passing something off as genuine, then our counterfeiter 108 00:10:10.040 --> 00:10:17.400 is not fabricating without right, for he is not in fact trying to pass something as genuine. 109 00:10:17.400 --> 00:10:23.320 He is only trying to pass his handiwork as a copy of a counterfeit. 110 00:10:23.320 --> 00:10:28.800 The money which our counterfeiter is copying is itself counterfeit. 111 00:10:28.800 --> 00:10:34.280 It is made by a non-private counterfeiter, the government. 112 00:10:34.280 --> 00:10:38.240 This is a serious charge, and is not made lightly. 113 00:10:38.240 --> 00:10:44.000 Unappetizing though it may be, the fact is that governments everywhere make counterfeits 114 00:10:44.000 --> 00:10:47.480 of real money, gold and silver. 115 00:10:47.480 --> 00:10:53.760 Virtually all governments then forbid the use of real money, and allow only the use 116 00:10:53.760 --> 00:10:56.920 of the counterfeits they fabricate. 117 00:10:56.920 --> 00:11:02.120 This is equivalent to a private enterprise counterfeiter, not only copying the money 118 00:11:02.120 --> 00:11:09.860 in circulation, but also preventing and prohibiting the circulation of the legal money. 119 00:11:09.860 --> 00:11:15.580 Consider the monetary system before governments became deeply involved with it. 120 00:11:15.580 --> 00:11:21.780 Gold and silver, and paper certificates representing them, were the circulating medium. 121 00:11:21.780 --> 00:11:28.700 The government could not simply intrude on this system and impose its fiat currency, 122 00:11:28.700 --> 00:11:34.980 currency based upon the compulsion of emperors, kings and presidents, not upon the voluntary 123 00:11:34.980 --> 00:11:37.420 decisions of the people. 124 00:11:37.420 --> 00:11:43.060 The people would not accept it as money and would not voluntarily give up their hard-earned 125 00:11:43.060 --> 00:11:45.580 possessions for such tokens. 126 00:11:45.580 --> 00:11:52.140 Instead, the government utilized gradualist methods in its quest to seize control of the 127 00:11:52.140 --> 00:11:55.020 monetary mechanism. 128 00:11:55.020 --> 00:12:00.720 Under the gold standard, private minters converted gold bullion into coins. 129 00:12:00.720 --> 00:12:05.940 The weight of these coins was certified by the private minters, whose reputations for 130 00:12:05.940 --> 00:12:10.900 accuracy and probity were their main stock in trade. 131 00:12:10.900 --> 00:12:17.860 The first step of government was to seize monopoly control of the mints, proclaiming that coinage 132 00:12:17.860 --> 00:12:23.620 was the proper domain of the sovereign and that private coiners could not be entrusted 133 00:12:23.620 --> 00:12:26.380 with such an important task. 134 00:12:26.380 --> 00:12:30.360 The government thus nationalized the mint. 135 00:12:30.360 --> 00:12:33.900 The second stage was debasement. 136 00:12:33.900 --> 00:12:39.620 After affixing the picture of the monarch on the coin to ensure the weight and quality, 137 00:12:39.620 --> 00:12:46.000 The coins were sweated, stamped at a greater face weight than actual weight. 138 00:12:46.000 --> 00:12:50.660 It was in this way that government counterfeiting began. 139 00:12:50.660 --> 00:12:55.200 The third step was the enactment of legal tender laws. 140 00:12:55.200 --> 00:13:01.460 These laws required that money be traded and counted at its official stamped value and 141 00:13:01.460 --> 00:13:06.100 not at any other value, such as that based on weight. 142 00:13:06.100 --> 00:13:13.940 A coin stamped at 10 gold ounces could legally be used in payment of a debt of 10 gold ounces, 143 00:13:13.940 --> 00:13:19.680 even though the actual coin weighed only 8 gold ounces. 144 00:13:19.680 --> 00:13:24.460 The protests of the creditor were ignored by the sovereign's court system under the 145 00:13:24.460 --> 00:13:26.580 legal tender laws. 146 00:13:26.580 --> 00:13:32.460 The purpose of such laws was, of course, to establish the acceptability of money counterfeited 147 00:13:32.460 --> 00:13:34.860 by the government. 148 00:13:34.860 --> 00:13:39.380 The government soon found that this was a small time operation. 149 00:13:39.380 --> 00:13:42.580 There were limitations to the sweating of coins. 150 00:13:42.580 --> 00:13:49.380 However, even slowly replacing full-bodied coins, coins whose gold content equalled the 151 00:13:49.380 --> 00:13:56.340 stamped value with token coins, coins which are intrinsically valueless as metals, would 152 00:13:56.340 --> 00:13:59.060 still not yield enough. 153 00:13:59.060 --> 00:14:05.660 Even if the government seized as much as 100% of the value of the coin, the value of all 154 00:14:05.660 --> 00:14:08.780 coins in total was limited. 155 00:14:08.780 --> 00:14:15.200 A course of action with much greater potential for counterfeiting was begun. 156 00:14:15.200 --> 00:14:17.980 Step 4 was then introduced. 157 00:14:17.980 --> 00:14:24.300 The government stopped simply replacing gold coins with token coins and began creating 158 00:14:24.300 --> 00:14:28.620 tokens representing more gold than it possessed. 159 00:14:28.620 --> 00:14:35.520 Without the gold value of coins, nor of bullion, nor even the value of the gold in the ground, 160 00:14:35.520 --> 00:14:40.060 any longer limited the scope of government counterfeiting. 161 00:14:40.060 --> 00:14:46.160 With this innovation, government counterfeiting entered the fifth stage, the first civilized 162 00:14:46.160 --> 00:14:47.160 stage. 163 00:14:47.160 --> 00:14:54.420 Greenbacks, dollar bills, etc. could now be created seemingly without restraint. 164 00:14:54.420 --> 00:14:59.440 The printing presses were turned up to high speed, and government counterfeit-induced 165 00:14:59.440 --> 00:15:04.600 inflations began to take their place in the modern world. 166 00:15:04.600 --> 00:15:10.640 With the sixth step, government spending received another shot in the arm. 167 00:15:10.640 --> 00:15:15.840 Counterfeiting paper money, begun in the fifth stage, had been an improvement over counterfeiting 168 00:15:15.840 --> 00:15:17.260 coins. 169 00:15:17.260 --> 00:15:24.120 But the prospect of taking over banks and checkbook money offered an even greater improvement. 170 00:15:24.120 --> 00:15:29.840 Depending on the reserve requirements of the banks, the banking system could create a multiple 171 00:15:29.840 --> 00:15:35.260 monetary expansion through the well-known multiplier effect. 172 00:15:35.260 --> 00:15:42.760 In all expanding economies, paper money outstrips coins, and bank checking deposit money outstrips 173 00:15:42.760 --> 00:15:44.640 paper money. 174 00:15:44.640 --> 00:15:50.620 Taking over the banks, then, as well as the monopoly of coin and paper note issue, provided 175 00:15:50.620 --> 00:15:55.860 would further scope for the counterfeiting plans of government. 176 00:15:55.860 --> 00:16:00.880 Again under the guise that the free market could not be trusted, the government enacted 177 00:16:00.880 --> 00:16:07.740 legislation setting up the Central Bank and, later, the Federal Reserve System. 178 00:16:07.740 --> 00:16:14.560 The Central Bank was given a monopoly over paper money note issue and the monetary tools, 179 00:16:14.560 --> 00:16:20.800 and market operations setting the re-discount rate and loans to banks with which to keep 180 00:16:20.800 --> 00:16:26.560 the entire banking system in a harmonious state of counterfeiting. 181 00:16:26.560 --> 00:16:33.440 The main argument used by the government was that the so-called free or wildcat banks located 182 00:16:33.440 --> 00:16:40.660 mainly in inaccessible areas of the Midwest were negligent in backing up their banknotes. 183 00:16:40.660 --> 00:16:43.380 This charge was true in the main. 184 00:16:43.380 --> 00:16:49.480 But the reasons for it, which stem from the War of 1812, are illustrative. 185 00:16:49.480 --> 00:16:54.480 At the time of that war New England banks were the soundest in the country. 186 00:16:54.480 --> 00:17:00.040 But New England was also the section of the country most opposed to the war. 187 00:17:00.040 --> 00:17:05.500 The central government thus had to borrow mainly from the mid-western banks, whose note 188 00:17:05.500 --> 00:17:09.220 issue far outstripped their gold stocks. 189 00:17:09.220 --> 00:17:14.860 The government arrogated to itself the duty of maintaining the financial probity of the 190 00:17:14.860 --> 00:17:17.260 banks, but reneged. 191 00:17:17.260 --> 00:17:22.620 The government spent much of this money in the form of notes in New England. 192 00:17:22.620 --> 00:17:27.700 When these banks presented the Midwestern notes for redemption, the government, further 193 00:17:27.700 --> 00:17:34.060 shirking from its self-proclaimed duties, declared banking holidays and allowed the 194 00:17:34.060 --> 00:17:39.620 The Wildcat Banks to renege on their obligations for several years. 195 00:17:39.620 --> 00:17:45.500 The consequent exuberant policies which these banks followed gave private banking a bad 196 00:17:45.500 --> 00:17:51.200 name and provided the government with the justification for taking over. 197 00:17:51.200 --> 00:17:56.200 These private banks were encouraged in their counterfeiting operations by the government 198 00:17:56.200 --> 00:17:58.540 itself. 199 00:17:58.540 --> 00:18:04.040 At this stage of development there was only one fly in the ointment and it led the government 200 00:18:04.040 --> 00:18:11.800 to take the seventh step. Some countries engaged in counterfeiting and hence inflation to a greater 201 00:18:11.800 --> 00:18:19.400 degree than others. But when one country engages in a greater degree of counterfeiting inflation 202 00:18:19.400 --> 00:18:26.520 than other countries, it becomes enmeshed in a balance of payment problems. If country A's 203 00:18:26.520 --> 00:18:32.920 government counterfeits at a greater rate than country B's government, prices will rise faster 204 00:19:02.920 --> 00:19:04.640 Forever. 205 00:19:04.640 --> 00:19:08.360 There are several possible responses. 206 00:19:08.360 --> 00:19:16.240 Government A could set a tax on imports, a tariff, or B could set a tax on exports. 207 00:19:16.240 --> 00:19:22.120 Quotas could be set by both countries prohibiting trade beyond a certain point. 208 00:19:22.120 --> 00:19:30.400 A could devalue its currency, making it easier for it to export and harder for it to import. 209 00:19:30.400 --> 00:19:36.160 or B could revalue its currency with the opposite effects. 210 00:19:36.160 --> 00:19:40.760 There are problems, however, with all of these responses. 211 00:19:40.760 --> 00:19:47.400 Tariffs and quotas interfere with trade, specialization and the international division of labor. 212 00:19:47.400 --> 00:19:54.120 Devaluations and revaluations are very disruptive and interfere with the system of international 213 00:19:54.120 --> 00:19:58.800 trade which the world has spent so many years building. 214 00:19:58.800 --> 00:20:05.580 In addition, they do not really solve the problem of imbalance, and currency crises are bound 215 00:20:05.580 --> 00:20:11.600 to recur every time changes in the relative value of the various currencies of the world 216 00:20:11.600 --> 00:20:13.560 occur. 217 00:20:13.560 --> 00:20:21.080 The world is now undergoing this seventh step, hence it is difficult to trace it to its conclusion. 218 00:20:21.080 --> 00:20:24.640 Two patterns, however, seem to be emerging. 219 00:20:24.640 --> 00:20:31.360 One is the advent of a world monetary conference, of which Bretton Woods is an example. 220 00:20:31.360 --> 00:20:37.960 At conferences of this type, the leading counterfeiter inflationists gather to discuss possible remedies 221 00:20:37.960 --> 00:20:43.920 for their actions, although of course they do not see their role in this way. 222 00:20:43.920 --> 00:20:48.860 They usually discuss adopting some version of the central banking system of the United 223 00:20:48.860 --> 00:20:52.040 States for worldwide use. 224 00:20:52.040 --> 00:20:58.120 Suggestions have been made for an international equivalent of our Federal Reserve System. 225 00:20:58.120 --> 00:21:04.120 A strong world bank of this type would have much the same power over the entire world 226 00:21:04.120 --> 00:21:07.960 that a national bank has over its own country. 227 00:21:07.960 --> 00:21:14.300 It would have the power to force all banks to inflate in unison and to direct the inflation 228 00:21:14.300 --> 00:21:20.620 to ensure that no power but itself shall be able to counterfeit money. 229 00:21:20.620 --> 00:21:27.300 As each nationalistic counterfeiting center has so far jealously guarded its own powers, 230 00:21:27.300 --> 00:21:32.540 such a World Central Bank has not yet come into existence. 231 00:21:32.540 --> 00:21:38.060 An alternative system, popularized by Milton Friedman of the University of Chicago, is 232 00:21:38.060 --> 00:21:41.660 the system of flexible exchange rates. 233 00:21:41.660 --> 00:21:48.100 This system operates in such a way that whenever the prices or value of two countries' currencies 234 00:21:48.100 --> 00:21:55.420 fall out of line with one another, they automatically readjust. That is, the currency prices of 235 00:21:55.420 --> 00:22:02.220 the various countries are allowed to change in terms of one another. This is in significant 236 00:22:02.220 --> 00:22:07.900 contrast to the agreements made at previous world monetary conferences in which these 237 00:22:07.900 --> 00:22:15.660 prices are fixed in terms of each other. With a flexible system, if country A inflates at 238 00:22:15.660 --> 00:22:21.800 At a higher rate than country B, there will be a relative excess supply of the currency 239 00:22:21.800 --> 00:22:28.540 of A, which will drive its price down, choke off its imports and make its exports more 240 00:22:28.540 --> 00:22:30.300 attractive. 241 00:22:30.300 --> 00:22:35.500 The great advantage of the flexible exchange system over the fixed exchange systems of 242 00:22:35.500 --> 00:22:41.420 the world monetary agreements is that it is an entirely automatic system. 243 00:22:41.420 --> 00:22:47.460 Thus, the crises, which would occur under a fixed system every time currencies change 244 00:22:47.460 --> 00:22:51.580 value with respect to one another, are avoided. 245 00:22:51.580 --> 00:22:58.200 However, since both these systems are only superficial attempts to suppress the ill effects 246 00:22:58.200 --> 00:23:05.020 which result from government counterfeit inflationary schemes, neither can be favored. 247 00:23:05.020 --> 00:23:09.820 Paradoxically, these ill effects are good things. 248 00:23:09.820 --> 00:23:15.820 Just as a pain in the body can be a warning of a far more serious condition and is therefore 249 00:23:15.820 --> 00:23:22.100 beneficial, a balance of payments problem can be a signal of the menace of international 250 00:23:22.100 --> 00:23:24.260 inflation. 251 00:23:24.260 --> 00:23:29.820 Attempting to paper over these difficulties with flexible exchange rate schemes leaves 252 00:23:29.820 --> 00:23:34.360 the world's economy open to the ravages of inflation. 253 00:23:34.360 --> 00:23:39.700 It would be far better for the economy of the world and for every individual country 254 00:23:39.700 --> 00:23:46.500 if instead of devising ways to prop up counterfeiting and the resultant inflation, the governments 255 00:23:46.500 --> 00:23:51.240 of the world gave up these policies altogether. 256 00:23:51.240 --> 00:23:57.740 In this connection, one cannot help daydreaming about treasury agents, the tea men of modern 257 00:23:57.740 --> 00:24:00.100 and Television Serials. 258 00:24:00.100 --> 00:24:06.660 Dedicated to the elimination of counterfeiting, dressed in the best FBI modern style, they 259 00:24:06.660 --> 00:24:13.440 represent the essence of uncorruptible, ho-ho, tough law enforcers. 260 00:24:13.440 --> 00:24:18.300 On television, their adventures usually begin with an overview of them walking down the 261 00:24:18.300 --> 00:24:20.940 steps of the treasury building. 262 00:24:20.940 --> 00:24:26.580 Were they to turn around and walk back up the steps and back into the officesividers 263 00:24:26.580 --> 00:24:32.760 of their superiors and arrest them, they would be corralling perhaps the biggest gang of 264 00:24:32.760 --> 00:24:36.620 counterfeiters the world has ever known. 265 00:24:36.620 --> 00:24:43.280 As to the claim that the private counterfeiter is a hero, three criteria for heroic actions 266 00:24:43.280 --> 00:24:45.420 must be applied. 267 00:24:45.420 --> 00:24:49.500 The act must not violate the rights of innocent people. 268 00:24:49.500 --> 00:24:54.180 The act must be of great benefit to large numbers of people. 269 00:24:54.180 --> 00:24:58.460 and it must be performed at great personal risk. 270 00:24:58.460 --> 00:25:02.900 There can be no doubt regarding the third point. 271 00:25:02.900 --> 00:25:07.020 Non-governmental counterfeiters operate at great risk to themselves. 272 00:25:07.020 --> 00:25:10.780 The government has declared such activity illegal. 273 00:25:10.780 --> 00:25:17.040 The Treasury Department spends large sums of money to apprehend private counterfeiters. 274 00:25:17.040 --> 00:25:22.580 The government stands ready to prosecute all those accused of counterfeiting and to jail 275 00:25:22.580 --> 00:25:29.140 for all who are found guilty. It cannot be doubted that the risk criterion is more than 276 00:25:29.140 --> 00:25:36.420 amply met. Furthermore, it is clear that the activities of private counterfeiters are beneficial 277 00:25:36.420 --> 00:25:42.700 to the public. Non-governmental counterfeiting, if allowed to be pursued, would spell the 278 00:25:42.700 --> 00:25:48.940 ruin of the government's own system of counterfeit money. The extent to which non-government 279 00:25:48.940 --> 00:25:58.220 The extent to which the effectiveness of the government's own counterfeit system is decreased. 280 00:25:58.220 --> 00:26:04.060 The fact that the government's counterfeit system is very harmful constitutes in itself 281 00:26:04.060 --> 00:26:09.540 a strong prima facie case for non-government counterfeiting. 282 00:26:09.540 --> 00:26:15.460 Of course private counterfeiting is illegal and cannot therefore be advocated. 283 00:26:15.460 --> 00:26:21.040 Well, it is of interest to spin out the implications of economic theory. 284 00:26:21.040 --> 00:26:26.880 It may be objected that if private counterfeiters gained power and replaced the government, 285 00:26:26.880 --> 00:26:29.620 the people would be no better off. 286 00:26:29.620 --> 00:26:31.940 This of course is true. 287 00:26:31.940 --> 00:26:37.980 But the fact is that private counterfeiters are small time and will undoubtedly remain 288 00:26:37.980 --> 00:26:39.040 so. 289 00:26:39.040 --> 00:26:42.540 They could pose no more than a minor problem. 290 00:26:42.540 --> 00:26:48.620 It is in fact this reality which clinches the argument for private counterfeiters. 291 00:26:48.620 --> 00:26:51.640 They do not pose a threat to the people. 292 00:26:51.640 --> 00:26:56.760 They are not, nor are they likely to become, strong enough to do that. 293 00:26:56.760 --> 00:27:03.660 The effect they have is to reduce and counteract the great evil of government counterfeiting. 294 00:27:03.660 --> 00:27:07.160 This is beneficial for great numbers of people. 295 00:27:07.160 --> 00:27:13.000 Although a few individuals may suffer a loss from this activity, on balance, the activity 296 00:27:13.000 --> 00:27:17.760 of the private counterfeiter is more beneficial than harmful. 297 00:27:17.760 --> 00:27:23.600 And it must be remembered, their activity is not fraudulent and hence immoral, since 298 00:27:23.600 --> 00:27:28.480 they do not seek to pass off counterfeit money for genuine.