On Printing Money... And Liberal Democracy

Ever since the US crash, or “meltdown,” or whatever-you-may-call-it, the Keynesians have ruled public opinion. The public has been bombarded with Keynesian views recommending massive government spending as the way out of the crisis, the Nobel laureate Paul Krugman leading the charge.

However, the tide seems to be turning: an editorial in Mint, titled “Fed operates printing press,” says that “the US Fed’s moves to pump huge amounts of money into a shrinking economy can destroy the value of the dollar.”

As the editorial very correctly points out:

“Pumping huge amounts of fresh money into a shrinking economy could lead to a fall in the external value of the currency and increase inflationary expectations. You do not have to be a monetarist to realize that extra money supply can destroy the value of a currency, either against other currencies (devaluation) or against a basket of goods (inflation).”

Note that inflation amounts to “incremental confiscation” of people’s property – an effect brought about by falling purchasing power. The US dollar’s purchasing power has declined by more than 90 per cent since the Federal Reserve system was established in the early 1900s. The story of the Indian rupee is much worse.

But we were talking about democracy and the vote.

My question is this: How can “liberal democracy” be sustained if The State has the ability to create money out of thin air?

Liberal democracy is designed in such a way so as to achieve a “balance of power” between the executive, the legislative and the judiciary. If the executive can create money out of nothing, it can buy up all the support it needs. It can buy up the legislature. This is precisely what “pork barrel politics” is all about. The “representatives of the people” – who are supposed to represent the people as taxpayers – morph into “representatives of tax parasites” and become conduits of State largesse. Democracy is killed by central banking and fiat paper notes masquerading as money.

Of course, things are much worse in a centralized socialist pseudo-democracy.

In the US, some states like Montana are coming out with sound money legislation, aimed at bringing back gold and silver coinage. The realization that fiat money is Evil Incarnate seems to be finally dawning in “the Land of the Free.”

May this understanding dawn in our Land of the Unfree as well.

The editorial in Mint will help.

This editorial in the ToI will not.