Wednesday, February 18, 2009

Is Creating New Money Immoral?

by Michael King | Posted on 2/18/2009 12:00:00 AM
Just as my students sense something is wrong, many of those who are certain something is wrong sense we may be witnessing the death throes of the current world monetary system.[1] The question on many minds is, what comes next? Although it is likely that what comes next will be worse than what we have at the moment (the audacity of distrust, you might call it), it is imperative that people come to understand that a nation's money system is, at its core, dependent upon justice, ethics, and, yes, morals. Full article here.
Economics as science does not and need not speak of morality. But political economy---the intersection of political and economic institutions---cannot avoid it.

I teach my students that one act and only only one act is immoral. Compelling or coercing another human being to do one's will is immoral. This proposition is something akin to Kant's Categorical Imperative, but perhaps not exactly.

If I compel you to give me your property at the point of a gun, that's immoral. If I deprive you of your life by killing you, that's immoral. If I defraud you of your property, that's compelling you through guile; it's immoral. For me, the simple, clear imperative "do not compel" divides all that is and is not immoral.

Of course, one and only one exception must be admitted. Compelling another human being is not immoral, if and only if one compels another human to prevent that person from intentionally compelling another.

That's why voluntary exchange in markets is moral and why laws and regulations that prohibit or interfere with voluntary exchange are immoral.

When government operating at any level compels citizens, government is acting immorally---except when government compels to prevent compulsion of one by another. That's why creating and enforcing a monopoly on money creation is immoral and leads to other immoral acts. The Fed has a monopoly on money creation in the United States. Moreover, because the U.S. dollar is the world's reserve currency, that's especially troubling.

When the Fed creates new money, that new money is a claim over any and all resources, goods, and services. The initial recipient of the new money (a borrower, since that's how new fiat money is created by a central bank; click here if you have time to learn more) is enabled to purchase real goods and services with the money created by the Fed (with the full support and authority given the Fed by Congress and the the Federal Reserve Act of 1913, as amended by the 1977 Act).

Isn't creating new claims on another person's production, and doing it by force of law, immoral? It would not be immoral to voluntarily exchange something one has produced to acquire another person's production. But creating new money to acquire a person's production is surely immoral, regardless of how remote and obscure the process has become with central banking.

Guess who is doing lots and lots of borrowing just now (all the bailouts, TARP, TALF, Son of TARP, Son of TALF, Schmalf, the "Pork Pool," ... er, stimulus bill. That's right, the federal government (545 real people with real names and faces). Guess where the borrowing is coming from. That's right; money creation by the Fed. Wait! Doesn't the Treasury borrow from people who already have the money? No; not as long as the federal government has outstanding debt and future obligations for Social Security and Medicare that actually dwarf the current federal debt of about $7 trillion. It's all new money.

If that sounds like stealing to you, that's because it is. Is that immoral? You decide.

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