Consider the example of British Massachusetts’ expedition to plunder French Quebec in 1690. The competition between states in Europe persisted in the colonies and British Massachusetts commissioned troops to attack the French sections of what is now Canada, expecting the loot taken to finance the operation. When the expedition failed, and there was no bounty to redistribute, the colonial government of Massachusetts elected to issue bills of credit in the form of paper money.
Having armed mercenaries angrily waiting to be paid for services rendered is another threat to regime stability. So, Massachusetts needed to engage in some financial innovations in order to placate the veterans of its ill-fated foray into Canada.
Paper bills of credit cannot hold purchasing power alongside market chosen commodity money for very long, particularly when those holding public office continue to issue more notes yet fail to redeem them as promised. Paper money, after all, begins as a promissory note, a promise to pay the bearer in the amount of the commodity denominated on the bill.
People in government, like anyone else, cannot create something from nothing. Ordinary people naturally lose faith in the value of promissory notes as more of them circulate with each new round of issuance. The increased number of notes in relation to the relatively same amount of available goods and services inevitably leads to increased consumer prices.
It is important to remember that real wealth is the goods and services that satisfy human needs, wants, and desires not the amount of money a person, company, or country has.
If simply printing money was sufficient to create wealth then Zimbabwe or other third world countries would have been able to rise out of poverty merely by issuing more promissory notes. Instead, territories that artificially inflate their money supplies experience consumer price inflation and, if allowed to persist, go into hyperinflation.
The impoverishment, desperation, and calamity recently on display in oil rich Venezuela, with a 254% inflation rate, was similarly on display in the newly liberated American colonies following their secession from England in the 1780’s. The colonies did not learn from the example of British Massachusetts’ failed campaign to plunder French Quebec and printing
notes to pay their mercenaries.
This is why the power to issue bills of credit was denied to the individual states and authority to ‘coin money’ was ceded to the general government created by the US Constitution.
Despite being constitutionally limited to ‘coining’ money out of gold and silver purchased on the free market, and ‘regulating the value thereof’ by certifying the weight and fineness of these commodity metals, the general government also abused the authority it was entrusted with, perpetuating the dysfunction it was created to prevent.
The general government’s creation of the Federal Reserve System, and the issuance of Federal Reserve Notes, in and of itself, is prima facie evidence of a crime, a violation of the authorities entrusted to it, and the corrupt source of financial chaos plaguing every citizen forced into the scheme.