In the company of Mices, Jonathan pressed on. The buildings grew larger and more people filled the street. Pavements made walking easier, even for the ones on their knees. As he passed a large brick building, he heard the roar of machinery coming from above. The rapid clickety-clack sounded like a printing press. “Maybe it’s the town newspaper,” said Jonathan aloud, as if expecting a reply from the cat. “Good! Then I can read all about this island.” Hastily he rounded the corner looking for an entrance and nearly bumped into a smartly-dressed couple walking arm-in-arm along the cobblestone street. “Excuse me,” apologized Jonathan, “is this where they print the town newspaper?” The lady smiled and the gentleman corrected Jonathan. “I’m afraid you’re mistaken, young man. This is the Official Bureau of Money Creation, not the newspaper.”
“Oh,” said Jonathan in disappointment. “I was hoping to find a printer of some importance.”
“Cheer up,” said the man. “There is no printer of greater importance than this bureau. Isn’t that right dear?” The man patted the woman’s gloved hand. “Yes, that’s true,” said the woman with a giggle. “The Bureau brings lots of happiness with the money it prints.”
“That sounds wonderful!” said Jonathan excitedly. “Money would certainly make me happy right now. If I could print some money then…” “Oh, no !” said the man in disapproval. He shook a finger in Jonathan’s face. “That’s out of the question.” “Of course,” said the woman in agreement. “Money printers who are not appointed by the Council of Lords are branded ‘counterfeiters’ and thrown behind bars. We don’t tolerate scoundrels.” The man nodded vigorously. “When counterfeiters print their fake money and spend it, too much money circulates. Price soar; wages, savings, and pensions become worthless. It’s pure thievery!”
Jonathan frowned. What had he missed? “I thought you said that printing lots of money makes people happy.” “Oh, yes, that’s true,” replied the woman. “Provided…” “…that it’s official money printing,” the man interjected before she could finish. The couple knew each other so well that they finished each others sentences. The man pulled a large leather wallet from his coat pocket and took out a piece of paper to show Jonathan. Pointing to an official seal of the Council of Lords, he noted, “See here. This says ‘legal tender,’ and that makes it official money.” “The printing of official money is called ‘monetary policy’.” she proceeded, as though reciting from a memorized school text. “Monetary policy is all part of a master plan.” Putting his wallet away, the man added, “If it’s official, then those who issue this ‘legal tender’ are not thieves.” “Certainly not!” said she. “The Council of Lords spends this legal tender on our behalf.”
“Yes, and they are very generous,” he said with a wink. “They spend that official money on projects for their loyal subjects especially those who help them get elected.” “One more question, if you don’t mind,” continued Jonathan. “You said that when counterfeit money is everywhere, prices soar and wages, savings, and pensions become worthless. Doesn’t this also happen with that legal tender stuff?”
The couple looked at each other gleefully. The gentlemen said, “Well, prices do rise, but we’re always happy when the Lords have more money to spend on us. There are so many needs of the employed, the unemployed, the exceptional, the unexceptional, the young, the old, the poor, and the rich”. The woman added, “The Lords research the roots of our pricing problems scrupulously. They’ve identified bad luck and poor weather as the chief causes. The whims of nature cause rising prices and a declining standard of living – especially in our woodlands and farmlands.” “Indeed!” exclaimed her escort. “Our island is besieged by catastrophes that ruin our economy with high prices. Surely the high prices of timber and food will mean our downfall one day.” “And low prices,” she cried. “Outsiders, with their dog-eat-dog competition, are always trying to sell us candles and coats at ruinously low prices. Our wise Council of Lords deals severely with those monsters as well.” Turning to her companion, she tugged impatiently at his sleeve.
“Quite right,” he told her. “I hope you will excuse us, young man. We have an engagement with our investment banker. Must catch the boom in land and precious metals. Come on, dear.” The gentleman tipped his hat, the lady bowed politely, and both wished Jonathan a cheerful farewell.
Brainstorming
Is it good or bad to print lots of money?
Who decides?
How are people affected differently?
Is there a difference between counterfeiters and official money printers?
Would prices that stay roughly the same down the generations help people to understand value and to plan their lives?
Who is blamed for rising prices?
Examples?
What are the ethical issues?
Commentary
A potato is valued by the number of potatoes there are for sale. Let us say you are a potato farmer and your neighbor is an apple farmer. You agree to give him 10 potatoes for 10 of his apples. Then suddenly a lot of potatoes become available. Now your potato is not as valuable as a trading item. Your neighbor may now want 20 of your potatoes for just 10 of his apples.
And so it is with money. If there is a shortage of notes, money will be more valuable. You will be able to buy lots of goods with your 10 notes. On the other hand, if the market is suddenly flooded with notes there will be more notes and therefore each note will be less valuable. As a consumer, you will have to spend more notes to get the same number of goods as you did before. Each note is now worth less than it was. Does it matter when governments print more and more money? Yes, it does. Not only because it devalues the country’s money, but also because those who are issued with the newly printed money can buy before prices rise. For awhile people will say things are getting better because there is more money around. However, by the time this money has been traded many times it arrives in the hands of people with fixed incomes and savings who earn the same but need more notes for their goods. This is called inflation. This role of governments is often ignored while shopkeepers and farmers are incorrectly blamed for the higher prices.
The control of money is one of the main ways the state can ensure several things; the growth of the number of government departments; rewards to favored groups and companies; and payoffs to tinker with elections. Governments, unlike private businesses, do not obtain the money as voluntary payment for services. Governments need to find ways of forcing people to give up their money. This is taxation. But taxation is unpopular. So an alternative answer to the state’s problem is to print more money. With more money circulating the economy appears to be doing better – for a while. That is until inflation catches up and all goods become more expensive. Printing money just before an election is a clever way to make people think the ruling party is doing well. Only after the elections will the effects of inflation be felt. Then it is too late for the electorate to react.
The effect of counterfeiting money is like stealing from the wages, savings, and pensions of others. Governments don’t like this competition from independent money printers, so they make it illegal for others to print money. If people had a choice, they would not use money that was losing value and would choose more stable money. But governments don’t like that competition either. That’s why they make their money mandatory to use, i.e., legal tender.
Background
Traders need some object which is widely accepted, durable, and convenient for measuring comparability of value between products. Precious metals, such as gold and silver, have proved superior in serving this purpose. Goldsmiths and bankers then used paper receipts for gold and silver in order to enhance the security and convenience of exchange. Competition between banks and currencies, along with strict personal accountability, kept currencies stable because people would have refused to use currencies that were losing value