Deflation Made Simple II

The Story of Real Money (Entry 185)

The redemption (waiting) period specified on the counterfeit notes issued and spent into the economy by Le directeur de la monnaie de Paris (The Director of Money of Paris) in 1701 while Chamillart served as Le contrôleur général des finances fulfilled two important functions. On the one hand, it was a temporal expedient that provided Le Contrôleur général with the purchasing power the king desired until an alternative source of payment could be found. On the other hand, once in circulation, these counterfeit notes added to the money supply and rectified, in part, the constant drain of specie brought about by the king’s wars and the money arbitrage (Images 19, 48, 75, 82, 149, and 185) of savvy money handlers.

One may assume that most French subjects in the early 18th century were no different than most Americans — and for this matter, most people around the world — today. They only understood money as a means of exchange (money-in-exchange) and to some extent a form of savings-investment (time deposit).

Indeed, for most, money is something that is given in exchange for something else of equal value. And, if people can obtain what they want when they want it, and be made to think on occasion that they received even a little more than what they gave, then they believe that the money must be good. After all, “It works!” This belief is reinforced dramatically when the same money used at home can be used overseas in tourist hotels, at airports, and other popular international hang-outs.

In effect, most people have little or no understanding that what they believe to be money is, in fact, counterfeit, and that they are being taken each and every time they engage with it in transaction as their medium-of-exchange — no matter the gimmick used to disguise its ever diminishing worth! This is what is so insidious and unAmerican about our nation’s current monetary system, and why money (Geld) and currency (Umlaufsmittel in all of its forms) is the first thing that all Americans should be taught just after learning how to read, write, and count — right along side the Declaration of Independence and the US Constitution!

Indeed, even those who study economics formally — unless, they are taught in the Spanish-Austrian tradition that began at the School of Salamanca already five centuries ago (Images 26, 27, 48, 57, and 66) — do not understand the true nature of the theft and corruption. We should be grateful that the Spanish-Austrian economic tradition has survived despite every effort on the part of contemporary academicians and politicians to ignore and even suppress it.

Indeed, if religion were the opiate of the mind — as some so heartily claim —, then money-ex-nihilo is Satan’s plantation!

Important is that not everyone in Paris viewed the newly issued counterfeit notes with the same suspicion as did the money-changers who, of course, remained quiet and purchased as much specie as they could afford. Recall our discussion of the intrigue between money-changers and corrupt feudal landlords elaborated at the outset (Images 5 and 6). Then too, the redemption due date for this new currency was short and redemption in specie was at first — well, at least — probable. As a result, trust in the new currency was quickly established. Indeed, there was no better way to establish trust than redemption on demand!

Mind you, these notes were not the deposit slips issued by the honest guildsman-bankers of London before the dishonest guildsman-bankers took over; rather, they were no-nonsense, ex-nihilo, counterfeit bills whose redemption was — at least, for a time — honored. Important is that “they worked” for the average Parisian merchant and consumer. What is more, “they worked better” than the specie that they replaced. Like the promissory notes of the previous century — recall the bankers of Seville and Charles V of Spain (Images 15, 24-27) —, they were much lighter, more easily carried about than the much heavier specie, and quickly became popular. Moreover, the initial issue was small and used only in Paris where the number of transactions far exceeded the possible use of the notes.

Unlike the promissory notes issued in Seville by private banks with the backing of the king’s promise, these notes were emitted directly by, and with the backing of the French monarchy. And, no sooner did this counterfeit begin to circulate, did the state begin lending, rather than spending, the same, but different and additional notes into existence. In effect, the success of the Parisian counterfeit scheme encouraged the re-establishment of La caisse d’emprunts that had been championed by Jean-Baptiste Colbert and subsequently exhausted and dissolved only two decades prior by Claude le Peletier (Entry 181) . What was different about this nouvelle caisse was the nature of what was lent. Whereas Jean-Baptiste had lent species, Chamillart was now lending paper. Can you envision where things were headed?

In effect, the French monarchy was now behaving much like the Bank of England (BOE), but via a state-owned and managed lending institution, rather than a state-authorized, but privately owned and managed central bank. One might even say, that the French pulled off their own deception with greater moral authority. For, after all, the king was of divine inspiration, unlike the mortal men of the BOE or the British Parliament that created the BOE.

Certainly this is what Louis XIV must have believed, and he would not have been without support among many in the Catholic Church. Unfortunately for the French monarchy and the Catholic Church, as would be demonstrated less than a century later, it was not what the leaders of the French Enlightenment believed. And, one day soon, Voltaire (François-Marie Arouet, 1694-1778) would be writing good things about Jean-Baptiste Colbert!

Unfortunately, everyone appeared to be taking his cue from the Amsterdamsche Wisselbank’s descent and the Bank of England’s ascent, rather than the Wisselbank’s ascent. In effect, the once solid Wisselbank that had weathered the rampjaar of 1672 simply did not hold on long enough to make the needed historical impact. The beginning of the West’s repeated orgasmic descent had begun.

In liberty, or not at all,
Roddy A. Stegemann, First Hill, Seattle 98104