The Magic of the Mysterious Multiplier

Watch the Dollar Bill Disappear

By Robert Ringer

In Part VIII of this article, I pointed out that the hatmaker is totally ignorant of the government's money printing policies, so he has no idea why prices are rising all around him while he still has only one "dollar." As a result, he's open to the false solutions offered up by sloganeering politicians whose main objective is to win reelection.

For example, Babybama keeps saying things like, "You and I together will go forward to change the country and change the world." The hatmaker, feeling shafted but having no idea who did it to him — or how — is primed and ready to hear about "change." He doesn't realize that when Babybama says "Yes we can," he means "Yes we can screw you out of even more of your hard-earned money."

The hatmaker doesn't understand that the cause of his woes is that every "dollar bill" the government printed up and arbitrarily passed out to his neighbors decreased the value of his "dollar." Little does he know that he hasn't seen anything yet. Wait until he experiences the effects of "universal health care" on his standard of living.

All of those newly printed paper "dollars," with no wealth behind them, compete with the hatmaker's "dollar" for the available goods and services in the community. Again, as prices rise, the "dollar bill" the hatmaker was paid no longer has the purchasing power it had when he accepted it.

This is where the government would like you to believe that its mysterious-multiplier concept saves the day. Politicians use the multiplier scam as an excuse to inject ever greater doses of socialism into society. This concept is based on the astonishing notion that the laws of mathematics, economics, and common sense somehow change when one goes from small to large transactions.

While government successfully perpetrates the myth that as society becomes larger and more complex, problems become too difficult for individuals to solve, the truth is quite the opposite. In reality, the more complex problems become, the better they can be solved by individuals. And there is a good reason for that: self-interest. An individual has his own well being at stake.

Every person knows himself better than some bureaucrat in Washington who has never met him. An individual understands his own needs and desires, his own personality, his own special circumstances — none of which are exactly like those of his neighbors. The larger a society grows, the less capable government is of solving the problems of individuals. So when Heavenly Hillary promises "shared change," what she is really talking about is shared poverty.

In addition to the mysterious-multiplier concept, government works hard at trying to make voters believe that economic law can be suspended and that something can, in fact, be created from nothing. People are led to believe that when money is taken from one group and handed to another, something greater results. Again, the exact opposite is true, for two reasons:

First, on the way from one group to another, a substantial portion of the booty ends up in the hands of the government employees who administer so-called transfer payment programs. Second, there is a loss, not a gain, when wealth is confiscated. What is lost is the new technology, products, services, and jobs that could have been created with it.

The marketplace involves billions of individual transactions of every conceivable kind every day. If you can be led down a path toward this confusing maze of transactions, thereby directing your attention away from the one, real, and only cause of inflation, you can be made to believe that inflation is an impossibly complex problem that only politicians and government intellectuals are capable of understanding.

Which brings us to government's deficit spending problem, having spent more than it could raise through taxation and the sale of government securities to the public. Solution? Simply turn on the printing presses and the money to cover the deficit is created in no time. Presto! Problem gone. The dollar bill to the rescue.

(I should point out that references to printing money is partially a euphemism for creating money electronically — sort of a digital magic wand. But whether the fiat currency be in the form of paper or computer entries, the result is the same: It is not real money.)

Now you can see why it was crucial for government to take monopolistic control of the country's money system and get off the gold standard as soon as possible. Once money was not tied to gold — once gold had become "old fashioned" — government was free to print money in any quantity it desired.

In Part X of this article, we'll take a look at how an indiscriminate increase in the money supply gives politicians the glorious combination of having their cake even while dining on it.

Previous - Money VIII - The Shoemaker and the Hatmaker, Revisited: The IOU

Next - Money X - Hillbama Magic: The Coming Economic Depression

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