Chapter Four.qxp
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The Mystery of Banking
all alike. On the contrary, the new money is injected at a specific point in the economy and then ripples through the economy in a step-by-step process. Let us see how the process works. Roscoe, a counterfeiter, produces $10,000 of fake gold coins, worth only a fraction of that amount, but impossible to detect. He spends the $10,000 on a Chevrolet. The new money was first added to Roscoe’s money stock, and then was transferred to the Chevy dealer. The dealer then takes the money and hires an assistant, the new money stock now being transferred from the dealer to the assistant. The assistant buys household appliances and furniture, thereby transferring the new money to those sellers, and so forth. In this way, new money ripples through the economy, raising demand curves as it goes, and thereby raising individual prices. If there is a vast counterfeiting operation in Brooklyn, then the money supply in Brooklyn will rise first, raising demand curves and prices for the products there. Then, as the money ripples outward, other money stocks, demand curves, and prices will rise. Thus, in contrast to the Angel Gabriel, there is no single overall expansion of money, and hence no uniform monetary and price inflation. Instead, as we saw in the case of the early spenders, those who get the money early in this ripple process benefit at the expense of those who get it late or not at all. The first producers or holders of the new money will find their stock increasing before very many of their buying prices have risen. But, as we go down the list, and more and more prices rise, the people who get the money at the end of the process find that they lose from the inflation. Their buying prices have all risen before their own incomes have had a chance to benefit from the new money. And some people will never get the new money at all: either because the ripple stopped, or because they have fixed incomes—from salaries or bond yields, or as pensioners or holders of annuities. Counterfeiting, and the resulting inflation, is therefore a process by which some people—the early holders of the new money—benefit at the expense of (i.e., they expropriate) the late