The History of Coin Clipping
Written By: Charles Scaliger | Posted: Thursday, September 29th, 2011
Debasing currency is one of the oldest and most dishonest tricks used by monarchs and politicians to relieve themselves of the burden of heavy debts without inflicting ruinous taxes on their subjects and citizens. (Of course, the citizens must still pay in the end.) Roman emperors, lacking paper money and printing presses, engaged in "coin clipping," trimming some of the metal off the edges of coins for resale elsewhere, all the while leaving the face value of the coinage unchanged. Merchants and bankers soon discovered the ruse, of course, resulting in the steady depreciation of the value of Roman coins, a process analogous to modern inflation.
Coin clipping has been resorted to many times since the time of the Romans, both by public and private con artists, prompting mints to mill the edges of gold and silver coinage to make clipping easily detectable.
With the rise of modern banking and paper money in the 1600s, governments quickly discovered the power of the printing press. Then as now, governments ran up huge debts to fund wars and other extravagances unpopular with the taxpaying public - and learned how to pay for them by printing the necessary funds. The gargantuan public works projects, wars, and palace luxuries of France's Louis XIV were a particularly flagrant example of this practice. The autocratic "Sun King" ran French finances into the ground during his long reign, and generations of Frenchmen afterwards were stuck with the tab. The outcome was, first, a series of booms and busts during the first half of the 18th century, occasioned by the printing press (among them the infamous "Mississippi bubble"), and then, when France finally went bankrupt, revolution and tyranny.
Twentieth-century Argentina followed a similar path. From the world's eighth-richest nation at the beginning of the century, Argentina embraced the welfare statism of Juan Peron and his wife Evita. By the 1970s, the Argentine peso was virtually worthless, and Argentina had incurred debts that could never be repaid. Amid civil war, the military established a dictatorship, and soon finished off the Argentine economy in a ruinous war with Great Britain over the Falkland Islands. Hyperinflation and economic collapse followed, for which a turn to popular government proved only a temporary relief. By the beginning of the 21st century, Argentina was forced to default on a portion of her debt, resulting in overnight poverty for millions of Argentines and a dizzying rise in violent crime that continues to this day.
The United States has incurred heavy debts periodically throughout her history - usually in wartime, until the mid-20th century. But the pattern in early America was for wartime debts to be paid off. Following the War of 1812, the United States ran budget surpluses for 18 out of 20 years, and paid off more than 99 percent of her debt. During the 47 years following the Civil War, the United States had 36 budget surpluses and paid her debt down by 55 percent. After World War I, the nation had 11 straight budget surpluses and reduced the debt by 35 percent.
With FDR's New Deal, however, the United States began amassing large debts during peacetime to defray the costs for the massive new welfare state erected from the 1930s onwards. The debt ballooned during World War II to well over 100 percent of the GDP, but soon after the war's end, the size of the federal government was scaled back dramatically. The result was a postwar boom that allowed the GDP to gain a lot of ground on the debt.
Throughout the boom years of the '80s and the '90s, the debt continued to burgeon - but so did the GDP, allowing politicians the luxury of continuing to spend more and more sums on myriad programs, from their pet pork-barrel projects to military intervention across the globe. No matter how big government grew, it appeared that it would never be able to suffocate America's booming private sector.
Then, as must always occur sooner or later, the boom - fueled as it was by easy credit courtesy of the Federal Reserve - was over. The dot-com bust and 9/11 put an end to a generation-long bull market, but the federal government continued to borrow and spend as though the boom had never ended. The result, of course, is a mushrooming national debt that now threatens to administer the coup de grâce to our enfeebled economy.
This is the desperate state of the American national debt, which Standard & Poor's has finally recognized. Unless a massive political shift occurs very quickly, America, already the largest debtor in world history, can expect to see its bonds reduced to junk status as her towering debt and uncontrolled spending destroy our economy and our society as surely as has occurred in Argentina, Greece, Ireland, and many other nations.
No nation has ever borrowed itself into prosperity or spent itself into solvency, yet that is precisely what our political leadership is trying to do. The unhappy examples in Europe, which will soon include the likes of Italy and Spain, ought to be warning enough of the perilous path we are on, even if the warnings of Standard & Poor's go unheeded.
This Article is used by Permission and was originally published in The New American Magazine.
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