Refuse the Filthy Trash

What if the savings in your bank account lost 83 percent of its value over just 18 months?  We suppose you’d be a little disgruntled.  Unfortunately, that’s what has happened in Venezuela…

“Since February 2013,” reports El Universal, “the administration of Venezuela’s President Nicolás Maduro has kept the exchange rate at VEB 6.30 per US dollar, compared with a hike averaging 83 percent in the price of goods.  Whereas in Venezuela’s major trade partners – United States, China, Colombia, Mexico and Brazil – inflation is much lower, what can be bought with VEB 6.30 in Venezuela is much lower than what can be bought with a US dollar in those nations.”

Obviously, Maduro’s mandated exchange rate isn’t fooling anyone.  If 6.30 Venezuela bolivars were truly equal to 1 U.S. dollar, they’d be able to buy the same amount of goods and services.  That they can’t, demonstrates Maduro isn’t keeping with his end of the bargain…he isn’t stewarding his nation’s currency to honestly achieve the exchange rate he’s decreed.

Nonetheless, this doesn’t mean the overlords in the United States are saints.  For while the U.S. dollar hasn’t lost 83 percent of its value over the last 18 months it has lost 83 percent of its value over the last 43 years.  That’s hardly the duration of a person’s working years.

According to the Bureau of Labor Statistics’ own inflation calculator, the dollar’s lost 83 percent of its value since 1971…the year the final vestiges gold were removed from the its backing.  No doubt, an 83 percent loss spread over 43 years is much better than a rapid devaluation over 18 months.  But that doesn’t mean it isn’t highway robbery.  Moreover, these shenanigans are nothing new…

The Drapier’s Letters

Take the mischief of a one William Wood, for instance.  He was an English retailer of iron goods.  Yet he had friends in high places.  For in 1722, he was granted a patent by the English Parliament to coin copper money for use in Ireland.

The Irish, without question, didn’t agree to this patent.  For one thing, the Irish Parliament didn’t approve it.  Second, it left the Irish currency open to debasement.  Third, this was yet another instance of political and economic exploitation by the English.

Jonathan Swift, the famous satirist and political pamphleteer, took issue with William Wood’s copper money and wrote a series of scathing pamphlets to inflame public opinion in Ireland and defend the constitutional and financial independence of the Irish kingdom.  Swift wrote under the pseudonym M.B. Drapier – hence the seven pamphlets are collectively called The Drapier’s Letters.

Swift’s complaint against Wood wasn’t that there wouldn’t be enough money; but rather, there would be too many inferior copper coins introduced into the Irish economy.  He was rightly concerned that these lower grade coins would result in the disappearance of the more valuable silver coins from circulation.  Plus, since the coins wouldn’t be minted under Irish authority, there would be no way for the Irish to control their quality and amount.

This is known as Gresham’s Law…which commonly stated is: “Bad money drives out good.”  More specifically, if a circulating currency consisting of both “good” and “bad” money (both forms required to be accepted at equal value under legal tender law), the currency quickly becomes dominated by the “bad” money.

This was seen in the United States in 1965 when the quarter was first minted from a copper-nickel composition instead of silver.  Leading up to this, the Federal Reserve had inflated the U.S. currency so that the silver contained in a quarter had become more valuable than what a quarter was worth.  True to Gresham’s law, pre-1965 silver based quarters rapidly disappeared from circulation.

Refuse the Filthy Trash

Swift shrewdly recognized there was no legal requirement for the people of Ireland to accept payment with Wood’s copper coins.  He details this in the The Drapier’s First Letter, which was titled, To the Shopkeepers, Tradesmen, Farmers, and Common People of Ireland.  What follows is an excerpt of The Drapier’s First Letter for your enjoyment…

“I will now, my dear friends, to save you the trouble, set before you, in short, what the law obliges you to do; and what it does not oblige you to.

“First, you are obliged to take all money in payments which is coined by the king, and is of English standard or weight, provided it be of gold or silver.

“Secondly, you are not obliged to take any money which is not of gold or silver; not only the halfpence or farthings of England, but of any other country.

“Thirdly, much less are we obliged to take those vile halfpence of that same Wood, by which you lose almost eleven pence in every shilling.

“Therefore, my friends, stand to it one and all: refuse this filthy trash.  It is no treason to rebel against Mr. Wood.  His Majesty in his patent obliges nobody to take these halfpence: our gracious prince hath no such ill advisers about him; or if he had, yet you see the laws have not left it in the king’s power to force us to take any coin but what is lawful, of right standard, gold and silver.”

With the help of the Drapier letters, Wood’s patent was revoked in 1725, and Ireland avoided the consequences of plentiful cheap money…consequences Venezuelans are now fully appreciating courtesy of Maduro’s currency meddling.


MN Gordon
for Economic Prism

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