The Cost of Fiat Money

"It was from America that the plain ideas that men ought to mind their business, and that the nation is responsible to Heaven for the acts of the State—ideas long locked in the breast of solitary thinkers, and hidden among Latin folios—burst forth like a conqueror upon the world they were destined to transform, under the title of the Rights of Man . . . and the principle gained ground, that a nation can never abandon its fate to an authority it cannot control." — Lord Acton (1834-1902) in The History of Freedom and Other Essays, 1907

"Commerce is entitled to a complete and efficient protection in all its legal rights, but the moment it presumes to control a country, or to substitute its fluctuating expedients for the high principles of natural justice that ought to lie at the root of every political system, it should be frowned on, and rebuked." — James Fenimore Cooper (1789-1851) in The American Democrat, 1838

"Andrew Jackson would never recharter that monster of corruption. Sooner than live in a country where such a power prevailed, he would seek an asylum in the wilds of Arabia." — Andrew Jackson (1767-1845), speaking of himself and the Second Bank of the US, 1834

"Seigniorage" [pronounced seen´-yer-idg] is “any profits or charges arising from the minting of gold and silver coins from bullion, usually the difference between face value and intrinsic value.” For example, if you took a 100 troy ounce bar of silver to the mint and got back only 97 ounces in coin, you would have paid a 3% seigniorage. More generally, seigniorage is what you pay for using somebody else’s money.

You may have heard the term “free coinage.” Thinkers in the 17th and 18th century contended that minting standard coin was an act of government so needful to commerce that no charge should be made for it. That would also encourage greater coinage. Thus when the young United States set up a mint it made no charge for minting bullion silver or gold into coin.


Standing in the grocery store a few days ago, that seigniorage idea hit me like a ton of bricks. I watched the fellow in line ahead of me swipe his card through the electronic reader to pay for his groceries. Earlier in the day I had been at Tractor Supply buying electric fencing supplies. I had two boxes of 50 each plastic step in fence posts. The cashier had a hard time finding the price. Finally she found it, $1.69 each, and checked out everything else. It amounted to $289.00. She asked me anxiously, “Do you still want them?”

Yes, I allowed, I still wanted them. What really surprised her, though, was that I paid cash.

Later, standing in line at the grocery store it hit me: everybody in the country uses credit cards. Everybody in the country pays the credit card companies huge seigniorage every time he buys anything. In fact, we pay them whether we use their money or not.

Think about it. The credit card company doesn’t charge you anything when you use it, but Visa and MasterCard charge the retailer three percent or so. Now the world being what it most surely is, the retailer will not pay that charge, but will shuck it off on you. Over time he raises prices to shift the 3% burden onto the customer.

Once he’s done that, he’s actually getting a three percent bonus every time a customer uses cash. Why? Because he raised prices three percent to cover the seigniorage he must pay the credit card companies, but he doesn’t have to pay them seigniorage when you tender cash.


Now keep following the trail of the money, because the seigniorage we pay to credit card issuers doesn’t stop there. Do you pay a yearly charge for your credit card? If it’s American Express, you pay $25 or $50 or more if you want the prestigious Platinum Card. And even if you don’t pay a fee for your Visa or MasterCard or Discover, you surely pay interest when you owe them.

But (he asked in bewilderment) what is the interest for? Not for money that you borrowed from them, because you didn’t borrow any “money.” They never gave you gold, silver, or even Federal Reserve notes (legal tender). They loaned you their credit, which just happens to pass in the United States as money. You must pay them seigniorage for using their money (credit). Then for the privilege of using their money and not paying them back immediately with some better money (bank deposit electrons from your checking account or currency), you pay more and greater seigniorage, although they call it “interest.”

And don’t forget the seigniorage for using bank credit money. That’s what you borrow when you take out any bank loan. They create it out of thin air, but you pay out of real sweat.


Here, then, is a hidden cost of not using gold and silver money: we must pay a huge seigniorage on every transaction. Remember, we have a common law, constitutional, and statutory right to gold and silver money, but the federal government refuses to mint and circulate gold and silver freely. Worse still, it has granted a monopoly to create money out of thin air to the Federal Reserve banking cartel.

Federal Reserve? Yes, let’s not forget the Federal Reserve’s seigniorage. The Bureau of Engraving & Printing prints the currency bills and charges the Fed nine cents each. For a $100 bill, that is a cost of 9/10,000 of the value of the bill or 0.09 percent. Let’s be generous and say that all the rest of the Fed’s administrative costs—the chairman's salary, his secretary, his limo, somebody to wash windows at the Fed Building in Washington, cost of laundering the money bags, tips at central bankers’ suppers, etc.—amounts to another 91/10,000, so that the total cost of running the whole Fed scam is one percent of the bills they issue. That amounts to a seigniorage of 99%. (Actually, they don’t even pay that, because they create the money out of thin air to pay for the printing. So in truth their seigniorage is 100%.)

Look at it this way:

Since the Federal Government has shirked one of its few legitimate functions—minting and circulating gold and silver coin—you must use some private corporation’s money. You can choose either Visa or MasterCard, at a seigniorage of 3% plus “interest,” or you can choose Federal Reserve notes at a seigniorage of 99%. Lucky you.

Man! Aren’t you glad we don’t have to wear out our pockets carrying around gold and silver coin? What a drag! Too expensive to use that stuff!