A Grim Fairy Tale

November 20, 2000

Once upon a time there was a very greedy king. This king wanted to own all of the gold in his kingdom. Aside from its beauty it was, after all, money.

The king had an elaborate plan to get all of this gold. First he took all of the gold from his subjects and gave them paper, which bore the inscription "good as gold". Aside from the gold of a few strange people who hid it from the king, he wound up with most of it in his vault. Things went so well for the king that after a few years he changed the inscription to "better than gold." The king's schools taught the people that the kingdom's paper money, controlled by wise men, was the best in the world. You see the schools made sure that the people were not informed enough to distinguish between wise and moral men. In fact, the people were fooled to such an extent that the king eventually even allowed them to buy gold again. Most did not want it.

The next problem for the king was that some subjects were getting new gold from mines that he did not own. This made the king furious. He called together his wise men and asked them to solve this problem. The wise men knew that they couldn't buy the gold with their "better than gold" money. This would make the mine owners and others just ask for more and more of their paper in exchange for the gold. Their paper money would become worth less compared to gold and people might start to wonder about its real value.

Then the wisest of the advisors stepped forward. His name was Mundus Vult Decipi. He had earned his exalted status years before when the kingdom was very poor. Mundus had told the king that if he would set the people free from slavery they would work harder and be more creative. The king had recoiled at the idea of losing control of his people. But Mundus said that it would not happen. All the king had to do was institute something called an income tax. Instead of ordering the people to work a certain number of hours a day, he would just remove the income equivalent for those hours. He could continually increase the income tax, taking more and more hours of labor from the subjects. He must, however, be careful not to go too fast or reach the point of "killing the golden goose" (from another fairy tale). Why, he could even enlist the kingdom's university professors to create reasons why the subjects should willing submit to this confiscation of income and property.

The king was still worried. Even that amount of control didn't seem enough for him. Mundus said that there was a second action that the king could take to complete his control. He would proclaim regulations. "What's that?' asked the king. Mundus said, "You know! It's when you tell them how to use and not use the rest of their income. They can't build things without using your approved craftsman. They must keep their children in your schools. They must hire people that you deem worthy. Lots of things like that. With taxes AND regulations you'll be almost totally in control of their lives. And yet, after going to our schools, they'll actually believe that they're free."

The king accepted Mundus' suggestions and they worked marvelously!

So, later, when it came time to work on the gold problem, it was Mundus who showed the king how his bankers who lent money to the miners could keep the desirability of gold so low. The bankers had the miners promise to sell gold that was still in the ground at very small increments above its current paper money exchange value. This way there was always a lot of gold coming soon at a guaranteed low exchange rate. There would, therefore, not be much of a threat to the exchange rate in the future.

But now, this wisest of advisors, realized that the king wanted to possess all of the gold. So he told the king that if his bankers promised to sell more and more of the gold, people would think that there's much more around than anyone really wants. They would then be even less willing to buy the gold, and its price would drop even more. This drop in price would make it impossible for many mines to operate at a profit, and they would go bankrupt. They would be available for purchase by the king's bankers or the mines that were cooperating by selling their future gold at small markups.

The king thought that this was a good plan except for one thing. "Why should those other mines wind up with more gold properties", he said. "Oh, that's the best part." said Mundus. After we have bankrupted a great number of mines, then we force the price of gold up. "Up?" asked the king. "Yes" said the advisor. "Then the other mines that have to deliver gold, at small increments to the current price, will not be able to do so. They cannot possibly mine so much gold to meet the required price of sale. They will not have enough of you majesty's paper money to buy the gold at its new price, and they too will be bankrupt. The king's bankers can then take over their properties."

The king smiled. But Mundus thought, "It will work. If only some calamity doesn't kill the people's faith in our paper money, and they run all at once for the gold."

The Incas thought gold represented the glory of their sun god and referred to the precious metal as “Tears of the Sun.”