The Ethics of Countering the Private

Counterfeiter: Rejoinder to Block ajes_746 1321..1327

By LAURA DAVIDSON*

ABSTRACT. Counterfeiting is, and should be, a crime. It involves theft

by deception, and the stealing of goods or other valuables using false
claims to money. But what about counterfeiting money that is already
counterfeit? In Block’s interpretation, such an action amounts to
seizing stolen goods from a thief. Counterfeiting simply relieves the
original counterfeiter of his ill gotten gains and is therefore not theft
itself. The present article offers a critique of this thesis of Block’s on
the basis that counterfeiting money involves the theft of property from
innocent people.

Introduction

In his splendid book Defending the Undefendable, Dr. Walter Block

(1976) shows us that seemingly nefarious characters such as the
prostitute, the moneylender, and the slumlord might not be so nefarious
after all. Since they engage in mutually beneficial, voluntary exchanges,
their actions can be seen as valuable and even heroic, given the possible
public opprobrium and criminal sanctions they face.
Block’s defense of the private counterfeiter, however, is erroneous.
His justification for calling the counterfeiter heroic is that there is a
prior counterfeiter in action, and the money falsified by the private
counterfeiter is thus itself counterfeit.1 The prior counterfeiter is the
government. Counterfeiting counterfeit money, according to Block,
does not amount to theft because the private counterfeiter is merely
seizing stolen property from a thief. To illustrate his point, he provides
us with an analogy: if B steals property from A, and C takes the stolen
property away from B, C is not guilty of theft. The application of this
analogy, however, is invalid in the case of counterfeiting.2 To see why,

*The author is an independent scholar. Please direct correspondence to Laura

Davidson at davidsonlaura@gmail.com
American Journal of Economics and Sociology, Vol. 69, No. 4 (October, 2010).
© 2010 American Journal of Economics and Sociology, Inc.
1322 The American Journal of Economics and Sociology

we must first separate out the perpetrators from the victims of the
original counterfeiting fraud.

The Original Counterfeiting Fraud and its Victims

Block is of course correct when he says the government is the original

counterfeiter. As he rightly points out, from the very beginning gov-
ernments seized monopoly control of the mints, debased the currency,
and started issuing counterfeit paper money in place of gold and
silver.3 The victims of this theft were the original owners of gold and
silver, “A” in the analogy. Later, the establishment of central banks,
legal tender laws, and monopoly control of the printing of paper
money greatly facilitated the fractional reserve process,4 and commer-
cial banks became co-conspirators in the fraud. These actions, by both
the government and the banking industry, inflate the money supply
and create multiple claims to money. Finally, with the establishment of
an entirely fiat currency, there are no longer any valid claims to
genuine money such as gold or silver.
Clearly then, the government and the banks are in a sense the prime
culprits. They represent the “B” in the analogy. We should also include
in this category any associates of the government who are direct
beneficiaries of its largess with the money it creates, such as govern-
ment contractors, the beneficiaries of corporate and social welfare,
and other such recipients of government grants.5
“C” is the private counterfeiter, who according to Block is the “good
guy,” the policeman in this little tableau who seizes stolen property in
the possession of B on behalf of B’s victims, the original owners, A.
C, therefore, becomes the “liberator” of stolen goods that have been
illegitimately taken by the government and the banks. If A, or A’s
descendants, can be found, C must return the property to them. But
if members of A are no longer alive and A’s descendants cannot be
determined, as is most likely the case, he is entitled to keep the
property for himself, according to Block.

The Use of Fiat Money by Those Not Involved in Counterfeiting

It is important to point out that counterfeiting is a crime because false

claims to real money are made with the intent to obtain real goods.
 The Ethics of Countering the Private Counterfeiter 1323

The theft occurs, not in the creation of counterfeit money, which is

the act of copying an original, but rather in its fraudulent use. It
involves theft by deception. In Block’s analogy, the stolen property is
not the counterfeit money created by B, but the goods and services
obtained with the counterfeit money.
But here we run into a problem with the analogy. What about all the
private holders of B’s counterfeit notes who are neither the original
owners of gold or silver nor a part of any counterfeiting scheme? Let
us call this group of people X. They are all the recipients of fiat money
who are not associated with the government or the banking industry.
While it could be argued that the private counterfeiter is justified in
using his own false claims to seize or liberate goods stolen by a prior
counterfeiter, is he justified in seizing goods from people who are not
involved in counterfeiting? And further, once money passes into the
hands of X, is it really counterfeit at all?
Let us assume for a moment that Block is correct when he assumes
that all fiat money, even in the hands of X, remains counterfeit. Can
it be argued that members of X are themselves guilty of theft by
deception because they knowingly use the government’s counterfeit
notes to buy goods and services? Of course not. With a fiat currency,
the government specifically prevents this group, through the threat of
violence,6 from exchanging goods or services for anything other than
government currency. And without money, these innocent people
would be reduced to a life of barter, which would lead to impover-
ishment and possible starvation. Can it be argued that despite the
threat of violence, X should still be condemned for using counterfeit
money? No. The consequences of using private money alternatives in
voluntary exchanges are severe,7 as are those of using no money at all.
And the “crimes” this group supposedly commits, using counterfeit
notes to ensure their own survival, pale in comparison to the violence
and misery that would be inflicted on them in pursuing any of the
alternatives.
Given the circumstances, it would seem very unreasonable to
suggest that any goods this group acquires through the use of this
currency are somehow “stolen” and fair game to Block’s would-be
liberator, even if the money they use does remain counterfeit. But,
more importantly, since members of X are forced to use fiat money,
1324 The American Journal of Economics and Sociology

and have only one viable medium of exchange, it can be seen that
such money, in fact, ceases to be counterfeit in their hands.
There is another argument as to why fiat money, once it passes into
the hands of X, is no longer counterfeit. Let us suppose two people
engage in a voluntary exchange where counterfeit notes are being
used, and both of them are aware of this fact, and yet proceed with
the transaction anyway. It is clear that no deception occurs as far as
these two parties are concerned. The buyer of goods, who uses these
notes in exchange, has not deceived the seller in any way. Further-
more, even if the notes were used in the past to obtain property
fraudulently, they are themselves not stolen property in any sense.
They are simply copies of originals. Since no transfer of stolen money
takes place, and neither deception nor fraud occurs, the transaction
must be considered legitimate, and both buyer and seller acquire
genuine titles as a result. The seller acquires title to paper notes, which
he is fully aware are merely copies of originals, but that he values not
for their redeemability in gold or silver, but rather for their value in
exchange for other goods.
In the case of a universal fiat currency, everyone is aware that
government notes are not redeemable in gold or silver and that all
current notes in circulation are merely copies of originals that once
were. If no members of X can be said to be using any kind of
deception when using this currency, and all are equally aware of its
true nature, and the currency itself is not in any sense “stolen
property,” it is obvious that all transactions involving its use are
legitimate, and the once counterfeit money has become a genuine
medium of exchange.
Therefore, in the case of a fiat currency, the private counterfeiter
counterfeits genuine money in the possession of the group X, and
uses it to steal their legitimately owned property.

The Creation of Fiduciary Media and Counterfeiting

What about the banks? Fractional reserve banks perpetrate a fraud by

creating fiduciary media, or money out of thin air.8 Thus if members
of X deposit their currency in demand accounts, the banks commit
crimes against depositors by generating loans that create multiple
 The Ethics of Countering the Private Counterfeiter 1325

claims to this money. The crimes occur because depositors are led to
believe their money is redeemable on demand, when in fact the banks
have misrepresented the nature of the claims.
Since fiduciary media are fraudulent in their origin, is the private
counterfeiter justified in counterfeiting these claims? Certainly not. If
he does so, he is simply issuing his own fiduciary media, and his
actions, in this case, are little different from those of the fractional
reserve banks.

Conclusion

To summarize, then, what we have is a complex web of licit and illicit

owners of money and goods. Prior to the establishment of a universal
fiat currency, the government and the banks are counterfeiters of
claims to gold or silver. After the establishment of a fiat currency,
through the establishment of a central bank, fiat notes become the
only legal medium of exchange and, as we have seen, this money
ceases to be counterfeit in the hands of a substantial number of
people. The central bank continues its mischief, of course, by con-
tinuing to inflate the very same currency it has foisted on the majority
of the population, but that the population has now made legitimate.
And adding insult to injury, the commercial banks engage in issuing
false claims to this money through the creation of fiduciary media.
Into this farrago steps Block’s private counterfeiter, C. There is no
question that the private counterfeiter takes property away from
someone. The issue, however, is whether he “liberates” this property
from a rightful owner. Block would have us believe that anyone
holding government-created money is not a rightful owner simply
because all existing claims to money are counterfeit. This is how that
author justifies C seizing property from B in his analogy.
However, as we have seen, even though all existing money is
indeed counterfeit in its origin, in that none of it is properly redeem-
able for gold or silver, the money ceases to be counterfeit in the hands
of a substantial number of people once it becomes a fiat currency.
These people are the rightful owners of both the fiat currency and the
goods they obtain with it. The private counterfeiter thus counterfeits
their legitimate money and uses it to steal what is their rightful
1326 The American Journal of Economics and Sociology

property, and he does so not as some heroic figure, but as a common

criminal. Well, an uncommon criminal. But a criminal nonetheless,
Block to the contrary notwithstanding.

Notes
1. Says de Soto (2006: 245): “Clearly if bankers succumb to this temptation,
they violate universal legal principles and commit not only the crime of
counterfeiting (by issuing a false receipt unbacked by a corresponding
deposit), but the crime of fraud as well, by presenting as a means of payment
a document that in reality lacks all backing.” See also Rothbard (1962, 1990).
2. See on this, also, Murphy (2006) and Machaj (2007).
3. See note 1 above.
4. Rothbard (1983), Block and Garschina (1995), Callahan (2003), Hoppe,
et al. (1998), Hoppe, (1994), Hulsmann (2002a, 2002b), Rothbard (1962), and
de Soto (1995, 2001).
5. See note 1 above.
6. E.g., legal tender laws.
7. Consequences that result from government prosecution. See note 6
above.
8. See note 1 above.

References

Block, W. (1976). Defending the Undefendable. Auburn, AL: Mises Institute.

Block, W., and K. M. Garschina. (1995). “Hayek, Business Cycles and Frac-
tional Reserve Banking: Continuing the De-Homoginization Process.”
Review of Austrian Economics 9(1): 77–94.
Callahan, G. (2003). “The Libertarian Case Against Fractional-Reserve
Banking.” Anti-State.com, July 22.
Hoppe, H. H. (1994). “How is Fiat Money Possible?—or, The Devolution of
Money and Credit.” Review of Austrian Economics 7(2): 49–74.
Hoppe, H. H., with J. G. Hulsmann and W. Block. (1998). “Against Fiduciary
Media.” Quarterly Journal of Austrian Economics 1(1): 19–50.
Hulsmann, J. G. (2002a). “Free Banking and the Free Bankers.” Review of
Austrian Economics 9(1): 3–53.
——. (2002b). “Free Banking Fractional Reserves: Reply to Pascal Salin.”
Review of Austrian Economics 1(3).
Machaj, M. (2007). “Against Both Private and Public Counterfeiting.” American
Journal of Economics and Sociology 66(5): 977–984.
Murphy, R. P. (2006). “A Note on Walter Block’s Defending the Undefendable:
The Case of the ‘Heroic’ Counterfeiter.” American Journal of Economics
and Sociology 65(2): 463–467.
 The Ethics of Countering the Private Counterfeiter 1327

Rothbard, M. N. (1962). “The Case for a 100 Percent Gold Dollar.” In Search
of a Monetary Constitution, 94–136. Ed. L. B. Yeager. Cambridge, MA:
Harvard University Press.
——. (1983). The Mystery of Banking. New York: Richardson and Snyder.
——. (1990). What Has Government Done to Our Money? Auburn, AL: Ludwig
von Mises Institute.
de Soto, J. H. (1995). “A Critical Analysis of Central Banks and Fractional
Reserve Free Banking from the Austrian Perspective.” Review of Austrian
Economics 8(2): 25–38.
——. (2001). “A Critical Note on Fractional Reserve Free Banking.” Quarterly
Journal of Austrian Economics 1(4): 34–35.
——. (2006). Money, Bank Credit, and Economic Cycles. Translated by M. A.
Stroup. Auburn, AL: Ludwig von Mises Institute.
Copyright of American Journal of Economics & Sociology is the property of Wiley-Blackwell and its content
may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express
written permission. However, users may print, download, or email articles for individual use.