When Is It Okay to Counterfeit?

counterfeitsWhen I spoke at George Mason University last week, grad student Eli Dourado brought me up short with a question I wasn’t prepared for. He was riffing off the following passage from The Big Questions:

Is it okay to steal? Certainly not, and I’ve already told you why: The time and effort you spend stealing things is time and effort you could spend producing things instead. Theft leaves the world poorer than it could have been.

Is it okay to counterfeit? Certainly not, because counterfeiting is stealing. The time and effort you spend producing a phony dollar bill entitles you to a Hostess cupcake or a bus ride or a Blockbuster video rental without adding anything to the world’s stock of food, transportation, or entertainment. The cupcake you eat is made of flour and sugar that someone else could have eaten.

With that as background, Eli asked me this:

Is it okay for me to counterfeit if the central bank is not being sufficiently expansionary?

I stalled for a minute by asking if Eli was going to keep the seignorage (that’s economics talk for asking whether he was going to use his counterfeit money to buy stuff for himself instead of others). Eli rightly pointed out that this was a purely distributional question and hence irrelevant to the economic efficiency standard I’d been touting. (He later blogged his further thoughts on the matter.)

So the question then becomes: When is it okay to break the law in furtherance of improved public policy, while possibly pocketing a little profit along the way? When is it not just okay, but admirable?

Often, I’d say. Surely it is admirable to offer harbor, aid and comfort to Jews in Hitler’s Germany, escaped slaves in Roger Taney’s Maryland or “undocumented aliens” in Barack Obama’s America. These are easy calls. Why, then, do I instinctively balk at counterfeiting?

Partly, I think, because Eli didn’t tell me what he means by an “insufficiently expansionary” monetary policy. I understand what’s wrong with putting people in concentration camps, or enslaving them, or preventing them from crossing borders in pursuit of a better life. But I’m not sure I understand what’s wrong with a 3% monetary growth rate. The answer must depend on all sorts of auxiliary assumptions about the stickiness of prices, wages, and so forth, and I suspect the welfare consequences of counterfeiting might depend on those assumptions. And I can’t imagine ever being confident that I had those assumptions right.

That might explain my gut reaction, but of course it doesn’t answer the question, which I think I will continue to mull over. Meanwhile, there’s an interesting asymmetry here. Suppose you think it’s morally imperative to correct the Fed’s monetary policy by counterfeiting when monetary policy is too tight and (symmetrically) burning currency when monetary policy is too loose. Then you’ll get richer doing the right thing in tight-money times but you’ll get poorer doing the right thing in loose-money times. If you trade off personal gain against moral imperatives, you might consistently correct the Fed in one direction only. Is that better or worse than never correcting them at all?

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15 Responses to “When Is It Okay to Counterfeit?”


  1. 1 1 Harold

    I see a distinction between the concentration camp example and the monetary policy one. In the first you have a disagreement with the ends the policy is attempting to achieve. You judge the desired outcome to be morally wrong, and therefore have an obligation to act against it. In the monetary example, you only disgree with the Government about the means, not the ends.

  2. 2 2 Noah Yetter

    “Eli rightly pointed out that this was a purely distributional question and hence irrelevant to the economic efficiency standard I’d been touting.”

    But it’s NOT purely distributional because money is non-neutral in the short run. The counterfeiter increases his demand for goods & services and that gives his tastes & preferences extra weight in the market, to which producers will adjust, causing a distortion. Only once the extra demand has filtered throughout the economy and been absorbed as inflation will the effects of that initial distortion be attenuated, and even then only if the counterfeiter ceases his printing.

  3. 3 3 Dave

    This kind of reminds me of one of the sections in “Fair Play” where you outline that picking up trash is taking the law into your own hands. ie some laws are good and some laws are bad – any help in holding up the former and diminishing the latter is a moral act (or something to that effect).

    Personally, I think any monetary expansion by the govt is immoral – but I won’t be holding a bonfire for my savings.

  4. 4 4 Steve Landsburg

    Noah Yetter: The non-neutrality is presumably what’s supposed to *justify* the counterfeiting. You need non-neutrality for the Fed’s policy to be “insufficiently expansionary” by any standard you might be applying. Those “distortions” you’re pointing to are exactly what (in Eli’s scenario) the Fed is inappropriately failing to create, so you’re stepping in for them.

    As I said in the post, part of my discomfort with this is that it’s missing a clear model of why those distortions are desirable in the first place. But Eli’s question presumes that they *are* desirable.

  5. 5 5 S.V.

    If Eli has the monopoly in the money counterfeiting industry, it is one situation; on the other hand, if you have a competitive market with free entry, then in the long run, this kind of industry will have zero profit. Besides, in the competitive market, the value of the money equates the marginal cost of producing it.

    We can solve it by using gold as a currency, which has an intrinsyc value that is greater than the value of paper.

  6. 6 6 Ron

    I think you hit it. If Eli counterfeits money when expansion
    is needed, but fails to burn money when the opposite is true,
    then this is not principle; it is merely greed with an excuse.
    Secondly, the effect of private enterprise inflating the money
    is not the same as the effect of the feds doing so. There’s a
    large and expensive bureaucracy dedicated to detecting and
    stopping counterfeit money. Adding to the counterfeit load has
    the effect of increasing this effort, to no net productive
    gain.

  7. 7 7 Neil

    Seignorage is taxation. Taxation is a coerced payment (here, goods and services in exchange for pieces of paper). Eli is asking, is it okay for me to coerce a payment from others if I think the government is not being sufficiently coercive in this regard. Answer–No. Randy Cohen could not put it more clearly.

  8. 8 8 MW

    1. The distinction between harboring Jews in Hitler’s Germany and counterfeiting when monetary policy is not sufficiently expansionary seems to be merely between how sure you are about the immorality of the underlying act. Many Germans went along, as did antebellum Southerners and current anti-immigration Americans. We might have been as ambivalent about the immorality of these positions if only the Nazi’s, Taney and anti-immigrants were as convincing in their arguments as Friedman was about monetary policy. Somehow this leaves me uncomfortable but I do not know what other rule one might follow.

    2. Is introducing one market imperfection (counterfeiting) to address a different market imperfection (insufficiently expansionist monetary policy) just an application of the theory of the second, best?

    3. Isn’t free entry into “counterfeiting” just free banking? Hence all the implications of free banking would follow.

  9. 9 9 bart.mitchell

    I never understood the difference between paper counterfeiters and bankers. Both make money from nothing. A deposit of $1 in a bank results in $10 or more that they loan out, at interest. Where did the $10 come from? It’s never distributed as actual currency, just a promissory note.

    At least counterfeiters are producing a tangible product.

  10. 10 10 Bryan

    If the Fed gets wise to your plan to burn money or create money, then that will affect their behavior. So, you must be aware that your actions will make the Fed’s expansions and contractions more volatile.

  11. 11 11 Jon Shea

    It sounds like you know why you’re uncomfortable with expansionary counterfeiting. You don’t know how to model the value of expanding the money supply, you suspect that it’s impossible to model, and your skeptical that expanding the money supply has any benefit regardless.

    If you were able to model the value of expanding the money supply through counterfeiting, and the value turned out to be positive, then I bet you’d say without hesitation that it’s ok.

  12. 12 12 Jeffrey

    1. Burning and counterfeiting money takes effort. For as long as two people disagree on the needed direction of change, and this will always be the case, these ethics will cause their efforts to wastefully cancel out. Both the burners and the counterfeiters will conclude that they would rather live in a world where both are illegal.

    2. There is an asymmetry between counterfeiting money and burning money. Most counterfeiters can easily churn out millions or even billions, while most people can only burn thousands. So even if the average of citizens’ opinion is a wiser monetary policy than the average government’s opinion, we will always err on the side of expansion.

  13. 13 13 Captain Oblivious

    Instead of alternately burning and counterfeiting money, couldn’t one achieve the same result by alternately saving and spending money? (assuming you jump into the game at the right point, of course)…

    I suppose you might have to consider where to save the money: does putting it in a bank (and thus making it available to others) defeat the purpose? Should you stuff it in your mattress instead?

  14. 14 14 Scott Wentland

    I have two concerns in addition to ones that have been mentioned: quantity and quality. Regarding quantity, counterfeiters might print too much. It seems like a prisoner’s dilemma, where the individual has an incentive to counterfeit (as it may be rational or make sense for one or a few people to be “extra” expansionary during certain times), but if everyone (or simply “too many”) did that we could get a policy that is too expansionary…perhaps leading to stagflation or hyperinflation.

    Taking it a step further, in theory, the central bank could counteract this by contracting the money supply in similar proportions to its overexpansion, but that adds another (albeit incredibly difficult to measure) variable in their complex web of policy variables. Rent-seeking creeps its way in there as the Fed now has to spend additional resources trying to figure out how much to reduce the money supply in response to the counterfeiters in a way that satisfies their model.

    Second, (if my first concern holds and the problem is rampant) we would probably have lower quality money. See Gresham’s Law: bad money drives out the good. Counterfeiters would impose this negative externality on the rest of us (in addition to simply devaluing its close substitute, genuine greenbacks).

  15. 15 15 Benkyou Burito

    Now hold on: “Is it okay to counterfeit? Certainly not, because counterfeiting is stealing. “.

    In this question must counterfeiting only the reproduction of currency? What if I am producing a counterfeit gucci bag? What if I have developed a method of producing a gucci bag that results in a bag equal in quality and exact in form yet costs me a tenth of the production cost? Haven’t I added value to the world?

    Or perhaps my counterfeit gucci bag cost the same to produce but is made with much higher quality materials.

    Or includes a small but important modification to the original gucci design that customers go crazy for.

    Or perhaps my bags utilize less child labor, or more, or any difference that customers value yet Gucci fails to include.

    In all of these scenarios, my counterfeit adds value to the world yet are illegal. They are called stealing.

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