Creating money out of nowhere

On this day in 1404, 615 years ago, Parliament passed the "Act Against Multipliers," making it illegal to turn base metals into gold by alchemy. Alchemists could not at that time actually do this, and cannot now, but English lawmakers wanted to cover themselves against the possibility for fear that if it did happen, it would ruin the country. It is not recorded if they had discovered, centuries before Milton Friedman, that "inflation is always and everywhere a monetary phenomenon," but they had an inkling that too much gold and silver coming suddenly into circulation would be a bad thing.

They were wise before their time, in that the during the following century the Spaniards discovered abundant gold and silver in the Americas and brought it back to Europe, where it did cause significant inflation, which Spain exported to the rest of Europe by spending it there. It made Spain rich for a time until the inflation kicked in, but the easy wealth meant the country had little incentive to stimulate its own production since it could easily buy from others.

England never received vast quantities of specie. Sir Francis Drake pirated a little from Spanish ships, and Queen Elizabeth I wisely used it to pay off the national debt. England's alchemists never discovered how to make precious metals out of base ones, but later governments found how to turn base paper into money, and have often caused inflation by printing too much of it.

Present-day alchemists think there is a magic money tree, and that government can print as much as it likes to finance increased social welfare payments with it, use it to buy up industries into state hands, and create employment by financing huge infrastructure projects with it. They might do well to study a little history.