Money and The Roman Government

I've started reading Whatever Happened to Penny Candy? and mentioned it to the kids.  They were interested in the title and I told them what I learned in the first chapter.  Then after reading the second chapter I asked if they wanted to learn more and they excitedly said yes.  So I attempted to explain what I had read.  I thought that I would try to write a summary every couple of chapters to help me with my explanations. 

Chapter 1
Money: Coins and Paper

The book is written in letter format; Uncle Eric writing to his 9th grade nephew, Chris.  Uncle Eric asks Chris to look at a penny, nickel, dime, quarter, half-dollar and dollar bill.  The dime, quarter, and half-dollar all have grooves on the edges and are made of copper sandwiched between a nickel-zinc metal.  And they are all probably from later than 1965.  The coins are not really coins, but tokens because they contain no precious metals.

Chapter 2
Tanstaafl, the Romans and Us

Governments have public works projects like building roads and buildings.  They also have wars and welfare programs.  Back in the day of the Romans, the Roman government ran into a problem with all their projects.  It is called There Ain't No Such Thing As A Free Lunch.  They learned that nothing of value is free and they would have to pay for these projects.  The way governments typically fund these endeavours is through taxes.  But people will only take so much of being taxed so the Roman government had to find another way to get money.  They came up with counterfeiting as their solution. 

Because the printing press had not yet been invented and there was only coin money, the government decided that when the money came to the treasury after being collected they would clip it.  Clipping a coin means shaving off the edges.  They used these shavings to mint new coins.  Now they had the old, clipped coin and a new coin, too.  Pretty soon the Roman people realized that their coins were getting smaller and lighter and they refused to take clipped coins or they reduced the value of the clipped coin making people buy their product with 2 clipped coins instead of the usual 1. 

Later, people had notches cut into the edges of coins to prevent the clipping.  When this happened the goverenment had to come up with a new system of counterfieting.  This time when the coins were brought into the treasury they were melted down and some base-metal (non-prescious) was added in.  Now instead of being 94% silver the coins were 84% silver.  Eventually the coins were down to less that 1% silver.  Now more coins could be made and the government had enough money to do what it wanted. 

Gresham's Law (a law of economics) says that bad money drives good money out of circulation.  This is what happened in the time of the Roman's and it is what happened in 1965 here in America.  When the people realized that the coins were losing silver, they would save thier silver coins and spend only the low-silver soins. 

Becuase the governement had to pay for what it wanted, it started counterfeiting instead of raising taxes.  I can't wait to learn what the consequence of this action will mean.