OK then, would you mind if I buy your car with $20,000 in counterfeit money?

Don’t worry, no one will know it is counterfeit until after the transaction.

I’m currently reading this book (finished part 4 of 6 last night), and one of the topics it covers is the currency crisis of the 1690s. The cause, as Greg mentioned @3, was a shortage of coins due to merchants exploiting an arbitrage opportunity. Newton proposed at least two solutions to the problem, one of which (use of paper currency) was actually adopted at the time. The other was, in effect, a devaluation: decrease the amount of metal in the coins (the term “pound sterling”, of course, implies that one troy pound of silver was originally worth exactly that much; at todays spot prices you would need ~150 pounds of British currency to buy a troy pound of silver).

Gold and/or silver backed currencies are not immune from inflation. There are at least two examples in history: 16th century Spain (due to gold from the New World) and California circa 1850 (the Gold Rush).

It could well be argued that Newtons’ failure to turn lead into gold was productive in the sense that it provided evidence that it couldn’t be done. Experiments with negative results often lead to startling new theories (Michaelson/Morley experiment anyone).

This is actually a serious problem with internet transactions. The monopoly that Visa, MC and other credit and debit card suppliers has a transaction fee structure that precludes micropayments. If you could do micropayments, then things like time dependent electricity cost becomes a lot easier. That would greatly increase the efficiency of electricity generation, transmission and use by incentivizing people to time-shift their electricity consumption. The only thing that is blocking it is the fee structure that banks demand for transactions. Their monopoly power over transactions is a barrier to entry for other players with a different fee structure.

Counterfeiting doesn’t improve an economy, it improves the living standards of the counterfeiter at the expense of the economy (until (s)he is caught, anyway).

That is generally true today, but not necessarily in the past – back when currency was made from or backed by valuable metals, economic growth could (and regularly was) restricted by an insufficient supply of said metals: because the money supply could not expand beyond the bullion supply, there as simply not enough money available to conduct all of the economic exchanges that would have been possible and beneficial. I can’t say whether Chaloner’s activities fell into such a period, but if they did, they would indeed have had a positive impact on the economy.

Regarding the money supply, the main problem at the time was that the metal used to make coins in England was worth more melted down than the coins were worth, in France and elsewhere on the continent. For this reason, the coins were disappearing faster than they could be stamped in some years. Those melting the coins down would not have paid for the fake coinage (made of pewter, often, instead of silver). The result would have been that all the coins would be fake. Thus, leading us to a system where the money is not intrinsically valuable but still works as money.

So, yeah, more counterfeiting!!! That could work!

Don: “Counterfeiting doesn’t improve an economy, it improves the living standards of the counterfeiter at the expense of the economy (until (s)he is caught, anyway).” Right, but then, the counterfeiting buys yachts and stuff thus creating jobs…

You still have the same amount of goods and services on which you can use money, there’s just more bills/coins floating around.

Counterfeiting doesn’t improve an economy, it improves the living standards of the counterfeiter at the expense of the economy (until (s)he is caught, anyway).