WEBVTT NOTE The Golden Antidote 1 00:00:00.000 --> 00:00:04.440 I'd like to start off by defining a liberal, because what I'll be saying will be in opposition 2 00:00:04.440 --> 00:00:05.440 to liberals. 3 00:00:05.440 --> 00:00:10.280 In order to be a liberal, you have to believe that the AIDS virus is spread by a lack of 4 00:00:10.280 --> 00:00:13.080 government funding. 5 00:00:13.080 --> 00:00:17.800 You have to believe that gender roles are artificial, but being gay is natural. 6 00:00:17.800 --> 00:00:22.720 You have to believe that businesses create oppression and governments create prosperity. 7 00:00:22.720 --> 00:00:27.960 By the way, the reason that Gene Epstein wasn't here ostensibly because of the storm and the 8 00:00:27.960 --> 00:00:30.960 and the plane, it was really government's fault. 9 00:00:30.960 --> 00:00:34.960 If they hadn't been busy misspending our GDP for the last 50 years, 10 00:00:34.960 --> 00:00:39.960 surely we would have had innovations that would deal with a little wind and rain. 11 00:00:39.960 --> 00:00:45.960 To be a liberal, you have to believe that there was no art before federal funding. 12 00:00:45.960 --> 00:00:51.960 To be a liberal, you have to believe that taxes are too low, but ATM fees are too high. 13 00:00:51.960 --> 00:00:58.160 To be a liberal, you have to believe that secondhand smoke is more dangerous than HIV. 14 00:00:58.160 --> 00:01:01.560 And you have to believe that the only reason socialism hasn't worked anywhere it's been 15 00:01:01.560 --> 00:01:06.520 tried is because the right people haven't been in charge. 16 00:01:06.520 --> 00:01:11.080 You also have to believe, to get closer to my topic for today, that gold is an ancient 17 00:01:11.080 --> 00:01:16.800 barbarous relic which should be expunged from monetary considerations. 18 00:01:16.800 --> 00:01:22.480 Now, Mises was a gold standard advocate, and since so many fairy tales abound about this 19 00:01:22.480 --> 00:01:26.280 with regard to the gold standard, I'd like to begin with a fairy tale of my own. 20 00:01:26.280 --> 00:01:31.580 The only difference is I'll claim that this one has a kernel of the truth. 21 00:01:31.580 --> 00:01:36.140 So once upon a time, I guess all fairy tales have to start that way, long, long ago in 22 00:01:36.140 --> 00:01:39.340 a faraway land there was no trade. 23 00:01:39.340 --> 00:01:43.240 Everything that people consumed they had to produce themselves, food, clothing, shelter, 24 00:01:43.240 --> 00:01:48.840 attainment, repair services, shoes, shoelaces, whatever it was they had to produce for themselves. 25 00:01:48.840 --> 00:01:53.640 Self-sufficiency was attained, of which economic nationalists lack so eloquent. 26 00:01:53.640 --> 00:02:00.040 In this country, Ed Broadbent and the NDP is perhaps the most famous economic nationalists. 27 00:02:00.040 --> 00:02:02.040 Naturally, people were very poor. 28 00:02:02.040 --> 00:02:06.340 How can you be rich when you're a jack of all trades and master of none? 29 00:02:06.340 --> 00:02:10.740 And then some genius, Mises of his day, had a great idea. 30 00:02:10.740 --> 00:02:13.940 He'd specialize in the production of one or very few things. 31 00:02:13.940 --> 00:02:16.440 He'd learn more about the task. He'd innovate. 32 00:02:16.440 --> 00:02:20.140 He'd engage in the division of labor. He'd perfect his skills. 33 00:02:20.140 --> 00:02:22.040 This is reasonable. 34 00:02:22.040 --> 00:02:24.840 You can't become a good concert pianist or a surgeon 35 00:02:24.840 --> 00:02:27.140 unless you practice your craft eight hours a day. 36 00:02:27.140 --> 00:02:29.440 If you have to do everything else under the sun 37 00:02:29.440 --> 00:02:31.940 and practice your profession, say, for ten minutes a day, 38 00:02:31.940 --> 00:02:35.040 well, you don't get really good at anything. 39 00:02:35.040 --> 00:02:37.740 There's only one problem in this little idol. 40 00:02:37.740 --> 00:02:40.240 If you specialize in any one thing, it'll pile up. 41 00:02:40.240 --> 00:02:42.840 What good are mountains of shoes or tons of frisbees? 42 00:02:42.840 --> 00:02:46.640 You can't eat them, you can't live in them, you can't clothe yourself in them. 43 00:02:46.640 --> 00:02:49.140 So trade is thus imperative. 44 00:02:49.140 --> 00:02:53.240 You have specialization, division of labor, production, growth, technology. 45 00:02:53.240 --> 00:02:57.740 Civilization is going to take place, you have to have trade. 46 00:02:57.740 --> 00:03:00.940 Problem is that direct trade is virtually impossible. 47 00:03:00.940 --> 00:03:04.140 Suppose that you have a chicken and you want a pickle. 48 00:03:04.140 --> 00:03:09.140 Well, you're a chicken-owning pickle-wanter and you must find a pickle-owning chicken-wanter. 49 00:03:09.140 --> 00:03:18.140 I've been practicing that. When I first said it, I couldn't say it, and don't ask me to say it again. 50 00:03:18.140 --> 00:03:24.140 Or to take a more mundane example, suppose you have a skill as a computer operator, 51 00:03:24.140 --> 00:03:29.140 and you move to a new city, say Toronto, and you find a landlord with a suitable apartment. 52 00:03:29.140 --> 00:03:35.140 With no money, you have to find a landlord who wants computer services, and what are the odds of that? 53 00:03:35.140 --> 00:03:40.140 I mean, it's hard enough to find a place without finding a landlord who wants exactly what you have. 54 00:03:40.140 --> 00:03:46.140 Therefore, what happened is that indirect trade was actually more efficient than direct trade. 55 00:03:46.140 --> 00:03:52.140 Roundabout methods of production are sometimes more efficient than direct ones, and this occurs in money. 56 00:03:52.140 --> 00:04:02.140 So, to get back to the chicken-owning pickle-wanter, what you do is you first, you don't look for a guy with a pickle who has a chicken, 57 00:04:02.140 --> 00:04:08.140 Trade your chicken in for a widely accepted medium of exchange, say, salt. 58 00:04:08.140 --> 00:04:15.140 Everyone wants salt. So you trade it into salt first, and then you take the salt in the second stage and you buy a pickle with it. 59 00:04:15.140 --> 00:04:22.140 So that's the way money began, because people had to get around this double coincidence of wants problem. 60 00:04:22.140 --> 00:04:31.140 So as salt began to be used, the demand for salt increased, and now not only was it used for its own sake, but also to facilitate trade. 61 00:04:31.140 --> 00:04:38.540 It had direct value as a commodity and indirect value as a medium of exchange. 62 00:04:38.540 --> 00:04:42.580 Many items have been used in the history of civilization to intermediate trade, salt, 63 00:04:42.580 --> 00:04:48.100 cigarettes, sugar, tobacco, fish hooks, cows, metals, brass, copper, silver, gold. 64 00:04:48.100 --> 00:04:50.980 But notice one thing, they are all commodities. 65 00:04:50.980 --> 00:04:55.460 They had intrinsic value apart from trade, well, not intrinsic value, we're not Marxist 66 00:04:55.460 --> 00:05:00.320 here, but derived from consumer evaluations, namely they had some other use before they 67 00:05:00.320 --> 00:05:13.320 Notice, money didn't start with, couldn't start with, pieces of paper denominated in lira or yen or marks or Rothbard's or Mises's or anything like that, or entries in a ledger. 68 00:05:13.320 --> 00:05:20.320 The key to acceptability is knowing that others would later accept it, and that way you won't get caught holding the bag. 69 00:05:20.320 --> 00:05:28.320 If you accept a piece of paper for your chicken or your pickle, how do you know someone else will take that piece of paper? You don't. 70 00:05:28.320 --> 00:05:35.320 Whereas if it's salt or gold or something that has other value, you have assurance that someone else will accept it. 71 00:05:35.320 --> 00:05:41.320 So there was a competitive struggle in our little fairy tale over which commodity would become money. 72 00:05:41.320 --> 00:05:47.320 And everywhere in every civilized country where competition was allowed, gold won out. 73 00:05:47.320 --> 00:05:55.320 The gold standard thus exemplifies or stands for, not so much for the gold standard, 74 00:05:55.320 --> 00:06:01.320 but for the process of free competition between different commodities to be the money. 75 00:06:01.320 --> 00:06:07.320 Now, our enemies, such as Milton Friedman, are likely to say that we're fetishes or we're weirdos or something like that. 76 00:06:07.320 --> 00:06:12.320 We love to run gold through our fingers or like Scrooge McDuck who used to dive in his money bin and swim around. 77 00:06:12.320 --> 00:06:15.320 You know, we sort of like to swim in gold. 78 00:06:15.320 --> 00:06:20.320 Well, maybe some people do. It's not my thing, but that's not really true. 79 00:06:20.320 --> 00:06:26.320 This is really true. For example, if platinum had won out, Mises would have been a platinum standard advocate. 80 00:06:26.320 --> 00:06:31.320 There's nothing particularly great about gold except that gold happens to win out in the market. 81 00:06:31.320 --> 00:06:34.320 So people who are gold standard advocates are really market advocates. 82 00:06:34.320 --> 00:06:38.320 Nothing to do with gold per se. It's just almost an accident. 83 00:06:38.320 --> 00:06:44.320 Well, not exactly an accident because gold does have certain advantages vis-à-vis other commodities. 84 00:06:44.320 --> 00:06:47.320 It's very malleable. It's cheaply divisible. 85 00:06:47.320 --> 00:06:51.320 if you divide it you lose no value, whereas if you cut a diamond in half to make spare 86 00:06:51.320 --> 00:06:56.520 change you lose, I think, one-eighth or seven-eighths of the value or something like that 87 00:06:56.520 --> 00:06:58.600 it's low-cost transit 88 00:06:58.600 --> 00:07:01.200 very high value per volume and per weight 89 00:07:01.200 --> 00:07:05.600 unlike cement or iron, which could conceivably be money 90 00:07:05.600 --> 00:07:09.040 what are the other advantages of a gold standard? Well, it's checks and balances. Lots of 91 00:07:09.040 --> 00:07:13.040 people say, well there's three branches, state, federal, 92 00:07:13.040 --> 00:07:16.840 or in this country, provincial and federal 93 00:07:16.840 --> 00:07:20.400 but also it's important to have a citizen check on government as a whole 94 00:07:20.400 --> 00:07:23.760 because there's always a tension, polite word, between government and the people 95 00:07:23.760 --> 00:07:26.440 government wants to spend their money the way it wants to 96 00:07:26.440 --> 00:07:30.840 and the people want to spend the money in their own behalf 97 00:07:30.840 --> 00:07:35.480 the government only can raise money in three ways, taxes, borrowing and inflation 98 00:07:35.480 --> 00:07:38.240 the problem with taxes from their point of view 99 00:07:38.240 --> 00:07:45.240 excuse me, economics is no heavy lifting but it's still hot work 100 00:07:46.840 --> 00:07:51.840 The problem with taxes from the government's point of view is very clear. It's crystal clear exactly who's doing the taxes. 101 00:07:51.840 --> 00:07:55.840 I mean, the government can't tax you and say, well, it's not really us, you know, it's those guys that are taxing. 102 00:07:55.840 --> 00:07:58.840 I mean, get real. Everyone knows the government taxes. 103 00:07:58.840 --> 00:08:04.840 Similarly, when the government crowds out with its borrowing, it can't slough off the problem and say, well, someone else is doing it. 104 00:08:04.840 --> 00:08:08.840 But with inflation, it's very hard to see exactly who's doing it or why. 105 00:08:08.840 --> 00:08:13.840 You know, they blame it on greed, you know, consumer greed or employer greed or employee greed. 106 00:08:13.840 --> 00:08:22.840 It's very unclear. I remember there used to be a TV show where the treasury authorities would come down the steps to look for counterfeiters. 107 00:08:22.840 --> 00:08:29.840 My feeling is, you know, they should just turn around and go back to where they came from and they'd find it. 108 00:08:29.840 --> 00:08:38.840 Why is this hard for people to see? Why is it hard for people to see a connection between the money increase on the one hand and inflation on the other? 109 00:08:38.840 --> 00:08:42.960 on the other. It's all because of expectations and that's why there is no 110 00:08:42.960 --> 00:08:48.240 direct correlation between money increase and price increase and therefore 111 00:08:48.240 --> 00:08:53.120 because there's no direct statistical correlation people think there's no cause 112 00:08:53.120 --> 00:08:57.600 and effect relationship but it's not true. The example I'd like to use to 113 00:08:57.600 --> 00:09:02.200 exemplify this is take the case of a housewife with pots and pans and suppose 114 00:09:02.200 --> 00:09:05.240 that in the past the price of pots and pans has been flat, there's been no 115 00:09:05.240 --> 00:09:10.240 and now all of a sudden the government starts increasing the money supply. 116 00:09:10.240 --> 00:09:16.240 Well, the housewife, and there is an incipient tendency for prices to rise, 117 00:09:16.240 --> 00:09:19.240 because more money is now chasing the same amount of goods. 118 00:09:19.240 --> 00:09:23.240 But what the housewife says to herself is, look, prices are rising a little bit, 119 00:09:23.240 --> 00:09:26.240 but for the last 50 years prices have always been flat, 120 00:09:26.240 --> 00:09:31.240 so what I'm going to do is I'm going to wait for my purchase of pots and pans until prices come down again. 121 00:09:31.240 --> 00:09:37.360 So, money is increasing, which has an incipient tendency to raise prices, but the housewife 122 00:09:37.360 --> 00:09:41.740 is holding back, which pushes prices down, so you have the case where money is increasing 123 00:09:41.740 --> 00:09:47.120 and prices aren't increasing, and the government says, see, there's no connection, we can increase 124 00:09:47.120 --> 00:09:50.760 money all we want and prices won't increase, and they're right in the sense that there 125 00:09:50.760 --> 00:09:52.840 is no correlation yet. 126 00:09:52.840 --> 00:10:00.520 But then eventually the housewife wants to buy pot and pan, and now prices go up higher 127 00:10:00.520 --> 00:10:06.040 Then the increasing supply of money, because now in addition to the increasing supply of money 128 00:10:06.040 --> 00:10:10.360 adding to prices, it's the housewife that's getting in on the deal and she's got to have her pot and pan. 129 00:10:10.360 --> 00:10:12.960 She's been deferring it for a year or two. 130 00:10:12.960 --> 00:10:17.960 Eventually, if this process continues, what's going to happen is that the housewife 131 00:10:17.960 --> 00:10:22.520 is going to buy a pot and pan not when she needs it, but because she thinks that the prices will keep rising. 132 00:10:22.520 --> 00:10:25.480 So even if she'll need it in two years, she'll buy it now, 133 00:10:25.480 --> 00:10:29.720 which means that prices will start rising a lot faster than the money supply. 134 00:10:29.720 --> 00:10:59.720 and eventually she's going to start saying, you know, I don't even need pots and pans, I've got too many of them, but better a pot and a pan than this money that keeps depreciating and then you get into the German hyperinflation kind of a situation where the government keeps saying, you know, it's not our fault, you know, we keep increasing the money to catch up with the people. So, just because there's no direct correlation and just because an econometrician can't see it doesn't mean that there's no causal relation. 135 00:10:59.720 --> 00:11:05.820 The gold standard didn't collapse as far as I'm concerned. The government abolished it to make inflation easy. 136 00:11:05.820 --> 00:11:09.820 We never really had a full gold standard, although we came close to it. 137 00:11:09.820 --> 00:11:18.620 But with a gold standard, 100% back, or money 100% back by gold, no balance of payments problems, no competing devaluations, 138 00:11:18.620 --> 00:11:26.320 no protectionism impetus from money, that is. I mean, obviously there are other impetuses for protection, but not from the money side. 139 00:11:26.320 --> 00:11:29.820 The entire world economy is integrated like one country. 140 00:11:29.820 --> 00:11:35.920 Well, like the US, not like Canada, because in Canada they have internal barriers to trade, which is weird. 141 00:11:35.920 --> 00:11:42.420 It's no accident that from 1815 to roughly 1914, that century, was a hundred years of relative peace, 142 00:11:42.420 --> 00:11:48.720 a hundred years of the gold standard, a hundred years of prosperity, a hundred years of economic growth. 143 00:11:48.720 --> 00:11:54.820 Well, let me continue my fairy tale. How did inflation start, in the absence of a government? 144 00:11:54.820 --> 00:11:59.380 Well, here we have a situation where there's a pure gold standard and people are in the habit of 145 00:11:59.380 --> 00:12:03.060 leaving their extra stores of gold in the care of the goldsmith. He has the biggest, 146 00:12:03.060 --> 00:12:09.940 strongest safe in town. He'd store the money, the gold, he'd charge a warehouse fee and he'd 147 00:12:09.940 --> 00:12:15.300 give a receipt for the gold that he had on hand. And people would then start trading these receipts 148 00:12:15.300 --> 00:12:19.860 as money because it's easier to trade a receipt, a piece of paper that signifies a gold ounce or 149 00:12:19.860 --> 00:12:30.860 One day he realized that a lot of people in town stored gold with him, and his wife kept bugging him for a new mint code. 150 00:12:30.860 --> 00:12:35.860 So he noticed that new demand for gold was offset by the new supply. 151 00:12:35.860 --> 00:12:41.860 What he did is he printed up a few extra warehouse receipts and spent them on a mint code, or he lent them out at interest, 152 00:12:41.860 --> 00:12:46.860 and fractional reserve banking was born, and so was inflation, 153 00:12:46.860 --> 00:13:11.860 The Misesian radical proposal for free market money is the following, no legal tender laws, 100% reserves, no fractional reserve banking, denationalization of fiat currency, abolition of the Fed, no Milton Friedman 3% rule, no central bank, private coinage, return of the gold hoard to private hands. 154 00:13:11.860 --> 00:13:17.800 Now this brings up a very interesting story, because lately what's been happening is that central banks around the world have been 155 00:13:17.800 --> 00:13:24.200 disgorging their gold stores and the price of gold has been going down. And people are saying, well, the price of gold is going down, 156 00:13:24.200 --> 00:13:35.160 therefore, you know, that says something negative about the gold standard. But suppose the government was in the habit of stockpiling rulers, 157 00:13:35.160 --> 00:13:41.460 yardsticks, tape measures, things like that. They just store them up. It's not so crazy. They do it with the farm program, 158 00:13:41.460 --> 00:13:45.340 with the barley and wheat and corn, why not with rulers? 159 00:13:45.340 --> 00:13:49.540 And then one day, they start disgorging rulers and yardsticks, 160 00:13:49.540 --> 00:13:52.860 and the price of rulers and yardsticks falls. 161 00:13:52.860 --> 00:13:55.340 Does that mean that we should forget about inches and centimeters? 162 00:13:55.340 --> 00:13:57.580 No. 163 00:13:57.580 --> 00:13:58.940 We stand for the gold standard. 164 00:13:58.940 --> 00:14:02.220 Now, any particular rate of exchange between fiat currency and gold 165 00:14:02.220 --> 00:14:04.220 depends upon a whole panoply of things, which 166 00:14:04.220 --> 00:14:09.660 is irrelevant to the fact that it's an exchange, 167 00:14:09.660 --> 00:14:13.660 The gold medium of exchange, par excellence, and it's a store of value. 168 00:14:13.660 --> 00:14:19.660 So just the rate of exchange has nothing to do as far as I'm concerned with the viability of the gold standard. 169 00:14:19.660 --> 00:14:23.660 To continue the Misesian radical proposal for free market money, 170 00:14:23.660 --> 00:14:29.660 minting, mining, certification, storage of money would all be in private hands. 171 00:14:29.660 --> 00:14:32.660 There'd be a complete separation of money and state, 172 00:14:32.660 --> 00:14:37.660 just as some people want a complete separation of religion and state or schooling and state. 173 00:14:37.660 --> 00:14:45.660 We'd have honest-to-goodness gold standard, in which 100% of the money consisted literally of gold or warehouse receipts for the gold. 174 00:14:48.660 --> 00:14:58.660 So much for our brief look at the Misesian case for the gold standard. Peace, prosperity, no inflation, no artificial creation of the business cycle, which is very relevant to our concerns today. 175 00:14:58.660 --> 00:15:04.660 Now, for the Austrian, the business cycle is caused by a divergence between the market interest rate and the time preference rate. 176 00:15:04.660 --> 00:15:08.380 When government increases the money supply it reduces the market interest rate. 177 00:15:08.380 --> 00:15:11.340 This elongates the structure of production in effect 178 00:15:11.340 --> 00:15:13.680 both fools and subsidized businessmen 179 00:15:13.680 --> 00:15:17.700 into making investments in basic capital many years removed from consumption, 180 00:15:17.700 --> 00:15:21.180 more so than would otherwise occur in the absence of the increasing money 181 00:15:21.180 --> 00:15:21.940 supply 182 00:15:21.940 --> 00:15:25.300 and artificial reduction of the interest rate which fools entrepreneurs in this 183 00:15:25.300 --> 00:15:27.900 way and subsidizes them. 184 00:15:27.900 --> 00:15:30.740 But the time preference rate hasn't changed 185 00:15:30.740 --> 00:15:33.980 and therefore the investments that are made at the upper end of the structure of 186 00:15:33.980 --> 00:15:39.780 for production, the Austrian Hayekian Triangle have to be gotten rid of somehow and that's 187 00:15:39.780 --> 00:15:45.140 called the cleansing process of the recessionary period or the deflationary period. 188 00:15:45.140 --> 00:15:47.060 But this is not true of gold. 189 00:15:47.060 --> 00:15:51.540 First of all, new gold discoveries are typically a very small fraction of the existing gold 190 00:15:51.540 --> 00:15:52.540 stock. 191 00:15:52.540 --> 00:15:57.340 Whereas in contrast, it's very easy for the Fed to engage in expansionary open market 192 00:15:57.340 --> 00:16:01.740 operations or for printers to slap ink on paper. 193 00:16:01.740 --> 00:16:05.340 They can do that very easily, whereas it's not easy to find gold. 194 00:16:05.340 --> 00:16:08.960 And if it were somehow easy to find gold, where you had a new invention or Martians 195 00:16:08.960 --> 00:16:13.820 came along with gold or something, just go to platinum or silver. 196 00:16:13.820 --> 00:16:16.820 More important, gold is part of the market. 197 00:16:16.820 --> 00:16:20.540 Investment in mining is part and parcel of the time preference rate, therefore it can't 198 00:16:20.540 --> 00:16:22.740 be incompatible with it, it's part of it. 199 00:16:22.740 --> 00:16:26.540 Gold is part of the market in a way that government money is not. 200 00:16:26.540 --> 00:16:31.600 So one of the salutary effects of a gold standard is you don't have the business cycle. 201 00:16:31.600 --> 00:16:37.600 Now people say, well, we've cured the business cycle. Ha! That's all I can say to that one. 202 00:16:37.600 --> 00:16:46.600 Okay, back to the Misesian case for gold. I say it's not enough to show the glorious insightful analysis of Mises to truly appreciate him. 203 00:16:46.600 --> 00:16:52.600 This is necessary, but it's not sufficient. Because suppose the entire economics profession also agreed with him on this issue, 204 00:16:52.600 --> 00:16:56.600 then the Misesian accomplishment wouldn't be quite as big as it is. 205 00:16:56.600 --> 00:17:00.600 Yes, we'd praise Mises, but we keep our enthusiasm tempered. 206 00:17:00.600 --> 00:17:06.160 No big deal because all other economists agree with him or maybe even said it before him. 207 00:17:06.160 --> 00:17:10.620 So it's important to contrast Mises with the economic profession as a whole. 208 00:17:10.620 --> 00:17:14.680 Only in this way can we comprehend the enormity of his accomplishment. 209 00:17:14.680 --> 00:17:18.420 Now I'm not going to contrast Mises with Marxists and Keynesians, this is like shooting fish 210 00:17:18.420 --> 00:17:24.240 in a barrel, you know, they call it a bogus relic and you know it's evil and that's it. 211 00:17:24.240 --> 00:17:27.780 So of course he out distances them and there's no honor there. 212 00:17:27.780 --> 00:17:31.780 How does he do with the rest of the profession who are not Marxists or left-wing Keynesians? 213 00:17:31.780 --> 00:17:36.780 Well, here's a quote from Newsweek about the economics profession which I think is very accurate. 214 00:17:36.780 --> 00:17:43.780 Quote, most economists have long since banned mention of gold from their discourses, unquote. 215 00:17:43.780 --> 00:17:47.780 I think that's very accurate. Economists just don't talk about gold. 216 00:17:47.780 --> 00:17:54.780 There was a very famous survey of economists which occurred in the American Economic Review 217 00:17:54.780 --> 00:18:01.780 And they asked 27 different questions of economists in order to determine what the view of the profession is on many different issues. 218 00:18:01.780 --> 00:18:08.780 Gold didn't even make the top 27 to indicate how important the economics profession thinks gold. 219 00:18:08.780 --> 00:18:16.780 So I'm not going to compare Mises with the bad guy Marxists and Keynesians, nor am I going to compare him with the general profession. 220 00:18:16.780 --> 00:18:28.780 Again, it wouldn't mean much, but what I will do is compare them with three people who have impeccable free enterprise credentials, and I've picked Milton Friedman, Friedrich Hayek and Alan Greenspan. 221 00:18:28.780 --> 00:18:43.780 All of them are right-wingers, free enterprises, they're in the Mont Pelerin Society, the University of Chicago, they're conservatives, they're associated with Ayn Rand, the Reagan administration, even two of them are Austrian economists, much as it pains me to say that. 222 00:18:43.780 --> 00:18:51.780 and what I'm going to claim is that Mises out distances even these three people so that's more of a competition at least you know here we have a fairer fight 223 00:18:51.780 --> 00:18:54.780 okay let's take Milton Friedman 224 00:18:54.780 --> 00:18:58.780 Milton Friedman has admitted the danger of government intervention in the monetary matters 225 00:18:58.780 --> 00:19:02.780 here's a quote from him from his book Program for Monetary Stability 226 00:19:02.780 --> 00:19:06.780 quote, the classical liberal that is Friedman speaking of himself 227 00:19:06.780 --> 00:19:11.780 is suspicious of assigning to government any functions that can be performed through the market 228 00:19:11.780 --> 00:19:22.780 and the Market, both because this substitutes coercion for voluntary cooperation in the area in question and because by giving government an increased role, it threatens freedom in other areas. 229 00:19:22.780 --> 00:19:39.780 Control over monetary and banking arrangements is a particularly dangerous power to entrust the government because of its far-reaching effects on economic activities at large, as numerous episodes from ancient times to the present and over the whole of the globe tragically demonstrate." 230 00:19:39.780 --> 00:19:45.780 After reading this, one can almost infer that he favors the gold standard. After all, he talks about the market, 231 00:19:45.780 --> 00:19:51.780 he talks about voluntary cooperation in a positive way, he talks about coercion in a negative way. 232 00:19:51.780 --> 00:19:55.780 What more could you want? You can almost enroll this man in the Mises Institute. 233 00:19:55.780 --> 00:20:02.780 In the event, however, we are very disappointed. We really, Lou, forget it, we can't enroll Friedman in the Mises Institute 234 00:20:02.780 --> 00:20:08.780 because we have another quote from him from his book, Capitalism and Freedom, where he talks about gold. 235 00:20:08.780 --> 00:20:15.780 The fundamental defect of a commodity standard, read gold standard, from the point of view of the society as a whole, 236 00:20:15.780 --> 00:20:23.780 which is a very dangerous phrase, is that it requires the use of real resources to add to the stock of money. 237 00:20:23.780 --> 00:20:29.780 People must work hard to dig gold out of the ground in South Africa in order to rebury it in Fort Knox or some similar place. 238 00:20:29.780 --> 00:20:36.780 The necessity of using real resources for the operation of a commodity standard establishes a strong incentive for people 239 00:20:36.780 --> 00:20:42.780 to find ways to achieve the same result without employing these resources. 240 00:20:42.780 --> 00:20:45.780 If people will accept this money, pieces of paper on which it is printed, 241 00:20:45.780 --> 00:20:48.780 I promise to pay X unit of the commodity standard, 242 00:20:48.780 --> 00:20:53.780 these pieces of paper can perform the same function as the physical pieces of gold or silver, 243 00:20:53.780 --> 00:21:01.780 and they require very much less resources to produce." 244 00:21:01.780 --> 00:21:04.780 So there we have it. 245 00:21:04.780 --> 00:21:10.620 It amounts to freedom is good, but it costs real resources, therefore don't do it. 246 00:21:10.620 --> 00:21:15.140 We have a syllogism, a ringing declaration of freedom, the first quote. 247 00:21:15.140 --> 00:21:17.100 Second quote, but it costs money. 248 00:21:17.100 --> 00:21:19.500 Conclusion, forget about it. 249 00:21:19.500 --> 00:21:23.820 I mean, this isn't really where it's at. 250 00:21:23.820 --> 00:21:26.460 This is not Misesian anymore. 251 00:21:26.460 --> 00:21:28.840 What about justice though the heavens fall? 252 00:21:28.840 --> 00:21:31.380 What about our lives, our fortunes and our sacred honors? 253 00:21:31.380 --> 00:21:34.180 What about millions for defense, not a penny for tribute? 254 00:21:34.180 --> 00:21:37.180 No, you know, it costs money, so forget it. 255 00:21:37.180 --> 00:21:42.180 I mean, this is Milton Friedman who is emblematic of free enterprise. 256 00:21:42.180 --> 00:21:45.180 We're in trouble. 257 00:21:45.180 --> 00:21:48.180 First of all, it's not true that it costs real resources. 258 00:21:48.180 --> 00:21:52.180 Digging in South Africa, burying in Fort Knox or a similar place would take place anyway. 259 00:21:52.180 --> 00:21:54.180 Gold is valuable. 260 00:21:54.180 --> 00:21:57.180 It'll be dug up and stored even if divorced from money. 261 00:21:57.180 --> 00:22:02.180 Perhaps it'll have slightly less value because if it were money, 262 00:22:02.180 --> 00:22:06.620 has more value because it has its intrinsic commodity uses plus money, but still you're 263 00:22:06.620 --> 00:22:12.020 going to dig up gold here and bury it there. 264 00:22:12.020 --> 00:22:16.860 But suppose it did cost resources. Does it now follow that it shouldn't be done? No. 265 00:22:16.860 --> 00:22:22.580 The question is, is it worth the cost of resources and more important, who should decide? Based 266 00:22:22.580 --> 00:22:28.500 on the first quote, the philosophy of Friedman's classical liberalism, each individual should 267 00:22:28.500 --> 00:22:31.500 to decide instead of a political vote. 268 00:22:31.500 --> 00:22:34.500 Based on the second quote, that goes out the window. 269 00:22:34.500 --> 00:22:38.500 But the point is that whenever individuals have been free to choose, 270 00:22:38.500 --> 00:22:41.500 which is the title of one of his books, 271 00:22:41.500 --> 00:22:43.500 they pick the gold standard. 272 00:22:43.500 --> 00:22:47.500 As I said, that's what makes gold standard synonymous with market money. 273 00:22:47.500 --> 00:22:49.500 We're really not defending the gold standard in a sense, 274 00:22:49.500 --> 00:22:53.500 we're just defending market money or markets, period, when it comes to money. 275 00:22:53.500 --> 00:22:57.500 This leads to the question of why do people choose gold when it costs real resources, 276 00:22:57.500 --> 00:23:05.500 Assuming that it does cost real resources, when they could have these green pieces of paper, fiat currency, lots cheaper, to ask this is to answer it. 277 00:23:05.500 --> 00:23:10.500 People have been victimized throughout history by government fiat currency inflation. 278 00:23:10.500 --> 00:23:17.500 Even as Professor Friedman has stated, gold is an insurance policy. It's like locks, fences and doors. These too use up real resources. 279 00:23:17.500 --> 00:23:20.500 Yet, in the view of the economic actor, they're worth it. 280 00:23:20.500 --> 00:23:24.500 So just because something costs money is no argument not to use it. 281 00:23:24.500 --> 00:23:27.500 I mean, this tie costs money, that doesn't mean I shouldn't use the tie. 282 00:23:27.500 --> 00:23:30.500 The clothes cost money, the wristwatch costs money. 283 00:23:30.500 --> 00:23:33.500 That's a crazy argument that because something costs money we shouldn't do it. 284 00:23:33.500 --> 00:23:37.500 Surely the answer is, yes, it costs money, but is the value more or less than the thing? 285 00:23:37.500 --> 00:23:45.500 An individual should choose, not majorities who can then impose on minorities. 286 00:23:45.500 --> 00:23:48.500 In addition to his fame in opposing the gold standard, 287 00:23:48.500 --> 00:23:54.500 In the gold standard, Friedman has a high profile in supporting flexible exchange rates between different currencies. 288 00:23:54.500 --> 00:23:58.500 In contrast, the gold standard has fixed exchange rates between different currencies. 289 00:23:58.500 --> 00:24:05.500 For example, if the pound has 4 grams of gold, the dollar has 2 grams of gold, and the yen has 1 gram of gold, 290 00:24:05.500 --> 00:24:09.500 then you'll have a fixed exchange rate in a 4-2-1 ratio. 291 00:24:09.500 --> 00:24:15.500 It is sometimes argued by the Friedmanites that this is like price controls, and hence it's anti-free market. 292 00:24:15.500 --> 00:24:29.500 There's a fixed exchange rate between nickels and dimes, between one dollar bills and five dollar bills, between feet and yards, between centimeters and meters. That doesn't mean that there's a price control or anything like that. There's no violation of the market. 293 00:24:29.500 --> 00:24:37.500 Another problem of flexible exchange rates is that there are no barriers to inflation, or at least the barriers to inflation are lessened. 294 00:24:37.500 --> 00:24:44.140 Any one currency inflates under a fixed exchange rate, there's a balance of payments crisis. 295 00:24:44.140 --> 00:24:48.540 In flexible, there's not. There's just a change in the ratio of the monies. 296 00:24:48.540 --> 00:24:54.500 There's no need for devaluation. There's relatively painless depreciation of the currency. 297 00:24:54.500 --> 00:24:59.780 At least fixed exchange rates serve as a barrier. All countries could maybe inflate together, 298 00:24:59.780 --> 00:25:03.620 but they would have to do it together and all countries don't usually cooperate. 299 00:25:03.620 --> 00:25:14.620 But not on the full pure gold standard, unless King Midas comes along or a philosopher's stone where you can turn lead into gold, in which case we go to platinum or silver or whatever the market wants. 300 00:25:16.620 --> 00:25:28.620 Next, I turn to Hayek. It's possible to make excuses for Friedman. At least, you know, he's an orthodox economist. What can you expect from an orthodox economist? He's not an Austrian. 301 00:25:28.620 --> 00:25:33.060 He may never even heard of Mises. 302 00:25:33.060 --> 00:25:38.100 By the way, I got a Ph.D. in Columbia and I never heard of Mises until I happened to 303 00:25:38.100 --> 00:25:43.700 meet Murray Rothbard fortuitously and I think one of the benefits of the Mises Institute 304 00:25:43.700 --> 00:25:49.060 is that it's harder to say that now for the present generation of Ph.D.s in economics. 305 00:25:49.060 --> 00:25:53.900 In my day, you could get through a Ph.D. program and never hear of Mises or Hayek. 306 00:25:53.900 --> 00:25:58.900 And nowadays, thanks to the Mises Institute, that's becoming less and less possible. 307 00:26:00.900 --> 00:26:05.900 Okay, so let's consider Hayek now. Hayek is a student of Mises. 308 00:26:05.900 --> 00:26:13.900 Well, he didn't pay attention. He didn't take good notes or he was sleeping during the lecture or something. 309 00:26:13.900 --> 00:26:18.900 Because in his book, Choice and Currency, Hayek specifically opposes, quote, 310 00:26:18.900 --> 00:26:22.900 or any organized attempt to restore the gold standard." 311 00:26:22.900 --> 00:26:25.900 Instead, he proposes elimination of legal tender laws. 312 00:26:25.900 --> 00:26:29.900 This note is legal tender for all debts public and private. 313 00:26:29.900 --> 00:26:32.900 Yes, to be sure, let's get rid of legal tender laws by all means, 314 00:26:32.900 --> 00:26:34.900 but this is necessary, not sufficient. 315 00:26:34.900 --> 00:26:36.900 It's good to do, but we must do more. 316 00:26:36.900 --> 00:26:40.900 It runs counter to the Mises-Menger regression theorem inside 317 00:26:40.900 --> 00:26:43.900 that money is accepted in return for goods or commodities 318 00:26:43.900 --> 00:26:47.900 because of the expectation that when one wishes to buy goods with the money, 319 00:26:47.900 --> 00:26:54.860 A pattern of trust and acceptability based on market commodity. 320 00:26:54.860 --> 00:26:58.940 The reason we all accept US or Canadian currency is not because of legal tender, it's because 321 00:26:58.940 --> 00:27:03.700 of this moneyness or expectation that other people will accept it. 322 00:27:03.700 --> 00:27:07.460 Get rid of legal tender tomorrow and the US or the Canadian currency will still reign 323 00:27:07.460 --> 00:27:10.380 supreme within these two countries. 324 00:27:10.380 --> 00:27:15.660 Only hyperinflation will put this at risk and we certainly don't want to go there. 325 00:27:15.660 --> 00:27:21.660 Further, while there's nothing wrong with competition indeed, I'm in favor of competition. 326 00:27:21.660 --> 00:27:28.660 We want competition between market commodities, not between fiat currency and other things. 327 00:27:28.660 --> 00:27:39.660 Let me now turn very quickly to the third person on my list, and that's Alan Greenspan, who is absolutely amazing, because he is a Missessian. 328 00:27:39.660 --> 00:27:48.660 He presents the greatest challenge to the task of contrasting Mises and other prominent economists for Greenspan is good on gold. He's as good as gold. 329 00:27:48.660 --> 00:28:03.660 And I have a whole bunch of quotations from early Alan Greenspan when he was an Ayn Rand buddy that show that he's very much in favor of the gold standard, which I won't read because I'm almost out of time. 330 00:28:03.660 --> 00:28:13.660 How then to account for the fact that Greenspan is head of the Fed, an amazing place for a Mississian to be, and that the Fed hasn't disbanded, and that the gold standard isn't coming about. 331 00:28:13.660 --> 00:28:20.660 I mean, if Mises was head of the Fed, there'd be no Fed, and there'd be a gold standard, to the extent that he had the power to do that. 332 00:28:20.660 --> 00:28:25.660 Murray Rothbard's analysis, I think, has the ring of truth. 333 00:28:25.660 --> 00:28:31.660 Mises, Greenspan does favor the gold standard and laissez-faire, but only in a high philosophical level. 334 00:28:31.660 --> 00:28:38.660 In practice, he's a conservative Keynesian like his predecessors. 335 00:28:38.660 --> 00:28:51.660 In contrast, say what you will about Mises, he championed the market, not as a philosophical curiosity to be kept hidden in the closet, not as an intellectual game, but as a living, breathing, vitally alive philosophy and economic premise to be applied to the real world. 336 00:28:51.660 --> 00:29:00.660 It is up to us to promote the laissez-faire philosophy of Mises, to make sure it never dies, to make sure it is taught to the young, and that one day it becomes the public policy of the country. Thank you. 337 00:29:01.660 --> 00:29:03.660 Thank you very much.