WEBVTT NOTE Authors Forum: Money, Sound and Unsound 1 00:00:00.000 --> 00:00:04.160 Well, I guess I drew the short straw. I have to follow Tom Woods. 2 00:00:04.160 --> 00:00:08.080 So I'm tempted to channel Charlie Sheen and simply hold the book up and say, 3 00:00:08.080 --> 00:00:12.600 Winning! 4 00:00:12.600 --> 00:00:17.040 But you trolls wouldn't understand that. 5 00:00:17.040 --> 00:00:21.160 Not really. I mean, I'm still channeling Sheen there. 6 00:00:21.160 --> 00:00:25.320 Okay, this book actually began a long time ago 7 00:00:25.320 --> 00:00:29.000 when I was a junior in college. 8 00:00:29.000 --> 00:00:49.000 I was a free marketeer. I was an economics major, but I had heard nothing about the Austrian School, despite the fact that I had taken a number of courses in my major, including intermediate macroeconomics, intermediate microeconomics, which were just dull, dreary affairs. 9 00:00:49.000 --> 00:00:56.600 Well, I belonged to the Young Americans for Freedom as a sort of a libertarian deviant, 10 00:00:56.600 --> 00:01:00.800 and they put up with me, and so I was giving them some arguments, and someone said, well, 11 00:01:00.800 --> 00:01:05.080 you sound like an Austrian, and I didn't know what he was talking about, so he handed me 12 00:01:05.080 --> 00:01:10.280 a little pamphlet by Murray Rothbard called Depressions, Cause and Cure, it was a little 13 00:01:10.280 --> 00:01:12.480 mini-book. 14 00:01:12.480 --> 00:01:17.880 And so that summer, I was determined to read more about the Austrian School, and I had 15 00:01:17.880 --> 00:01:47.880 History of Thought course in the meantime and there was a Jesuit professor there, I went to Boston College, a Jesuit school, who had talked about the early Austrian school and told us how this was sort of one of the few times intellectual history that a group of great minds actually worked together to develop an intellectual position and he was referring to the original Austrians Menger, Boehm-Bawerk and Wieser. So that piqued my interest also. So that summer 16 00:01:47.880 --> 00:01:59.880 The first two I read were Mises' Theory of Money and Credit and Rothbard's America's Great Depression. 17 00:01:59.880 --> 00:02:05.880 Mises and Rothbard and Hayek also were first and foremost monetary economists. 18 00:02:05.880 --> 00:02:12.880 That's what struck me first and has really stuck with me through my academic career. 19 00:02:12.880 --> 00:02:20.880 So when I began to write articles, I began naturally to gravitate towards the Austrian monetary theory. 20 00:02:20.880 --> 00:02:25.880 And so my purpose initially was simply to fill in the gaps. 21 00:02:25.880 --> 00:02:30.880 It's a great theory, but there were very few Austrians working on it, 22 00:02:30.880 --> 00:02:36.880 especially when I was going through graduate school, really Murray Rothbard was alive and Hans Sendholtz. 23 00:02:36.880 --> 00:02:39.880 And so there were a few people that were working on monetary theory. 24 00:02:39.880 --> 00:02:41.880 So I began to write essays on monetary theory. 25 00:02:41.880 --> 00:03:11.880 Theory. This book is a collection of essays going back 25 years. So it's what I've written over the last 25 years. And it's for many different audiences, from academic to popular. However, it is, I must say, with all due modesty, written in clear English, pretty clear English. So anyone can understand it. I suggest that, it's in five parts, that for those who know less 26 00:03:11.880 --> 00:03:18.160 Less about Austrian monetary theory, you read the book backwards, meaning that you read 27 00:03:18.160 --> 00:03:24.460 part five, which is commentaries on Alan Greenspan and the debate between the Austrians on the 28 00:03:24.460 --> 00:03:28.920 one hand and monetarists and Keynesians on the other hand, part four on applications 29 00:03:28.920 --> 00:03:34.400 and so on, and then you work back to the more technical essays. The more technical essays 30 00:03:34.400 --> 00:03:40.400 come at the beginning of the book. The first section is on foundations of monetary theory. 31 00:03:40.400 --> 00:03:44.340 Let me just say a few words about some of the essays though and what I was trying to 32 00:03:44.340 --> 00:03:50.360 do in those essays. One essay that has sort of gotten some traction among sort of mainstream 33 00:03:50.360 --> 00:03:58.080 financial commentators is the true money supply. I noticed that Mises and Rothbard both held 34 00:03:58.080 --> 00:04:05.800 the concept of money as the general medium of exchange. Whatever else money does, permits 35 00:04:05.800 --> 00:04:14.560 permits us to store value over time, permits us to engage in accounting and economic calculation. 36 00:04:14.560 --> 00:04:19.720 All of those functions follow from the primary function of a general medium of exchange. 37 00:04:19.720 --> 00:04:26.720 So Mises initially came out with a definition of the money supply that Rothbard later showed 38 00:04:26.720 --> 00:04:33.320 was overly narrow. Really, if you're going to define money as a general medium of exchange, 39 00:04:33.320 --> 00:04:38.600 You should include all items which are immediately spendable. 40 00:04:38.600 --> 00:04:42.520 So Rothbard touches on this in a few of his works. 41 00:04:42.520 --> 00:04:46.240 So in my essay, The True Money Supply, A Measure of the Supply of the Medium of Exchange in 42 00:04:46.240 --> 00:04:51.760 the U.S. economy, I tried to update Rothbard's work and extend it a little bit. 43 00:04:51.760 --> 00:04:57.820 And so I wrote this article, I think, in 1986, and I included, besides the currency everyone 44 00:04:57.820 --> 00:05:03.160 carries around and their checking account deposits, I expanded it, as Rothbard had done 45 00:05:03.160 --> 00:05:20.080 and a few other sorts of monetary instruments that I believed should be part of the money 46 00:05:20.080 --> 00:05:21.080 supply. 47 00:05:21.080 --> 00:05:31.720 Well, two years later, the Fed began to calculate something called MZM, the money of zero maturity, 48 00:05:31.720 --> 00:05:37.480 Meaning that money that was immediately spendable because in a lot of the Fed money supply aggregates 49 00:05:37.480 --> 00:05:43.640 they include things like certificates of deposit, which are not immediately withdrawable, okay, 50 00:05:43.640 --> 00:05:44.640 without penalty. 51 00:05:44.640 --> 00:05:49.840 In any case, it was written by someone who was, the concept was developed by someone 52 00:05:49.840 --> 00:05:57.480 who is now the president of one of the regional Feds, Robert Poole, I believe. 53 00:05:57.480 --> 00:06:04.240 In any case, the Salerno-Rothbard theory of the money supply, which is very like this 54 00:06:04.240 --> 00:06:09.560 MZM, though they include things that we don't, such as money market funds, actually came 55 00:06:09.560 --> 00:06:19.120 out a few years before. It has been tracked on the internet now, this money supply figure. 56 00:06:19.120 --> 00:06:26.240 The other article in that first chapter that I want to draw attention to is an article 57 00:06:26.240 --> 00:06:28.000 called Two Traditions of Monetary Theory. 58 00:06:28.000 --> 00:06:29.440 And what it does is it really shows 59 00:06:29.440 --> 00:06:33.240 that modern monetary theory goes back to monetary crank, okay? 60 00:06:33.240 --> 00:06:36.680 It has its seeds in the writings of John Law, 61 00:06:36.680 --> 00:06:40.840 the first central banker, and possibly coincidentally, 62 00:06:40.840 --> 00:06:43.560 a gambler and a convicted murderer. 63 00:06:43.560 --> 00:06:48.560 But that's that homonym, so we won't go there. 64 00:06:49.340 --> 00:06:54.340 But it shows that his beliefs are actually reflected 65 00:06:54.340 --> 00:07:06.340 was reflected in sort of the theory that is espoused today by Bernanke and Krugman and other mainstream economists basically that spending cures all ills. 66 00:07:06.340 --> 00:07:21.340 Spending is a panacea, okay? And that was rejected. In fact, all of 18th century monetary theory after John Law wrote was a reaction to Law's writings and to his destruction of the French currency in the early 18th century. 67 00:07:21.340 --> 00:07:33.340 And so I pick out one particular writer who has a very complete theory of money that's very pre-Austrian, a French writer, A.R.J. Turgeau. 68 00:07:33.340 --> 00:07:43.340 And I also want to just draw attention to a few other articles, one of which is an Austrian taxonomy of deflation, 69 00:07:43.340 --> 00:07:52.900 Deflation, and there I have coined the term deflation phobia, which applies really to 70 00:07:52.900 --> 00:07:56.500 the Fed. What is the reason why they're pumping all this money into the economy? What 71 00:07:56.500 --> 00:08:04.600 is the reason for QE1, QE2? And I show there it's false beliefs about deflation and its 72 00:08:04.600 --> 00:08:08.900 welfare implications. So I show that most kinds of deflation are really good for the 73 00:08:08.900 --> 00:08:13.900 and our welfare enhancing and enhance our prosperity and standard of living. 74 00:08:13.900 --> 00:08:15.900 Part three is on the gold standard. 75 00:08:15.900 --> 00:08:19.900 There's a number of articles on the gold standard, both defending the gold standard 76 00:08:19.900 --> 00:08:25.900 and also criticizing different proposals that are really proposals for a Watertown version of the gold standard, 77 00:08:25.900 --> 00:08:31.900 particularly one that keeps coming back like a zombie, and that is the Bretton Woods system. 78 00:08:31.900 --> 00:08:36.900 That's called a gold price rule in which the government or the Fed is supposed to target 79 00:08:36.900 --> 00:08:57.900 Well, that's a phony gold standard. It existed from 1946 to 1971, and it collapsed in 1971 when President Nixon ignominiously declared bankruptcy and closed the gold window in the U.S. 80 00:08:57.900 --> 00:09:05.900 And as I said, there are other articles in that section that will fortify you with good arguments to defend the gold standard. 81 00:09:05.900 --> 00:09:08.900 to defend against criticisms of the gold standard. 82 00:09:08.900 --> 00:09:12.900 The last two sections I'll just mention on applications and commentary 83 00:09:12.900 --> 00:09:16.900 are more popular oriented, easier to read, 84 00:09:16.900 --> 00:09:20.900 but one in particular before I close I want to mention is 85 00:09:20.900 --> 00:09:23.900 one called Inflation and Money Reply to Timberlake 86 00:09:23.900 --> 00:09:27.900 and one of the criticisms of Rothbard and his view of the Great Depression 87 00:09:27.900 --> 00:09:31.900 was that he ignored the fact that there was a massive deflation 88 00:09:31.900 --> 00:10:01.900 as Banks Collapse from 1931 to 1933 and what I show is that in fact it's the and also by the way that the 1920s was not an inflationary decade that's an argument used against Rothbard well I show that in fact the 1920s was an inflationary decade and it's just a matter of how you define inflation and that there was true deflation in the US economy that is a reduction in the money supply for only a year a year and a half and that after 89 00:10:01.900 --> 00:10:07.820 After that, the money supply is being pumped up for almost the entire 1930s, and so I 90 00:10:07.820 --> 00:10:11.900 defend Rothbard's position on the Great Depression. 91 00:10:11.900 --> 00:10:16.460 And that, by the way, I'll close with this, really has parallels with today. 92 00:10:16.460 --> 00:10:21.020 We're still mired in this financial crisis or the after effects of the financial crisis, 93 00:10:21.020 --> 00:10:25.460 the recession, despite the fact that we've had this tremendous quantitative easing, two 94 00:10:25.460 --> 00:10:29.620 rounds of quantitative easing, which are failing abysmally. 95 00:10:30.620 --> 00:10:32.620 Thank you very much.