WEBVTT NOTE 10. Truth in the Coin Shop 1 00:00:00.000 --> 00:00:09.320 Commerce, Chapter 10, Truth in the Coin Shop, August 12th, 2008 2 00:00:09.320 --> 00:00:15.040 You are uptown in a shopping district of a small community, and you pass by the meat 3 00:00:15.040 --> 00:00:22.400 shop, the wine shop, the coffee shop, two churches side by side, a coin shop, an antique 4 00:00:22.400 --> 00:00:25.400 store, and hold it right there. 5 00:00:25.400 --> 00:00:27.400 A coin shop? 6 00:00:27.400 --> 00:00:33.480 This is irresistible, because as implausible as this may sound, all political truth can 7 00:00:33.480 --> 00:00:40.280 be found in a coin-shop. And not just political truth. You find in here the story of the whole 8 00:00:40.280 --> 00:00:47.240 of modern life on exhibit, and learn more from looking than you find in a multi-volume 9 00:00:47.240 --> 00:00:48.720 history. 10 00:00:48.720 --> 00:00:54.500 There they are on display, coins from all lands. Why are they worth more than the coins 11 00:00:54.500 --> 00:01:01.260 in your pocket. Because they are old? That's part of it, but not the essence of it. There 12 00:01:01.260 --> 00:01:07.040 are some new coins here that are also just as valuable as the old ones. 13 00:01:07.040 --> 00:01:12.060 What is critical is that they are made of gold and silver. You can pick them up and 14 00:01:12.060 --> 00:01:17.860 tell the difference. They are heavy. Stack them and let them fall on each other, and 15 00:01:17.860 --> 00:01:23.080 they make a different sound from the coins that usually rattle around in your pocket. 16 00:01:23.080 --> 00:01:30.120 It strikes everyone and anyone immediately. Somehow these coins are real. The coins we 17 00:01:30.120 --> 00:01:37.600 use today are not. But what does this really mean? And what does it imply? The value of 18 00:01:37.600 --> 00:01:43.800 the coins amounts to far more than their marked value. Even dimes before a certain date sell 19 00:01:43.800 --> 00:01:50.840 for 10 and 15 times the face value. The larger coins can be quite expensive. What is real 20 00:01:50.840 --> 00:01:55.920 Real here is their substance, not the printing on the outside. 21 00:01:55.920 --> 00:02:01.360 This is the opposite of modern coins, the substance of which is completely irrelevant. 22 00:02:01.360 --> 00:02:05.000 All that matters is what is printed on the outside. 23 00:02:05.000 --> 00:02:11.800 So the use of the term real here parallels how we use this term in any other context. 24 00:02:11.800 --> 00:02:17.060 Reality TV is said to provide the unvarnished truth about what people really do. 25 00:02:17.060 --> 00:02:23.100 We say someone should get real if we suspect that their thought or behavior is a mask or 26 00:02:23.100 --> 00:02:27.420 a blindfold that is obscuring a more obvious truth. 27 00:02:27.420 --> 00:02:29.660 So it is with coins. 28 00:02:29.660 --> 00:02:33.300 The new coins we use in transactions are not real. 29 00:02:33.300 --> 00:02:38.460 They are wearing a mask, a disguise, one put on by the state. 30 00:02:38.460 --> 00:02:44.620 More absurdly, the state tells us not to look at the reality, but rather to trust God that 31 00:02:44.620 --> 00:03:02.620 All is right with the money in the realm. The old coins, in contrast, are precisely what they say they are, and therefore have nothing to hide. There are no invocations that require a leap of faith. The truth is found on the scale and is told in ounces. 32 00:03:02.620 --> 00:03:18.620 The gold ones are, of course, the ones you really want to hold. Their value reflects the metal content. Melt them, re-stamp them, make them into jewelry, and they are still worth no less than the market value of the metal. 33 00:03:18.620 --> 00:03:22.620 And who decides what the values of these old coins are? 34 00:03:22.620 --> 00:03:25.620 The coins might bear the likeness of a politician. 35 00:03:25.620 --> 00:03:28.620 They might bear the name of the nation-state. 36 00:03:28.620 --> 00:03:33.620 But these pictures and slogans are merely interlopers on the real point. 37 00:03:33.620 --> 00:03:41.620 What you hold is valuable, not because some legislature, treasury department or central bank says it is valuable. 38 00:03:41.620 --> 00:03:49.620 Its worth was and is dictated by the market, which is to say, the choices and values of human beings. 39 00:03:49.620 --> 00:03:56.620 No government can add to or take away this value except by physically manipulating the coin itself. 40 00:03:56.620 --> 00:04:06.620 Not only that, if you dig deep enough in the coin shop, you might run across coins that were not minted by governments at all, but by private manufacturers. 41 00:04:06.620 --> 00:04:22.620 In the early years of the Industrial Revolution, this was the way coins were made in Britain, not by the royal mint, but by entrepreneurs no different from any other. George Selgin tells the whole story in his aptly named book, Good Money. 42 00:04:22.620 --> 00:04:33.620 It turns out that making money is a business like any other, not something that only governments do. In a free world, it would be something done entirely by private enterprise. 43 00:04:33.620 --> 00:04:38.940 The same is true of exchanging money. Some of the world's first great fortunes were 44 00:04:38.940 --> 00:04:44.780 made this way, profiting from the buy-sell spreads and coinage markets. Today the business 45 00:04:44.780 --> 00:04:50.460 is the same in some respects, and one can see the appeal of it all. Bless those who 46 00:04:50.460 --> 00:04:57.360 sustain it and believe in it. So long as this good money is in your hands, it is your independent 47 00:04:57.360 --> 00:05:03.520 and Store of Wealth. There are no taxes due, no withdrawals required, no forms to fill 48 00:05:03.520 --> 00:05:11.360 out. It is the physical embodiment of independence. It gives you freedom. It secures your rights. 49 00:05:11.360 --> 00:05:17.400 And because this coin is valued not by the nation-state, it rises above it and extends 50 00:05:17.400 --> 00:05:24.000 beyond it. Its value is recognized the world over, and not because the UN has proclaimed 51 00:05:24.000 --> 00:05:29.960 it but rather because it is something everyone on the planet agrees on. Geographic mobility 52 00:05:29.960 --> 00:05:41.920 is only part of it. Look at the dates on the older coins, 1910, 1872, 1830, 1810 and earlier 53 00:05:41.920 --> 00:05:48.260 and earlier. They are still beautiful because they are durable. Their value is not diminished 54 00:05:48.260 --> 00:05:55.220 over time, as with just about everything else we know about. Rather, it increases over time. 55 00:05:55.220 --> 00:06:00.460 And by its very nature, gold protects your investment from the depredations of modern 56 00:06:00.460 --> 00:06:07.220 life. How they inspire the imagination. What was the world like when such coins served 57 00:06:07.220 --> 00:06:13.540 as money? The economy wasn't managed by some central authority, it managed itself from 58 00:06:13.540 --> 00:06:18.440 from within by the buying and selling decisions of economic agents themselves. 59 00:06:18.440 --> 00:06:23.900 The coins were selected by the market to serve as the facilitators of exchange, the things 60 00:06:23.900 --> 00:06:27.460 by which we were permitted to rise above the limits of barter. 61 00:06:27.460 --> 00:06:32.580 They made possible calculation between goods and services that were as widely diverse as 62 00:06:32.580 --> 00:06:38.640 the whole of the human project, and revealed what was profitable and what was not. 63 00:06:38.640 --> 00:06:44.360 So these coins made it possible to organize the world's resources into lines of production 64 00:06:44.360 --> 00:06:48.320 that serve society in the most efficient way. 65 00:06:48.320 --> 00:06:51.920 And how did the politicians figure into this mix? 66 00:06:51.920 --> 00:06:56.520 When they got their hands on these coins, they could do terrible things. 67 00:06:56.520 --> 00:06:59.480 But it was rather difficult for them to get them. 68 00:06:59.480 --> 00:07:04.520 They had to demand that the citizens fork over the coins or else, which is to say, they 69 00:07:04.520 --> 00:07:06.420 had to tax people. 70 00:07:06.420 --> 00:07:11.020 You have to have a pretty good reason to do this, or the lie you tell has to be pretty 71 00:07:11.020 --> 00:07:12.020 darn compelling. 72 00:07:12.020 --> 00:07:16.420 You can only tell fibs so many times before people catch on. 73 00:07:16.420 --> 00:07:22.360 If this is the only money that circulates, the aspiring Leviathan state faces a serious 74 00:07:22.360 --> 00:07:27.980 limit on its capacity to expand, a limit imposed by physical reality and the unwillingness 75 00:07:27.980 --> 00:07:31.220 of people to give up something for nothing. 76 00:07:31.220 --> 00:07:36.960 This is why every state is so anxious to see money substitutes circulate widely, preferably 77 00:07:36.960 --> 00:07:40.380 in the form of paper that can be made at will. 78 00:07:40.380 --> 00:07:45.220 If that same state can get banks to cooperate in creating more paper than can be redeemed 79 00:07:45.220 --> 00:07:51.380 by gold and silver coins, it can begin to habituate the population to the idea of fiat 80 00:07:51.380 --> 00:07:56.820 currency, that is, money that is invented out of whole cloth. 81 00:07:56.820 --> 00:08:02.380 Even better for this state is a system that completely separates paper money from its historical 82 00:08:02.380 --> 00:08:04.820 roots in good money. 83 00:08:04.820 --> 00:08:09.780 Then there are no limits at all to how much money it can make to fund itself and pay its 84 00:08:09.780 --> 00:08:15.400 friends even if that means that money in general becomes even less valuable. 85 00:08:15.400 --> 00:08:20.580 On this process, see Hayek's Prices and Production. 86 00:08:20.580 --> 00:08:25.020 And here we have the short history of how money came to be destroyed and how the modern 87 00:08:25.020 --> 00:08:29.820 and World came to host the ghastly Leviathan that dominates the world. 88 00:08:29.820 --> 00:08:35.700 Here is the basis of destructive and unnecessary wars that last and last, the character-shredding 89 00:08:35.700 --> 00:08:41.460 welfare state, and the swarms of bureaucrats who run our lives in every respect. 90 00:08:41.460 --> 00:08:45.500 It all comes down to the way money was destroyed. 91 00:08:45.500 --> 00:08:50.020 You can tell from looking at the dates on coins that all of this happened surprisingly 92 00:08:50.020 --> 00:08:51.740 recently. 93 00:08:51.740 --> 00:08:56.740 The process began in the early 20th century with the cartelization of the banking system 94 00:08:56.740 --> 00:09:02.100 so that banks could loan out money out of deposits they promised to pay on demand. 95 00:09:02.100 --> 00:09:06.340 The government's own debts would be paid no matter what. 96 00:09:06.340 --> 00:09:08.460 This helped with the war. 97 00:09:08.460 --> 00:09:13.260 Taxes don't cut it when it comes to funding global war, and so the financial system was 98 00:09:13.260 --> 00:09:18.660 encouraged to set aside its usual concerns over stability since it was now guaranteed 99 00:09:18.660 --> 00:09:21.060 not to fail. 100 00:09:21.060 --> 00:09:25.420 The process continued with the attack on gold during the New Deal under the influence of 101 00:09:25.420 --> 00:09:30.980 people like John Maynard Keynes who believed that paper money would usher in a new utopia 102 00:09:30.980 --> 00:09:33.780 of a government-managed economy. 103 00:09:33.780 --> 00:09:39.700 So desperate was FDR to have people stop trading good money that he demanded it all be turned 104 00:09:39.700 --> 00:09:40.700 in. 105 00:09:40.700 --> 00:09:44.260 He said this was necessary to stop the Depression. 106 00:09:44.260 --> 00:09:49.100 Then the paper money revolution was furthered by people like Milton Friedman who believed 107 00:09:49.100 --> 00:10:01.100 We thought that a pure paper money would somehow bring about a stable price level through a formula that may have looked good on paper, but failed to account for the realities of politics. 108 00:10:01.100 --> 00:10:13.100 In the end, we ended up on the other side of the great divide between freedom and tyranny, all symbolized by the contrast between the coins of the past and the coins of the present. 109 00:10:13.100 --> 00:10:20.560 It is reality versus fiat, independence versus dependence, value that lasts versus value 110 00:10:20.560 --> 00:10:24.720 that is the whim of the transitory political class. 111 00:10:24.720 --> 00:10:29.100 You discover all this when you walk into the coin shop. 112 00:10:29.100 --> 00:10:34.620 Have a conversation with the proprietor who tends to be of a type, perhaps a bit crusty, 113 00:10:34.620 --> 00:10:38.280 but highly knowledgeable and independent-minded. 114 00:10:38.280 --> 00:10:41.860 At his office, he lives amidst this history. 115 00:10:41.860 --> 00:10:47.100 He is surrounded by the truth about money that most people never discover. 116 00:10:47.100 --> 00:10:53.300 He is daily faced with the beauty of what once was and perhaps too he imagines the possibility 117 00:10:53.300 --> 00:10:55.620 that it could be again. 118 00:10:55.620 --> 00:10:58.920 He is not usually the despairing type either. 119 00:10:58.920 --> 00:11:03.940 He sees the difference between what is permanent and what is transitory. 120 00:11:03.940 --> 00:11:07.640 If you take the time, you can learn from him. 121 00:11:07.640 --> 00:11:12.440 If you trade with him, you can enter into his world of knowledge and partake in the 122 00:11:12.440 --> 00:11:17.300 ancient truth about money, politics and civilization. 123 00:11:17.300 --> 00:11:23.880 To own these coins helps grant some sense of independence to you too. 124 00:11:23.880 --> 00:11:29.420 You will possess a store of wealth that is not subject to wild bubbles, state-manufactured 125 00:11:29.420 --> 00:11:32.600 inflations and political whims. 126 00:11:32.600 --> 00:11:36.400 It is a kind of privatized secession. 127 00:11:36.400 --> 00:11:41.480 Is it any wonder that people who enter this world think differently from others? 128 00:11:41.480 --> 00:11:46.800 Their blinders are off, they see what is real and true. 129 00:11:46.800 --> 00:11:52.440 They no longer believe in the great modern lie that the State is our wise master in whom 130 00:11:52.440 --> 00:11:55.520 we should trust our very lives. 131 00:11:55.520 --> 00:12:02.240 The owner of gold and silver coins is just a bit less attached to the State than others. 132 00:12:02.240 --> 00:12:08.520 And should a time of great crisis come, and you look among the survivors, you can be pretty 133 00:12:08.520 --> 00:12:14.560 sure that preeminent among them will be those who love the coin shop as much as I do.