WEBVTT NOTE The Gold Standard: An Austrian Perspective 1 00:00:00.000 --> 00:00:15.360 The issue to be debated is gold versus discretion, meaning Federal Reserve discretion, and meaning a gold standard that is not discretionable. 2 00:00:15.360 --> 00:00:26.520 Our first participant will be Congressman Ron Paul, who is a graduate of Gettysburg College in Pennsylvania and the Duke University Medical School. 3 00:00:26.520 --> 00:00:37.940 He has been a member of Congress since 1976, and he is a senior member of the House Banking Committee, where he has long advocated a gold standard. 4 00:00:37.940 --> 00:00:46.180 He is a member of the Mises Institute's Distinguished Board of Advisors, and is the author of Gold, Peace and Prosperity, 5 00:00:46.180 --> 00:00:57.020 and co-authored with Lewis Lehrman of the Case for Gold, which is a minority report of the U.S. Gold Commission. 6 00:00:57.020 --> 00:01:04.580 Mr. Partee has been a member of the Board of Governors of the Federal Reserve System since 1976, 7 00:01:04.580 --> 00:01:09.020 the same time that Mr. Paul came to Washington. 8 00:01:09.020 --> 00:01:17.500 Before that, he was a managing director for research and economic policy on the board staff. 9 00:01:17.500 --> 00:01:23.860 He has also been a vice president and economist for the Northern Trust Company of Chicago. 10 00:01:23.860 --> 00:01:30.340 He received his bachelor's and master's degrees in economics from Indiana University 11 00:01:30.340 --> 00:01:34.540 and did graduate work at the University of Chicago. 12 00:01:34.540 --> 00:01:41.540 He was also a member of the U.S. Gold Commission like Congressman Paul. 13 00:01:41.540 --> 00:01:46.540 Our first speaker will be Congressman Paul. 14 00:01:51.540 --> 00:01:54.540 Thank you very much. It's a real delight to be here with you today. 15 00:01:54.540 --> 00:01:57.540 I'm delighted with the nice turnout. 16 00:01:57.540 --> 00:02:02.540 I would like to thank Governor Partee for coming over and participating. 17 00:02:02.540 --> 00:02:03.540 It's a delight. 18 00:02:03.540 --> 00:02:07.540 We've done this in the past and we always have a good time. 19 00:02:07.540 --> 00:02:12.540 And I'm always reminded to say that some of my best friends are members of the Federal Reserve Board. 20 00:02:12.540 --> 00:02:18.540 So it is real nice that Governor Partee has come over. 21 00:02:18.540 --> 00:02:22.540 And it is true, we both served on the Gold Commission. 22 00:02:22.540 --> 00:02:26.540 And this is where I came to know Governor Partee. 23 00:02:26.540 --> 00:02:30.540 And we have developed a friendship over this period of time. 24 00:02:30.540 --> 00:03:00.540 The Commission, as you know, the results showed that the American government were certainly not quite ready to go on to a gold standard, but I, for one, did not see the gold commission as a failure, because I thought that it was historically significant because an official body at least discussed the issue, something they haven't been doing for a long time, and the fact that we have systematically 25 00:03:00.540 --> 00:03:05.940 rejected the notion of commodity money over a period of time of 70-some years. 26 00:03:05.940 --> 00:03:12.540 I would say that laying the groundwork for meetings like this and a discussion in the 27 00:03:12.540 --> 00:03:19.260 Gold Commission certainly is a sign that some positive things are happening in a philosophic 28 00:03:19.260 --> 00:03:20.260 sense. 29 00:03:20.260 --> 00:03:24.260 So I, for one, was never naive as to believe something would happen. 30 00:03:24.260 --> 00:03:28.180 I happen to think that the recommendation from the Gold Commission that the American 31 00:03:28.180 --> 00:03:37.180 American government sell their gold out of the treasury and mint gold coins and let you hold gold coins might not be a pretty good idea. 32 00:03:37.180 --> 00:03:47.180 I think that would be a good idea and I think it would be just as easy for us to purchase an American type ounce coin as anybody else. 33 00:03:47.180 --> 00:03:54.180 It certainly is a much better idea than passing a law that makes it illegal for you to buy a Krugerrand. 34 00:03:54.180 --> 00:04:04.420 I think that if you had the opportunity to buy an American Eagle coin most likely there would be less Krugerrands bought anyway but it would certainly be done in a very voluntary way. 35 00:04:04.420 --> 00:04:15.340 But the subject today is whether or not we should have a gold standard or whether we should follow the standard that we are using today and that is the discretionary paper standard. 36 00:04:15.340 --> 00:04:23.940 And obviously I support the idea that it would be wiser to have a gold standard rather than a paper standard. 37 00:04:23.940 --> 00:04:29.940 And I think that unfortunately for those who believe in the paper standard have one little problem. 38 00:04:29.940 --> 00:04:35.940 They have to defend what we have today. And they have to defend the soundness of the economy, the soundness of the dollars, 39 00:04:35.940 --> 00:04:40.940 and they have to explain why the interest rates are high and why the housing market is not doing so well. 40 00:04:40.940 --> 00:04:46.940 So I think they have a terrible job. And I'm in a much better position to say, well, we have another system, 41 00:04:46.940 --> 00:04:51.940 and the terrible thing that happened when we even had a little taste of a gold standard, 42 00:04:51.940 --> 00:04:56.380 We had that terrible situation where you had interest rates between 3 and 5 percent. 43 00:04:56.380 --> 00:05:00.300 So I would suggest that there are many, many advantages for the gold standard, 44 00:05:00.300 --> 00:05:05.060 and the specific things that are advantageous to us with the gold standard, 45 00:05:05.060 --> 00:05:07.980 I'm not going to talk about in my opening remarks. 46 00:05:07.980 --> 00:05:13.780 I'm not going to explain why that you have low interest rates with the gold standard. 47 00:05:13.780 --> 00:05:18.340 I'm not going to explain to you why if you had a free market and a gold standard, 48 00:05:18.340 --> 00:05:25.340 that you would have full employment, except for a few who just physically were incapable of working. 49 00:05:25.340 --> 00:05:34.640 I happen to believe, and will not explain now, why a gold standard would secure an economy that would have sustained economic growth, 50 00:05:34.640 --> 00:05:39.040 and we would never have to worry whether it's 4 percent economic growth or 10. 51 00:05:39.040 --> 00:05:44.140 If the economy decided to grow with a healthy currency and a healthy economy at a rapid rate, 52 00:05:44.140 --> 00:05:51.980 We would never be concerned about cutting off the gold supply in order to thwart a business recovery. 53 00:05:51.980 --> 00:05:59.300 And also I don't think I will mention anything in my opening remarks about why a gold standard would enhance free trade, 54 00:05:59.300 --> 00:06:04.060 trade around the world, which is one of the most significant problems that we're facing today 55 00:06:04.060 --> 00:06:09.940 because we have paper currency fluctuating not on a monthly basis or a yearly basis, 56 00:06:09.940 --> 00:06:17.940 but on an hourly basis and sometimes on a minute basis, and it is positively impossible for anybody to set up long-term trade agreements. 57 00:06:17.940 --> 00:06:21.240 And for this reason, we are seeing some serious problems. 58 00:06:21.240 --> 00:06:26.940 So I would not even suggest to mention that it has anything to do with the unsoundness of our currencies 59 00:06:26.940 --> 00:06:32.340 that has delivered to us in Texas on the Mexican border a disastrous problem, 60 00:06:32.340 --> 00:06:36.340 mainly because one country destroyed their money slightly faster than another country, 61 00:06:36.340 --> 00:06:40.360 and now on both sides the unemployment rate is 50 percent. 62 00:06:40.360 --> 00:06:43.540 And I would not want to mention at the beginning also 63 00:06:43.540 --> 00:06:47.220 whether or not a gold standard would have anything to do with savings with the 64 00:06:47.220 --> 00:06:48.940 belief that the purchasing power 65 00:06:48.940 --> 00:06:52.940 of the dollar would be maintained over a period of time because it just happens 66 00:06:52.940 --> 00:06:55.180 that it would have a lot to do with savings 67 00:06:55.180 --> 00:06:58.620 especially if you combine that with eliminating all taxes 68 00:06:58.620 --> 00:07:01.660 on interest earned on savings. 69 00:07:01.660 --> 00:07:05.460 But what I would like to mention are four points about the gold standard in very 70 00:07:05.460 --> 00:07:13.580 General Terms. Why I have come to accept the idea that a gold standard is the only 71 00:07:13.580 --> 00:07:20.860 standard that can be used if you want a free market and you want a sound, healthy economy. 72 00:07:20.860 --> 00:07:27.300 First off, it's the issue of central planning. So often there are many conservatives 73 00:07:27.300 --> 00:07:33.900 who believe that central planning and farming and agriculture and producing steel 74 00:07:33.900 --> 00:07:39.320 and doing anything in the economy outside of money is a disaster. 75 00:07:39.320 --> 00:07:43.180 They say, well, look at the results of central planning in Russia. 76 00:07:43.180 --> 00:07:49.620 Look at the central planning in any socialist nation, and they reject it outright, and I believe, correctly. 77 00:07:49.620 --> 00:07:59.340 But in the same sense, they reject central planning in every other area, but wholeheartedly endorse the same concept with central planning in money. 78 00:07:59.340 --> 00:08:09.620 And I have come to the conclusion that central planning of money is just as disastrous as central planning in farming. 79 00:08:09.620 --> 00:08:20.660 And therefore, just the general idea, the notion that man is capable of planning the economy by controlling the money. 80 00:08:20.660 --> 00:08:27.460 But the one thing is different about planning centrally the money supply as compared to planning farming. 81 00:08:27.460 --> 00:08:34.960 Farming only feeds us, but the money sustains every single transaction. 82 00:08:34.960 --> 00:08:38.260 It is a participant in everything that we do. 83 00:08:38.260 --> 00:08:41.360 It is the unit of account that we have to measure every transaction. 84 00:08:41.360 --> 00:08:46.260 All our services and all our goods are measures in terms of the unit of account. 85 00:08:46.260 --> 00:08:50.660 And if we believe that we can plan centrally and determine that unit of account 86 00:08:50.660 --> 00:08:55.760 without the market participating, I think we get, and get what we have now, 87 00:08:55.760 --> 00:09:03.040 and very chaotic conditions which are bound to get more chaotic after a period of time. 88 00:09:03.040 --> 00:09:08.400 So I don't believe that central planning in money can be successful. 89 00:09:08.400 --> 00:09:13.800 I happen to believe and accept the ideas of the Austrian School of Economics as Mises 90 00:09:13.800 --> 00:09:19.280 in particular explained that the business cycle is precisely caused by central planning of 91 00:09:19.280 --> 00:09:40.280 and that the booms and busts are inevitable, that as we drive the economy this year and for next year's election, you will see conditions improve, but sure enough, you will see the consequence of the inflation that we have today, in a couple years you will see the recession, if not the depression of 86 or 87. 92 00:09:40.280 --> 00:09:55.280 So it is for this reason, out of humanitarian concern for our people, that we must reject the notion of central planning in money, just as we reject the ideas of central planning in agriculture or steel manufacturing. 93 00:09:55.280 --> 00:09:59.280 So central planning of money I reject outright. 94 00:09:59.280 --> 00:10:08.280 The second major reason why I reject the notion of paper money is the issue of power. 95 00:10:08.280 --> 00:10:20.280 I believe we must address this, because even though those who wield the power and control of the money, I sincerely believe they're well motivated to do what is good and right for the people. 96 00:10:20.280 --> 00:10:35.280 Just as the liberal interventionist is assuming he's doing good by building houses for the poor people, but they never take into account that they tear down more houses than they build up, and that so much of the HUD money goes to building country club communities. 97 00:10:35.280 --> 00:10:42.180 So I would say the same thing happens because the power is abused and misdirected, but it's an ominous power. 98 00:10:42.180 --> 00:10:48.280 There is no other power greater than the power over money, the power to create and contract the money supply, 99 00:10:48.280 --> 00:10:53.180 the power to control the purchasing power of your money. 100 00:10:53.180 --> 00:10:59.980 Throughout history, this has proven to be the most sought after monopolistic power of man. 101 00:10:59.980 --> 00:11:04.580 It has become more sophisticated over the decades and over the centuries, 102 00:11:04.580 --> 00:11:09.080 more sophisticated now and more international in scope than ever before. 103 00:11:09.080 --> 00:11:16.880 So I see the issue of power and the control over money as being something that we cannot ignore, we must address. 104 00:11:16.880 --> 00:11:21.680 I believe closely associated with this is the issue of morality as well. 105 00:11:21.680 --> 00:11:26.180 By what moral right do we have to create purchasing power out of thin air? 106 00:11:26.180 --> 00:11:32.780 Whether it's done by the creation of credit or Federal Reserve notes or whether it's the creation of SDRs in an international scope, 107 00:11:32.780 --> 00:11:35.280 By what right do they do this? 108 00:11:35.280 --> 00:11:38.780 Is it any more moral to dilute the value of your purchasing power 109 00:11:38.780 --> 00:11:40.280 with the money you hold in your wallet 110 00:11:40.280 --> 00:11:44.380 than it is for the farmer to dilute the milk supply with water? 111 00:11:44.380 --> 00:11:50.280 I would say there's an issue of morality here just as strong as the issue of power. 112 00:11:50.280 --> 00:11:55.880 I also happen to believe also because it's a moral issue more than an economic issue. 113 00:11:55.880 --> 00:11:59.080 It is for this reason that the people have lost trust in their government, 114 00:11:59.080 --> 00:12:02.480 trust in the banks, trust in business, trust in themselves, 115 00:12:02.480 --> 00:12:05.080 and that we are a nation of distrust. 116 00:12:05.080 --> 00:12:09.280 And it's for this reason I believe that until we restore trust in government, 117 00:12:09.280 --> 00:12:14.580 trust in the system and trust in the money, there will be no resolution of this problem. 118 00:12:14.580 --> 00:12:19.580 It is the issue of trust in people and trust in money that must come 119 00:12:19.580 --> 00:12:24.980 before you can start talking about nickel and diamond and trying to get back to a balanced budget 120 00:12:24.980 --> 00:12:28.280 because that certainly hasn't worked. 121 00:12:28.280 --> 00:12:31.980 So I think it's important to address the issue of central planning. 122 00:12:31.980 --> 00:12:39.620 The issue of power, and third, I think that we must address in general terms the issue of the origin of money. 123 00:12:39.620 --> 00:12:45.420 I know that's been talked about, and we recognize those of us who believe in commodity money, 124 00:12:45.420 --> 00:12:51.380 clearly understand that money, paper money and credit creation didn't come out of the marketplace. 125 00:12:51.380 --> 00:13:00.540 That came out of the heads and the fantasies of the intellectuals and the government officials of those who want paper to be money, 126 00:13:00.540 --> 00:13:02.980 but never out of the marketplace. 127 00:13:02.980 --> 00:13:06.380 So I would say the paper standard is bucking history, 128 00:13:06.380 --> 00:13:09.780 and it's bucking economic law and economic truth, 129 00:13:09.780 --> 00:13:12.860 and they only can do it with force and more power 130 00:13:12.860 --> 00:13:14.620 to make people accept it. 131 00:13:14.620 --> 00:13:19.620 Because economically and historically, paper is not money. 132 00:13:19.820 --> 00:13:20.980 It can't be money. 133 00:13:20.980 --> 00:13:23.340 It's only money because we're forced to use it 134 00:13:23.340 --> 00:13:26.060 and because there's a residual thrust 135 00:13:26.060 --> 00:13:28.180 in the pieces of paper that we carried around 136 00:13:28.180 --> 00:13:32.700 Because at one time, it did have real value. 137 00:13:32.700 --> 00:13:35.020 Just think for a moment. 138 00:13:35.020 --> 00:13:38.100 If all of us were stranded on a small island, 139 00:13:38.100 --> 00:13:41.460 and we had absolutely nothing else, no trade, 140 00:13:41.460 --> 00:13:44.020 but we were all put on the island, 141 00:13:44.020 --> 00:13:46.340 and we were expected to survive, we 142 00:13:46.340 --> 00:13:49.860 would have to do what to create capital to survive? 143 00:13:49.860 --> 00:13:52.420 We would have to get our food, and build our houses, 144 00:13:52.420 --> 00:13:54.460 and make our tools. 145 00:13:54.460 --> 00:13:57.300 And everything that we had in excess of what we consumed 146 00:13:57.300 --> 00:14:05.940 How many of you would accept the idea that if we were all working busily and making trades 147 00:14:05.940 --> 00:14:10.540 and somebody gives a bushel of wheat for a bushel of corn, how many of you would accept 148 00:14:10.540 --> 00:14:16.100 the notion if we had the one individual to arrive on the beach and he said, I'll solve 149 00:14:16.100 --> 00:14:17.100 all your problems. 150 00:14:17.100 --> 00:14:19.500 I'm going to create wealth for you. 151 00:14:19.500 --> 00:14:24.020 I have this little thing called a printing press and I'm going to print up Federal Reserve 152 00:14:24.020 --> 00:14:26.860 notes and you'll all be wealthy. 153 00:14:26.860 --> 00:14:31.640 How many would trust the individual? He would probably be thrown off the island for coming 154 00:14:31.640 --> 00:14:37.800 up with a scandalous idea. It wouldn't work. You have to have something that people seek 155 00:14:37.800 --> 00:14:43.920 after and they hold as something important and something that they will hold as money. 156 00:14:43.920 --> 00:14:50.120 History shows that people have chosen gold first and probably silver second. But most 157 00:14:50.120 --> 00:14:57.120 So we have three major issues, central planning, the issue of power, and the issue of the origin of the money, where I do not believe in the long run, if you live in a free society, you can buck the tide, the trend, the issues of economic life, and so on. 158 00:15:20.120 --> 00:15:23.400 Law and the issue of common sense. 159 00:15:23.400 --> 00:15:30.000 Now fourth, and this is a major issue with me as well, the reason, one of the fundamental 160 00:15:30.000 --> 00:15:36.160 reasons why I believe we must have restraint on the creation of credit, and that is if 161 00:15:36.160 --> 00:15:42.500 you truly believe in freedom, if you truly believe in a free society, if you do that 162 00:15:42.500 --> 00:15:47.140 means you believe that government should be limited to the protection of your liberty, 163 00:15:47.140 --> 00:15:52.800 Not to the transfer of wealth, the paper money system is there to enhance those who believe 164 00:15:52.800 --> 00:15:54.740 in the transfer of wealth. 165 00:15:54.740 --> 00:15:59.620 You can transfer just so much wealth with taxation and the people rebel. 166 00:15:59.620 --> 00:16:03.020 But we're at the point now where you can't tax them anymore. 167 00:16:03.020 --> 00:16:08.500 We transferred over $220 billion worth of wealth last year that we could even tax the 168 00:16:08.500 --> 00:16:09.500 people for. 169 00:16:09.500 --> 00:16:12.140 Can you imagine if we would have proposed at the beginning of last year that we were 170 00:16:12.140 --> 00:16:14.420 going to raise taxes by $220 billion? 171 00:16:14.420 --> 00:16:15.420 Never. 172 00:16:15.420 --> 00:16:17.080 It wouldn't have been acceptable. 173 00:16:17.080 --> 00:16:23.140 But we did run up the deficit, so we delivered this to the Fed, and the Fed accommodates us, 174 00:16:23.140 --> 00:16:27.700 the Fed accommodates the politician, and the politician gets re-elected. 175 00:16:27.700 --> 00:16:29.180 So what does he do? 176 00:16:29.180 --> 00:16:34.260 Not only does he destroy the economy by manipulating the whole business cycle by the creation of 177 00:16:34.260 --> 00:16:39.780 new money, what he does is we lose twice because he takes the money and he spends it on programs 178 00:16:39.780 --> 00:16:41.620 that don't work. 179 00:16:41.620 --> 00:16:46.080 Instead of doing the things they were supposed to do, the programs do exactly the opposite. 180 00:16:46.080 --> 00:16:50.080 If you don't get more houses by the government building houses, you get less. 181 00:16:50.080 --> 00:16:58.080 And I also have come to the conclusion that in the last few years that you don't even get more defense when you spend more money in the military budget. 182 00:16:58.080 --> 00:17:00.080 You get less defense for that. 183 00:17:00.080 --> 00:17:09.080 So I would say that so often when you can get the money so cheaply by just sending a little Federal Reserve or sending over a Treasury bill and get whatever you need, 184 00:17:09.080 --> 00:17:16.080 I would say this enhances and gives the ability of the politician and government to be all-powerful. 185 00:17:16.080 --> 00:17:19.080 And that to me is our great threat. 186 00:17:19.080 --> 00:17:22.080 Because the programs are a threat to our freedom. 187 00:17:22.080 --> 00:17:28.080 The money, as it's being destroyed and as it's being inflated, causes the crises that we see around the world. 188 00:17:28.080 --> 00:17:32.080 And the best example, of course, is at our border in the South. 189 00:17:32.080 --> 00:17:35.080 Those crises threaten the political freedoms. 190 00:17:35.080 --> 00:17:43.080 I believe that if we could have a free society and sound money and gave up all our material assets, 191 00:17:43.080 --> 00:17:49.080 I believe that if we had our freedoms, we could survive without any difficulty whatsoever. 192 00:17:49.080 --> 00:17:56.080 But the problem today is, is what we're doing is we're destroying the money and at the same time destroying our freedoms. 193 00:17:56.080 --> 00:18:03.080 It was not by accident that the currency had to change over a period of time, the government size grew. 194 00:18:03.080 --> 00:18:10.680 So from 1913 to 1971, systematically they eroded and destroyed the commodity standard. 195 00:18:10.680 --> 00:18:19.280 As weak as it was, there was still some residual relationship of the paper to a gold standard up until 1971, 196 00:18:19.280 --> 00:18:21.280 but since then there has been nothing. 197 00:18:21.280 --> 00:18:29.480 And it's for this reason you see the escalation of spending, government programs, and no restraint whatsoever. 198 00:18:29.480 --> 00:18:33.480 So it is this participation between the politicians and the central bank, 199 00:18:33.480 --> 00:18:39.480 which not only threatens our economic security, which is secondary to the threat to our individual freedom. 200 00:18:39.480 --> 00:18:45.480 That's the four reasons in general, I believe, we ought to have a gold standard. 201 00:18:45.480 --> 00:19:08.480 Since this is a debate, the rules will be that each participant express a statement, 202 00:19:08.480 --> 00:19:13.480 then we'll have rebuttals by the two participants and then questions thereafter. 203 00:19:13.480 --> 00:19:27.880 It is my pleasure now to introduce Mr. Partee. 204 00:19:27.880 --> 00:19:37.080 Ron Paul and I have debated this issue informally, and sometimes more formally, and we were not 205 00:19:37.080 --> 00:19:42.360 only both members of the Gold Commission, but since my name is Partee and his name is 206 00:19:42.360 --> 00:19:48.080 As Paul, we sat next to each other at all of the meetings and exchanged notes and that 207 00:19:48.080 --> 00:19:54.040 kind of thing, and even agreed on some issues. 208 00:19:54.040 --> 00:20:01.880 For example, the recommendation for printing of a gold eagle, he and I agreed on. 209 00:20:01.880 --> 00:20:10.280 Now the difference is, you see, that what I wanted it for was to have it as an indicia 210 00:20:10.280 --> 00:20:17.080 of public attitudes towards financial conditions in the country, and therefore I wanted its 211 00:20:17.080 --> 00:20:25.080 price to be able to vary, that is, it would be a fixed weight, but its price would vary, 212 00:20:25.080 --> 00:20:33.360 and the variation in the price would be an indicator of developing attitudes in the public 213 00:20:33.360 --> 00:20:36.760 toward financial conditions. 214 00:20:36.760 --> 00:20:44.880 You destroy that indicia value when you have a gold standard, of course, but for this purpose 215 00:20:44.880 --> 00:20:48.000 why it would have been not quite worthwhile. 216 00:20:48.000 --> 00:20:53.080 I might also say that it's always a hard act to follow Congressman Paul, because he's 217 00:20:53.080 --> 00:21:00.880 a powerful speaker and he has a certain religious fervor that even was recognized back here 218 00:21:00.880 --> 00:21:04.480 in the audience that I don't have. 219 00:21:04.480 --> 00:21:13.760 I can't afford religious fervor. I simply try to look objectively at what might make 220 00:21:13.760 --> 00:21:22.400 the system work better or worse, and what is doable and what does not appear to be doable. 221 00:21:22.400 --> 00:21:29.280 And on the basis of that, I have decided that it's quite out of the question to have a gold 222 00:21:29.280 --> 00:21:34.760 gold standard in the world or gold standard in the United States, and of a great many 223 00:21:34.760 --> 00:21:41.240 preconditions have been set having to do with discipline and behavior, which I don't see 224 00:21:41.240 --> 00:21:46.800 any sign, certainly not in the daily press, certainly not in world events, that we're 225 00:21:46.800 --> 00:21:51.360 moving toward establishing. 226 00:21:51.360 --> 00:22:01.960 I have also four points, and they are directly on the question of a gold standard. 227 00:22:01.960 --> 00:22:08.560 What we need, my first point, is that what time has shown that the world or the United 228 00:22:08.560 --> 00:22:16.120 States or any individual economy needs for its monetary standard is one that will expand 229 00:22:16.120 --> 00:22:23.360 gradually, over time, in line with population growth and with increased production in the 230 00:22:23.360 --> 00:22:25.360 society. 231 00:22:25.360 --> 00:22:33.320 If you have something that expands too rapidly, and that, of course, is a very, very grave 232 00:22:33.320 --> 00:22:37.760 threat with paper money, well, you'll have inflation. 233 00:22:37.760 --> 00:22:43.720 But if you have something that expands too slowly, you'll have persistently downward 234 00:22:43.720 --> 00:22:50.960 The bias on the price level of the country and history has shown that that stultifies 235 00:22:50.960 --> 00:23:00.600 production and new thinking and private entrepreneurship rather than reviving it. 236 00:23:00.600 --> 00:23:07.240 So that what we want is something that will expand gradually over time as the population 237 00:23:07.240 --> 00:23:13.520 and the production of the society expands with that time. 238 00:23:13.520 --> 00:23:26.000 All in my view only very roughly approximates this particular test. It is true that there 239 00:23:26.000 --> 00:23:34.280 is a gradual increase in the gold stock, that is, as we are able to identify it, over time 240 00:23:34.280 --> 00:23:40.040 because it is not destroyed by and large and because new production is a small proportion 241 00:23:40.040 --> 00:23:49.600 of the Stock of Gold, but the rate at which the gold stock expands is subject to a great 242 00:23:49.600 --> 00:23:57.320 many variables, the discovery of new gold, the development of alternative non-monetary 243 00:23:57.320 --> 00:24:07.600 uses of gold that make, in fact, the correspondence between this need for gradually growing monetary 244 00:24:07.600 --> 00:24:18.000 Standard, and the supply available for monetary purposes of gold to meet. 245 00:24:18.000 --> 00:24:29.240 That's why, for example, over the years the concept of gold as part of the money supply 246 00:24:29.240 --> 00:24:35.480 was supplemented with silver as a part of the money supply in order to get more money. 247 00:24:35.480 --> 00:24:44.600 That's why, over time, despite the definition of this fellow who goes to the desert island 248 00:24:44.600 --> 00:24:50.320 who is so poorly received, who by the way sounds like a banker to me, Ron, that's why 249 00:24:50.320 --> 00:24:53.400 banking developed. 250 00:24:53.400 --> 00:25:03.080 And the bankers took gold and issued promissory notes backed by gold in return. 251 00:25:03.080 --> 00:25:08.280 And that was, of course, where paper money started. It started in the private sector, 252 00:25:08.280 --> 00:25:13.960 not in the government sector. And it was the abuse of the use of paper money in the private 253 00:25:13.960 --> 00:25:20.560 sector by private sector participants that resulted in this becoming a government monopoly, 254 00:25:20.560 --> 00:25:26.600 I think, in every major country in the world today, and for a good many years past. 255 00:25:26.600 --> 00:25:36.680 In any event, it seems to me that what we want to have, rather than this imperfect relationship 256 00:25:36.680 --> 00:25:43.280 between the growing supply of gold and the growing need for money, what we need to have 257 00:25:43.280 --> 00:25:49.160 is something that will show some flexibility, some elasticity that is subject to some management. 258 00:25:49.160 --> 00:26:00.240 And so, when it comes down to a blind confidence, choosing between a blind confidence in technology 259 00:26:00.240 --> 00:26:07.560 of gold production and the efficacy of management, I come out for management. 260 00:26:07.560 --> 00:26:10.960 And therefore, that's my first point. 261 00:26:10.960 --> 00:26:17.320 My second point is that we often talk, and Congressman Paul did, about the benefits of 262 00:26:17.320 --> 00:26:20.280 going back to stable exchange rates. 263 00:26:20.280 --> 00:26:27.920 Stable exchange rates would result if we reestablished an international gold standard because, of 264 00:26:27.920 --> 00:26:32.840 course, the relationships, the relative values among the currencies of the various countries 265 00:26:32.840 --> 00:26:40.320 of the world would be fixed by that gold relationship, and they would presumably remain that way. 266 00:26:40.320 --> 00:26:43.560 I might point out that the fixing would be quite a problem. 267 00:26:43.560 --> 00:26:51.060 would have to decide what a proper fixing is that was done, except for the dollar. 268 00:26:51.060 --> 00:26:56.440 By the Bretton Woods Agreement in 1944, we've had increasing difficulty with the question 269 00:26:56.440 --> 00:27:04.440 of fixing relative values of countries' currencies, increasing difficulty in the years since then, 270 00:27:04.440 --> 00:27:10.440 and chaotic difficulty with it in the last few years, with differing rates of inflation, 271 00:27:40.440 --> 00:27:49.960 and I think that that would be probably as difficult a conference if not more difficult 272 00:27:49.960 --> 00:27:55.700 because there would be so many more parties involved than we're having with the Russians 273 00:27:55.700 --> 00:28:01.800 today on the question of nuclear proliferation. 274 00:28:01.800 --> 00:28:07.100 Even more important, though, than that, which is a technical matter, one of those little 275 00:28:07.100 --> 00:28:18.980 More important than that, the relationship once established in an international gold standard 276 00:28:18.980 --> 00:28:30.240 between the currencies of these various countries could not remain constant over time unless 277 00:28:30.240 --> 00:28:37.800 Thus the countries were content to take what came from that new international relationship 278 00:28:37.800 --> 00:28:45.280 that was set, inflation if there is a large inflow of the gold standard monetary base 279 00:28:45.280 --> 00:28:54.600 into the country, or a depression if the gold happens to run out of the country as people 280 00:28:54.600 --> 00:28:56.880 lose confidence in the country. 281 00:28:56.880 --> 00:29:10.600 Now it seems to me highly unlikely that the countries of the world as we know them today 282 00:29:10.600 --> 00:29:17.560 would be content to take what would come in the way of either inflation, which might be 283 00:29:17.560 --> 00:29:23.320 our experience, or deflation, which might be the experience of a good many other countries 284 00:29:23.320 --> 00:29:30.200 in the World. Therefore, it seems to me that sooner or later, as it has in the past, the 285 00:29:30.200 --> 00:29:34.760 international gold standard would break down. I'm inclined to think it would be much sooner 286 00:29:34.760 --> 00:29:38.600 rather than much later in today's environment. 287 00:29:38.600 --> 00:29:46.760 My third point is to say, well, and I think it has been proposed, and one of the points 288 00:29:46.760 --> 00:29:51.800 of view of discussion in the gold commission was, well, if that's so, we'll have to go 289 00:29:51.800 --> 00:29:59.840 Now, if we were to go it alone, which is conceivable, because we as a society can control our own 290 00:29:59.840 --> 00:30:07.960 destiny by making clear that that's what we wish our elected congressmen, such as congressmen 291 00:30:07.960 --> 00:30:16.160 Paul, to be for, if we were to go it alone, there would be operational problems that would 292 00:30:16.160 --> 00:30:28.400 In the first place, we would need to set the price. Initially, the price would have to 293 00:30:28.400 --> 00:30:36.400 be something, it seems to me, that would lead neither to a large inflow nor to a large outflow 294 00:30:36.400 --> 00:30:44.200 of gold. That is a hard technical problem to decide what that price is. It isn't just 295 00:30:44.200 --> 00:30:51.920 reading off the gold price today of $383 an ounce. It's got to be something that will 296 00:30:51.920 --> 00:31:00.360 take into account the change in the circumstances of the United States currency on the attitude 297 00:31:00.360 --> 00:31:07.960 of holders of gold versus gold money to come in the United States. And there will be some 298 00:31:07.960 --> 00:31:19.480 figure different than 383. In any event, it would have to be set some way so that we would 299 00:31:19.480 --> 00:31:24.840 not immediately experience a big inflow from gold holders around the world, or we would 300 00:31:24.840 --> 00:31:32.720 immediately be faced by this inflation that would destroy the system almost immediately. 301 00:31:32.720 --> 00:31:38.160 On the other hand, we, of course, wouldn't want to lose all our gold in the next thirty 302 00:31:38.160 --> 00:31:42.480 or sixty or ninety days because I would destroy the experiment, too. 303 00:31:42.480 --> 00:31:43.480 You would have to stop. 304 00:31:43.480 --> 00:31:47.480 If you had no more gold, you could not have a gold standard, and therefore you would have 305 00:31:47.480 --> 00:31:50.480 to stop the experiment. 306 00:31:50.480 --> 00:31:54.400 Second, so we'd have to find the price. 307 00:31:54.400 --> 00:32:04.320 And we would need to be prepared to accept shocks that originate abroad in a system where 308 00:32:04.320 --> 00:32:09.400 we alone are the gold standard country. 309 00:32:09.400 --> 00:32:15.080 Gold discoveries or industrial absorptions from new developments, new inventions, new 310 00:32:15.080 --> 00:32:22.240 uses of gold, speculative movements and hostage movements and fugitive movements of gold that 311 00:32:22.240 --> 00:32:28.760 and how it might come in to the country or might go out, politically motivated strategies 312 00:32:28.760 --> 00:32:36.680 affecting the gold market by countries such as Russia, China, would all be kinds of shocks 313 00:32:36.680 --> 00:32:39.920 that we would have to be prepared to take. 314 00:32:39.920 --> 00:32:45.960 Sometimes, perhaps often, certainly in today's environment, the net tendency would be for 315 00:32:45.960 --> 00:32:53.840 the gold to come here, just as we've had a lot of money in dollar terms that has flowed 316 00:32:53.840 --> 00:32:58.120 into the United States in the last couple of years as a haven country. 317 00:32:58.120 --> 00:33:02.280 But there would be other times when the gold would go out. 318 00:33:02.280 --> 00:33:08.960 Remember now, in a gold standard we're talking about a fixed link between the supply of domestic 319 00:33:08.960 --> 00:33:15.600 Money and what is available locally, that is, within the country, in terms of gold. 320 00:33:15.600 --> 00:33:23.080 You either do it, if it's a pure gold standard, by coining all of the gold that comes in, 321 00:33:23.080 --> 00:33:33.880 or if it's a gold agency standard, by printing gold certificates, as we did before, or by 322 00:33:33.880 --> 00:33:40.280 By having some fixed ratio between the total amount of circulating media and the amount 323 00:33:40.280 --> 00:33:46.720 of gold that is on hand, in any event, there would be a direct relationship between what 324 00:33:46.720 --> 00:33:54.320 happened in terms of the inflows and outflows of gold resulting from what knows kind of 325 00:33:54.320 --> 00:34:02.900 a development that occurred abroad, and that would have a directly inflationary or deflationary 326 00:34:02.900 --> 00:34:07.660 Effect on the United States economy. 327 00:34:07.660 --> 00:34:13.220 And I think that would be a very high price to pay, and I wouldn't be in a position to 328 00:34:13.220 --> 00:34:16.100 recommend that we take the risk. 329 00:34:16.100 --> 00:34:26.420 The fourth point I would make is that a managed monetary system, which we have, which we've 330 00:34:26.420 --> 00:34:39.540 A managed monetary system suffers from the disability of being affected by the political 331 00:34:39.540 --> 00:34:40.540 process. 332 00:34:40.540 --> 00:34:50.340 I rather resent Congressman Paul's suggestion that the Federal Reserve responds to the particularized 333 00:34:50.340 --> 00:34:53.340 demands of politicians who wish to get re-elected. 334 00:34:53.340 --> 00:34:54.780 I don't think that's true. 335 00:34:54.780 --> 00:34:59.520 I have seen no evidence of that in the twenty years that I have spent at the Board. But 336 00:34:59.520 --> 00:35:05.900 it is true that a politician will be elected. It will be Mr. Paul or the fellows running 337 00:35:05.900 --> 00:35:14.660 against him. And politicians are interested in providing good conditions for their constituencies 338 00:35:14.660 --> 00:35:21.260 for, I think, obvious reasons. And therefore I think it is true that in a democratic system 339 00:35:21.260 --> 00:35:29.140 There is a tendency to want to err on the side of liberality. Sometimes, maybe, you err a 340 00:35:29.140 --> 00:35:35.580 little more than at other times. Sometimes you go through moods in an economy where the 341 00:35:35.580 --> 00:35:39.900 greatest thing that the people want to get rid of is unemployment, or where they become 342 00:35:39.900 --> 00:35:46.180 concerned about inflation and one can change the mix a little bit. But it is, in a small 343 00:35:46.180 --> 00:36:02.220 My question is whether it would be any different when it comes to the big decision if you had 344 00:36:02.220 --> 00:36:13.020 a gold standard system. It seems to me that if the effect of the gold standard system 345 00:36:13.020 --> 00:36:19.020 were sufficiently unfavorable for the populace of the country, for the constituencies of 346 00:36:19.020 --> 00:36:26.460 these congressmen, that the Congress would modify the gold standard system. 347 00:36:26.460 --> 00:36:38.220 Therefore, when it comes to big kinds of crises that might occur in the continuing fight that 348 00:36:38.220 --> 00:36:45.380 we have of trying to exert discipline on the social and economic and political process 349 00:36:45.380 --> 00:36:50.940 of the country and that process and its own desires. 350 00:36:50.940 --> 00:36:56.460 It seems to me that when you got to that big crisis point, if you had gold, you would simply 351 00:36:56.460 --> 00:36:58.380 change the gold standard. 352 00:36:58.380 --> 00:37:05.820 We have numerous examples of that in the history of the United States and in the history of 353 00:37:05.820 --> 00:37:07.220 other countries. 354 00:37:07.220 --> 00:37:20.860 I have no reason to believe that our politicians or our public have become so far seen in their 355 00:37:20.860 --> 00:37:28.020 vision and what they want to see in the days and years and decades to come that they no 356 00:37:28.020 --> 00:37:34.340 longer would be inclined to change the system if it wasn't producing what was wanted in 357 00:37:34.340 --> 00:37:35.340 the short run. 358 00:37:35.340 --> 00:37:53.340 I have a trivia question for everyone. That is, how much gold is stored in the United States Treasury? 359 00:37:53.340 --> 00:38:01.340 If you don't know, I'll tell you. 8,740 plus tons. 360 00:38:01.340 --> 00:38:10.340 I think we ought to now have the rebuttals, and I'll let Mr. Paul. 361 00:38:10.340 --> 00:38:18.340 Thank you very much. I think it's interesting that Governor Partee, when he was referring to our gold eagle, 362 00:38:18.340 --> 00:38:24.340 didn't talk about the meaning of a gold eagle. He inadvertently said we were going to print a gold eagle. 363 00:38:24.340 --> 00:38:54.340 You know, we had a subcommittee report saying that the Constitution, the right of the Congress to coin money and regulate the value thereof, and I thought, boy, we have come full circle, you know, they even put it in and put it in quotes, and when I pointed that out, they did take that out, even though they believe you can 364 00:38:54.340 --> 00:38:59.340 print money, they literally wrote print money instead of coin money. 365 00:38:59.340 --> 00:39:03.340 We have never had the authority to emit bills of credit, which really I believe 366 00:39:03.340 --> 00:39:07.340 think that, I think that the Constitution should be changed even to accommodate 367 00:39:07.340 --> 00:39:09.340 the system that we have. 368 00:39:09.340 --> 00:39:14.340 Yes, it is true that I have a bit of a religious fervor for this because I do feel 369 00:39:14.340 --> 00:39:18.340 intense about it, but I don't think that should necessarily be a negative. 370 00:39:18.340 --> 00:39:22.340 I think that a philosophic and a sincere commitment to something, I believe, and 371 00:39:22.340 --> 00:39:34.340 I think it's interesting to note that you don't find many who have that same type of commitment for a paper standard. 372 00:39:34.340 --> 00:39:36.340 It is much different. 373 00:39:36.340 --> 00:39:45.340 I do believe I would concede to Governor Partee about the preconditions. 374 00:39:45.340 --> 00:39:48.340 I for one see a lot of shortcomings. 375 00:39:48.340 --> 00:40:18.340 If I could wave that wand tomorrow and have my gold standard, I may end up being discredited, because I see gold and the issue of money as more part of an entire system of government philosophy, and that is, if we had the philosophy of government intervention overseas, and militarism, and if we have a government that is going to run a welfare state, and we had the gold standard that we would like tomorrow, I don't believe the gold standard is strong enough to, you know, present 376 00:40:18.340 --> 00:40:23.900 and make the people live within their means and limit the power of government. 377 00:40:23.900 --> 00:40:31.220 So I see the gold standard as one that restrains and keeps the government from drifting and 378 00:40:31.220 --> 00:40:36.940 going off a system which is limited, but I don't see it as the panacea. 379 00:40:36.940 --> 00:40:39.260 So I would say the conditions are very bad. 380 00:40:39.260 --> 00:40:41.660 I don't think they're as good as they were after the Civil War. 381 00:40:41.660 --> 00:40:46.280 There was a lot more trust in the system and trust in the money after the Civil War and 382 00:40:46.280 --> 00:40:51.880 and after from 1876 to 1879 they were able to resume convertibility. 383 00:40:51.880 --> 00:41:00.180 I believe our conditions are much worse and therefore I do believe that if it's done carelessly we could get into a lot of problems 384 00:41:00.180 --> 00:41:07.680 and I think there's a great danger of accepting a pseudo gold standard which is essentially what we've had most of the time throughout history 385 00:41:07.680 --> 00:41:15.780 and if we accept that and go to a standard that you could suspend rather easily, if it's a fractional reserve, if it's not a gold coin standard, 386 00:41:15.780 --> 00:41:20.340 I do believe that that type of a gold standard would not serve us well. 387 00:41:20.340 --> 00:41:25.260 I would also say that it is true that when you do, even if you have a very good gold 388 00:41:25.260 --> 00:41:30.740 standard, yes, there is always a threat, just like there's always a threat that our civil 389 00:41:30.740 --> 00:41:33.940 liberties will be abused, that our right of free speech would be abused. 390 00:41:33.940 --> 00:41:37.380 In times of war, our civil liberties are taken from us. 391 00:41:37.380 --> 00:41:41.900 So I don't think that's any justification, but I would say that, you know, because our 392 00:41:41.900 --> 00:41:45.900 Our civil liberties are taken away from us because we lose the right of free speech. 393 00:41:45.900 --> 00:41:48.500 It doesn't mean there's something wrong with the right of free speech. 394 00:41:48.500 --> 00:41:52.240 There's something wrong with the politicians who take away the right or something wrong 395 00:41:52.240 --> 00:41:55.120 with the people who take the gold standard from us. 396 00:41:55.120 --> 00:42:00.540 So I would not see this as a reason not to have a gold standard because there is a threat, 397 00:42:00.540 --> 00:42:05.300 and I concede there certainly would be a threat as there have been over the centuries, that 398 00:42:05.300 --> 00:42:12.900 When politicians want more power to finance war or a welfare system, they indeed destroy the money. 399 00:42:12.900 --> 00:42:20.000 So I would say that it is that notion of government that is a greater threat to us than the gold standard itself. 400 00:42:20.000 --> 00:42:26.300 The first point that Governor Part T made was that of the need to expand the money supply, 401 00:42:26.300 --> 00:42:33.700 the economic need for an increase in money in order to accommodate economic growth and population growth. 402 00:42:33.700 --> 00:42:39.500 I don't accept that. I don't... I think there's a fallacy in that. I don't think it's necessary at all. 403 00:42:39.500 --> 00:42:46.100 Because, again, I go back to a more primitive society when it's very easy to see what you need is production. 404 00:42:46.100 --> 00:42:52.200 You need work and you need effort. That you don't produce anything with the creation of money and credit. 405 00:42:52.200 --> 00:42:59.500 That is only a vehicle and the unit of account is something that we measure our productive efforts by, but it doesn't produce it. 406 00:42:59.500 --> 00:43:04.100 It does, in an inflationary climate, at the early stages of an inflation, 407 00:43:04.100 --> 00:43:07.100 by deceiving the people and creating new money, there's a deception. 408 00:43:07.100 --> 00:43:10.900 And yes, people do feel better, and it might stimulate for a while, 409 00:43:10.900 --> 00:43:13.800 maybe even for decades, but eventually it does the opposite. 410 00:43:13.800 --> 00:43:16.100 And that's what I'm afraid we're moving into now, 411 00:43:16.100 --> 00:43:19.400 where even the stimulation that we have today 412 00:43:19.400 --> 00:43:22.200 will not produce what we want and desire. 413 00:43:22.200 --> 00:43:25.300 And each time we go through a cycle, we need more and more. 414 00:43:25.300 --> 00:43:27.800 And I believe the figures bear this out, that in the past year, 415 00:43:27.800 --> 00:43:36.800 So here we have had to have more monetary inflation in order to achieve what we could achieve in previous recessions with a lot less new money. 416 00:43:36.800 --> 00:43:43.800 So to me it's entirely unimportant about how much gold there is. Totally unimportant about how much new gold there is. 417 00:43:43.800 --> 00:43:50.800 And I don't see it as a problem if you're having economic growth and you have a gold dollar. 418 00:43:50.800 --> 00:43:57.200 If you put a dollar in the bank and you get three percent interest, so you get a dollar plus three percent, 419 00:43:57.200 --> 00:44:02.400 but your purchasing power goes up because prices went down, but there's economic growth. 420 00:44:02.400 --> 00:44:05.200 I see no problem. I think that's a good deal. 421 00:44:05.200 --> 00:44:08.900 I think that's more incentive to save, and therefore more capital, 422 00:44:08.900 --> 00:44:12.700 and more reason for people to invest in the future because things are looking good. 423 00:44:12.700 --> 00:44:17.200 I do not equate decreasing prices with depression. 424 00:44:17.200 --> 00:44:24.200 I equate depression with bad economic climates and a decreasing money supply in an artificial 425 00:44:24.200 --> 00:44:31.080 system which brings it about. But to have prices going down is no concern at all. It 426 00:44:31.080 --> 00:44:37.320 can be a definite asset. And it is true, though, that you don't have to worry about a steady 427 00:44:37.320 --> 00:44:42.040 money supply under a gold standard. Most likely there would be an increase. The average is 428 00:44:42.040 --> 00:44:48.240 3% about what the monetaries would like to increase the money supply at, but it is true 429 00:44:48.240 --> 00:44:49.240 it's erratic. 430 00:44:49.240 --> 00:44:51.600 I agree with Governor Partee, it is erratic. 431 00:44:51.600 --> 00:44:56.720 One year you might have a 5% increase, one year a 1% increase, but to me that is unimportant 432 00:44:56.720 --> 00:44:57.720 as well. 433 00:44:57.720 --> 00:45:02.920 The most important thing is that you have a free pricing mechanism. 434 00:45:02.920 --> 00:45:07.540 If you're worried about price fixing and a price level, that's different. 435 00:45:07.540 --> 00:45:14.140 If the prices are allowed to fluctuate because there is an influx of gold or an outflow of gold from the country, 436 00:45:14.140 --> 00:45:18.540 as long as the pricing mechanism is there, there really is no deep concern. 437 00:45:18.540 --> 00:45:23.220 But the chances of having gold inflation today is rather slim. 438 00:45:23.220 --> 00:45:26.980 My real concern is about the paper inflation. 439 00:45:26.980 --> 00:45:30.220 You know, they say watch out for Russia. 440 00:45:30.220 --> 00:45:33.100 They could, you know, withhold gold or dump gold. 441 00:45:33.100 --> 00:45:37.340 You know, it would take them a hundred years to double the supply of gold in the country 442 00:45:37.340 --> 00:45:43.740 So, therefore, to really significantly affect the purchasing power of gold, a hundred years to produce that much gold. 443 00:45:43.740 --> 00:45:48.340 It took the Fed only ten years to nearly triple M3. 444 00:45:48.340 --> 00:45:57.240 So, I would say that's what you have to worry about. 445 00:45:57.240 --> 00:46:04.240 But it is not necessary to worry about the amount of money, amount of gold. 446 00:46:04.240 --> 00:46:06.040 The market can adjust for that. 447 00:46:06.040 --> 00:46:16.040 As a matter of fact, I think the market would have adjusted as the purchasing, it would not be steady, you know, as the purchasing power of a gold dollar goes up, there would be more incentive to mine gold. 448 00:46:16.040 --> 00:46:25.040 If the purchasing power goes down, there might be less mining. But the most important thing is that we can measure value in something that is steady in value. 449 00:46:25.040 --> 00:46:34.040 And over centuries, gold certainly has served that purpose. You cannot use recent history and say that gold varies rapidly in its purchasing power, 450 00:46:34.040 --> 00:46:37.760 because of the Federal Reserve note ratio to gold in these recent years. 451 00:46:37.760 --> 00:46:41.160 That's the dollar that is one day strong and one day weak. 452 00:46:41.160 --> 00:46:45.920 And it's the anticipation that they don't know what the future will bring. 453 00:46:45.920 --> 00:46:47.680 Stable exchange rates. 454 00:46:47.680 --> 00:46:52.160 Yes, I think stable exchange rates are what we need, but we don't need a law to mandate them. 455 00:46:52.160 --> 00:46:54.520 We don't need a new Bretton Woods agreement. 456 00:46:54.520 --> 00:47:00.120 That's not it because it is true today, and even if we had some reform in the system, 457 00:47:00.120 --> 00:47:30.120 I doubt very much if we could trust everybody today to not inflate their currency and to define their currency in a strict with a strict weight but all I think about it when I think about fixed exchange rates is you don't need a law for us to decide that if we're exchanging maple leaves and Krugerrands to exchange them rather freely you know and if the dollar or the foreign currency is defined as a precise weight and then that ratio is set automatically 458 00:47:30.120 --> 00:47:42.120 But it is indeed true that if you have paper currencies, whether they're loosely linked to gold or not linked to gold, printing at different rates, you know, fixed exchange rates would be totally chaotic. 459 00:47:42.120 --> 00:47:54.120 Even under the Bretton Woods Agreement, there were thousands of periodic devaluations because even then they weren't supposed to be printing at different rates and they were supposed to link their currencies together to the dollar. 460 00:47:54.120 --> 00:48:01.920 But there was always abuse because governments have this insatiable desire to create credit. 461 00:48:01.920 --> 00:48:07.420 The concern about flow of gold in and out, if it's a gold dollar, it doesn't matter. 462 00:48:07.420 --> 00:48:12.240 If for some reason our goods are priced too high and we are buying goods overseas, gold 463 00:48:12.240 --> 00:48:13.240 will go out. 464 00:48:13.240 --> 00:48:17.240 Our gold money will go out and then there will be less of a gold supply. 465 00:48:17.240 --> 00:48:19.320 That is not a concern to me. 466 00:48:19.320 --> 00:48:24.320 Because then, as long as there's free pricing mechanism, the prices will drop down and then 467 00:48:24.320 --> 00:48:27.360 our goods will be more attractive and gold will come back in. 468 00:48:27.360 --> 00:48:31.560 To me it's just important that you don't have a static economy and say that gold must 469 00:48:31.560 --> 00:48:33.840 be this, increasing at a certain rate. 470 00:48:33.840 --> 00:48:35.320 Let the market handle these things. 471 00:48:35.320 --> 00:48:40.320 The market is much smarter than we are in trying to determine what the money should 472 00:48:40.320 --> 00:48:41.640 be. 473 00:48:41.640 --> 00:48:45.180 It certainly would be more important if all the countries went together. 474 00:48:45.180 --> 00:48:49.080 I do believe that if we led the way it would be a significant event. 475 00:48:49.080 --> 00:48:54.080 The first countries would follow us. We led them away from gold. We could lead them toward gold. 476 00:48:54.080 --> 00:48:59.080 But it is not necessary that everybody does everything precisely at the same time. 477 00:48:59.080 --> 00:49:05.080 But I do think there would be a tremendous advantage to us doing it together. 478 00:49:05.080 --> 00:49:13.080 I do think that I did not mean to indicate that Governor Partee literally does certain things for the politician, 479 00:49:13.080 --> 00:49:17.080 but the point that I would like to emphasize is that the politician, 480 00:49:17.080 --> 00:49:23.480 and the Congress who overspend, then so frequently the Fed has no choice. 481 00:49:23.480 --> 00:49:28.980 You know, last year they had to monetize some debt, but the debt wasn't their fault. 482 00:49:28.980 --> 00:49:30.780 So they're absolutely correct. 483 00:49:30.780 --> 00:49:35.580 As a matter of fact, all the Federal Reserve governors, including Paul Volcker, 484 00:49:35.580 --> 00:49:39.880 when he comes before the banking committee, he never fails to tell us, you know, 485 00:49:39.880 --> 00:49:43.880 if you guys didn't give us so much debt, our problems would be a lot easier. 486 00:49:43.880 --> 00:49:48.080 But it's the accommodation and it's the system that works. 487 00:49:48.080 --> 00:49:52.580 So the politician keeps voting and voting and spending, which he couldn't do 488 00:49:52.580 --> 00:49:57.980 when there wasn't a Federal Reserve system to create new credit and to buy the Treasury bills. 489 00:49:57.980 --> 00:50:00.780 It's only under those conditions that the Fed accommodates. 490 00:50:00.780 --> 00:50:04.580 So, yes, they can criticize us and then the Congress gets over here and they say, 491 00:50:04.580 --> 00:50:06.480 well, it's the Federal Reserve's fault. 492 00:50:06.480 --> 00:50:10.580 They're either not printing fast enough or they're printing too slow and the interest rates are too high. 493 00:50:10.580 --> 00:50:16.780 So it's sort of one of these deals where they just look at each other and blame each other, but it's neither, it's both. 494 00:50:16.780 --> 00:50:24.780 It's the system, it's the system of big government, deficit spending, accommodation by the creation of credit that is the problem. 495 00:50:24.780 --> 00:50:32.980 And I believe the gold standard can handle that and bring that back into perspective. 496 00:50:32.980 --> 00:50:42.780 I think that the solution obviously is to have a gold standard where we would restrain the ability to create credit out of thin air. 497 00:50:42.780 --> 00:50:46.480 And I do believe also that there's a better understanding. 498 00:50:46.480 --> 00:50:52.380 But many of you here, people here who have written and understood and understand this issue much better than I do, 499 00:50:52.380 --> 00:51:00.080 it is because of the 20th century understanding by the free market economists coming from the Austrian School, coming from von Mises, 500 00:51:00.080 --> 00:51:04.080 The understanding, I would say, is much, much better than it was in the 19th century. 501 00:51:04.080 --> 00:51:06.580 We've never had a real good gold standard. 502 00:51:06.580 --> 00:51:12.580 And for this reason, I always work very hard and correct any interviewer I ever have 503 00:51:12.580 --> 00:51:13.580 when they come and say, 504 00:51:13.580 --> 00:51:16.580 Oh, you're the guy that wants to go back to the gold standard. 505 00:51:16.580 --> 00:51:19.080 I do not want to go back to the gold standard. 506 00:51:19.080 --> 00:51:23.580 I want to go forward to a modern and a better understood gold standard, 507 00:51:23.580 --> 00:51:26.580 better than we have a better understanding today 508 00:51:26.580 --> 00:51:45.940 Well, I really don't see any need to go through the points again. 509 00:51:45.940 --> 00:51:48.860 It will just have to be repetitious. 510 00:51:48.860 --> 00:51:55.020 There are disagreements, as you can see, between Congressman Paul and myself. 511 00:51:55.020 --> 00:52:02.180 I would make this point, that if you look through these disagreements, I think that 512 00:52:02.180 --> 00:52:04.820 there is a good deal of agreement. 513 00:52:04.820 --> 00:52:14.140 I believe that what I feel that the country and the world and the economic society needs 514 00:52:14.140 --> 00:52:21.380 is discipline, and I believe that what the Congressman thinks the world needs is discipline. 515 00:52:21.380 --> 00:52:29.640 They have a difference in the way we would get there, and I think we also have a difference 516 00:52:29.640 --> 00:52:37.260 in what we believe to be the degree of tolerance of the societies of the world to discipline. 517 00:52:37.260 --> 00:52:50.500 It's a strong dose, and I'm afraid that if applied too blindly, too greatly, it will simply 518 00:52:50.500 --> 00:53:05.500 The other comment I want to make is that I suppose I ought to be, having been in Washington 519 00:53:05.500 --> 00:53:11.620 as long as I have, I ought to be pretty cynical, and I guess I am really pretty cynical, about 520 00:53:11.620 --> 00:53:18.020 the political process and the role of lobbyists and political action committees and all that 521 00:53:18.020 --> 00:53:19.020 and so on. 522 00:53:19.020 --> 00:53:23.760 That kind of stuff in determining what positions are on various issues. 523 00:53:23.760 --> 00:53:34.260 But I guess I still perhaps am enough of a dreamer that I think that a politician in 524 00:53:34.260 --> 00:53:38.120 the long run reflects his public. 525 00:53:38.120 --> 00:53:41.900 And therefore I don't really think that you ought to talk about those politicians over 526 00:53:41.900 --> 00:53:45.100 there doing all those bad things that the public doesn't want. 527 00:53:45.100 --> 00:54:10.660 We have 528 00:54:10.660 --> 00:54:19.660 There are certain time constraints so that we have only exactly ten minutes for questions and we must be out by 5.30. 529 00:54:19.660 --> 00:54:28.660 There's a reception in this room at 7 o'clock and the first session tomorrow is at 9 o'clock in the morning. 530 00:54:28.660 --> 00:54:32.660 Now we can field a few questions, I think. Yes? 531 00:54:32.660 --> 00:54:51.660 The question is whether the gold standard would result in dramatically lower interest rates. 532 00:54:51.660 --> 00:54:53.660 Governor Forte. 533 00:54:53.660 --> 00:55:01.660 Well, I've heard that comment often and I haven't been able to understand the analytics of it. 534 00:55:01.660 --> 00:55:08.940 I don't see that that would be the case. That is, if one is talking about a system where 535 00:55:08.940 --> 00:55:18.740 all the money units of the United States have been turned to gold. I can certainly see it 536 00:55:18.740 --> 00:55:24.620 if one were to offer a gold-backed bond, let's say, that it would have a lower rate than 537 00:55:24.620 --> 00:55:33.700 and a non-gold back bond would have, but I don't think that it would be true that there 538 00:55:33.700 --> 00:55:38.700 would be a necessity for interest rates to be lower. 539 00:55:38.700 --> 00:55:44.820 Now I may be, I guess I would visualize, we would have to somehow do this transition to 540 00:55:44.820 --> 00:55:49.100 the gold standard, and I don't think in the first instance it could be a pure gold standard 541 00:56:19.100 --> 00:56:20.100 environment. 542 00:56:20.100 --> 00:56:24.020 Why, of course, without inflation, and there certainly wouldn't be an inflation, it would 543 00:56:24.020 --> 00:56:31.500 be deflation in the short run, the nominal rate, I would think, would be lower for the 544 00:56:31.500 --> 00:56:35.740 gold debt than it would for the non-gold debt. 545 00:56:35.740 --> 00:56:43.600 But it's really such an extreme case, and the problem of the transition is so extreme 546 00:56:43.600 --> 00:56:50.600 that I can't truly evaluate what the interest rate profile would be. 547 00:57:13.600 --> 00:57:36.880 The Federal Reserve Note, at the top, says that the United States of America promises 548 00:57:36.880 --> 00:57:50.880 Will Dave is a bearer on the band, twenty dollars, I don't have any Federal Reserve note or credit right at any Federal Reserve Treasury Department, I can go ahead and take this in and get my twenty dollars worth of money in each time I want to do it. 549 00:57:50.880 --> 00:58:05.880 At the same time, when we had other issues with the Federal Reserve note, it kept saying, Will Dave is a bearer on the band, even when our gold standard went through, it said, Will Dave is a bearer on the band, twenty dollars in legal money. 550 00:58:35.880 --> 00:58:40.880 I think this is a good question. I think it's an important one. 551 00:58:40.880 --> 00:58:43.880 We have governors of the Federal Reserve who sit there. 552 00:58:43.880 --> 00:58:45.880 Their job is to look at this. 553 00:58:45.880 --> 00:58:48.880 This is not condemning an impersonal ancient ass. 554 00:58:48.880 --> 00:58:50.880 This is an indignity question. 555 00:58:50.880 --> 00:58:54.880 Every accountant, every attorney, everyone in this room knows this is not at all. 556 00:58:54.880 --> 00:58:58.880 I think it's just another deceitful thing that has happened to us. 557 00:58:58.880 --> 00:59:04.880 Why were governors of the Federal Reserve the key to call us to vote? 558 00:59:04.880 --> 00:59:17.880 How long do you think the average people are going to continue to accept this worthless piece of paper for their continued good production? When that holds up their place, they don't. Then what's going to happen to America? 559 00:59:34.880 --> 00:59:39.480 The Federal Reserve notes issue is when people used to say to me, well, what does that, when 560 00:59:39.480 --> 00:59:43.800 it says we'll pay the bearer on demand, what's that going to pay you? 561 00:59:43.800 --> 00:59:47.520 And I used to say, well, we'll give you some more Federal Reserve notes. 562 00:59:47.520 --> 00:59:51.240 And that's the very case, the very fact of the matter. 563 00:59:51.240 --> 00:59:53.280 That's all we undertake to do. 564 00:59:53.280 --> 00:59:58.180 The government undertakes to receive those Federal Reserve notes in payment of taxes. 565 00:59:58.180 --> 01:00:03.280 People do sell their services, their goods and services, for those Federal Reserve notes. 566 01:00:03.280 --> 01:00:08.560 And that's how you're able to go to the grocery store and use them, and any other place you 567 01:00:08.560 --> 01:00:10.400 might want to go and use them. 568 01:00:10.400 --> 01:00:14.360 And as far as the matter of confidence in the currency is concerned, sir, I think you're 569 01:00:14.360 --> 01:00:23.440 putting a great deal on the symbolism of a little bit of gold, that it may be behind 570 01:00:23.440 --> 01:00:24.440 the thing. 571 01:00:24.440 --> 01:00:30.600 In the last year, in the last two years, tens of billions of dollars have flowed to the 572 01:00:30.600 --> 01:00:35.400 in the United States, from people elsewhere in the world who felt that this was a much 573 01:00:35.400 --> 01:00:41.040 better system than what they could have confidence in at home. 574 01:00:41.040 --> 01:00:46.600 Well one way to say something about how long will they accept it, they will accept it as 575 01:00:46.600 --> 01:00:53.960 long as it's legal tender and has behind it the coercive power of government. 576 01:00:53.960 --> 01:01:09.960 I'd just like to say that it's like Catalan food. Catalan people put the plate of food down in the door and drink the bell, and about a tenth of the time, the drug is still salivating. 577 01:01:09.960 --> 01:01:26.960 The legal tender is not to salivate this. 578 01:01:26.960 --> 01:01:37.960 All the speakers seem to be in agreement that our monetary problems are largely related to the name of a political system. 579 01:01:37.960 --> 01:01:45.960 No one in the party said that the politicians are paid at least the normal amount of the politicians are paid the way they truly want. 580 01:02:15.960 --> 01:02:33.960 This is the other choice school that is going out first. Decisions get made, my colleague. The sum total of another decision is made that gets made in a way that calls for the results of an intervention with the business. 581 01:02:33.960 --> 01:02:51.520 That's a very good question, and I don't have an answer to it. 582 01:02:51.520 --> 01:02:56.480 I think that the system, of course, has grown more and more complicated, and the issues 583 01:02:56.480 --> 01:03:03.400 that the public has to decide have grown harder and harder and more technical over time. 584 01:03:03.400 --> 01:03:11.400 You can't hardly give a fair, objective statement of trade-offs to the public. There isn't agreement 585 01:03:11.400 --> 01:03:18.420 within the economics profession, for example, as to what a trade-off is. And therefore, 586 01:03:18.420 --> 01:03:27.160 one can't say, would you rather have more inflation or more unemployment, because people 587 01:03:27.160 --> 01:03:32.500 wouldn't agree that over the long run more inflation is associated with more unemployment. 588 01:03:32.500 --> 01:03:39.180 And so I can't think of a way to state the big issues in terms that would be objective 589 01:03:39.180 --> 01:03:44.260 on which there could be enough agreement to state them, and therefore my view of the matter 590 01:03:44.260 --> 01:03:49.980 is that if the people don't like the way things are going, what they ought to do is throw 591 01:03:49.980 --> 01:03:50.980 the rascals out. 592 01:03:50.980 --> 01:03:53.980 Mr. Paul would like to comment on this. 593 01:03:53.980 --> 01:03:56.980 Yes, I will. Is this microphone on? 594 01:03:56.980 --> 01:03:59.980 Yes, it's on. 595 01:03:59.980 --> 01:04:07.980 Okay. I wanted to comment on this in general because, again, there is an area that we do have agreement, 596 01:04:07.980 --> 01:04:10.980 and I think it's important that we do find the areas that we do agree, 597 01:04:10.980 --> 01:04:14.980 and that is when the governor party says it's not only the politicians, 598 01:04:14.980 --> 01:04:17.980 it's what the political system is demanding and what the public wants. 599 01:04:17.980 --> 01:04:47.980 Once. I think that's why a group like this is so important because what you're doing is you're changing perceptions. You did not exist. Groups like this did not exist 20 and 30 years ago. So, therefore, maybe I will have my way someday, mainly because you're existing and that the public perceptions will change. And it is absolutely true the politician only reflects the public view. So I do think that's very, very important. But I think we're in a transition period now, which is critical to our nation. 600 01:04:47.980 --> 01:05:17.980 I would like to address very, very quickly about the interest rate. I think that we can go by past record and show that under gold standard interest rates were low. I don't think you have to have a collapse of the money system if you go to a gold standard. All you have to do is adjust your definition. If you had to use a government gold standard and not use the ounce, you could certainly define the dollar as one-fifteenth hundredth of an ounce of gold rather than one-fourth hundredth, and all of a sudden you have an unbelievable amount of credit that you would and currency that wouldn't cause a collapse. 601 01:05:17.980 --> 01:05:42.980 How have you made an excellent point a while ago when you said that you had that big idea of competing currencies many years ago and a lot of those bankers in the private sector countered all that money and there are some real bad guys in the bank today, the private sector, and of course. 602 01:05:42.980 --> 01:05:51.980 My question is, if Congress can call and show that those governors and banks are at a higher 603 01:05:51.980 --> 01:05:57.980 risk compared to the amount of money that's been spent by other governors, would you concede 604 01:05:57.980 --> 01:05:58.980 more insight? 605 01:05:58.980 --> 01:06:04.540 I just want to respond with an anecdote. 606 01:06:04.540 --> 01:06:16.940 I don't think that the political process is tolerant to the loss by the public of sizable 607 01:06:16.940 --> 01:06:23.100 amounts of their money or what they regard as their cash balances because of the abuse 608 01:06:23.100 --> 01:06:26.740 or the misperformance of the banking community. 609 01:06:26.740 --> 01:06:35.540 As one example of that, I have been seriously questioned over the last few weeks by one of 610 01:06:35.540 --> 01:06:41.060 the congressman's associates on the House Banking Committee as to whether we should 611 01:06:41.060 --> 01:06:48.340 not require that all banks be insured by the FDIC because there was a bank in his district 612 01:06:48.340 --> 01:06:52.820 that went down and it turned out that it was not insured and it did not have the money 613 01:06:52.820 --> 01:06:53.820 to pay its deposit. 614 01:06:53.820 --> 01:07:02.180 I really think there's very little sensitivity or appreciation on the part of the public 615 01:07:02.180 --> 01:07:07.140 to absorbing the kinds of losses that it used to take fairly normally as a result of collapse 616 01:07:07.140 --> 01:07:11.020 of banks and banking systems. 617 01:07:11.020 --> 01:07:15.620 So I just don't think there's an awful lot of percentage in it. 618 01:07:15.620 --> 01:07:19.820 You're going to tell me that we've counterfeited a lot of money by printing a lot of Federal 619 01:07:19.820 --> 01:07:23.500 The Federal Reserve notes, and I don't disagree that we've printed a lot of Federal Reserve 620 01:07:23.500 --> 01:07:28.460 notes, but it's nothing compared to what the banking system left to its own devices might 621 01:07:28.460 --> 01:07:29.460 have done. 622 01:07:29.460 --> 01:07:35.700 We are basically trying to limit the growth in money and credit, and we do limit the growth 623 01:07:35.700 --> 01:07:39.620 in money and credit compared with who it would otherwise be. 624 01:07:39.620 --> 01:07:46.900 We are bothered once in a while by strong demanders like the U.S. government, but nevertheless 625 01:07:46.900 --> 01:07:52.100 We have even paid not much attention to their needs in the last few years, and that's why 626 01:07:52.100 --> 01:07:54.700 interest rates have been as high as they've been. 627 01:07:54.700 --> 01:08:00.000 I'm very sorry, but we're going to have to stop. We have to be out of here at 5.30, and 628 01:08:00.000 --> 01:08:00.500 that is that.