WEBVTT NOTE How Private Markets Can Provide Money 1 00:00:00.000 --> 00:00:06.000 What I want to do is make the general case for privatization and then apply it to money. 2 00:00:06.000 --> 00:00:13.300 And since gold has always been private enterprise money, it'll end up supporting the gold standard. 3 00:00:13.300 --> 00:00:17.800 So what is the general case for privatization? 4 00:00:17.800 --> 00:00:20.800 The way I see it, the general case for privatization is twofold. 5 00:00:20.800 --> 00:00:24.900 One, morality, and the other, economic efficiency. 6 00:00:24.900 --> 00:00:35.780 On morality, the benefit of privatization is when things are private, the interaction occurs in a voluntary way. 7 00:00:35.780 --> 00:00:43.900 Every aspect of the market is voluntary. All the market is, is the concatenation of all voluntary acts. 8 00:00:43.900 --> 00:00:53.580 So if I trade you this, your pen for my tie, I benefit because I like your pen more than my tie, 9 00:00:53.580 --> 00:00:58.660 So I gain to the difference between the two and you like my time more than your pen 10 00:00:58.660 --> 00:01:05.140 So you gain to the difference to you between how you evaluate my tie and your pen that you have to give up 11 00:01:05.140 --> 00:01:12.060 And that's pretty much what the market is it's just trading and all trades on the market are voluntary 12 00:01:12.060 --> 00:01:22.900 And this is highly moral as far as I can see because one of the basic premises of free enterprise or morality or ethics is voluntary 13 00:01:22.900 --> 00:01:41.900 In short contrast, the government, when you deal with the government it's not voluntary, you have to do what they say or not do what they say not to do, you have to pay them taxes and if you think taxes are voluntary, try not paying them and see what happens to you. 14 00:01:41.900 --> 00:01:46.900 Now, there are some people who will say, well, it's really a club. The government is a club. 15 00:01:46.900 --> 00:01:55.900 And just as if you join the golf club, you have to pay your dues, well, so do you have to pay your dues to the Canada club or to the U.S. club. 16 00:01:55.900 --> 00:02:04.900 But when something is voluntary, it's obvious that it's voluntary. People agree to it. They sign something. 17 00:02:04.900 --> 00:02:09.900 If you join the golf club, you have to sign up. You have to agree to join the golf club. 18 00:02:09.900 --> 00:02:16.900 Nobody has agreed to join the Canada Club or the U.S. Club, it's a very different sort of a thing. 19 00:02:16.900 --> 00:02:19.900 Now there's a quote from Schumpeter who says, 20 00:02:19.900 --> 00:02:26.900 The theory which construes taxes on the analogy of club dues or on the purchase of services, say of a doctor, 21 00:02:26.900 --> 00:02:31.900 only proves how far removed this part of the social science is from scientific habits of mind. 22 00:02:31.900 --> 00:02:33.900 And I think that's absolutely true. 23 00:02:33.900 --> 00:02:38.900 Now you might say that government is necessary, but my point is that it's evil. 24 00:02:38.900 --> 00:02:53.900 It's evil, so at best it's a necessary evil, but that doesn't make it good because it's coercive and things that are coercive like murder and rape are not cricket, not kosher, what have you. 25 00:02:53.900 --> 00:03:02.900 Suppose two people break into my house and they're about to take my TV away and they're a philosophical robber gang so they're willing to dialogue with me and I say, 26 00:03:02.900 --> 00:03:05.900 And they say, hey, tut-tut-tut, you know, this is robbery, what are you doing? 27 00:03:05.900 --> 00:03:08.900 He says, oh, not so fast, you know, we'll have a democratic election. 28 00:03:08.900 --> 00:03:12.900 And the leader of the gang says, well, how many think they should take Walter's TV? 29 00:03:12.900 --> 00:03:13.900 And the two of them raise their hand. 30 00:03:13.900 --> 00:03:17.900 And to be fair, they say, how many people think that they shouldn't take Walter's TV? 31 00:03:17.900 --> 00:03:18.900 And I raise my hand. 32 00:03:18.900 --> 00:03:22.900 And the guy says, well, see, democracy, you know, so it's legitimate. 33 00:03:22.900 --> 00:03:27.900 The point is that the group has no more right to do anything to the individual 34 00:03:27.900 --> 00:03:30.900 than any individual has to do to any other individual. 35 00:03:30.900 --> 00:03:36.900 And we as individuals have no right to do anything to anyone else without their consent. 36 00:03:36.900 --> 00:03:40.900 Forgetting about children. Children are a different sort of a thing. 37 00:03:40.900 --> 00:03:44.900 Paternalism, I think, with children is justified. 38 00:03:44.900 --> 00:03:48.900 Okay, so that's one argument for privatizing pretty much anything. 39 00:03:48.900 --> 00:03:52.900 And my motto is, if it moves, privatize it, and if it doesn't move, privatize it. 40 00:03:52.900 --> 00:03:57.900 And since everything either moves or doesn't move, privatize everything. 41 00:03:57.900 --> 00:04:02.900 The people who say it's a necessary evil because only government can do this, that or the other. 42 00:04:02.900 --> 00:04:09.900 I don't have time to go into that, but my view is that there's nothing that government does that the market can't do better. 43 00:04:09.900 --> 00:04:16.900 Okay, what about the second plank in this theory, economic efficiency? 44 00:04:16.900 --> 00:04:23.900 My claim here is that entrepreneurs are much more responsive to the wishes of consumers 45 00:04:23.900 --> 00:04:28.900 What do consumers then are politicians to the desires of the electorate? 46 00:04:28.900 --> 00:04:33.900 Why do I say this? Well, the dollar vote occurs every day, every hour. 47 00:04:33.900 --> 00:04:36.900 The political vote only occurs every four years. 48 00:04:36.900 --> 00:04:41.900 Suppose they're every four years in Canada, but they keep playing around with that, but roughly every four years. 49 00:04:41.900 --> 00:04:45.900 So we get to exercise our control much more often. 50 00:04:45.900 --> 00:04:49.900 Secondly, the control that we have in the market is very narrow. 51 00:04:49.900 --> 00:04:57.260 can vote for a red and blue striped tie, whereas in the political realm it's a package deal. 52 00:04:57.260 --> 00:05:02.500 In Canada you have to vote for the conservatives or the liberals or the NDP or what have you. 53 00:05:02.500 --> 00:05:07.700 In the U.S. it's the Democrats or the Republicans. Well, suppose you like Obama's policies 1, 54 00:05:07.700 --> 00:05:14.020 3, 5, 7, and 9, and you like McCain's policies 2, 4, 6, and 8. You have no way of focusing 55 00:05:14.020 --> 00:05:18.540 and say, well, I love 8. No, it's a package deal. You have to take 2, 4, 6, 8, and 10 56 00:05:18.540 --> 00:05:22.820 2012 and you might not like those things. Whereas in the market you can focus it 57 00:05:22.820 --> 00:05:27.660 very narrowly so you have much more control. There was this wonderful case 58 00:05:27.660 --> 00:05:33.960 that occurred in Canada. Terry Fox, who is a Canadian hero, he ran marathons every 59 00:05:33.960 --> 00:05:39.060 day for I don't know several months all the way from Nova Scotia I think it was 60 00:05:39.060 --> 00:05:42.900 and he ended up in Manitoba when he had to stop on one leg a marathon every day 61 00:05:42.900 --> 00:05:47.540 on one leg and the Canadian people wanted a commemorative stamp in his honor 62 00:05:47.540 --> 00:05:51.540 and it took Canada Post, I don't know, two, three, four years to do that. 63 00:05:51.540 --> 00:05:55.540 At around the same time, Eaton's, a local department store here in Vancouver, 64 00:05:55.540 --> 00:06:00.540 had a display in their front door window 65 00:06:00.540 --> 00:06:04.540 and the local feminists decided that this display was sexist 66 00:06:04.540 --> 00:06:07.540 and they started writing letters and this is horrible. 67 00:06:07.540 --> 00:06:12.540 You know how long it took Eaton's to get rid of this offensive display? 68 00:06:12.540 --> 00:06:17.540 It took them one day, because if they didn't, they'd lose profits. 69 00:06:17.540 --> 00:06:23.040 Whereas if the post office didn't do what its consumers wanted, is the post office going to lose profits? 70 00:06:23.040 --> 00:06:26.040 Well, yeah, but they don't care. They can't go broke. 71 00:06:26.040 --> 00:06:32.540 See, one of the benefits of the market, the reason that the market is usually more efficient than the government, almost always, 72 00:06:32.540 --> 00:06:38.040 is because if they're not efficient, they go broke and they bother us no more. 73 00:06:38.040 --> 00:06:46.040 I teach in New Orleans. We had Katrina there. Katrina, I was going to say Katrina killed 1,500 people. Katrina didn't kill 1,500 people. 74 00:06:46.040 --> 00:06:55.040 The Army Corps of Engineers and FEMA killed 1,500 people. Now, I don't mind that that much. Don't think I'm cold-hearted. I'm against killing. 75 00:06:55.040 --> 00:06:59.040 But what really ticks me off is that FEMA and the Army Corps of Engineers are still in business. 76 00:06:59.040 --> 00:07:05.040 Can you imagine if FEMA and the Army Corps of Engineers were private and 1,500 people were killed? 77 00:07:05.040 --> 00:07:08.540 They'd be out of business in the next day. 78 00:07:08.540 --> 00:07:15.440 So this weeding out, this profit and loss system is one reason why the market is more efficient than government. 79 00:07:15.440 --> 00:07:25.040 Okay, that's the overall view as to why we should prefer private to public. 80 00:07:25.040 --> 00:07:28.240 Now to get to my talk about money. 81 00:07:28.240 --> 00:07:37.440 This view that the market is preferable on moral and efficiency grounds is true of nothing more than money. 82 00:07:37.440 --> 00:07:41.840 If it's true for the average good or service, then it's true in spades for money. 83 00:07:41.840 --> 00:07:44.540 Money is the lifeblood of the economy. 84 00:07:44.540 --> 00:07:51.340 Money is to the body economic as blood is to the physical body. 85 00:07:51.340 --> 00:07:54.740 If the bloodstream is messed up, the body is messed up. 86 00:07:54.740 --> 00:07:58.740 If money is messed up, the economy is messed up. 87 00:07:58.740 --> 00:08:03.540 One half of every transaction in the market has got money, with the exception of border. 88 00:08:03.540 --> 00:08:07.140 And sometimes money is traded against money when a lira trades against the franc, 89 00:08:07.140 --> 00:08:10.740 or money today trades against money receivable tomorrow. 90 00:08:10.740 --> 00:08:14.940 But in most cases, money is half of every transaction. 91 00:08:14.940 --> 00:08:19.940 So if you're going to mess with money, you're messing with the entire economy. 92 00:08:19.940 --> 00:08:24.140 Now, some people say that if it's really important, government's got to do it. 93 00:08:24.140 --> 00:08:28.140 We can't leave the important things to the market. I say the very opposite. 94 00:08:28.140 --> 00:08:32.640 I say that if we have to have government, inept and immoral as it is, 95 00:08:32.640 --> 00:08:36.640 then let's assign it to unimportant things like paperclips, rubber bands, turnips. 96 00:08:36.640 --> 00:08:40.640 I don't know why I picked that list, but, you know, things that seem roughly unimportant. 97 00:08:40.640 --> 00:08:43.640 And if the government messes up here, it's not so bad. 98 00:08:43.640 --> 00:08:46.640 Anyone want to assign the Internet to the post office? 99 00:08:46.640 --> 00:08:49.140 I mean, the whole idea is ludicrous. 100 00:08:49.140 --> 00:08:52.140 Where's the bubblegum crisis? Where is the pencil problem? 101 00:08:52.140 --> 00:08:56.140 There isn't any, because the market is pretty much in charge of those things. 102 00:08:56.140 --> 00:09:03.140 Now in Canada right now there's this Listeriosis crisis, Maple Leaf meatpacking is in trouble. 103 00:09:03.140 --> 00:09:07.140 And everyone says it's Maple Leaf's problem. 104 00:09:07.140 --> 00:09:09.140 This seems to be a counter example of what I said. 105 00:09:09.140 --> 00:09:16.140 Here Maple Leaf, a private company, is in trouble for causing, I think, 11 deaths or something, 15 deaths, something like that. 106 00:09:16.140 --> 00:09:22.140 But this makes it sound as if laissez-faire capitalism is operating in this corner of the economy. 107 00:09:22.140 --> 00:09:24.140 Nothing could be further from the truth. 108 00:09:24.140 --> 00:09:30.140 The Canadian government is heavily involved in inspection of meat and other such products. 109 00:09:30.140 --> 00:09:40.140 And yet no one seems to be blaming the government for this because our media is not really in tune with free enterprise economics. 110 00:09:40.140 --> 00:09:45.140 Lenin said that the best way to overturn the capitalist system is to debauch its currency. 111 00:09:45.140 --> 00:09:51.140 Keynes, I don't usually quote these guys, but what the heck, you can quote the devil. 112 00:09:51.140 --> 00:09:55.140 Keynes said, and this was in the Economic Consequences of the Peace in 1919, 113 00:09:55.140 --> 00:10:00.140 Lennon was right, two lefty buddies, and me, I guess I'm a lefty here too. 114 00:10:00.140 --> 00:10:05.140 There is no subtle and no sure means of overturning the existing basis of society 115 00:10:05.140 --> 00:10:07.140 than to debauch the currency. 116 00:10:07.140 --> 00:10:12.140 The process engages all the hidden forces of economic law on the side of destruction, 117 00:10:12.140 --> 00:10:16.140 and it does it in a manner that not one man in a million is able to diagnose. 118 00:10:18.140 --> 00:10:21.140 There are our friends on the left who say money is the root of all evil. 119 00:10:21.140 --> 00:10:23.140 I say the very opposite. 120 00:10:24.140 --> 00:10:28.140 Okay, so why do we have money? How did it start? Why is it so important? 121 00:10:28.140 --> 00:10:30.140 How did the government take it over? 122 00:10:30.140 --> 00:10:32.140 And what are the problems with the government takeover of money? 123 00:10:32.140 --> 00:10:35.140 Those are the issues that I'll be addressing. 124 00:10:36.140 --> 00:10:40.140 And I'll be basing my remarks mainly on two of my gurus, 125 00:10:40.140 --> 00:10:50.140 So I'm going to ask you to imagine a scenario where there is no money. And not only where there is no money, but where there's no trade. 126 00:10:50.140 --> 00:10:58.140 And let's suppose that there are, I don't know, 10,000 people in the local area. This is years ago before the advent of money. 127 00:10:58.140 --> 00:11:07.140 And each of them has a square mile, so there's enough stuff to create life. They can all be farmers and eat, but they're all self-sufficient. 128 00:11:07.140 --> 00:11:11.840 Life, they can all be farmers and eat, but they're all self-sufficient. 129 00:11:11.840 --> 00:11:15.140 That means they have to make their own food, their own clothing, their own shelter, their 130 00:11:15.140 --> 00:11:19.860 own entertainment, their own repair services, their own shoes, their own health care, their 131 00:11:19.860 --> 00:11:20.860 own makeup. 132 00:11:20.860 --> 00:11:23.820 I guess they can get feathers or something. 133 00:11:23.820 --> 00:11:26.720 Everything they do is just by themselves. 134 00:11:26.720 --> 00:11:29.320 They're all on their own. 135 00:11:29.320 --> 00:11:33.360 It's in effect they have a tariff wall, an infinite tariff wall around each of them so 136 00:11:33.360 --> 00:11:35.160 that none of them can trade. 137 00:11:35.160 --> 00:11:44.160 So this is sort of the economic nationalist's great idea of self-sufficiency, you know, we have to be self-sufficient in oil, we can't buy oil from someone, we can't buy shoes from someone. 138 00:11:44.160 --> 00:11:52.160 So here you have the anti-globalists, the people who riot in Seattle whenever they're trying to have more trade, you have their ideal. 139 00:11:52.160 --> 00:12:02.160 Well, is this good? Not really. Not very good. Because you can't trade with everyone. You have to be a jack of all trades. You have to make everything for yourself. 140 00:12:02.160 --> 00:12:09.960 And as you know, we can't have specialization, and it's very hard to be rich, let alone to live, if you have to make everything literally for yourself. 141 00:12:09.960 --> 00:12:18.160 You'd be like a Robinson Crusoe on your island, only there are other people around you, but you can't trade with them. 142 00:12:18.160 --> 00:12:20.360 Life would be nasty, British and short. 143 00:12:20.360 --> 00:12:27.060 This earth that can now support 6 billion people under such a regime might be able to support 6,000 people. 144 00:12:27.060 --> 00:12:34.060 The 6,000 people who are the most into, you know, survival in the woods or whatever it is that takes to live on your own. 145 00:12:34.060 --> 00:12:41.060 Namely, roughly 6 billion of us owe our very lives to the fact that we can trade with each other, that we can specialize, 146 00:12:41.060 --> 00:12:47.060 that we can learn more about the task that we're assigned to, that we can have a division of labor, we can perfect our skills. 147 00:12:47.060 --> 00:12:55.060 That's why we're rich or relatively rich compared to the situation that would ensue could we not trade. 148 00:12:55.060 --> 00:13:01.060 Look, if you want to be a good concert pianist, you have to practice six, eight, ten hours a day. 149 00:13:01.060 --> 00:13:07.060 How good a concert pianist can you be if you have to make all your food and your clothing and your shelter and everything else? 150 00:13:07.060 --> 00:13:14.060 It's just an abomination. Itivid be an economic abomination. 151 00:13:14.060 --> 00:13:18.060 So, the only way out of this is to specialize. 152 00:13:18.060 --> 00:13:23.060 But the problem with specializing is if you can't trade, if you specialize in, I don't know, shoes or frisbees, 153 00:13:23.060 --> 00:13:27.460 Frisbees, you can't eat shoes or frisbees, so you can't specialize. 154 00:13:27.460 --> 00:13:30.620 So if you want to specialize, you have to trade. 155 00:13:30.620 --> 00:13:34.180 So we are now going to relax our assumption of no trade. 156 00:13:34.180 --> 00:13:37.380 We're going to reduce the tariff barriers down to zero. 157 00:13:37.380 --> 00:13:41.660 And we're now going to allow trade into our model. 158 00:13:41.660 --> 00:13:43.340 So what happens? 159 00:13:43.340 --> 00:13:48.720 Well, different people specialize in different things and they have to trade. 160 00:13:48.720 --> 00:13:53.760 The problem with that is a thing called the double coincidence of wants. 161 00:13:53.760 --> 00:13:57.080 Suppose I'm a chicken-owning pickle-wonter. 162 00:13:57.080 --> 00:14:00.880 I have to find a pickle-owning chicken-wonter. 163 00:14:00.880 --> 00:14:06.600 Say that three times fast and you'll drive yourself crazy. 164 00:14:06.600 --> 00:14:10.880 Or you move into town, you are a computer expert, and you have to find a landlord who 165 00:14:10.880 --> 00:14:11.880 wants computers. 166 00:14:11.880 --> 00:14:16.360 I mean, it's hard enough to find an apartment in a new city, but to find a landlord who 167 00:14:16.360 --> 00:14:37.360 So, what it was found in history, sort of made up history or historical exegesis, is that instead of making the double coincidence of wants direct, that would be called direct trade, there was such a thing called indirect trade. 168 00:14:37.360 --> 00:14:42.160 Well, what's indirect trade? Indirect trade means I trade my chicken in for something, 169 00:14:42.160 --> 00:14:48.360 salt, sugar, whatever, fish hooks, something that I think everyone else will want. 170 00:14:48.360 --> 00:14:53.960 And then when I get the salt, I take the salt and I go out and buy a pickle. 171 00:14:53.960 --> 00:14:59.160 So I have to do two trades instead of one, but each of these two trades is easy to do 172 00:14:59.160 --> 00:15:04.760 on the assumption that everyone will accept salt or sugar or whatever it is that I'm using to intermediate trade. 173 00:15:04.760 --> 00:15:13.860 And then I can trade, and if I can trade, then I can specialize, and if I can specialize, then we can have life for humanity. 174 00:15:13.860 --> 00:15:20.860 These people, clergymen, lefties, hippies, whatever, who think that money is the root of all evil, 175 00:15:20.860 --> 00:15:24.160 all it is, is a facilitator of trade. 176 00:15:24.160 --> 00:15:29.560 And all trade is, is something that enables specialization and efficiency. 177 00:15:29.560 --> 00:15:31.660 And all that does is promote human life. 178 00:15:31.660 --> 00:15:33.060 So this is evil? 179 00:15:33.060 --> 00:15:37.260 Well, if this is evil, then human life is evil. 180 00:15:37.260 --> 00:15:43.860 Don't tell this to our friends, the environmentalists, because they believe that, but we won't go into that. 181 00:15:43.860 --> 00:15:50.060 Okay, notice various things have been used to intermediate trade. 182 00:15:50.060 --> 00:15:56.660 Salt, sugar, cigarettes, tobacco, fish hooks, cows, metals, brass, copper, silver, gold. 183 00:15:56.660 --> 00:16:03.160 But notice one thing that all of these trade intermediators have in common is that they're commodities. 184 00:16:03.160 --> 00:16:08.460 There's something you can grab or bite or chew or hold or something like that. 185 00:16:08.460 --> 00:16:12.060 You can't have a piece of paper be money. 186 00:16:12.060 --> 00:16:16.660 Look, suppose I write over on this piece of paper, I write 10 blockheads. 187 00:16:16.660 --> 00:16:21.660 And I go around the room and say, hey, Erin, will you give me your car and I'll give you 10 blockheads? 188 00:16:21.660 --> 00:16:24.260 You know, she's going to look at me as something a little weird. 189 00:16:24.260 --> 00:16:26.360 They don't call me Walter Weird Block for nothing. 190 00:16:26.360 --> 00:16:28.560 and that's part and parcel of it. 191 00:16:28.560 --> 00:16:32.560 The point is that if somebody just printed up a piece of paper, 192 00:16:32.560 --> 00:16:35.960 no one would accept it in term, except, you know, in some sort of weird way. 193 00:16:35.960 --> 00:16:38.060 Murray Rothbard used to do this and he would say, 194 00:16:38.060 --> 00:16:41.960 well, suppose I printed up 10 Rothbards and try to trade. 195 00:16:41.960 --> 00:16:43.660 And I would raise my hand and said, I'll accept it. 196 00:16:43.660 --> 00:16:45.160 I'll give you my bicycle for one. 197 00:16:45.160 --> 00:16:49.660 And he would say, shut up, Block, you know, I'm trying to make a point here. 198 00:16:49.660 --> 00:16:53.860 But the point is, you see, 10 Rothbards, if I really had 10 Rothbards, 199 00:16:53.860 --> 00:16:55.860 I could probably sell it for a lot of money. 200 00:16:55.860 --> 00:16:59.460 But it wouldn't really be money. It would be more like an art or something like that. 201 00:16:59.460 --> 00:17:01.460 It would be a unique kind of a thing. 202 00:17:01.460 --> 00:17:03.460 But forget about that sort of a thing. 203 00:17:03.460 --> 00:17:05.460 In any real case, if someone says, 204 00:17:05.460 --> 00:17:07.460 here's ten Rothbards, give me your house. 205 00:17:08.660 --> 00:17:10.460 Well, ten blocks. 206 00:17:10.460 --> 00:17:13.760 Ten Rothbards, I don't know what you can do with if it was a real ten Rothbard. 207 00:17:13.760 --> 00:17:15.860 But you get the point. 208 00:17:15.860 --> 00:17:20.560 The reason that these commodities had serviceability as money 209 00:17:20.560 --> 00:17:25.760 is because they were valuable in their capacity as a commodity. 210 00:17:25.760 --> 00:17:28.060 So you have to start with a commodity. 211 00:17:28.060 --> 00:17:36.960 Okay, so then there was a debate, a competition to see what would be the money. 212 00:17:36.960 --> 00:17:39.760 A competitive struggle over which commodity. 213 00:17:39.760 --> 00:17:44.160 Would it be bananas? Would it be cement? Would it be diamonds? Would it be gold? 214 00:17:44.160 --> 00:17:54.660 You had a sort of a competition between these various commodities to see which of them would be the trade facilitator or money, which is a synonym. 215 00:17:54.660 --> 00:18:01.060 Well, the way economists look at this, the criteria for success are durability, 216 00:18:01.060 --> 00:18:06.600 which means bananas aren't going to really cut it as money because they rot too soon, divisibility, 217 00:18:06.600 --> 00:18:11.500 diamonds would make lousy money because when you try to make change in diamond and break a diamond in two, 218 00:18:11.500 --> 00:18:16.800 the two smaller diamonds I think are worth one-eighth of what the bigger diamond would be worth if you could cut them cleanly. 219 00:18:16.800 --> 00:18:19.260 So that couldn't make money. 220 00:18:19.260 --> 00:18:27.420 Recognizability, if you can't recognize the thing, you know, the, say, the gold from the copper, then it wouldn't work out too well. 221 00:18:27.420 --> 00:18:33.460 Portability, cement wouldn't make a good money because it's too heavy to carry around. 222 00:18:33.460 --> 00:18:42.820 Scarcity, you couldn't have one of those trace elements of chemistry, you know, there's that chemical thing where they have 150 different elements. 223 00:18:42.820 --> 00:18:46.260 The rare ones wouldn't make good money because there's not enough of it around. 224 00:18:46.260 --> 00:18:49.460 It has to be in circulation. 225 00:18:49.460 --> 00:18:54.820 It has to be visible, and gold is a soft money. 226 00:18:54.820 --> 00:18:59.080 You can cut it more easily than you can cut other monies. 227 00:18:59.080 --> 00:19:07.920 What is it that mercury wouldn't be a good money because it's too sloppy, you know, pours out all over the place? 228 00:19:07.920 --> 00:19:12.180 So there are various technical reasons why certain commodities were money. 229 00:19:12.180 --> 00:19:15.280 and other commodities just didn't make it as money. 230 00:19:15.280 --> 00:19:21.880 Well, that's why I say that gold is the free enterprise money, 231 00:19:21.880 --> 00:19:25.980 because whenever people were free to choose, they chose money. 232 00:19:25.980 --> 00:19:29.880 They chose gold, sometimes silver, sometimes copper for smaller change. 233 00:19:29.880 --> 00:19:33.380 So it's not as if the critics of gold... 234 00:19:33.380 --> 00:19:37.880 The way the critics of gold see gold advocates is it was sort of like Scrooge McDuck. 235 00:19:37.880 --> 00:19:41.480 Remember good old Scrooge? He'd get into his money bin and he'd sort of throw it up on himself 236 00:19:41.480 --> 00:19:45.480 And he would sort of roll down and go, ah, you know, sort of a pervert or something. 237 00:19:45.480 --> 00:19:49.480 I might be a pervert, but gold isn't one of my perversions, you know, so, 238 00:19:49.480 --> 00:19:52.480 and nor is it for most gold standard advocates. 239 00:19:52.480 --> 00:19:58.480 It's just because that was the best money, the best intermediator of trade. 240 00:20:01.480 --> 00:20:05.480 If tomorrow we had a free market and money and people were free to choose, 241 00:20:05.480 --> 00:20:10.480 which is the name of Milton Friedman's film series and I think a book, 242 00:20:10.480 --> 00:20:15.480 and I think a book, and I'll be criticizing Milton Friedman on this in my afternoon session. 243 00:20:15.480 --> 00:20:22.480 If people were free to choose and they chose, instead of gold this time, they chose silver, 244 00:20:22.480 --> 00:20:26.480 that would be fine, or if they chose platinum or whatever it is that they chose. 245 00:20:26.480 --> 00:20:30.480 So the key is not on gold, the key is on whatever people are free to choose. 246 00:20:30.480 --> 00:20:34.480 The idea, again, is back to this morality point, whatever is voluntary. 247 00:20:34.480 --> 00:20:38.480 And if they choose gold on a voluntary basis, then we're gold standard advocates. 248 00:20:38.480 --> 00:21:03.480 Why does government not like gold? 249 00:21:03.480 --> 00:21:07.480 There are only three ways that government can get money. 250 00:21:07.480 --> 00:21:15.480 The first way is taxes. The problem with taxes from the government's point of view is that it's very clear as to who's doing the taxing. It's government. 251 00:21:15.480 --> 00:21:23.480 The second way that government can raise money is by borrowing. And again, it's very clear that the government is crowding out private borrowing. 252 00:21:23.480 --> 00:21:34.480 The third way that they can raise money is by inflating. And as my man Kane said, it's one man in a million who really understands what's going on in this case. 253 00:21:34.480 --> 00:21:49.480 Rather, government is able to blame greedy consumers, or greedy businessmen, or greedy, greedy people, or unions, and I stand second to no one in my condemnation of unions, but I don't think that unions are responsible for inflation. 254 00:21:49.480 --> 00:21:59.480 It's rather government printing more money, chasing a certain amount of goods. Certain people blame inflation on oil sheiks or somebody like that. 255 00:21:59.480 --> 00:22:07.480 But the point is that if the prices of oil go up and the money supply stays at around the same price, then the same quantity, 256 00:22:07.480 --> 00:22:09.480 then the prices of other things have to go down. 257 00:22:09.480 --> 00:22:16.480 If we're spending more money on oil than we have to, and we only have the same amount of money, we have to spend less on everything else. 258 00:22:16.480 --> 00:22:23.480 So you don't get an overall increase in prices with anything like that. 259 00:22:23.480 --> 00:22:30.480 Now, it's hard to see why an increase in money would raise prices. 260 00:22:30.480 --> 00:22:35.480 And the reason it's hard to see is that there's no one-to-one direct correlation. 261 00:22:35.480 --> 00:22:38.480 And expectations are crucial here. 262 00:22:38.480 --> 00:22:41.480 For example, suppose we're all used to prices are flat. 263 00:22:41.480 --> 00:22:43.480 Prices have been flat ever since whenever. 264 00:22:43.480 --> 00:22:47.480 And all of a sudden government raises the money supply. 265 00:22:47.480 --> 00:22:51.480 And now there's demands for all goods go up in money terms. 266 00:22:51.480 --> 00:22:54.480 And there's an incipient tendency for prices to rise. 267 00:22:54.480 --> 00:23:01.480 And prices start to rise a little bit, but everyone thinks that prices will come back down to where they were. 268 00:23:01.480 --> 00:23:07.480 So if you think that prices are going to fall down tomorrow, are you going to buy more or less today? Obviously less. 269 00:23:07.480 --> 00:23:15.480 So what happens is that expectations dampen down the incipient effect of money to raise prices because people expect lower prices, 270 00:23:15.480 --> 00:23:20.480 so they buy less in the hope that they can buy more tomorrow when prices are falling. 271 00:23:20.480 --> 00:23:25.480 So that's the first stage of the Misesian inflationary story. 272 00:23:25.480 --> 00:23:28.980 The second stage is that there's a rough correlation. 273 00:23:28.980 --> 00:23:32.980 The money supply goes up by 5%, the prices go up by 5%. 274 00:23:32.980 --> 00:23:37.980 Remember, the first stage was the money is going up by 5%, prices weren't going up at all. 275 00:23:37.980 --> 00:23:40.480 Second stage is that there's a correlation. 276 00:23:40.480 --> 00:23:43.480 But the third stage is they keep pumping up money, 277 00:23:43.480 --> 00:23:45.980 and now people's expectations tip over in the other way, 278 00:23:45.980 --> 00:23:48.980 and they expect prices to be higher tomorrow. 279 00:23:48.980 --> 00:23:55.980 So they buy more now, and when they buy more now, then you have two causes of the higher price rise. 280 00:23:55.980 --> 00:24:05.480 One is the more money, and the other is the expectations, and then the last stage is they'll buy anything like in Zimbabwe or Germany in 1923. 281 00:24:05.480 --> 00:24:18.480 Whether they need it or not, they're going to buy it because the money is losing its value as you speak, so it's hard for people to see that there is this correlation 282 00:24:18.480 --> 00:24:22.480 because it's not a direct correlation because of this expectations intermediation 283 00:24:22.480 --> 00:24:29.480 and yet money is the increasing and money supply is the cause of prices increasing. 284 00:24:29.480 --> 00:24:31.480 Well, how did this get started? 285 00:24:31.480 --> 00:24:36.480 The way this got started was with the evils of fractional reserve banking. 286 00:24:36.480 --> 00:24:37.480 How did that start? 287 00:24:37.480 --> 00:24:41.480 Well, let's get back to our scenario before where there was a certain amount of gold 288 00:24:41.480 --> 00:24:45.480 and everyone was trading, intermediating, and now we could live lives 289 00:24:45.480 --> 00:24:49.480 and we can have specialization in division of labor and everything was cool. 290 00:24:49.480 --> 00:24:52.480 Well, where would you leave your gold? 291 00:24:52.480 --> 00:24:55.480 You don't want to leave it in your house because gold is valuable. 292 00:24:55.480 --> 00:25:00.480 So what you do is you leave it in the house of somebody who can protect gold. 293 00:25:00.480 --> 00:25:03.480 Well, who can protect gold? A goldsmith. 294 00:25:03.480 --> 00:25:06.480 He's got a big safe, he's got armed guards to protect the gold. 295 00:25:06.480 --> 00:25:09.480 So what you do is you deposit your gold with him 296 00:25:09.480 --> 00:25:12.480 and he gives you a little warehouse receipt, 297 00:25:12.480 --> 00:25:42.480 payable to the order of Walter Block, 10 ounces of gold and then every time I want to make a trade I go back to the goldsmith and I say hey give me my gold I want to go buy a horse and carriage and he gives me the gold and I go buy the horse and carriage and now the ex-horse and carriage owner deposits his gold with the goldsmith and he gets the same sort of receipt. That's the first stage. The second stage is people started saying why go to the goldsmith he's all the way over there. Everyone knows the goldsmith 298 00:25:42.480 --> 00:25:45.880 He's honest, here is his signature, it's a small town. 299 00:25:45.880 --> 00:25:48.040 We all know what his signature looks like. 300 00:25:48.040 --> 00:25:52.320 So instead of taking 10 ounces of actual physical gold, 301 00:25:52.320 --> 00:25:57.120 what I do is I go to the guy who has the horse and buggy 302 00:25:57.120 --> 00:26:00.640 and I say, here's my warehouse receipt, 303 00:26:00.640 --> 00:26:02.400 payable to the order of 10 ounces of gold. 304 00:26:02.400 --> 00:26:03.680 Will you accept this? 305 00:26:03.680 --> 00:26:05.880 And he looks at me and says, yeah, sure. 306 00:26:05.880 --> 00:26:09.120 So now we're trading little pieces of paper. 307 00:26:09.120 --> 00:26:12.040 But these little pieces of paper are backed 100% by gold 308 00:26:12.040 --> 00:26:15.680 in the Goldsmith's Warehouse or his safe. 309 00:26:17.320 --> 00:26:20.840 And then one day the gold skips the goldsmith's wife. 310 00:26:20.840 --> 00:26:24.240 It's always a woman who's in charge of the problems here. 311 00:26:24.240 --> 00:26:26.420 We sexists have to say such things. 312 00:26:27.420 --> 00:26:29.180 And the goldsmith's wife says, well, you know, 313 00:26:29.180 --> 00:26:31.860 the Jones is that he just got her a yacht 314 00:26:31.860 --> 00:26:33.840 and I don't have a yacht. 315 00:26:33.840 --> 00:26:35.640 And the goldsmith says to himself, you know, 316 00:26:35.640 --> 00:26:38.360 I have 10,000 gold ounces outstanding 317 00:26:38.360 --> 00:26:40.880 and I have, or rather have 10,000 gold ounces 318 00:26:40.880 --> 00:26:47.880 Right here in my safe, and I have 10,000 warehouse receipts worth of gold outstanding among the community. 319 00:26:47.880 --> 00:26:54.880 Maybe I'll print a few extra, a few extra warehouse receipts for which there is no gold. 320 00:26:54.880 --> 00:27:00.880 And the only time I can get in trouble is if all 10,000 ounces come together and demand their gold, 321 00:27:00.880 --> 00:27:03.880 which I'm obligated to do because these are demand deposits. 322 00:27:03.880 --> 00:27:07.880 But as long as they don't all come there, as long as no one knows about this, 323 00:27:07.880 --> 00:27:14.280 He can engage in fractional reserve banking and thus inflation was born. 324 00:27:14.280 --> 00:27:22.520 The gold standard didn't collapse, government abolished it to make it easy for it to inflate. 325 00:27:22.520 --> 00:27:32.240 How did it do this? Well, it had compulsory monopoly of the mint before the government got 326 00:27:32.240 --> 00:27:35.640 involved. Remember the reason the government wants to get involved is that this gives it a 327 00:27:35.640 --> 00:27:37.940 The third dimension of money raising. 328 00:27:37.940 --> 00:27:40.520 Look, if you had a printing press in the basement 329 00:27:40.520 --> 00:27:43.440 and you had the soldiers and the police 330 00:27:43.440 --> 00:27:46.640 and taxes were not enough and borrowing was not enough 331 00:27:46.640 --> 00:27:49.280 and you wanted to go fight a war in Iraq or somewhere 332 00:27:49.280 --> 00:27:51.000 and you didn't want to raise taxes, 333 00:27:51.000 --> 00:27:52.740 what you would do is start printing. 334 00:27:54.420 --> 00:27:58.320 Or in the age of banking, start increasing the money supply. 335 00:27:58.320 --> 00:28:00.880 So what the government did is it had a compulsory monopoly 336 00:28:00.880 --> 00:28:09.280 The Mint, it had legal tender laws. Here's a quote from U.S. Today of a year ago. 337 00:28:09.280 --> 00:28:13.200 Washington, the government today warned consumers and businesses that it is 338 00:28:13.200 --> 00:28:18.040 illegal to use alternative money known as Liberty Dollar Coins, which is based 339 00:28:18.040 --> 00:28:23.360 on gold, which organizers promote as a competing, a competitor to the dollar. So 340 00:28:23.360 --> 00:28:28.360 if you use anything else to intermediary trade, you can go to jail for that. So 341 00:28:28.360 --> 00:28:41.360 So you get this strange juxtaposition of the libertarians who favor legalization of pot and legalization of gold and legalization of pot is supposedly a left-wing thing and legalization of gold is a right-wing thing and libertarianism involves both of them. 342 00:28:41.360 --> 00:28:55.360 Other things that government did is it refused, it allowed fractional reserve banks to keep in business even though they couldn't meet all their debts, permitting banks to refuse payment even though they were bankrupt. 343 00:28:55.360 --> 00:29:20.660 engaged in central banking, which removed the checks on inflation, went off the gold standard in 1932, a little bit 344 00:29:25.360 --> 00:29:32.260 Friedman's favorite institution, private carnage, return of the government gold hoard to private hands, 345 00:29:32.260 --> 00:29:39.260 no government monopoly in the supply of money, complete separation of money in the state, 346 00:29:39.260 --> 00:29:43.960 somehow we talk about separation of religion, church in state, religion of school in state, 347 00:29:43.960 --> 00:29:52.060 well, also separation of money in state, because money is crucial, it's the lifeblood of the economy. 348 00:29:52.060 --> 00:29:56.500 Now, what have these people done? What have these people done with our money? 349 00:29:56.500 --> 00:30:00.020 Murray Rothbard wrote this magnificent book, What Has Government Done to Our Money? 350 00:30:00.020 --> 00:30:04.700 I don't know if it's for sale now, but it's available for free on the Mises Web. 351 00:30:04.700 --> 00:30:09.140 So just go to the Mises Web and look for what has government done to our money. 352 00:30:09.140 --> 00:30:12.020 It's one of the most — oh, wait, Will is waving it over there. 353 00:30:12.020 --> 00:30:17.420 So it is for sale, and I certainly would recommend anyone to buy it. 354 00:30:17.420 --> 00:30:20.100 It's just a little book, and it's beautifully written. 355 00:30:20.100 --> 00:30:27.800 One of the things about Austrian economics in general, and Murray Rothbard in particular, is the rights exquisitely, beautifully. 356 00:30:27.800 --> 00:30:31.800 What have they done with our money? They've messed it up. 357 00:30:31.800 --> 00:30:38.400 A hundred dollars that you could have, if you would have bought a market basket of goods for a hundred dollars in 1914, 358 00:30:38.400 --> 00:30:41.600 do you know what it would cost you now for that same market basket? 359 00:30:41.600 --> 00:30:44.500 Nineteen hundred and sixty-two dollars. 360 00:30:44.500 --> 00:30:49.100 So that's an eighteen hundred and sixty-two percentage increase. 361 00:30:49.100 --> 00:30:51.800 I don't know about you. I'm of a certain age. 362 00:30:51.800 --> 00:30:56.000 When I was a kid, you could buy a bagel for three cents. 363 00:30:56.000 --> 00:30:58.400 I don't know what it costs now, two bucks. 364 00:30:58.400 --> 00:31:00.400 You could buy an ice cream cone for ten cents. 365 00:31:00.400 --> 00:31:04.800 You could buy a hot dog and a Coke for 25 cents. 366 00:31:04.800 --> 00:31:11.600 Now these things are tenfold, fifteenfold, twentyfold in some cases. 367 00:31:11.600 --> 00:31:17.900 Now one problem with government inflation is that it allows them to do things, 368 00:31:17.900 --> 00:31:22.700 create wars that they couldn't finance otherwise. 369 00:31:22.700 --> 00:31:28.620 That's one problem. Another problem is it has a 370 00:31:28.620 --> 00:31:32.460 mal-redistribution of income, if you want to call it that way. 371 00:31:32.460 --> 00:31:36.700 Namely, who does inflation hurt? It hurts people who are on fixed incomes, like widows, pensioners, 372 00:31:36.700 --> 00:31:40.620 people like that, who are not protected at all or not protected 373 00:31:40.620 --> 00:31:44.700 fully by the cost of living adjustments. They get the 374 00:31:44.700 --> 00:31:48.700 The same amount of money, but by the time they get it, it's worth less. 375 00:31:48.700 --> 00:31:54.700 See, the people who benefit mostly from government law address are the people who get the money first. 376 00:31:54.700 --> 00:32:01.700 People in Wall Street, people of Boeing or Bechtel, they get the money first when the government creates money by buying stuff, 377 00:32:01.700 --> 00:32:08.700 by buying a bond or just by buying stuff, and they get the money before prices in general have risen. 378 00:32:08.700 --> 00:32:13.700 And then it goes to the second and the third guy, it's sort of like you throw a rock into water, there are waves. 379 00:32:13.700 --> 00:32:19.200 Well, the first wave of money has the money when prices are still low. 380 00:32:19.200 --> 00:32:24.200 The last person to get it, or not at all, is person on fixed income. 381 00:32:24.200 --> 00:32:29.700 So that's one problem with government involvement in money. 382 00:32:29.700 --> 00:32:35.700 They create inflation, they debauch the currency, and as our buddies Lenin and Keynes said, 383 00:32:35.700 --> 00:32:38.700 that's one way to ruin economy, and they are ruining the economy. 384 00:32:38.700 --> 00:32:52.700 Another point is that this exacerbates global tensions, in addition to government control of money enabling them to pursue foreign wars without permission from the populace. 385 00:32:52.700 --> 00:32:56.700 Remember voting every four years and you can't vote on specific things? 386 00:32:56.700 --> 00:33:06.700 It also exacerbates international crises because, look, if you water down your product, if you're selling, I don't know, bubble gum, 387 00:33:06.700 --> 00:33:11.700 Bubble gum, and instead of selling an ounce of bubble gum, you sell three-quarters of an ounce of bubble gum, people start resenting it. 388 00:33:11.700 --> 00:33:15.700 Well, that's what the government is doing with the money. They're watering down the dollar. 389 00:33:15.700 --> 00:33:20.700 I remember when I first came to this country in 78, the Canadian dollar was worth 66 cents. 390 00:33:20.700 --> 00:33:27.700 Now it came to par. Now it's about 93 cents. I lose track of it. I don't follow it every day. 391 00:33:27.700 --> 00:33:34.700 But this is because George Bush has been creating more money than the Canadian equivalent. 392 00:33:34.700 --> 00:33:41.700 So, if you water down your product, you get into difficulties, and if you water down your money, you get into difficulties as well. 393 00:33:44.700 --> 00:33:47.700 What is the view of most economists on gold? 394 00:33:47.700 --> 00:33:52.700 Here's a quote from Newsweek reporting on the American Economic Association meetings. 395 00:33:52.700 --> 00:33:57.700 Most quote, most economists have long since banned mention of gold from their discourse. 396 00:33:57.700 --> 00:34:06.700 Gold is not even discussed. If you favor gold, you're a cultist, you're a weirdo, you're a pervert or something like that. 397 00:34:06.700 --> 00:34:18.700 Milton Friedman, who is supposedly a free enterprise, and I'll have a lot more to say about him in my second session at 3 o'clock today. 398 00:34:18.700 --> 00:34:24.700 He calls us gold bugs. He's a monetary socialist. He's a socialist. 399 00:34:24.700 --> 00:34:29.700 and socialists of the money. Well, there are other forms of socialism as well. 400 00:34:29.700 --> 00:34:32.700 Well, my time is almost up, so let me just summarize. 401 00:34:32.700 --> 00:34:35.700 Gold is an intermediary of trade. It's not an evil. 402 00:34:35.700 --> 00:34:40.700 It's not the worst thing in the world, as our friends on the left sometimes think. 403 00:34:40.700 --> 00:34:44.700 It's just a way of facilitating trade. Trade is the lifeblood of the economy. 404 00:34:44.700 --> 00:34:49.700 If we can't trade, it's as if we have an infinite tariff around us. 405 00:34:49.700 --> 00:34:53.700 And that way lies death. Thanks for your attention. 406 00:34:53.700 --> 00:34:55.700 Thank you very much.