Let me start. I want to continue the story from yesterday about the division of labor.
So far I have presented more or less an historical tale and now I want to add a little theoretical considerations
about why there is division of labor and then from there continue on to the development of money which intensifies the division of labor still further and the role of cities and city growth and that will also be continued then in the lecture in the afternoon
on Capital and Capital Accumulation.
I mentioned already yesterday that the fact of humans speaking
to each other, arguing with each other, using language
indicates their social nature.
And something else should be mentioned in this connection
That is that at the beginning of mankind, it is difficult to imagine, so to speak, only
two grown-up people being faced with the question, should we cooperate or not cooperate?
One always should keep in mind, of course, also that there are different generations
of People Alive, which automatically makes it easier to understand why there is cooperation.
Obviously, the older generation simply pressures the younger one to adopt certain standards
and find some advantages in division of labor, but be that as it may, I want now to develop
the case of division of labor as Ludwig von Mises presents it, that is even assuming that
They are, so to speak, grown-up adults and that there is no language in existence initially.
Can we still somehow explain why people do not remain in self-sufficient isolation but
begin dividing their labor up and engage in exchanges based on division of labor?
And in order to understand this, let's first assume that all individuals are perfectly identical
to each other, perfect clones of each other, and that also land, that is, those things
that we find in front of us as nature-given resources, are perfectly identical for every
individual.
What would then occur? That is a relatively easy prediction that we can make. We assume
that all people have, so to speak, the same desires, the same knowledge and the same external
equipment. Then the result would be that every person will produce the same sort of things
in the same quantities and in the same qualities, and in such a situation it is obvious that
there is simply no room for any type of exchange.
What should I exchange if everybody has exactly the same things and uses up these things,
of course exactly in the same pattern as everybody else does, which simply follows from the assumption
that we have made of perfect identity of labor and land.
So the first recognition then is if it were not for the fact of differences with regard
or to land and or labor, not even the idea of division of labor and based on division of labor exchange would ever enter any person's mind.
Now even if there are differences between labor, ourselves and land, it is not necessary that people divide their labor and exchange based on division of labor.
They could still decide, I produce everything on my own and remain in self-sufficient isolation.
Mises makes the point that psychologists and sociologists frequently explain the rise of division of labor by assuming some sort of instinct to truck and barter.
You will find that, for instance, in Adam Smith. He explains it by an instinct. Humans are instinctively drawn to each other and truck and barter with each other.
Mises, however, points out something very interesting, that is to say, we don't need to make this assumption.
We can make the assumption that actually every person hates everybody else and still explain why division of labor emerges.
And obviously explanations that require less in terms of assumptions are better than explanations that require us to make all sorts of assumptions in order to come up with our conclusion.
So let's assume everybody hates each other. Why would people nonetheless engage in division of labor?
And Mises simply points out, division of labor will arise as long as every person prefers more goods over less goods.
That is, as long as every person is perfectly selfish and wants to have more rather than less.
This is entirely sufficient in order to explain why they do not remain in self-sufficient isolation.
And there are, as you might have heard in your micro classes or so, two reasons for this.
The first one is called The Absolute Advantage of Division of Labor, which refers to a situation where one person is particularly good at doing one thing and another person is particularly good at doing something else.
The reason for this can be, so to speak, internal reasons that he personally has talents that somebody else does not have and somebody else has talents that the other person does not have.
Or it can be due to the fact that one person lives on the mountainside and has certain opportunities that somebody who lives on the seaside does not have.
or it can be a combination of these two factors that is differences in land and in labor.
And given the fact that time is scarce it is immediately clear that an advantage would result if each person specializes in those things
in which he is particularly good at because then the total amount of goods that will be produced will be larger than it would be if both individuals were to decide we produce all goods, both goods on our own and do not engage in division of labor.
And the second reason, the reason that was first discussed by David Ricardo.
David Ricardo, however, applied this argument to different nations.
And the advantage of Mises' presentation of this argument is to show that that applies, strictly speaking, also to the individual level,
is the so-called comparative advantage of division of labor that refers to the
conceivably worst-case scenario where one person is all around superior every
production process he is more efficient than the other person and the other
The other person is all around inferior as far as his productive capabilities is concerned.
And the question is then, does it make sense for those types of individuals,
one all around superior, one all around inferior, to engage in division of labor also?
And without going into great detail and trying to prove this sort of thing, again, it's entirely sufficient to make an intuitive case for the answer, yes, even under those circumstances, division of labor is beneficial, provided that these two individuals divide their labor up in the following way.
The person who is all around superior chooses to specialize in those things in which he has a particularly great advantage.
And the person who is all around inferior specializes in that area in which his disadvantage is comparatively small.
Let's take an example, a surgeon and a gardener, the surgeon is the superior surgeon and he is also a superior gardener.
And because his time is scarce, it is advantageous for him to specialize in that activity,
where his advantage is particularly great in the area of surgery, for instance, and
leave the activity of gardening to the other person despite the fact that the surgeon would
also be a better gardener than the gardener is.
But given the fact that his advantage is greater in one area than in the other and that time
spent on one activity can no longer be spent on another activity, dividing their labor
in this way, and then based on this division of labor engaging in exchanges, the standard
of living of both individuals will be higher.
Let me quote Mises to this effect that is explaining, so to speak, why it is that we
don't find people who remain in self-sufficient isolation.
There might be a few people who try it, but even they do not completely do it.
In the old days of the hippie movement, there were of course some people who tried to live
off the earth, as you might remember, but even they did not live directly off the earth.
They drove their Harley Davidson up the mountain and led a primitive life there, but as soon
Mises says, if and as far as labour under the division of labour is more productive
is more effective than isolated labor, and as far as man is capable to realize this fact, there is obviously some sort of intelligence involved.
I will come back to these sorts of topics later on too.
Then human action itself tends toward cooperation and association.
Man becomes a social being not in sacrificing his own concerns for the sake of a mythical Moloch society, but in aiming at an improvement in his own welfare.
Experience teaches that this condition, higher productivity achieved under division of labor, is present because its cause,
The inborn inequality of men and the inequality in the geographical distribution of the natural forces of production is real.
Thus, we are in a position to comprehend the course of social evolution.
And now to a very important insight that Mises derives from this.
And again, recall, I pointed out that contrary to people like Adam Smith, for instance, who stipulated some inborn sympathy among mankind as the ultimate cause of division of labor,
Mises reverses this argument and says it is precisely
because of the higher productivity of division
of labor, which makes us dependent on each other based
on our recognition that we all benefit
from this dependency on others, that we then develop,
So to speak, sympathetic feelings towards others.
So it is not the sympathy that explains division of labor.
It is the selfish motivation to begin division of labor
that then, as a result of division of labor,
lets feelings of sympathy among mankind develop.
So sympathy results, but it's not the cause of division of labor.
And again, a very interesting quote to this effect.
There, Mises says, there can emerge
between members of society feelings of sympathy
and friendship and a sense of belonging together.
These feelings are the source of man's most delightful and most
Sublime Experiences. They are the most precious adornment of life. They lift the animal species
men to the heights of a really human existence. However, they are not, as some have asserted,
the agents that have brought about social relationships. They are the fruits of social
Social Cooperation. They thrive only within its frame. They did not precede the establishment
of social relations and are not the seeds from which they spring.
And then he elaborates a little bit more on this, says, the mutual sexual attraction of
male and female is inherent in man's animal nature and independent of any thinking and
and Searizing.
It is permissible to call it original, vegetative, instinctive or mysterious.
However, neither cohabitation nor what precedes it and what follows generates social cooperation
and societal modes of life.
The animals, too, join together in mating, but they have not developed social relations.
Family life is not merely a by-product of sexual intercourse.
It is by no means natural and necessary that parents and children live together in the
way in which they do in the family.
The mating relation need not result in family organization.
The human family is an outcome of thinking, planning and acting.
It is this fact which distinguishes it radically from those animal groups which we call per
analogium animal families.
So again, it is the recognition of the advantages of division of labor that makes stable family
Now, division of labor then, because it is more productive, allows also, as I already indicated yesterday in my lecture, allows of course also for population growth that otherwise would not be possible.
The easiest way to convince ourselves of this is just to engage in the thought experiment, what would happen to the world population if we were to decide from now on to withdraw from all social interaction and become self-sufficient producers.
And as I already intimated with that hippie example, it can be easily seen that if we were to do something like this, most of mankind would be wiped out within a few days.
because we would not be able to provide ourselves with all the amenities that we have gotten used to as soon as our short wears out.
We wouldn't be able to fix it as soon as our milk runs out, or in my case more important, as soon as my beer runs out, I would be in deep trouble.
Division of labor also allows, so to speak, that the so-called unfit can survive, that is those people who under very primitive conditions due to some deficiencies of their bodily functions or sensory functions
would be condemned, so to speak, to starve and die, can survive and lead productive lives and even become rich and wealthy individuals as a result of division of labor.
As a result of all this, as I explained, we have first agricultural societies developing.
These agricultural societies have a minimal amount of division of labor.
They are still to a large extent self-sufficient.
But then as Mises described in the quote that I gave you yesterday, problems arise if the population increases, the plots become smaller and smaller, land becomes more and more valuable,
and we have to find a solution to this growing mass of population and the
solution is a deepening and intensifying of the division of labor which leads to
The formation out of small villages of cities where we have specialized professions developing
that provide the countryside with specialized tools and receive from the countryside the
the food stuff necessary in order to lead their city life.
With city life also comes for the first time, again, due to the fact that city life already
indicates a larger amount of capital accumulation, leads to a situation where people reach a
certain level of wealth and have a certain amount of leisure time, comes also the development
of science, the first attempts towards science, which require so to speak leisure time to
to reflect about natural laws and so forth, and also, very important, the development
of a written language, which again constitutes, so to speak, a great advance in human development
above and beyond the development of a language itself, because in this way we are no longer
We are dependent on oral tradition. One generation, so to speak, telling the following generation what to do, what they have learned and so forth.
But we have now a possibility to just freeze and make permanent experiences that were collected by previous generations.
And, of course, it becomes then also far easier to transport this information to far and distant places,
far more easy than it would be possible if we would have to rely on oral traditions.
These written languages developed first around 5,000 years ago,
And we do know that, again, some regions on the globe never reached this stage of development, of having a written language coming about.
Some places only received written languages once they were rediscovered, so to speak, by Europeans.
There exists no written language on the African continent and only very remnants of it, very small attempts at some small regions on the American continent of written languages.
Quigley, I mentioned him yesterday in connection with his claim that one of the marks of civilizations is
civilizations do no longer live a parasitic life but are societies that add something to the existing resources.
Quigley gives, apart from this, a few other characteristics that he considers to be constitutive of civilization
and those are societies that have cities that have progressed beyond the village level
and that possess a written language.
So the first civilizations, first civilization or first society that fulfills this requirement of a civilization in Quigley's sense would be again those societies that developed in the fertile crescent,
Today's Iraq and Syria.
Let me just give you some ballpark figures
about the size of the cities that came into being
at this period 5,000, 6,000, 4,000 years ago.
The biggest city for many centuries was Uruk, which is the remnants of which are in Iraq.
And 3,700 before Christ, Uruk was the first city had a population of about 14,000 people.
So a large village, for our standards a large village, but at that time obviously a major
breakthrough as compared to village sizes.
And this city Uruk was in the next thousand years or so, by 2800 before Christ, grew to
A population size of 80,000 people, already a significant size in which one can imagine
that such a size city must already display quite a significant amount of division of
labor within the non-agricultural field, 2800 before Christ, 80,000.
Then the city of Uruk declines, other places take its place, so to speak, as the dominant
The next one is Akkad, which is also in the same region, which reaches a size of 60,000 inhabitants.
Then the biggest cities appear in Egypt, Memphis and Thebes and Avaris.
The biggest sizes of towns during this period of the Babylonian and the Egyptian civilization were about 100,000.
If we go to more recent periods, that is the time, let's say, of the Roman Empire, then we find cities already of significantly larger size.
In this case, Rome itself, at its peak, had a population of about a million people, and we will see later on, there is also something like economic disintegration, a city that had a million inhabitants at one time, shrinks a few hundred ladders to a size of 20,000.
So there are periods, I'll come back to that in more detail, there are periods in which
you can see there is faster population growth, more intensive division of labor, greater
population growth, wider specialization and so forth, but there are also periods in which
this sort of thing gets destroyed and populations shrink, division of labor shrinks, populations
In Athens, at the peak of its development, it had about 250,000 inhabitants, and one
of the premier harbors during this town, the premier trading center, Alexandria, had a
a population of about 400,000 people.
Now, with cities also come merchants and money.
In a way, I would like to add that to Quigley's definition
of civilizations as places that have cities and written
and Language, and so forth, as an additional criterion of developed civilizations to point
out that they must have a specialized merchant class, people who are engaged in small distance
and in particular also in long distance trade, and of course with long distance trade the
and the development of money.
So now let me interrupt my historical considerations
and explain briefly the explanation,
or give briefly an explanation for
the development of money.
Just as we can, so to speak, rationally reconstruct
We can reconstruct why people engage in division of labor and why there is, so to speak, a tendency that the division of labor tends to become more extensive and more intensive.
So we can also provide a rational reconstruction of the development of money as a solution to a problem that arises out of the trade in a pre-monetary economy.
If we have a barter economy in which people trade consumer goods for other consumer goods or consumer goods for producer goods and the production takes place for exchange purposes, at least partially for exchange purposes rather than for self-sufficient supplies,
The problem automatically arises that sometimes I might have produced something for the purpose of exchanging it for something else, but the person who has what I want to receive for my products is not interested in my products but in something else.
Trade in this situation is only possible if what is called a double coincidence of wants is in existence, that is to say, I must have what you want and you must have what I want.
If only one of these accidents occurs, I have what you want but you don't have what I want, then obviously trading comes to a standstill.
In such a situation, people are obviously looking for some sort of solution to this standstill of trade, given the fact that they produced for exchange purposes and not for the purpose of using these things themselves.
And again, Mises' drawing on Carl Menger has a very beautiful explanation for how this solution looks like to this problem.
So if you cannot trade directly, what will happen is, and we don't have to assume that happens instantaneously
And obviously in every people makes the same discovery at the same time, we only have to assume that there are some brighter people in society who makes a simple discovery that not all goods that are traded in barter are equally marketable.
is to say, not all goods traded in barter are equally frequently used by people.
Some goods are used by more people at more occasions, and other goods are used by less people at less occasions.
And in such a situation where I cannot, for my goods, receive what I directly want,
I can still gain an advantage, make myself better off following only selfish instincts, so to speak, if I succeed to surrender my goods for something that is more marketable than my own goods are.
If I receive something that is more marketable, even if I have no interest in using that as consumer goods or producer goods, the advantage that I gain is the advantage that a more marketable good can, of course, more easily be resold for those things that I really want.
That is, I have a more marketable good in my hands, which has no use for me as a consumer
good or as a producer good, but I have demanded it as what is called a medium of exchange,
as a facilitator of exchange.
It facilitates exchange because there are more people at more occasions who are willing
to accept these types of goods than the goods that I had initially offered for sale.
Then the degree of marketability of this particular good increases even more so because now there are some people
who demand this good because they want to have it as consumer good and producer good as before.
And in addition, there is one person who demands this good for a different motive, the motive being, I will use it as a medium of exchange, as a facilitator of exchange.
And then it becomes easier, so to speak, for the next bright person in society to make the same discovery whenever he gets into difficulties trading his good directly against those things that he wants.
He makes the same move, so to speak, all I have to do is find a good that is more marketable than my own.
And the likelihood that he picks the same has already increased due to the fact that the marketability of this initial good has increased due to the fact that there was one already brighter guy before him.
And then we have, very quickly, a convergence towards one medium of exchange that is used in society all over the place and we call this a common medium of exchange or also a money.
You can further see that, let me point this out first, one advantage, the two advantages that arise as soon as we have a common medium of exchange in existence is that now with a common medium of exchange in existence, we can sell and buy instantly.
without having to wait, so to speak, for double coincidences of ones to come into existence.
The second advantage that arises with the existence of a common medium of exchange is now we can engage in cost accounting.
Again, after all, recall, we produce for sale on the market. We do not produce for our own purposes.
If we produce for the market, then we want to make sure that those things that go into the production of certain products are less valuable than those things that we produce with our inputs.
Or put it differently, we want to make sure that the output, our output is more valuable than our input.
But in a barter economy, of course, the outputs and the inputs are in different units. They are incommensurable.
As soon, however, as all our inputs and our output sells against one common medium of exchange, we have a common denominator.
Terminator. We can now compare, add up, so to speak, all the inputs in terms of money,
and we can express our output in terms of money, and can now determine whether we made
profits or losses, profits indicating that we did indeed turn less valuable resources
into more valuable resources, which is, after all, the purpose of production, or if we made
losses indicating to us that we wasted valuable resources in order to turn them into something
that was less valuable than those things that were used in order to produce our product,
which would give us a signal, so to speak, that we should discontinue this type of production
and Process.
Now as we imagine that the division of labor expands and ultimately reaches and encompasses
the entire globe as different regions begin to trade with each other, we can again see
that there will be in the market also a tendency for one type of regional money out competing
another regional type of money with the ultimate result to be expected being that there will
There will be only one or at the most two types of money left over which are used, so to speak, universally.
That is to say, such a money, a money that is more widely used, more widely accepted,
is obviously advantageous over a money that is only used in certain small regions.
If we have different monies being used in certain small regions, then we are strictly
speaking still in a system of partial barter.
If I want to trade with a different region, I first have to find somebody who wants my
My Money and is willing to give me his money and only then can I proceed to make my purchases.
If you have, however, only one money used on a worldwide scale, then it is obviously
possible that without any necessity for double coincidences of once, immediate trading can
take place.
So these two tendencies, the vision of labor expanding and the tendency of money to become
one universally used money, obviously reinforce each other and deepen and intensify the division
of Labor.
At this point, to emphasize again this tendency for the globalization of trade facilitated
by the universality of one money having out-competed the initially different sorts of money.
Again, an important quote from Mises to which I will return at a later point again.
Der Mises says, a social theory that was founded on Darwinism would either come to the point of declaring that war of all against all was the natural and necessary form of human intercourse,
– thus denying that any social bonds were possible.
Or it would have, on the other hand, to show why peace does and must reign within certain
groups, and yet, on the other, to prove that the principle of peaceful union which leads
leads to the formation of these associations is ineffective beyond the circle of the group,
so that the groups among themselves must struggle.
So you notice the argument here is most people have very little difficulties accepting the
thesis that yes there are peaceful relationships between the inhabitants of whatever village
A or Village B or Tribe A or Tribe B because everybody sees that that is, of course, taking
place.
If you accept the Darwinian explanation, this is already difficult to explain.
But the next struggle, the next problem, more decisive one, is that people have to explain
who accept these Darwinian interpretations, why should there be division of labor and
peaceful relationships between one group, but not between different groups?
After all, the same principles seem to be at work.
So he says this then, let me just repeat.
The peaceful union which leads to the formation of these associations is ineffective beyond
the circle of the group so that the groups among themselves must struggle.
And Mises says now, this is precisely the rock on which all non-liberal social theories
Founder, if one recognizes a principle which results in the union of all Germans, of all
dholis, some word here that I can hardly pronounce, must be some Greek tribe or so, or all proletarians,
and forms a special nation, race or class out of these individuals, then this same principle
cannot be proved to be effective only within the collective group.
The anti-liberal social theories skim over the problem by confining themselves to the
assumption that the solidarity of interests within the groups is so self-evident as to
be accepted without further discussion, and by taking pains only to prove the existence
of the Conflict of Interest Between Groups and the Necessity of Conflict as the Sole
Dynamic Force of Historical Development.
But if war is to be the father of all things, the fruitful source of historical progress,
it is difficult to see why its fruitful activity should be restricted within states, nations,
If nature needs war, why not the war of all against all? Why merely the war of all groups against all groups?
A very powerful description or explanation, so to speak, why the same principles that lead groups to cooperate peacefully
are also operative at work when it comes to cooperation between different groups.
The same reasons apply there as they apply within each group.
Division of labor is beneficial because it benefits all groups participating in it,
just as it benefits all individuals within a group.
and development of money towards a universal medium of exchange is beneficial in the same way as the development of regional money is beneficial for the inhabitants of just a small region.
Now, back to a few historical remarks illustrating, so to speak, this tendency of globalizing
division of labor and the development of a universal money integrating, so to speak,
All regions, all classes, all societies.
From very early on, we have, after the development of cities and merchant class and regional
monies, the development of long-distance trade.
We have already something that is called the Silk Road that connects Asia and Europe via
the Middle East, which is still, so to speak, the center of civilization, at that time,
from 4,000 years ago. That is, 4,000 years ago, there already exist trading routes of
thousands of kilometers connecting Europe with Asia, trading routes that are protected
by either the merchants themselves or by those people who live nearby and have an interest
that the trade takes place through their areas.
There exists during the Roman Empire, which at least in the ancient history provides examples
for the deepest and widest economic integration, permanent contact around 2200 BC between Rome
and Han China were steadily caravans of people move and trade various goods back and forth.
We also have very early on regular sea travel. The Chinese regularly send boats all the way
There is a way to places such as India, for instance, and from the western part there are regular sea trade routes from the Persian Gulf to India as well, especially after the discovery of the monsoon winds.
That is, the monsoon winds, I forgot exactly in which direction, is almost like, for half a year they blow, so to speak, towards the east, and for the other half a year they blow to the west.
So once people discovered, so to speak, this regular pattern, large, relatively large-scale shipping operations could be conducted from the Persian Gulf to India and back.
Again, those sorts of things, just simply discovering how the wind blows, took quite some time.
In some cases it was easier, as with the monsoon winds where you have long periods blowing in one way
and long periods blowing into the other way, it's comparatively easy.
It was far more difficult, for instance, to find the appropriate sea routes across the Atlantic, going in one direction and then coming back in the other direction.
You typically cannot take the same route, so to speak.
And even more difficult for the Pacific, where the routes are very different for going one way and going the other.
Again, hundreds of years of experience were necessary in order to develop detailed knowledge about the most appropriate routes to take.
And this became only a non-problem, so to speak, with the development of steamships, which is of course a comparatively recent development.
So this intensive long-distance trade is reflected, for instance, also in the fact that we can find Roman coins in places like South India.
But Roman coins were not the most popular coins because Roman coins suffered from frequent coin clipping operations by various rulers.
So for some 800 years or so, from about 300 to the 12th century, the most popular money was produced by Constantinople.
And the name of it was Solidus or Bezant, named after Bezant, obviously.
And they gained a reputation of being the most reliable, most honest coins,
coins, subject to practically no coin clipping and adding less valuable metals to it.
And markets, these trading markets, of course, prefer good money over bad money.
You might have heard about the so-called Gresham's Law, which states that bad money drives out
Good Money, but this law only holds if there are price controls in effect, only if the
exchange ratios of different monies are fixed and become, so to speak, do no longer reflect
market forces.
Is it a case that bad money drives good money under normal circumstances without any interference
for Money holds exactly the same law that holds for every other good. Good goods drive out bad goods.
Good money drives out bad money. So this Bezant was for something like 800 years considered to be the best money available
is available and was preferred by merchants from India to Rome to the Baltic Sea.
In all of these regions you can find this type of coin being used and diggings have produced evidence of the use of these coins
in these far distant places.
That was from about 300 after Christ to 1150, something like this.
Let me see here, it was 65 grains of gold, gold coins.
How many grains did you say?
65 grains of gold.
And also another name was Solidus for it.
Obviously, as an indicator that that was a solid stuff.
I thought it was named after someone that contained it.
No, Bezant is obviously Byzantz, Constantinople.
So I think there was Byzantium.
At least that's what I think it was.
Was this the 800 years in which the Saracens were part of the ruling of all of the Mediterranean?
He moved his empire to Constantinople and civilization basically disappeared, so to speak, in the West Roman Empire and for another 800 years or so civilization remained in existence in the East until then the Turks occupied these places.
After the fall of Constantinople, then obviously other currencies became, took this place, a prominent one during the Middle Ages from 1200 on, is the Florentine Florin, again obviously derived from the name,
which then for about 175 years was the most frequently used type of money.
There existed, of course, also other monies competing against it, being used in various smaller localities and so forth,
but there existed at all times, so to speak, a tendency to have a money that would be used and would be acceptable also in faraway places
and this role of the Bitsund was then taken over for a few hundred years by the Florentine Florin.
To continue the story, then of course we have the discovery of America taking place.
is a fascinating place. That is, those areas that had been completely unknown before to the Western Eurasian world, so to speak.
It takes actually until about 1850 when the final explorations into the interior of Africa take place and we can say roughly that by the mid-19th century the entire world became known to mankind.
And it is not an accident then that around this time also what emerges is for the first time a clear cut tendency for one or two commodity monies to outcompete everything else.
That is, at the end of the 19th century, we have an international gold standard developing.
For a while, there was competition between gold and silver. There were certain areas that preferred silver.
For instance, before 1908, China and Persia and a few South American countries still used silver, but by 1900, except for these exceptions, the rest of the world was on a gold standard.
Precisely what one would predict, so to speak, based on economic theory, a tendency towards a one world commodity money coming into existence.
Of course there is always some sort of interference and messing up by governments in this process and we have not talked about them yet.
But so far, the entire reconstruction that I give is a reconstruction of what would happen, so to speak, without any government interference.
This problem of government interference will occupy us only in later lectures.
And then we can say that from 1914 on, where we have probably reached the most complete
economic integration in human history, the most encompassing economic integration, the
and the most intensive division of labor, including the entire globe on, from 1914 on, disintegration has set in again, most visibly of course documented by the fact that we currently not only do not have an international
have no longer an international commodity money, we have instead a large variety of national freely fluctuating paper currencies
that is a regression towards a situation that we might consider to be partial barter again,
That is something that we had already overcome in history and have gone back to a situation that we had already successfully solved, so to speak.
And you see, of course, currently, again under a paper money regime, which requires, of course, the existence of governments.
of Governments, I have to jump ahead here for a moment at least.
Under a paper money regime you can see however again the same tendency at work that you saw
as a natural tendency with the commodity money that is trying to create a worldwide used
paper currency to bring such a thing into existence, as you see with the attempts of
the European monetary integration, for instance, so that we currently have only three major
currency blocks, so to speak, the euro on the one hand, the dollar on the other, and
the yen as the third one, all the other ones don't count for much because very little trade
is conducted in other currencies besides these that might change, of course, one day with
China opening up completely.
But as you have certainly heard, there exist powerful international organizations that
that promote the idea of a one-world central bank issuing a one-world paper currency.
And the argument that they use for this, the kernel of truth in their argument is, of course,
precisely the same one that I explained here.
It is simply advantageous to have just one money because trading becomes easier with
just one money instead of a multitude of fluctuating money.
The drawback in the current situation is of course that this one world paper money will
will be a money that will be produced and managed by a monopoly institution such as
a world bank and can be inflated at will and we will likely see or we would likely see
a larger amount of inflation with such an institution in place than we ever saw in world
history before. Allow me this little side remark. If you have a paper money, then it
is actually an advantage to have competing paper monies because the inflationary desires
of each individual central bank are so to speak curtailed by the non-cooperation of
and other governments. If country A inflates their paper money more than country B, its
currency will fall in the currency market and people will tend to drop this type of money
and adopt monies that are more stable. So if you have paper money in effect, which is,
as I said, sort of big dysfunctional to the very purpose of money in the first place,
presents, so to speak, a regression in human development. If you have a paper money in existence, then competing paper monies fluctuating against each other is an advantage over a worldwide produced paper money.
But one can have a world wide used money also that is provided completely independent of governments
and that was precisely what we had at the end of the 19th century
that is an international gold standard or it might as well be a silver standard
economic theory does not predict whether it will be gold or silver
Economic Theory only predicts that there will be a tendency towards one type of money being used on a worldwide scale,
because it is a function of money to be a facilitator of exchange.
And of course, we can recognize that a money that is used all over the place facilitates exchange more so than any other possible money
and all money that exists only in various smaller regions.
Okay, with this I'll complete my lecture and take a few questions.
Just one quick question.
The last quote you gave on Mises. Can you give the reference?
Did you make these lectures into a work? Are you going to go into more details?
I will go into more details than I went here, but again, you see, I've mentioned that in
and other connections before, you know, my strength is not as an historian.
My strength is as a theoretician and my advantage is, so to speak, that I look at the reports
of historians with slightly different eyes than the historians themselves do and can
can detect, so to speak, errors that historians make in their reports about historical events,
because I know such and such, it cannot possibly be related, that is just nonsense, because
all theoretical arguments speak against it.
But historians simply look at the sequence of events, but the sequence of events does
does not necessarily tell you that what came before is the cause of what came after.
It can sometimes be exactly the other way around.
It can be that something developed afterwards despite the fact that something happened before.
But historians cannot find these sorts of things.
And since my strength is in the other area, the planned book is a book that has lots of
is a self-historical material, but does not try to compete with a professional historian on this level, but tries to excel, so to speak, in the theoretical realm and in the intelligent combination of history and theory.
I think, well, the reason I asked them, it'd be helpful for those of us who have to deal with historians all the time.
The standard tale has been told for so long that the successful civilization for those was a strong stake.
And it would be interesting to see where we could find, you know, perhaps some people could write the works to try to tell the story differently, even in a more detailed manner.
You see, what I have tried so far is already an attempt to show that you do not require an institution such as a state in order to explain why there is division of labor.
You do not require the institution of a state in order to explain why there is language.
I mean, nobody would claim, so to speak, that first they founded a state and then the state invented language or something like this, right?
You do not require a state in order to explain why there is a tendency for money to develop in the market.
You do not need a state in order to explain why there is a tendency that the distribution, the acceptance of money becomes wider and wider.
You do not need a state to explain why it is that different ethnicities, different groups that otherwise might hate each other,
If these scenarios were really true that you sometimes hear, it's like there would be only one group fighting, one person fighting the other, one group fighting the other, the mere fact that population has grown all the time would be difficult to explain.
The mere fact that population has grown all the time would be difficult to explain.
It's like mankind would have wiped out itself from the very beginning.
And nonetheless, there must have existed thousands of years where there was obviously an increase in the population
and Human Action, despite the fact that nobody would claim that during that period states existed.
So all of what I have explained so far is indicative that we have perfectly natural explanation for these types of tendencies and phenomena
without in any way having to just draw the state out of the hat and explaining that cooperation became possible because all of a sudden there was a king who was a monopolist and using force and all the rest of it.
And of course I hope that will become clearer as we progress in this seminar.
Having lived along the Silk Road for the last few years, and you just alluded to that to kings who decided to go use forks, was there an economic incentive there, or can we say it was just a personality, somebody who wanted to gain more at the expense of others?
You mean to maintain these roads or what?
Well, not to maintain the road so much as the Timur I'm thinking about in particular,
that they seem to gain their empire by conquest, and people have said that's the natural state of man,
is to control and conquer others rather than through cooperation.
As I try to explain and will explain in more detail when we come to the development of the state and aggression and so forth,
I think both tendencies are obviously inherent in mankind to rob other people, to hit them on the head and so forth,
but also the tendency of people to peacefully cooperate.
And as a matter of fact, I think we can clearly say empirically the tendency to peacefully cooperate is the far more powerful tendency because you realize in the long run you will gain from this far more than you gain by robbing people.
In the short run, of course, that is a big advantage. In the long run, it will not help you very much.
So both tendencies are there and I will also explain how, so to speak,
naturally grown societies handle these threats coming from bandits and criminals and so forth
And how difficult it was to build up states, how long it took for them to be built up,
and what sort of brainwashing was necessary in order to succeed in all of this.
But as I said, there are still things to come.
Yeah.
I have one question. I favor the argument of division of labor, but I'm not very fanatic about the advantage of division of labor.
You say in your speech that division of labor can bring about prosperity and friendship and association, and even the unfit can survive and become rich.
But I thought that in the market competition, we always have some efficient enterprise survive and some go into bankruptcy. It is the survival of the fittest.
are completely of weak links. That is, in the Darwinian sense, who would have to survive is who can kill the best.
But we have mostly people who in that type of environment would have no chance whatsoever.
Look, I can hardly see anything if I take my glasses off.
In the time of the cavemen, so to speak, my parents probably would have put me somewhere away to peacefully die because I would have been entirely useless.
People with severe handicaps can nowadays lead a good life.
Who could, in primitive societies where the division of labor was very limited, could not lead a life at all. Who would just simply die away.
In this sense, the competition between entrepreneurs has nothing to do with the Darwinian struggle for survival.
It is a struggle who is better serving consumers than somebody else, but they are not physically fighting each other.
Look, again, in a primitive society with very limited division of labor, there is no possibility of engaging in any type of charity whatsoever.
In many societies it was common practice that you engaged in infanticide because you know you have whatever 10 kids, not all 10 kids can survive, so now you make a selection which one is most likely to be able to kill a buffalo and which one isn't.
and knowing that not all can survive and that even given some of your kids a chance to survive for another year or two years
might dilute the strengths of the stronger ones, you will kill them.
The same with old people. As soon as you lose your ability to work
In primitive societies, those are a sheer burden. You have to get rid of them.
We, of course, we can let people live until they are 100 or whatever it is,
without having to do anything anymore.
And we can even allow our kids nowadays to just, to fool around until they are 30 or 35, or 40, some never work at all.
I mean imagine I would tell my caveman daddy that for the next 50 or for the next 20 years I would want to dedicate myself to studying.
I can roughly anticipate what his answer would be to this proposal.
and the proposal.
Yeah.
Hi. Getting back to your last comments on money, the evolution of money,
that said, with everything you said, what do you think would limit itself best to markets right now,
an international paper currency that would somehow facilitate more international trade
or kind of I guess a competition of multiple national currencies that would in money markets kind of weed each other out.
competing against each other, because there exist different cultural attitudes towards inflation in different countries,
curtailing, so to speak, the inflationary ambitions of other countries.
I remember that the main complaint in the European community was always about the German central bank
and not being as inflationary as some people had wanted it to be.
Now, this had nothing to do with the German governments being staffed by better people.
I think, you know, when it comes to this sort of stuff, I think they are all evil.
There's very, very little difference.
It had simply something to do with the fact that the Germans had been wiped out by hyperinflation twice in a generation and that there was in the public opinion, so to speak, enormous resistance against seeing high inflation taking place.
Wars in places like the United States, which was victorious in both world wars in the 20th century, experiences like that had never been made by anyone.
But if you have in your own family your grandfather having been wiped out, having saved for his retirement,
and then all of a sudden seeing that all of his retirement money is just enough to buy himself a lollipop
and then seeing the same thing with your parents again, then you can see that in a public such as this,
a government, despite all the desire that they have for inflationary policies,
policies, must be very careful not to overdo it unless they will be overthrown.
In Germany in 1966, the inflation rate rose for the first time above 2%.
That was at that time, the last hyperinflation was just 20 years ago, at that time that was
sufficient to overthrow the government.
Today of course, no, you see like you always have to just reckon with the fact that people
forget.
And then there is, in my view of course, a general tendency for the degeneration of mankind.
So I think the Germans get dumber and dumber and dumber.
I think not only the Germans, I mean I apply that.
So yes, of course nowadays you can come away with inflation rates of five percent, six
percent and say, that's no inflation, that's nothing at all.
And even in the United States similar things have happened, I mean Nixon introduced wage
and price controls when inflation was 3 or 4 percent or something like this, in the meantime
of course 3 or 4 percent inflation means no inflation, that's how the public opinion
has changed in this regard.
That's why I think yes if you have a paper money and they compete against each other
There are various places that have made various evil experiences and they put a break on the ability and the willingness of governments to engage in massive inflationary expeditions.
I understand daily about $7 trillion goes zipping around the globe looking for an investment opportunity or perhaps a store of value.
What kind of an influence on either a metal-based money, a real money, a non-monopoly thing, or the paper counterfeit, does the cyberspace digital money seem to be having on money as a commodity?
It is the same, I think, on a more sophisticated level, it is the same sort of phenomenon that came into existence, let's say, with the introduction of credit cards.
So if you introduce credit cards until yesterday, no credit cards existed, then your demand for cash is much higher.
The Introduction of Credit Cards
If you introduce credit cards until yesterday, no credit cards existed, then your demand for cash declines,
because many payments you can make in the form of credit cards.
So your cash balance becomes smaller and you spend part of what you otherwise would have kept in cash
and there would be then at one time upward trend in the general price level.
So it is just, you need less cash to carry around because these transactions can be all done electronically.
I think that's the only effect that I can see.
I'm not a great expert in this electronic banking stuff.
In that regard, I'm just like an old-fashioned German guy.
My father never used a credit card. He always had plenty of cash.
I do have a credit card. It just makes my father very disappointed.
You talked before about Mises making reference to Darwin's theory of conflict between groups of people. Do you have a source for that?
I mentioned it, 283 or something like that. 283. Yeah. With this, thank you.