WEBVTT NOTE Money and Monetary Integration: The Growth of Cities and the Globalization of Trade 1 00:00:00.000 --> 00:00:12.000 Let me start. I want to continue the story from yesterday about the division of labor. 2 00:00:12.000 --> 00:00:29.000 So far I have presented more or less an historical tale and now I want to add a little theoretical considerations 3 00:00:29.000 --> 00:00:58.000 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 4 00:00:58.000 --> 00:01:03.800 on Capital and Capital Accumulation. 5 00:01:03.800 --> 00:01:13.200 I mentioned already yesterday that the fact of humans speaking 6 00:01:13.200 --> 00:01:17.240 to each other, arguing with each other, using language 7 00:01:17.240 --> 00:01:22.960 indicates their social nature. 8 00:01:22.960 --> 00:01:26.720 And something else should be mentioned in this connection 9 00:01:26.720 --> 00:01:34.720 That is that at the beginning of mankind, it is difficult to imagine, so to speak, only 10 00:01:34.720 --> 00:01:42.480 two grown-up people being faced with the question, should we cooperate or not cooperate? 11 00:01:42.480 --> 00:01:47.800 One always should keep in mind, of course, also that there are different generations 12 00:01:47.800 --> 00:01:57.000 of People Alive, which automatically makes it easier to understand why there is cooperation. 13 00:01:57.000 --> 00:02:06.000 Obviously, the older generation simply pressures the younger one to adopt certain standards 14 00:02:06.000 --> 00:02:22.000 and find some advantages in division of labor, but be that as it may, I want now to develop 15 00:02:22.000 --> 00:02:30.880 the case of division of labor as Ludwig von Mises presents it, that is even assuming that 16 00:02:30.880 --> 00:02:40.240 They are, so to speak, grown-up adults and that there is no language in existence initially. 17 00:02:40.240 --> 00:02:50.160 Can we still somehow explain why people do not remain in self-sufficient isolation but 18 00:02:50.160 --> 00:03:00.760 begin dividing their labor up and engage in exchanges based on division of labor? 19 00:03:00.760 --> 00:03:10.260 And in order to understand this, let's first assume that all individuals are perfectly identical 20 00:03:10.260 --> 00:03:18.240 to each other, perfect clones of each other, and that also land, that is, those things 21 00:03:18.240 --> 00:03:26.520 that we find in front of us as nature-given resources, are perfectly identical for every 22 00:03:26.520 --> 00:03:28.520 individual. 23 00:03:28.520 --> 00:03:36.720 What would then occur? That is a relatively easy prediction that we can make. We assume 24 00:03:36.720 --> 00:03:46.700 that all people have, so to speak, the same desires, the same knowledge and the same external 25 00:03:46.700 --> 00:03:57.440 equipment. Then the result would be that every person will produce the same sort of things 26 00:03:57.440 --> 00:04:08.600 in the same quantities and in the same qualities, and in such a situation it is obvious that 27 00:04:08.600 --> 00:04:13.720 there is simply no room for any type of exchange. 28 00:04:13.720 --> 00:04:21.320 What should I exchange if everybody has exactly the same things and uses up these things, 29 00:04:21.320 --> 00:04:29.400 of course exactly in the same pattern as everybody else does, which simply follows from the assumption 30 00:04:29.400 --> 00:04:38.800 that we have made of perfect identity of labor and land. 31 00:04:38.800 --> 00:04:48.240 So the first recognition then is if it were not for the fact of differences with regard 32 00:04:48.240 --> 00:05:04.240 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. 33 00:05:04.240 --> 00:05:21.740 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. 34 00:05:21.740 --> 00:05:31.240 They could still decide, I produce everything on my own and remain in self-sufficient isolation. 35 00:05:31.240 --> 00:05:54.240 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. 36 00:05:54.240 --> 00:06:07.240 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. 37 00:06:07.240 --> 00:06:17.240 Mises, however, points out something very interesting, that is to say, we don't need to make this assumption. 38 00:06:17.240 --> 00:06:31.240 We can make the assumption that actually every person hates everybody else and still explain why division of labor emerges. 39 00:06:31.240 --> 00:06:46.240 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. 40 00:06:46.240 --> 00:06:57.240 So let's assume everybody hates each other. Why would people nonetheless engage in division of labor? 41 00:06:57.240 --> 00:07:10.240 And Mises simply points out, division of labor will arise as long as every person prefers more goods over less goods. 42 00:07:10.240 --> 00:07:19.240 That is, as long as every person is perfectly selfish and wants to have more rather than less. 43 00:07:19.240 --> 00:07:28.240 This is entirely sufficient in order to explain why they do not remain in self-sufficient isolation. 44 00:07:28.240 --> 00:07:35.240 And there are, as you might have heard in your micro classes or so, two reasons for this. 45 00:07:35.240 --> 00:07:55.240 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. 46 00:07:55.240 --> 00:08:08.240 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. 47 00:08:08.240 --> 00:08:21.240 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. 48 00:08:21.240 --> 00:08:29.240 or it can be a combination of these two factors that is differences in land and in labor. 49 00:08:29.240 --> 00:08:49.240 And given the fact that time is scarce it is immediately clear that an advantage would result if each person specializes in those things 50 00:08:49.240 --> 00:09:13.240 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. 51 00:09:13.240 --> 00:09:22.240 And the second reason, the reason that was first discussed by David Ricardo. 52 00:09:22.240 --> 00:09:27.240 David Ricardo, however, applied this argument to different nations. 53 00:09:27.240 --> 00:09:37.240 And the advantage of Mises' presentation of this argument is to show that that applies, strictly speaking, also to the individual level, 54 00:09:37.240 --> 00:09:46.000 is the so-called comparative advantage of division of labor that refers to the 55 00:09:46.000 --> 00:09:55.360 conceivably worst-case scenario where one person is all around superior every 56 00:09:55.360 --> 00:10:01.760 production process he is more efficient than the other person and the other 57 00:10:01.760 --> 00:10:10.760 The other person is all around inferior as far as his productive capabilities is concerned. 58 00:10:10.760 --> 00:10:17.760 And the question is then, does it make sense for those types of individuals, 59 00:10:17.760 --> 00:10:25.760 one all around superior, one all around inferior, to engage in division of labor also? 60 00:10:25.760 --> 00:10:53.760 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. 61 00:10:53.760 --> 00:11:06.760 The person who is all around superior chooses to specialize in those things in which he has a particularly great advantage. 62 00:11:06.760 --> 00:11:18.760 And the person who is all around inferior specializes in that area in which his disadvantage is comparatively small. 63 00:11:18.760 --> 00:11:34.160 Let's take an example, a surgeon and a gardener, the surgeon is the superior surgeon and he is also a superior gardener. 64 00:11:34.160 --> 00:11:46.160 And because his time is scarce, it is advantageous for him to specialize in that activity, 65 00:11:46.160 --> 00:11:51.880 where his advantage is particularly great in the area of surgery, for instance, and 66 00:11:51.880 --> 00:11:59.840 leave the activity of gardening to the other person despite the fact that the surgeon would 67 00:11:59.840 --> 00:12:03.640 also be a better gardener than the gardener is. 68 00:12:03.640 --> 00:12:09.260 But given the fact that his advantage is greater in one area than in the other and that time 69 00:12:09.260 --> 00:12:15.780 spent on one activity can no longer be spent on another activity, dividing their labor 70 00:12:15.780 --> 00:12:24.700 in this way, and then based on this division of labor engaging in exchanges, the standard 71 00:12:24.700 --> 00:12:32.700 of living of both individuals will be higher. 72 00:12:32.700 --> 00:12:47.860 Let me quote Mises to this effect that is explaining, so to speak, why it is that we 73 00:12:47.860 --> 00:12:54.200 don't find people who remain in self-sufficient isolation. 74 00:12:54.200 --> 00:13:01.080 There might be a few people who try it, but even they do not completely do it. 75 00:13:01.080 --> 00:13:08.600 In the old days of the hippie movement, there were of course some people who tried to live 76 00:13:08.600 --> 00:13:18.680 off the earth, as you might remember, but even they did not live directly off the earth. 77 00:13:18.680 --> 00:13:27.180 They drove their Harley Davidson up the mountain and led a primitive life there, but as soon 78 00:13:27.180 --> 00:13:57.140 Mises says, if and as far as labour under the division of labour is more productive 79 00:13:57.140 --> 00:14:09.140 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. 80 00:14:09.140 --> 00:14:14.140 I will come back to these sorts of topics later on too. 81 00:14:14.140 --> 00:14:20.140 Then human action itself tends toward cooperation and association. 82 00:14:20.140 --> 00:14:34.140 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. 83 00:14:34.140 --> 00:14:45.140 Experience teaches that this condition, higher productivity achieved under division of labor, is present because its cause, 84 00:14:45.140 --> 00:14:57.140 The inborn inequality of men and the inequality in the geographical distribution of the natural forces of production is real. 85 00:14:57.140 --> 00:15:06.140 Thus, we are in a position to comprehend the course of social evolution. 86 00:15:06.140 --> 00:15:14.140 And now to a very important insight that Mises derives from this. 87 00:15:14.140 --> 00:15:30.140 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, 88 00:15:30.140 --> 00:15:37.180 Mises reverses this argument and says it is precisely 89 00:15:37.180 --> 00:15:40.700 because of the higher productivity of division 90 00:15:40.700 --> 00:15:47.060 of labor, which makes us dependent on each other based 91 00:15:47.060 --> 00:15:50.140 on our recognition that we all benefit 92 00:15:50.140 --> 00:15:55.740 from this dependency on others, that we then develop, 93 00:15:55.740 --> 00:16:00.580 So to speak, sympathetic feelings towards others. 94 00:16:00.580 --> 00:16:05.060 So it is not the sympathy that explains division of labor. 95 00:16:05.060 --> 00:16:09.940 It is the selfish motivation to begin division of labor 96 00:16:09.940 --> 00:16:14.340 that then, as a result of division of labor, 97 00:16:14.340 --> 00:16:20.900 lets feelings of sympathy among mankind develop. 98 00:16:20.900 --> 00:16:27.460 So sympathy results, but it's not the cause of division of labor. 99 00:16:27.460 --> 00:16:31.580 And again, a very interesting quote to this effect. 100 00:16:31.580 --> 00:16:35.900 There, Mises says, there can emerge 101 00:16:35.900 --> 00:16:39.980 between members of society feelings of sympathy 102 00:16:39.980 --> 00:16:44.460 and friendship and a sense of belonging together. 103 00:16:44.460 --> 00:16:49.060 These feelings are the source of man's most delightful and most 104 00:16:49.060 --> 00:16:56.900 Sublime Experiences. They are the most precious adornment of life. They lift the animal species 105 00:16:56.900 --> 00:17:05.680 men to the heights of a really human existence. However, they are not, as some have asserted, 106 00:17:05.680 --> 00:17:12.220 the agents that have brought about social relationships. They are the fruits of social 107 00:17:12.220 --> 00:17:20.260 Social Cooperation. They thrive only within its frame. They did not precede the establishment 108 00:17:20.260 --> 00:17:27.020 of social relations and are not the seeds from which they spring. 109 00:17:27.020 --> 00:17:33.060 And then he elaborates a little bit more on this, says, the mutual sexual attraction of 110 00:17:33.060 --> 00:17:40.700 male and female is inherent in man's animal nature and independent of any thinking and 111 00:17:40.700 --> 00:17:42.600 and Searizing. 112 00:17:42.600 --> 00:17:49.220 It is permissible to call it original, vegetative, instinctive or mysterious. 113 00:17:49.220 --> 00:17:57.620 However, neither cohabitation nor what precedes it and what follows generates social cooperation 114 00:17:57.620 --> 00:18:00.740 and societal modes of life. 115 00:18:00.740 --> 00:18:07.980 The animals, too, join together in mating, but they have not developed social relations. 116 00:18:07.980 --> 00:18:13.520 Family life is not merely a by-product of sexual intercourse. 117 00:18:13.520 --> 00:18:19.260 It is by no means natural and necessary that parents and children live together in the 118 00:18:19.260 --> 00:18:22.260 way in which they do in the family. 119 00:18:22.260 --> 00:18:27.140 The mating relation need not result in family organization. 120 00:18:27.140 --> 00:18:32.580 The human family is an outcome of thinking, planning and acting. 121 00:18:32.580 --> 00:18:39.580 It is this fact which distinguishes it radically from those animal groups which we call per 122 00:18:39.580 --> 00:18:43.920 analogium animal families. 123 00:18:43.920 --> 00:18:52.140 So again, it is the recognition of the advantages of division of labor that makes stable family 124 00:18:52.140 --> 00:19:21.140 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. 125 00:19:21.140 --> 00:19:46.140 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. 126 00:19:46.140 --> 00:20:06.140 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. 127 00:20:06.140 --> 00:20:16.140 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. 128 00:20:16.140 --> 00:20:29.140 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. 129 00:20:29.140 --> 00:20:59.140 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 130 00:20:59.140 --> 00:21:18.140 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. 131 00:21:18.140 --> 00:21:29.140 As a result of all this, as I explained, we have first agricultural societies developing. 132 00:21:29.140 --> 00:21:39.140 These agricultural societies have a minimal amount of division of labor. 133 00:21:39.140 --> 00:21:44.140 They are still to a large extent self-sufficient. 134 00:21:44.140 --> 00:22:04.140 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, 135 00:22:04.140 --> 00:22:15.540 and we have to find a solution to this growing mass of population and the 136 00:22:15.540 --> 00:22:24.580 solution is a deepening and intensifying of the division of labor which leads to 137 00:22:24.580 --> 00:22:38.120 The formation out of small villages of cities where we have specialized professions developing 138 00:22:38.120 --> 00:22:47.260 that provide the countryside with specialized tools and receive from the countryside the 139 00:22:47.260 --> 00:23:00.900 the food stuff necessary in order to lead their city life. 140 00:23:00.900 --> 00:23:09.680 With city life also comes for the first time, again, due to the fact that city life already 141 00:23:09.680 --> 00:23:18.760 indicates a larger amount of capital accumulation, leads to a situation where people reach a 142 00:23:18.760 --> 00:23:26.040 certain level of wealth and have a certain amount of leisure time, comes also the development 143 00:23:26.040 --> 00:23:35.400 of science, the first attempts towards science, which require so to speak leisure time to 144 00:23:35.400 --> 00:23:46.000 to reflect about natural laws and so forth, and also, very important, the development 145 00:23:46.000 --> 00:23:56.640 of a written language, which again constitutes, so to speak, a great advance in human development 146 00:23:56.640 --> 00:24:05.120 above and beyond the development of a language itself, because in this way we are no longer 147 00:24:05.120 --> 00:24:18.120 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. 148 00:24:18.120 --> 00:24:30.120 But we have now a possibility to just freeze and make permanent experiences that were collected by previous generations. 149 00:24:30.120 --> 00:24:42.320 And, of course, it becomes then also far easier to transport this information to far and distant places, 150 00:24:42.320 --> 00:24:49.720 far more easy than it would be possible if we would have to rely on oral traditions. 151 00:24:49.720 --> 00:24:58.420 These written languages developed first around 5,000 years ago, 152 00:24:58.420 --> 00:25:13.920 And we do know that, again, some regions on the globe never reached this stage of development, of having a written language coming about. 153 00:25:13.920 --> 00:25:23.420 Some places only received written languages once they were rediscovered, so to speak, by Europeans. 154 00:25:23.420 --> 00:25:42.420 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. 155 00:25:42.420 --> 00:25:56.420 Quigley, I mentioned him yesterday in connection with his claim that one of the marks of civilizations is 156 00:25:56.420 --> 00:26:06.420 civilizations do no longer live a parasitic life but are societies that add something to the existing resources. 157 00:26:06.420 --> 00:26:21.420 Quigley gives, apart from this, a few other characteristics that he considers to be constitutive of civilization 158 00:26:21.420 --> 00:26:33.420 and those are societies that have cities that have progressed beyond the village level 159 00:26:33.420 --> 00:26:39.420 and that possess a written language. 160 00:26:39.420 --> 00:26:59.420 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, 161 00:26:59.420 --> 00:27:05.940 Today's Iraq and Syria. 162 00:27:05.940 --> 00:27:11.100 Let me just give you some ballpark figures 163 00:27:11.100 --> 00:27:18.260 about the size of the cities that came into being 164 00:27:18.260 --> 00:27:28.660 at this period 5,000, 6,000, 4,000 years ago. 165 00:27:28.660 --> 00:27:44.660 The biggest city for many centuries was Uruk, which is the remnants of which are in Iraq. 166 00:27:44.660 --> 00:27:55.500 And 3,700 before Christ, Uruk was the first city had a population of about 14,000 people. 167 00:27:55.500 --> 00:28:03.260 So a large village, for our standards a large village, but at that time obviously a major 168 00:28:03.260 --> 00:28:09.980 breakthrough as compared to village sizes. 169 00:28:09.980 --> 00:28:23.100 And this city Uruk was in the next thousand years or so, by 2800 before Christ, grew to 170 00:28:23.100 --> 00:28:32.540 A population size of 80,000 people, already a significant size in which one can imagine 171 00:28:32.540 --> 00:28:42.700 that such a size city must already display quite a significant amount of division of 172 00:28:42.700 --> 00:28:55.460 labor within the non-agricultural field, 2800 before Christ, 80,000. 173 00:28:55.460 --> 00:29:07.020 Then the city of Uruk declines, other places take its place, so to speak, as the dominant 174 00:29:07.020 --> 00:29:22.020 The next one is Akkad, which is also in the same region, which reaches a size of 60,000 inhabitants. 175 00:29:22.020 --> 00:29:32.020 Then the biggest cities appear in Egypt, Memphis and Thebes and Avaris. 176 00:29:32.020 --> 00:29:48.020 The biggest sizes of towns during this period of the Babylonian and the Egyptian civilization were about 100,000. 177 00:29:48.020 --> 00:30:11.020 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. 178 00:30:11.020 --> 00:30:39.020 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. 179 00:30:41.020 --> 00:30:48.020 So there are periods, I'll come back to that in more detail, there are periods in which 180 00:30:48.020 --> 00:30:58.500 you can see there is faster population growth, more intensive division of labor, greater 181 00:30:58.500 --> 00:31:03.780 population growth, wider specialization and so forth, but there are also periods in which 182 00:31:03.780 --> 00:31:10.900 this sort of thing gets destroyed and populations shrink, division of labor shrinks, populations 183 00:31:10.900 --> 00:31:27.160 In Athens, at the peak of its development, it had about 250,000 inhabitants, and one 184 00:31:27.160 --> 00:31:37.700 of the premier harbors during this town, the premier trading center, Alexandria, had a 185 00:31:37.700 --> 00:31:45.340 a population of about 400,000 people. 186 00:31:45.340 --> 00:31:57.020 Now, with cities also come merchants and money. 187 00:31:57.020 --> 00:32:00.960 In a way, I would like to add that to Quigley's definition 188 00:32:00.960 --> 00:32:05.860 of civilizations as places that have cities and written 189 00:32:05.860 --> 00:32:14.020 and Language, and so forth, as an additional criterion of developed civilizations to point 190 00:32:14.020 --> 00:32:24.640 out that they must have a specialized merchant class, people who are engaged in small distance 191 00:32:24.640 --> 00:32:34.540 and in particular also in long distance trade, and of course with long distance trade the 192 00:32:34.540 --> 00:32:38.540 and the development of money. 193 00:32:38.540 --> 00:32:42.540 So now let me interrupt my historical considerations 194 00:32:42.540 --> 00:32:46.540 and explain briefly the explanation, 195 00:32:46.540 --> 00:32:50.540 or give briefly an explanation for 196 00:32:50.540 --> 00:32:56.540 the development of money. 197 00:32:56.540 --> 00:33:00.540 Just as we can, so to speak, rationally reconstruct 198 00:33:00.540 --> 00:33:15.540 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. 199 00:33:15.540 --> 00:33:34.540 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. 200 00:33:34.540 --> 00:33:59.540 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, 201 00:33:59.540 --> 00:34:25.540 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. 202 00:34:25.540 --> 00:34:40.540 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. 203 00:34:40.540 --> 00:34:51.540 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. 204 00:34:51.540 --> 00:35:13.540 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. 205 00:35:13.540 --> 00:35:27.540 And again, Mises' drawing on Carl Menger has a very beautiful explanation for how this solution looks like to this problem. 206 00:35:27.540 --> 00:35:39.540 So if you cannot trade directly, what will happen is, and we don't have to assume that happens instantaneously 207 00:35:39.540 --> 00:35:59.540 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. 208 00:35:59.540 --> 00:36:08.540 is to say, not all goods traded in barter are equally frequently used by people. 209 00:36:08.540 --> 00:36:17.540 Some goods are used by more people at more occasions, and other goods are used by less people at less occasions. 210 00:36:17.540 --> 00:36:24.540 And in such a situation where I cannot, for my goods, receive what I directly want, 211 00:36:24.540 --> 00:36:44.540 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. 212 00:36:44.540 --> 00:37:04.540 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. 213 00:37:04.540 --> 00:37:13.900 That is, I have a more marketable good in my hands, which has no use for me as a consumer 214 00:37:13.900 --> 00:37:21.860 good or as a producer good, but I have demanded it as what is called a medium of exchange, 215 00:37:21.860 --> 00:37:24.620 as a facilitator of exchange. 216 00:37:24.620 --> 00:37:32.820 It facilitates exchange because there are more people at more occasions who are willing 217 00:37:32.820 --> 00:37:40.820 to accept these types of goods than the goods that I had initially offered for sale. 218 00:37:40.820 --> 00:37:51.820 Then the degree of marketability of this particular good increases even more so because now there are some people 219 00:37:51.820 --> 00:37:57.820 who demand this good because they want to have it as consumer good and producer good as before. 220 00:37:57.820 --> 00:38:10.820 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. 221 00:38:10.820 --> 00:38:25.820 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. 222 00:38:25.820 --> 00:38:36.380 He makes the same move, so to speak, all I have to do is find a good that is more marketable than my own. 223 00:38:36.380 --> 00:38:52.220 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. 224 00:38:52.220 --> 00:39:11.220 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. 225 00:39:11.220 --> 00:39:40.220 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. 226 00:39:40.220 --> 00:39:47.220 without having to wait, so to speak, for double coincidences of ones to come into existence. 227 00:39:47.220 --> 00:39:58.220 The second advantage that arises with the existence of a common medium of exchange is now we can engage in cost accounting. 228 00:39:58.220 --> 00:40:09.220 Again, after all, recall, we produce for sale on the market. We do not produce for our own purposes. 229 00:40:09.220 --> 00:40:26.220 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. 230 00:40:26.220 --> 00:40:37.220 Or put it differently, we want to make sure that the output, our output is more valuable than our input. 231 00:40:37.220 --> 00:40:47.220 But in a barter economy, of course, the outputs and the inputs are in different units. They are incommensurable. 232 00:40:47.220 --> 00:41:01.220 As soon, however, as all our inputs and our output sells against one common medium of exchange, we have a common denominator. 233 00:41:01.220 --> 00:41:09.860 Terminator. We can now compare, add up, so to speak, all the inputs in terms of money, 234 00:41:09.860 --> 00:41:17.060 and we can express our output in terms of money, and can now determine whether we made 235 00:41:17.060 --> 00:41:25.340 profits or losses, profits indicating that we did indeed turn less valuable resources 236 00:41:25.340 --> 00:41:32.300 into more valuable resources, which is, after all, the purpose of production, or if we made 237 00:41:32.300 --> 00:41:40.620 losses indicating to us that we wasted valuable resources in order to turn them into something 238 00:41:40.620 --> 00:41:46.540 that was less valuable than those things that were used in order to produce our product, 239 00:41:46.540 --> 00:41:54.100 which would give us a signal, so to speak, that we should discontinue this type of production 240 00:41:54.100 --> 00:41:58.020 and Process. 241 00:41:58.020 --> 00:42:10.740 Now as we imagine that the division of labor expands and ultimately reaches and encompasses 242 00:42:10.740 --> 00:42:18.940 the entire globe as different regions begin to trade with each other, we can again see 243 00:42:18.940 --> 00:42:30.580 that there will be in the market also a tendency for one type of regional money out competing 244 00:42:30.580 --> 00:42:41.400 another regional type of money with the ultimate result to be expected being that there will 245 00:42:41.400 --> 00:42:53.400 There will be only one or at the most two types of money left over which are used, so to speak, universally. 246 00:42:53.400 --> 00:43:02.400 That is to say, such a money, a money that is more widely used, more widely accepted, 247 00:43:02.400 --> 00:43:11.800 is obviously advantageous over a money that is only used in certain small regions. 248 00:43:11.800 --> 00:43:17.040 If we have different monies being used in certain small regions, then we are strictly 249 00:43:17.040 --> 00:43:21.280 speaking still in a system of partial barter. 250 00:43:21.280 --> 00:43:26.000 If I want to trade with a different region, I first have to find somebody who wants my 251 00:43:26.000 --> 00:43:35.200 My Money and is willing to give me his money and only then can I proceed to make my purchases. 252 00:43:35.200 --> 00:43:41.120 If you have, however, only one money used on a worldwide scale, then it is obviously 253 00:43:41.120 --> 00:43:54.320 possible that without any necessity for double coincidences of once, immediate trading can 254 00:43:54.320 --> 00:43:57.680 take place. 255 00:43:57.680 --> 00:44:10.320 So these two tendencies, the vision of labor expanding and the tendency of money to become 256 00:44:10.320 --> 00:44:22.840 one universally used money, obviously reinforce each other and deepen and intensify the division 257 00:44:22.840 --> 00:44:29.960 of Labor. 258 00:44:29.960 --> 00:44:43.240 At this point, to emphasize again this tendency for the globalization of trade facilitated 259 00:44:43.240 --> 00:44:52.760 by the universality of one money having out-competed the initially different sorts of money. 260 00:44:52.760 --> 00:45:10.760 Again, an important quote from Mises to which I will return at a later point again. 261 00:45:10.760 --> 00:45:33.760 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, 262 00:45:33.760 --> 00:45:40.360 – thus denying that any social bonds were possible. 263 00:45:40.360 --> 00:45:49.160 Or it would have, on the other hand, to show why peace does and must reign within certain 264 00:45:49.160 --> 00:45:57.000 groups, and yet, on the other, to prove that the principle of peaceful union which leads 265 00:45:57.000 --> 00:46:04.920 leads to the formation of these associations is ineffective beyond the circle of the group, 266 00:46:04.920 --> 00:46:09.020 so that the groups among themselves must struggle. 267 00:46:09.020 --> 00:46:16.920 So you notice the argument here is most people have very little difficulties accepting the 268 00:46:16.920 --> 00:46:25.080 thesis that yes there are peaceful relationships between the inhabitants of whatever village 269 00:46:25.080 --> 00:46:35.340 A or Village B or Tribe A or Tribe B because everybody sees that that is, of course, taking 270 00:46:35.340 --> 00:46:39.080 place. 271 00:46:39.080 --> 00:46:49.220 If you accept the Darwinian explanation, this is already difficult to explain. 272 00:46:49.220 --> 00:46:59.160 But the next struggle, the next problem, more decisive one, is that people have to explain 273 00:46:59.160 --> 00:47:04.620 who accept these Darwinian interpretations, why should there be division of labor and 274 00:47:04.620 --> 00:47:10.820 peaceful relationships between one group, but not between different groups? 275 00:47:10.820 --> 00:47:14.440 After all, the same principles seem to be at work. 276 00:47:14.440 --> 00:47:19.020 So he says this then, let me just repeat. 277 00:47:19.020 --> 00:47:25.980 The peaceful union which leads to the formation of these associations is ineffective beyond 278 00:47:25.980 --> 00:47:31.960 the circle of the group so that the groups among themselves must struggle. 279 00:47:31.960 --> 00:47:39.980 And Mises says now, this is precisely the rock on which all non-liberal social theories 280 00:47:39.980 --> 00:47:49.380 Founder, if one recognizes a principle which results in the union of all Germans, of all 281 00:47:49.380 --> 00:48:00.660 dholis, some word here that I can hardly pronounce, must be some Greek tribe or so, or all proletarians, 282 00:48:00.660 --> 00:48:09.020 and forms a special nation, race or class out of these individuals, then this same principle 283 00:48:09.020 --> 00:48:15.660 cannot be proved to be effective only within the collective group. 284 00:48:15.660 --> 00:48:22.540 The anti-liberal social theories skim over the problem by confining themselves to the 285 00:48:22.540 --> 00:48:30.300 assumption that the solidarity of interests within the groups is so self-evident as to 286 00:48:30.300 --> 00:48:37.640 be accepted without further discussion, and by taking pains only to prove the existence 287 00:48:37.640 --> 00:48:44.300 of the Conflict of Interest Between Groups and the Necessity of Conflict as the Sole 288 00:48:44.300 --> 00:48:49.200 Dynamic Force of Historical Development. 289 00:48:49.200 --> 00:48:57.600 But if war is to be the father of all things, the fruitful source of historical progress, 290 00:48:57.600 --> 00:49:05.600 it is difficult to see why its fruitful activity should be restricted within states, nations, 291 00:49:05.600 --> 00:49:18.600 If nature needs war, why not the war of all against all? Why merely the war of all groups against all groups? 292 00:49:18.600 --> 00:49:32.600 A very powerful description or explanation, so to speak, why the same principles that lead groups to cooperate peacefully 293 00:49:32.600 --> 00:49:42.100 are also operative at work when it comes to cooperation between different groups. 294 00:49:42.100 --> 00:49:48.100 The same reasons apply there as they apply within each group. 295 00:49:48.100 --> 00:49:56.600 Division of labor is beneficial because it benefits all groups participating in it, 296 00:49:56.600 --> 00:50:00.600 just as it benefits all individuals within a group. 297 00:50:00.600 --> 00:50:23.600 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. 298 00:50:23.600 --> 00:50:42.280 Now, back to a few historical remarks illustrating, so to speak, this tendency of globalizing 299 00:50:42.280 --> 00:50:51.000 division of labor and the development of a universal money integrating, so to speak, 300 00:50:51.000 --> 00:50:58.960 All regions, all classes, all societies. 301 00:50:58.960 --> 00:51:11.000 From very early on, we have, after the development of cities and merchant class and regional 302 00:51:11.000 --> 00:51:18.160 monies, the development of long-distance trade. 303 00:51:18.160 --> 00:51:32.480 We have already something that is called the Silk Road that connects Asia and Europe via 304 00:51:32.480 --> 00:51:39.240 the Middle East, which is still, so to speak, the center of civilization, at that time, 305 00:51:39.240 --> 00:51:49.840 from 4,000 years ago. That is, 4,000 years ago, there already exist trading routes of 306 00:51:49.840 --> 00:52:02.640 thousands of kilometers connecting Europe with Asia, trading routes that are protected 307 00:52:02.640 --> 00:52:12.600 by either the merchants themselves or by those people who live nearby and have an interest 308 00:52:12.600 --> 00:52:21.600 that the trade takes place through their areas. 309 00:52:21.600 --> 00:52:34.680 There exists during the Roman Empire, which at least in the ancient history provides examples 310 00:52:34.680 --> 00:52:48.560 for the deepest and widest economic integration, permanent contact around 2200 BC between Rome 311 00:52:48.560 --> 00:53:04.520 and Han China were steadily caravans of people move and trade various goods back and forth. 312 00:53:04.520 --> 00:53:22.240 We also have very early on regular sea travel. The Chinese regularly send boats all the way 313 00:53:22.240 --> 00:53:49.240 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. 314 00:53:49.240 --> 00:54:04.240 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. 315 00:54:04.240 --> 00:54:26.240 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. 316 00:54:26.240 --> 00:54:36.240 Again, those sorts of things, just simply discovering how the wind blows, took quite some time. 317 00:54:36.240 --> 00:54:43.240 In some cases it was easier, as with the monsoon winds where you have long periods blowing in one way 318 00:54:43.240 --> 00:54:47.240 and long periods blowing into the other way, it's comparatively easy. 319 00:54:47.240 --> 00:55:00.240 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. 320 00:55:00.240 --> 00:55:03.240 You typically cannot take the same route, so to speak. 321 00:55:03.240 --> 00:55:15.240 And even more difficult for the Pacific, where the routes are very different for going one way and going the other. 322 00:55:15.240 --> 00:55:27.240 Again, hundreds of years of experience were necessary in order to develop detailed knowledge about the most appropriate routes to take. 323 00:55:27.240 --> 00:55:40.240 And this became only a non-problem, so to speak, with the development of steamships, which is of course a comparatively recent development. 324 00:55:40.240 --> 00:55:58.240 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. 325 00:55:58.240 --> 00:56:19.240 But Roman coins were not the most popular coins because Roman coins suffered from frequent coin clipping operations by various rulers. 326 00:56:19.240 --> 00:56:42.240 So for some 800 years or so, from about 300 to the 12th century, the most popular money was produced by Constantinople. 327 00:56:42.240 --> 00:56:53.240 And the name of it was Solidus or Bezant, named after Bezant, obviously. 328 00:56:53.240 --> 00:57:04.240 And they gained a reputation of being the most reliable, most honest coins, 329 00:57:04.240 --> 00:57:16.340 coins, subject to practically no coin clipping and adding less valuable metals to it. 330 00:57:16.340 --> 00:57:26.080 And markets, these trading markets, of course, prefer good money over bad money. 331 00:57:26.080 --> 00:57:34.200 You might have heard about the so-called Gresham's Law, which states that bad money drives out 332 00:57:34.200 --> 00:57:45.900 Good Money, but this law only holds if there are price controls in effect, only if the 333 00:57:45.900 --> 00:57:54.420 exchange ratios of different monies are fixed and become, so to speak, do no longer reflect 334 00:57:54.420 --> 00:57:56.180 market forces. 335 00:57:56.180 --> 00:58:03.640 Is it a case that bad money drives good money under normal circumstances without any interference 336 00:58:03.640 --> 00:58:11.640 for Money holds exactly the same law that holds for every other good. Good goods drive out bad goods. 337 00:58:11.640 --> 00:58:26.640 Good money drives out bad money. So this Bezant was for something like 800 years considered to be the best money available 338 00:58:26.640 --> 00:58:38.640 is available and was preferred by merchants from India to Rome to the Baltic Sea. 339 00:58:38.640 --> 00:58:52.640 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 340 00:58:52.640 --> 00:58:58.640 in these far distant places. 341 00:58:58.640 --> 00:59:10.640 That was from about 300 after Christ to 1150, something like this. 342 00:59:10.640 --> 00:59:20.640 Let me see here, it was 65 grains of gold, gold coins. 343 00:59:20.640 --> 00:59:38.640 How many grains did you say? 344 00:59:38.640 --> 00:59:41.640 65 grains of gold. 345 00:59:41.640 --> 00:59:47.960 And also another name was Solidus for it. 346 00:59:47.960 --> 00:59:52.440 Obviously, as an indicator that that was a solid stuff. 347 00:59:52.440 --> 00:59:56.840 I thought it was named after someone that contained it. 348 00:59:56.840 --> 01:00:03.800 No, Bezant is obviously Byzantz, Constantinople. 349 01:00:03.800 --> 01:00:07.720 So I think there was Byzantium. 350 01:00:07.720 --> 01:00:10.520 At least that's what I think it was. 351 01:00:10.520 --> 01:00:20.520 Was this the 800 years in which the Saracens were part of the ruling of all of the Mediterranean? 352 01:00:40.520 --> 01:01:08.520 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. 353 01:01:08.520 --> 01:01:34.520 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, 354 01:01:34.520 --> 01:01:44.520 which then for about 175 years was the most frequently used type of money. 355 01:01:44.520 --> 01:01:52.520 There existed, of course, also other monies competing against it, being used in various smaller localities and so forth, 356 01:01:52.520 --> 01:02:03.520 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 357 01:02:03.520 --> 01:02:13.520 and this role of the Bitsund was then taken over for a few hundred years by the Florentine Florin. 358 01:02:13.520 --> 01:02:27.520 To continue the story, then of course we have the discovery of America taking place. 359 01:02:27.520 --> 01:02:44.520 is a fascinating place. That is, those areas that had been completely unknown before to the Western Eurasian world, so to speak. 360 01:02:44.520 --> 01:03:13.520 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. 361 01:03:14.520 --> 01:03:36.520 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. 362 01:03:36.520 --> 01:03:45.520 That is, at the end of the 19th century, we have an international gold standard developing. 363 01:03:45.520 --> 01:03:55.520 For a while, there was competition between gold and silver. There were certain areas that preferred silver. 364 01:03:55.520 --> 01:04:24.520 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. 365 01:04:24.520 --> 01:04:38.520 Precisely what one would predict, so to speak, based on economic theory, a tendency towards a one world commodity money coming into existence. 366 01:04:38.520 --> 01:04:48.520 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. 367 01:04:48.520 --> 01:05:00.520 But so far, the entire reconstruction that I give is a reconstruction of what would happen, so to speak, without any government interference. 368 01:05:00.520 --> 01:05:11.520 This problem of government interference will occupy us only in later lectures. 369 01:05:11.520 --> 01:05:25.740 And then we can say that from 1914 on, where we have probably reached the most complete 370 01:05:25.740 --> 01:05:34.520 economic integration in human history, the most encompassing economic integration, the 371 01:05:34.520 --> 01:06:04.520 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 372 01:06:04.520 --> 01:06:20.520 have no longer an international commodity money, we have instead a large variety of national freely fluctuating paper currencies 373 01:06:20.520 --> 01:06:31.520 that is a regression towards a situation that we might consider to be partial barter again, 374 01:06:31.520 --> 01:06:48.520 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. 375 01:06:48.520 --> 01:06:57.520 And you see, of course, currently, again under a paper money regime, which requires, of course, the existence of governments. 376 01:06:57.520 --> 01:07:01.560 of Governments, I have to jump ahead here for a moment at least. 377 01:07:01.560 --> 01:07:09.680 Under a paper money regime you can see however again the same tendency at work that you saw 378 01:07:09.680 --> 01:07:19.340 as a natural tendency with the commodity money that is trying to create a worldwide used 379 01:07:19.340 --> 01:07:26.980 paper currency to bring such a thing into existence, as you see with the attempts of 380 01:07:26.980 --> 01:07:34.060 the European monetary integration, for instance, so that we currently have only three major 381 01:07:34.060 --> 01:07:39.820 currency blocks, so to speak, the euro on the one hand, the dollar on the other, and 382 01:07:39.820 --> 01:07:46.260 the yen as the third one, all the other ones don't count for much because very little trade 383 01:07:46.260 --> 01:07:59.420 is conducted in other currencies besides these that might change, of course, one day with 384 01:07:59.420 --> 01:08:04.260 China opening up completely. 385 01:08:04.260 --> 01:08:15.080 But as you have certainly heard, there exist powerful international organizations that 386 01:08:15.080 --> 01:08:23.320 that promote the idea of a one-world central bank issuing a one-world paper currency. 387 01:08:23.320 --> 01:08:35.440 And the argument that they use for this, the kernel of truth in their argument is, of course, 388 01:08:35.440 --> 01:08:41.360 precisely the same one that I explained here. 389 01:08:41.360 --> 01:08:50.220 It is simply advantageous to have just one money because trading becomes easier with 390 01:08:50.220 --> 01:08:55.440 just one money instead of a multitude of fluctuating money. 391 01:08:55.440 --> 01:09:03.680 The drawback in the current situation is of course that this one world paper money will 392 01:09:03.680 --> 01:09:12.840 will be a money that will be produced and managed by a monopoly institution such as 393 01:09:12.840 --> 01:09:23.520 a world bank and can be inflated at will and we will likely see or we would likely see 394 01:09:23.520 --> 01:09:31.320 a larger amount of inflation with such an institution in place than we ever saw in world 395 01:09:31.320 --> 01:09:42.280 history before. Allow me this little side remark. If you have a paper money, then it 396 01:09:42.280 --> 01:09:51.040 is actually an advantage to have competing paper monies because the inflationary desires 397 01:09:51.040 --> 01:09:59.800 of each individual central bank are so to speak curtailed by the non-cooperation of 398 01:09:59.800 --> 01:10:07.400 and other governments. If country A inflates their paper money more than country B, its 399 01:10:07.400 --> 01:10:14.260 currency will fall in the currency market and people will tend to drop this type of money 400 01:10:14.260 --> 01:10:22.180 and adopt monies that are more stable. So if you have paper money in effect, which is, 401 01:10:22.180 --> 01:10:28.460 as I said, sort of big dysfunctional to the very purpose of money in the first place, 402 01:10:28.460 --> 01:10:49.460 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. 403 01:10:49.460 --> 01:10:59.460 But one can have a world wide used money also that is provided completely independent of governments 404 01:10:59.460 --> 01:11:05.460 and that was precisely what we had at the end of the 19th century 405 01:11:05.460 --> 01:11:11.460 that is an international gold standard or it might as well be a silver standard 406 01:11:11.460 --> 01:11:15.460 economic theory does not predict whether it will be gold or silver 407 01:11:15.460 --> 01:11:24.460 Economic Theory only predicts that there will be a tendency towards one type of money being used on a worldwide scale, 408 01:11:24.460 --> 01:11:29.460 because it is a function of money to be a facilitator of exchange. 409 01:11:29.460 --> 01:11:41.460 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 410 01:11:41.460 --> 01:11:47.460 and all money that exists only in various smaller regions. 411 01:11:50.460 --> 01:11:56.460 Okay, with this I'll complete my lecture and take a few questions. 412 01:12:04.460 --> 01:12:06.460 Just one quick question. 413 01:12:06.460 --> 01:12:11.460 The last quote you gave on Mises. Can you give the reference? 414 01:12:21.460 --> 01:12:27.460 Did you make these lectures into a work? Are you going to go into more details? 415 01:12:27.460 --> 01:12:57.380 I will go into more details than I went here, but again, you see, I've mentioned that in 416 01:12:57.380 --> 01:13:07.740 and other connections before, you know, my strength is not as an historian. 417 01:13:07.740 --> 01:13:14.940 My strength is as a theoretician and my advantage is, so to speak, that I look at the reports 418 01:13:14.940 --> 01:13:21.180 of historians with slightly different eyes than the historians themselves do and can 419 01:13:21.180 --> 01:13:30.300 can detect, so to speak, errors that historians make in their reports about historical events, 420 01:13:30.300 --> 01:13:35.880 because I know such and such, it cannot possibly be related, that is just nonsense, because 421 01:13:35.880 --> 01:13:40.060 all theoretical arguments speak against it. 422 01:13:40.060 --> 01:13:45.780 But historians simply look at the sequence of events, but the sequence of events does 423 01:13:45.780 --> 01:13:51.580 does not necessarily tell you that what came before is the cause of what came after. 424 01:13:51.580 --> 01:13:54.660 It can sometimes be exactly the other way around. 425 01:13:54.660 --> 01:14:01.240 It can be that something developed afterwards despite the fact that something happened before. 426 01:14:01.240 --> 01:14:05.900 But historians cannot find these sorts of things. 427 01:14:05.900 --> 01:14:15.080 And since my strength is in the other area, the planned book is a book that has lots of 428 01:14:15.080 --> 01:14:39.080 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. 429 01:14:39.080 --> 01:14:46.080 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. 430 01:14:46.080 --> 01:14:52.080 The standard tale has been told for so long that the successful civilization for those was a strong stake. 431 01:14:52.080 --> 01:15:03.080 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. 432 01:15:03.080 --> 01:15:18.080 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. 433 01:15:18.080 --> 01:15:24.080 You do not require the institution of a state in order to explain why there is language. 434 01:15:24.080 --> 01:15:35.080 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? 435 01:15:35.080 --> 01:15:48.080 You do not require a state in order to explain why there is a tendency for money to develop in the market. 436 01:15:48.080 --> 01:15:59.080 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. 437 01:15:59.080 --> 01:16:09.080 You do not need a state to explain why it is that different ethnicities, different groups that otherwise might hate each other, 438 01:16:09.080 --> 01:16:26.080 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. 439 01:16:26.080 --> 01:16:36.080 The mere fact that population has grown all the time would be difficult to explain. 440 01:16:36.080 --> 01:16:41.080 It's like mankind would have wiped out itself from the very beginning. 441 01:16:41.080 --> 01:16:51.080 And nonetheless, there must have existed thousands of years where there was obviously an increase in the population 442 01:16:51.080 --> 01:16:59.080 and Human Action, despite the fact that nobody would claim that during that period states existed. 443 01:16:59.080 --> 01:17:11.080 So all of what I have explained so far is indicative that we have perfectly natural explanation for these types of tendencies and phenomena 444 01:17:11.080 --> 01:17:29.080 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. 445 01:17:29.080 --> 01:17:37.080 And of course I hope that will become clearer as we progress in this seminar. 446 01:17:37.080 --> 01:18:01.080 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? 447 01:18:01.080 --> 01:18:05.080 You mean to maintain these roads or what? 448 01:18:05.080 --> 01:18:15.080 Well, not to maintain the road so much as the Timur I'm thinking about in particular, 449 01:18:15.080 --> 01:18:26.080 that they seem to gain their empire by conquest, and people have said that's the natural state of man, 450 01:18:26.080 --> 01:18:32.080 is to control and conquer others rather than through cooperation. 451 01:18:32.080 --> 01:18:42.080 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, 452 01:18:42.080 --> 01:18:52.080 I think both tendencies are obviously inherent in mankind to rob other people, to hit them on the head and so forth, 453 01:18:52.080 --> 01:18:58.080 but also the tendency of people to peacefully cooperate. 454 01:18:58.080 --> 01:19:22.080 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. 455 01:19:22.080 --> 01:19:30.080 In the short run, of course, that is a big advantage. In the long run, it will not help you very much. 456 01:19:30.080 --> 01:19:37.080 So both tendencies are there and I will also explain how, so to speak, 457 01:19:37.080 --> 01:19:48.080 naturally grown societies handle these threats coming from bandits and criminals and so forth 458 01:19:48.080 --> 01:19:56.520 And how difficult it was to build up states, how long it took for them to be built up, 459 01:19:56.520 --> 01:20:04.720 and what sort of brainwashing was necessary in order to succeed in all of this. 460 01:20:04.720 --> 01:20:07.680 But as I said, there are still things to come. 461 01:20:07.680 --> 01:20:08.680 Yeah. 462 01:20:08.680 --> 01:20:23.680 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. 463 01:20:23.680 --> 01:20:36.680 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. 464 01:20:36.680 --> 01:20:51.680 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. 465 01:21:06.680 --> 01:21:17.680 are completely of weak links. That is, in the Darwinian sense, who would have to survive is who can kill the best. 466 01:21:17.680 --> 01:21:26.680 But we have mostly people who in that type of environment would have no chance whatsoever. 467 01:21:26.680 --> 01:21:32.680 Look, I can hardly see anything if I take my glasses off. 468 01:21:32.680 --> 01:21:49.680 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. 469 01:21:49.680 --> 01:21:56.680 People with severe handicaps can nowadays lead a good life. 470 01:21:56.680 --> 01:22:06.680 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. 471 01:22:06.680 --> 01:22:14.680 In this sense, the competition between entrepreneurs has nothing to do with the Darwinian struggle for survival. 472 01:22:14.680 --> 01:22:26.680 It is a struggle who is better serving consumers than somebody else, but they are not physically fighting each other. 473 01:22:26.680 --> 01:22:39.680 Look, again, in a primitive society with very limited division of labor, there is no possibility of engaging in any type of charity whatsoever. 474 01:22:39.680 --> 01:23:04.680 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. 475 01:23:04.680 --> 01:23:15.680 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 476 01:23:15.680 --> 01:23:25.680 might dilute the strengths of the stronger ones, you will kill them. 477 01:23:25.680 --> 01:23:33.680 The same with old people. As soon as you lose your ability to work 478 01:23:33.680 --> 01:23:40.680 In primitive societies, those are a sheer burden. You have to get rid of them. 479 01:23:40.680 --> 01:23:50.680 We, of course, we can let people live until they are 100 or whatever it is, 480 01:23:50.680 --> 01:23:54.680 without having to do anything anymore. 481 01:23:54.680 --> 01:24:14.680 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. 482 01:24:14.680 --> 01:24:26.680 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. 483 01:24:26.680 --> 01:24:36.680 I can roughly anticipate what his answer would be to this proposal. 484 01:24:36.680 --> 01:24:38.680 and the proposal. 485 01:24:38.680 --> 01:24:40.680 Yeah. 486 01:24:40.680 --> 01:24:46.680 Hi. Getting back to your last comments on money, the evolution of money, 487 01:24:46.680 --> 01:24:53.680 that said, with everything you said, what do you think would limit itself best to markets right now, 488 01:24:53.680 --> 01:24:59.680 an international paper currency that would somehow facilitate more international trade 489 01:24:59.680 --> 01:25:07.680 or kind of I guess a competition of multiple national currencies that would in money markets kind of weed each other out. 490 01:25:29.680 --> 01:25:39.380 competing against each other, because there exist different cultural attitudes towards inflation in different countries, 491 01:25:39.380 --> 01:25:44.380 curtailing, so to speak, the inflationary ambitions of other countries. 492 01:25:44.380 --> 01:25:54.380 I remember that the main complaint in the European community was always about the German central bank 493 01:25:54.380 --> 01:26:00.380 and not being as inflationary as some people had wanted it to be. 494 01:26:00.380 --> 01:26:10.380 Now, this had nothing to do with the German governments being staffed by better people. 495 01:26:10.380 --> 01:26:14.380 I think, you know, when it comes to this sort of stuff, I think they are all evil. 496 01:26:14.380 --> 01:26:17.380 There's very, very little difference. 497 01:26:17.380 --> 01:26:34.380 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. 498 01:26:34.380 --> 01:26:50.380 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. 499 01:26:50.380 --> 01:26:59.380 But if you have in your own family your grandfather having been wiped out, having saved for his retirement, 500 01:26:59.380 --> 01:27:06.380 and then all of a sudden seeing that all of his retirement money is just enough to buy himself a lollipop 501 01:27:06.380 --> 01:27:15.380 and then seeing the same thing with your parents again, then you can see that in a public such as this, 502 01:27:15.380 --> 01:27:22.380 a government, despite all the desire that they have for inflationary policies, 503 01:27:22.380 --> 01:27:30.380 policies, must be very careful not to overdo it unless they will be overthrown. 504 01:27:30.380 --> 01:27:40.820 In Germany in 1966, the inflation rate rose for the first time above 2%. 505 01:27:40.820 --> 01:27:53.360 That was at that time, the last hyperinflation was just 20 years ago, at that time that was 506 01:27:53.360 --> 01:27:58.540 sufficient to overthrow the government. 507 01:27:58.540 --> 01:28:03.380 Today of course, no, you see like you always have to just reckon with the fact that people 508 01:28:03.380 --> 01:28:05.020 forget. 509 01:28:05.020 --> 01:28:12.060 And then there is, in my view of course, a general tendency for the degeneration of mankind. 510 01:28:12.060 --> 01:28:16.460 So I think the Germans get dumber and dumber and dumber. 511 01:28:16.460 --> 01:28:21.980 I think not only the Germans, I mean I apply that. 512 01:28:21.980 --> 01:28:26.620 So yes, of course nowadays you can come away with inflation rates of five percent, six 513 01:28:26.620 --> 01:28:32.280 percent and say, that's no inflation, that's nothing at all. 514 01:28:32.280 --> 01:28:37.440 And even in the United States similar things have happened, I mean Nixon introduced wage 515 01:28:37.440 --> 01:28:43.480 and price controls when inflation was 3 or 4 percent or something like this, in the meantime 516 01:28:43.480 --> 01:28:49.400 of course 3 or 4 percent inflation means no inflation, that's how the public opinion 517 01:28:49.400 --> 01:28:52.720 has changed in this regard. 518 01:28:52.720 --> 01:29:00.400 That's why I think yes if you have a paper money and they compete against each other 519 01:29:00.400 --> 01:29:18.400 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. 520 01:29:18.400 --> 01:29:28.400 I understand daily about $7 trillion goes zipping around the globe looking for an investment opportunity or perhaps a store of value. 521 01:29:28.400 --> 01:29:49.400 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? 522 01:29:58.400 --> 01:30:08.400 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. 523 01:30:08.400 --> 01:30:18.400 So if you introduce credit cards until yesterday, no credit cards existed, then your demand for cash is much higher. 524 01:30:18.400 --> 01:30:21.400 The Introduction of Credit Cards 525 01:30:21.400 --> 01:30:30.400 If you introduce credit cards until yesterday, no credit cards existed, then your demand for cash declines, 526 01:30:30.400 --> 01:30:35.400 because many payments you can make in the form of credit cards. 527 01:30:35.400 --> 01:30:43.400 So your cash balance becomes smaller and you spend part of what you otherwise would have kept in cash 528 01:30:43.400 --> 01:30:49.400 and there would be then at one time upward trend in the general price level. 529 01:30:49.400 --> 01:31:01.400 So it is just, you need less cash to carry around because these transactions can be all done electronically. 530 01:31:01.400 --> 01:31:06.400 I think that's the only effect that I can see. 531 01:31:06.400 --> 01:31:13.400 I'm not a great expert in this electronic banking stuff. 532 01:31:13.400 --> 01:31:17.400 In that regard, I'm just like an old-fashioned German guy. 533 01:31:17.400 --> 01:31:23.400 My father never used a credit card. He always had plenty of cash. 534 01:31:23.400 --> 01:31:30.400 I do have a credit card. It just makes my father very disappointed. 535 01:31:30.400 --> 01:31:54.400 You talked before about Mises making reference to Darwin's theory of conflict between groups of people. Do you have a source for that? 536 01:32:00.400 --> 01:32:10.400 I mentioned it, 283 or something like that. 283. Yeah. With this, thank you.