WEBVTT NOTE Bitcoins, Greenbacks, and the Fed 1 00:00:00.000 --> 00:00:07.520 With me today is a very special guest, Mark Thornton from the Ludwig von Mises Institute, 2 00:00:07.520 --> 00:00:12.560 and I believe, Mark, first, welcome to the podcast, I'm pleased to have you on board. 3 00:00:12.560 --> 00:00:15.640 Well thank you very much, it's a pleasure to be here with you. 4 00:00:15.640 --> 00:00:22.440 Are you still the book review editor over at Quarterly Journal of Austrian Economics? 5 00:00:22.440 --> 00:00:27.240 I sure am, I've been the book review editor for the Quarterly Journal of Austrian Economics 6 00:00:27.240 --> 00:00:34.600 for about 10 years and the journal basically publishes all the leading edge economics related 7 00:00:34.600 --> 00:00:41.680 to the Austrian school and I was marveling at it in reviewing the last year's production 8 00:00:41.680 --> 00:00:49.800 of the journal is that we had such a fabulously high number of articles relating to and extending 9 00:00:49.800 --> 00:00:56.360 and improving the Austrian theory, the business cycle which has really got everybody's attention 10 00:00:56.360 --> 00:01:00.840 and I thought to myself we could cherry pick some of those articles and make a fine, fine 11 00:01:00.840 --> 00:01:09.340 book that not just academics would want to read but business people and people who are 12 00:01:09.340 --> 00:01:16.560 concerned with financial people or just people interested in investing their own money and 13 00:01:16.560 --> 00:01:20.560 they want to understand why does the stock market go up so high and then why does it 14 00:01:20.560 --> 00:01:26.040 crash and then we get the whole thing over again and so there's some really good stuff 15 00:01:26.040 --> 00:01:56.040 Profile Investment Services, Inc., Ltd., or Israel National News. 16 00:01:56.040 --> 00:02:05.040 and the largest economic web pages in the world and the center of and the heart of the Austrian School. 17 00:02:05.040 --> 00:02:17.040 And I might add to that too, you know, a lot of the books that I talk about here on the podcast are actually available as PDFs or other style downloads at the Mises Institute. 18 00:02:17.040 --> 00:02:23.040 It's just in economics or the economic end of the liberty discussion. 19 00:02:23.040 --> 00:02:29.120 Yeah, if you go to the site and you see a book that you're interested in, what I do 20 00:02:29.120 --> 00:02:34.860 is I do a search for the title plus PDF and up pops the PDF and I can examine it, look 21 00:02:34.860 --> 00:02:42.860 at the table of contents, things of that nature, get a feel for whether or not the book might 22 00:02:42.860 --> 00:02:49.280 be valuable for me at this time and if it is, you can either just read off the PDF or 23 00:02:49.280 --> 00:03:19.280 Profile Investment Services, Ltd., or Israel National News. 24 00:03:19.280 --> 00:03:25.120 The paperbacks are usually less than $20 or less, so it's very reasonable, it's almost 25 00:03:25.120 --> 00:03:31.720 not worth reading off of the computer screen because it's just so inexpensive and we have 26 00:03:31.720 --> 00:03:37.600 hundreds of these books and in our bookstore we have hundreds and hundreds of books as 27 00:03:37.600 --> 00:03:44.040 well as t-shirts and coffee cups and all that kind of paraphernalia type stuff. 28 00:03:44.040 --> 00:03:50.040 Now I wanted to ask you today, and I've had a lot of people giving me questions as well, 29 00:03:50.040 --> 00:03:55.800 but I wanted to ask you about bitcoins today because that's a buzz that's sweeping the 30 00:03:55.800 --> 00:03:56.800 internet. 31 00:03:56.800 --> 00:04:02.640 It's now gone over, or the last I checked, it was over $100 per bitcoin. 32 00:04:02.640 --> 00:04:07.820 And there's a lot of confusion about bitcoins. 33 00:04:07.820 --> 00:04:10.080 How do Austrians consider bitcoins? 34 00:04:10.080 --> 00:04:40.080 What are your thoughts on Bitcoin? 35 00:04:40.080 --> 00:04:45.400 is also considered economic web pages, has pushed us down to like 24, 25. 36 00:04:45.400 --> 00:04:54.160 So you know something is going completely viral in terms of Bitcoin and the price of 37 00:04:54.160 --> 00:04:55.160 bitcoins. 38 00:04:55.160 --> 00:05:01.000 I remember the first time I looked at it, it was like 35 cents and now last time I checked, 39 00:05:01.000 --> 00:05:02.440 it was over $100. 40 00:05:02.440 --> 00:05:08.920 So there's a huge bubble in the Bitcoin market and it's a bubble of interest and it's a bubble 41 00:06:08.920 --> 00:06:38.920 and so people are trying to get some diversification of their monetary holdings and bitcoins seem to really just answer every all the problems and so you know it's really taken off there they're now starting to install ATMs where if you don't want to produce bitcoins yourself you can just go to an ATM that's coming real soon and put in your cash and 42 00:06:38.920 --> 00:06:44.120 You use your electronic wallet, smartphone or whatever, 43 00:06:44.120 --> 00:06:49.240 and you're given the bitcoins electronically as a result. 44 00:06:49.240 --> 00:06:51.360 And then you can turn around and electronically use 45 00:06:51.360 --> 00:06:54.800 those bitcoins to give them to other people 46 00:06:54.800 --> 00:06:58.440 or to make purchases, things of that nature. 47 00:06:58.440 --> 00:06:59.840 So it's really taken it off. 48 00:06:59.840 --> 00:07:06.680 And in 2013, it's made a huge splash, 49 00:07:06.680 --> 00:07:10.160 Not necessarily because of what it is. 50 00:07:10.160 --> 00:07:12.640 I don't think it would have been taking off quite as much 51 00:07:12.640 --> 00:07:17.240 and getting all this attention had it not been for the reality, 52 00:07:17.240 --> 00:07:20.000 the real physical world out there, 53 00:07:20.000 --> 00:07:26.280 which is in a slow motion, crumbling collapse, basically. 54 00:07:26.280 --> 00:07:29.520 And we don't know how far that's going to go, 55 00:07:29.520 --> 00:07:31.960 but we know it has longer to run 56 00:07:31.960 --> 00:07:39.800 and the consequences of banking systems melting down across Europe makes people want to have 57 00:07:39.800 --> 00:07:43.640 an alternative way to feed themselves and to put gasoline in the car and things of that 58 00:07:43.640 --> 00:07:50.600 nature so what we expect is that governments are going to try to suppress this in some 59 00:07:50.600 --> 00:07:55.600 form or fashion and that more and more people are going to start offering their goods for 60 00:07:55.600 --> 00:08:00.320 sale using bitcoins. 61 00:08:00.320 --> 00:08:10.080 I would also think that there's a lot of critics of bitcoins because it doesn't have the proper 62 00:08:10.080 --> 00:08:15.200 backing that we'd like to see with a hard currency and that kind of thing, but I kind 63 00:08:15.200 --> 00:08:21.520 of look at it as maybe it's not perfect, maybe in a totally free market where there was no 64 00:08:21.520 --> 00:08:26.920 government influence at all on the money system, maybe bitcoins wouldn't work at all. 65 00:08:26.920 --> 00:08:34.320 But for now, since its competition is things like the Euro and the Dollar, I hate to use 66 00:08:34.320 --> 00:08:38.700 this phrase because it disgusts me so bad, but could Bitcoins just simply be the lesser 67 00:08:38.700 --> 00:08:40.760 of evils in choices right now? 68 00:08:40.760 --> 00:08:43.780 Well, you know, I wouldn't call it evil. 69 00:08:43.780 --> 00:08:49.680 I think it's very well intentioned and I think it's very well designed. 70 00:08:49.680 --> 00:08:54.620 You can't eliminate the possibility that this thing could crash and crumble, that governments 71 00:09:54.620 --> 00:09:59.900 The early users found the computations that they had to solve were fairly easy and they 72 00:09:59.900 --> 00:10:06.220 were fairly quick and they resulted in coins that weren't really worth that much. 73 00:10:06.220 --> 00:10:11.060 Now it's getting harder and harder to solve those computations and basically the system 74 00:10:11.060 --> 00:10:19.180 itself through a random adjustment process makes the computations more and more difficult 75 00:10:19.180 --> 00:10:23.920 to solve so that more resources have to go into it. 76 00:10:23.920 --> 00:10:30.240 It also accounts for the fact that computational power becomes easier over time so those algorithms 77 00:10:30.240 --> 00:10:36.800 get more difficult to solve over time and so the supply of bitcoins is going to slow 78 00:10:36.800 --> 00:10:44.760 down over time and it will eventually max out at 21 million bitcoins. 79 00:10:44.760 --> 00:10:50.200 So these are real resources unlike fiat money. 80 00:10:50.200 --> 00:10:59.160 These are scarce coins or money, unlike fiat money, which can be reproduced virtually in 81 00:10:59.160 --> 00:11:02.560 an unlimited way. 82 00:11:02.560 --> 00:11:06.960 Now there was an inventor of this system, but there's no central player in Bitcoin. 83 00:11:06.960 --> 00:11:14.400 It's all open source software and everybody theoretically could be involved in this. 84 00:11:14.400 --> 00:11:19.400 But there's no central player like with a central bank that can rig the system and make 85 00:11:19.400 --> 00:11:24.960 to make it go in a certain direction to the negative impact of certain people, the positive 86 00:11:24.960 --> 00:11:34.760 impact of other people, and all coins have specific owners, property owners, which is 87 00:11:34.760 --> 00:11:40.580 a nice aspect of it because we think in the Austrian School that money should be property 88 00:11:40.580 --> 00:11:47.520 that has what some people refer to as intrinsic value but it just means real tangible value 89 00:12:17.520 --> 00:12:24.520 of course it's not that difficult to counterfeit gold itself, I mean we've heard stories 90 00:12:24.520 --> 00:12:33.460 in history where people have made counterfeit silver bars and gold bars by taking base metals 91 00:12:33.460 --> 00:12:40.840 and covering them with silver or gold coating so that all seems to line up much better with 92 00:12:40.840 --> 00:12:46.440 the gold standard relative to fiat money. 93 00:12:46.440 --> 00:12:53.000 By and large, I think that Bitcoin has better properties certainly than fiat money. 94 00:12:53.000 --> 00:13:02.420 When you look at the actual physical production of Bitcoins, it's competitive because anybody 95 00:13:02.420 --> 00:13:03.420 can get into it. 96 00:13:03.420 --> 00:13:08.600 Indeed, there are people all over the globe who are producing Bitcoins or trying to produce 97 00:13:08.600 --> 00:13:09.600 Bitcoins. 98 00:13:09.600 --> 00:13:26.600 As I mentioned earlier, it takes up capital, computers, it takes up labor to do that. It takes time, which production processes typically involve. There's uncertainty of whether or not you're going to be able to produce bitcoins. 99 00:13:26.600 --> 00:13:34.600 And as I mentioned earlier, at least in a historical sense, there's decreasing returns from resources. 100 00:13:34.600 --> 00:13:43.320 So it has a lot of things in common with the real physical world out there. 101 00:13:43.320 --> 00:13:49.280 Is it possible, and this is not my realm of expertise, so that's why I'm throwing it 102 00:13:49.280 --> 00:13:54.820 at you, is it possible that a better definition of what's happening with Bitcoin now, rather 103 00:13:54.820 --> 00:14:01.800 than calling it a bubble, could it be considered sort of a deflation as the value of the money, 104 00:14:01.800 --> 00:14:18.440 Well, I don't want to call Bitcoin a bubble, because it's really unlike what we typically 105 00:14:18.440 --> 00:14:29.280 refer to as bubbles, and it's one money set in terms of another, but you're right. 106 00:14:29.280 --> 00:14:37.380 A lot of the demand for bitcoins is the result of a decrease in the demand for paper fiat 107 00:14:37.380 --> 00:14:46.580 currencies and so the value of bitcoins is going up which means in relationship to goods 108 00:14:46.580 --> 00:14:50.780 and services there is a dramatic deflation. 109 00:14:50.780 --> 00:14:58.540 Now if you were one of the persons who were producing bitcoins in 2009 and 2010 in its 110 00:14:58.540 --> 00:15:28.540 Profile Investment Services and Inc. www.profile-financial.com 111 00:15:28.540 --> 00:15:36.620 and so that you know that's it's a price deflation effect for Bitcoin owners 112 00:15:36.620 --> 00:15:42.740 relative to the goods and services that are exchangeable in terms of bitcoins 113 00:15:42.740 --> 00:15:48.340 which I understand you know there's not a lot of vendors and and retailers who 114 00:15:48.340 --> 00:15:56.660 are who are accepting bitcoins but there's enough that you can basically 115 00:15:56.660 --> 00:16:26.660 Profile Investment Services, Ltd., or Israel National News. 116 00:16:26.660 --> 00:16:56.660 The Medium of Exchange, that's its purpose but I think, you know, so far it's been a novelty item, it's been a, you know, it starts out with its demanders who sort of oppose government money and oppose the banking system on ideological grounds but it's, you know, it's continuing to, the interest in it continues to expand outward which is a necessary condition for it to have characteristics of money. 117 00:16:56.660 --> 00:17:03.060 I think also something that may become a factor in it. You know, a few years ago, the only 118 00:17:03.060 --> 00:17:07.100 thing PayPal was good for, and I realize it's apples to oranges here in comparison to the 119 00:17:07.100 --> 00:17:11.480 two, I'm only making the comparison because they're computer related, but a few years 120 00:17:11.480 --> 00:17:17.100 ago the only thing PayPal was any good for was buying things from eBay. And now I have 121 00:17:17.100 --> 00:17:21.900 a PayPal card in my wallet and I can actually go up to a gas station, swipe that PayPal 122 00:17:21.900 --> 00:17:28.380 Paypal Card, fill up my gas tank, go to the hardware store, buy nails at the hardware 123 00:17:28.380 --> 00:17:34.420 store, swipe my PayPal card and come back home and do my banking to clear out the accounts 124 00:17:34.420 --> 00:17:35.820 or whatever. 125 00:17:35.820 --> 00:17:41.980 And that didn't take a lot of time to leap from one spot to the other, to go from eBay 126 00:17:41.980 --> 00:17:47.580 only to being able to literally get a McDonald's hamburger with my PayPal. 127 00:17:47.580 --> 00:17:53.620 So I kind of tend to think that unless governments really bring the hammer down fast, I think 128 00:17:53.620 --> 00:17:57.900 bitcoins will probably make that leap as well. 129 00:17:57.900 --> 00:18:01.460 Well, you know, and that's how money originated too. 130 00:18:01.460 --> 00:18:08.420 I mean, money didn't, you know, just immediately appear and everybody started using it. 131 00:18:08.420 --> 00:18:17.260 It was introduced by individuals who realized that particular goods were particularly useful 132 00:18:17.260 --> 00:18:24.880 to hold and then to resell and then the expectations were that more and more people were going 133 00:18:24.880 --> 00:18:31.740 to be willing to accept this good in exchange for other goods. 134 00:18:31.740 --> 00:18:38.800 That process took a very, very long time, in fact thousands of years and that silver coins 135 00:18:38.800 --> 00:18:46.620 and copper coins were only used in the most advanced places on the planet. 136 00:18:46.620 --> 00:18:53.760 Real money took a very long time to become throughout the entire world economy and these 137 00:18:53.760 --> 00:19:02.780 new financial innovations, the ones that succeed are taking place at a faster and faster pace. 138 00:19:02.780 --> 00:19:10.340 Bitcoin is going to need the attention that it's grabbing right now to become a more widely 139 00:19:40.340 --> 00:19:48.140 But they're looking pretty good right now. Yeah, definitely. Just a note to my 140 00:19:48.140 --> 00:19:52.460 listeners, I had planned on having an interview with a person who actually 141 00:19:52.460 --> 00:19:58.020 works in a business that sells, buys and sells bitcoins and gold and silver and 142 00:19:58.020 --> 00:20:03.740 that person, I was going to use the interview today with Mark Thornton to 143 00:20:03.740 --> 00:20:08.420 sort of have, you know, two, not really two different sides of the coin but 144 00:20:08.420 --> 00:20:15.160 having one guy who is explaining the Bitcoin whole process from a salesman's 145 00:20:15.160 --> 00:20:22.180 point of view and then have Mark Thornton on as the as the calm economist 146 00:20:22.180 --> 00:20:27.980 to keep us keep us from from going head over heels over this. Unfortunately I 147 00:20:27.980 --> 00:20:30.860 haven't had the other the other guy's been busy and I haven't got his 148 00:20:30.860 --> 00:20:35.340 interview yet so any of you listeners who had a whole list of I had a whole 149 00:20:35.340 --> 00:21:05.340 List of Questions for that guy. If you're listening today and you're saying, hey, Ben's not asking my question, hang in there. We'll get the Bitcoin guy on. But while I've got Mark Thornton on, I want to take advantage of his expertise in several different fields. Mark, we were just talking about goods and services and prices. So as you mentioned to me during the break, there's still one thing left to happen with bitcoins that we're looking for. 150 00:21:35.340 --> 00:21:43.220 really are, at this point, would be considered a means of payment or a form of money, but 151 00:21:43.220 --> 00:21:52.140 it's not money in the sense that they're generally accepted means of transactions. 152 00:21:52.140 --> 00:21:58.620 And so it's more of a store of value and a means of payment, but it's not a full-blown 153 00:21:58.620 --> 00:22:09.260 and Money because we don't go to stores, either hard stores or internet stores and find goods 154 00:22:09.260 --> 00:22:10.260 priced in money. 155 00:22:10.260 --> 00:22:15.060 That's something that's just trickling in at this point in time. 156 00:22:15.060 --> 00:22:20.940 So it's not a full-blown money, but the most important takeaway is that it's certainly 157 00:22:20.940 --> 00:22:25.780 not as dangerous as fiat money with central banking. 158 00:22:25.780 --> 00:22:36.560 There's something in comparing bitcoins to fiat, there's sort of a buzzword that's being 159 00:22:36.560 --> 00:22:41.740 rebirthed again on the internet, and that's the greenbackers. 160 00:22:41.740 --> 00:22:47.980 A lot of people are wanting to get rid of the Federal Reserve, which that's a good idea, 161 00:22:47.980 --> 00:22:52.280 but there are other people that are taking advantage of the frenzy to get rid of the 162 00:22:52.280 --> 00:22:58.580 of the Federal Reserve, and they're calling on Congress to begin issuing money directly 163 00:22:58.580 --> 00:23:05.440 from the Treasury as, like those of us who know about this process, derogatorily call 164 00:23:05.440 --> 00:23:10.640 it a Greenbacker dollar in reference to Lincoln's use of it. 165 00:23:10.640 --> 00:23:15.640 And you're kind of an expert on the Civil War era, or I hate to use that word even, 166 00:23:15.640 --> 00:23:17.760 Lincoln's War of Aggression. 167 00:23:17.760 --> 00:23:21.240 You're kind of an expert on how the economy worked during that time. 168 00:23:21.240 --> 00:23:25.480 I want to throw a couple of facts out for my audience, and then just let you talk about 169 00:23:25.480 --> 00:23:32.280 what Greenbacker dollars did during the Civil War, or so-called Civil War. 170 00:23:32.280 --> 00:23:35.760 We're going in the time frame from 1861 to 1865. 171 00:23:35.760 --> 00:23:40.020 The war started in April 1861. 172 00:23:40.020 --> 00:23:45.360 By July, essentially, the government was broke, and Mark, at any point in here where I say 173 00:23:45.360 --> 00:23:51.360 So if I say something wrong, be sure and correct me on this, because this is not my area of expertise. 174 00:23:51.360 --> 00:24:01.360 So in July, just a couple months after the war starts, the government issued $50 million, that's my rough guesstimate, 175 00:24:01.360 --> 00:24:06.360 is about $4 billion in today's money going by the value of gold. 176 00:24:06.360 --> 00:24:13.360 By December the same year, the Lincoln's government was essentially, they basically defaulted on their promise 177 00:24:13.360 --> 00:24:17.400 to pay that $50,000 in notes that they had issued. 178 00:24:17.400 --> 00:24:23.720 And then the following February, they issued another $150 million, and they started for 179 00:24:23.720 --> 00:24:30.200 the first time issuing $500,000 bills because of the inflation problem that they created. 180 00:24:30.200 --> 00:24:40.400 By March of 1863, they had to issue another $450 million greenback dollars, and for the 181 00:24:40.400 --> 00:24:44.480 first time they had to start issuing ones and two dollar bills because gold and 182 00:24:44.480 --> 00:24:47.480 silver was being driven out of the market nobody wanted to let go of their 183 00:24:47.480 --> 00:24:51.720 gold and silver because of the inflation that was taking place with the greenback 184 00:24:51.720 --> 00:24:56.720 dollars so now mark correct me on any of that information that I said was wrong 185 00:24:56.720 --> 00:25:05.720 and explain to the to the listeners why this folly did what it did and what 186 00:25:05.720 --> 00:25:17.320 Well, simply put, the Union government's war effort to invade and to reduce the Confederacy 187 00:25:17.320 --> 00:25:21.440 in the South was a very expensive process. 188 00:25:21.440 --> 00:25:30.240 The Union army, at any particular time, averaged hundreds of thousands of soldiers, they had 189 00:25:30.240 --> 00:25:39.520 at a very large Navy and it was a very expensive process and the president and the secretary 190 00:25:39.520 --> 00:25:45.920 of the treasurer promised that as they entered this war that they would not give up the gold 191 00:25:45.920 --> 00:25:51.680 standard and that they would not inflate in order to pay for it and of course they lied 192 00:25:51.680 --> 00:25:52.680 about that. 193 00:25:52.680 --> 00:25:58.640 I mean within a very short period of time they were issuing the fiat money, money by 194 00:25:58.640 --> 00:26:06.160 by Law which were green banknotes issued by the government itself and that's why they 195 00:26:06.160 --> 00:26:14.360 were called greenbackers for the green backing and they ended up issuing more and more of 196 00:26:14.360 --> 00:26:21.760 these banknotes to pay for the war effort throughout the period 1861 to 1865 and actually 197 00:26:21.760 --> 00:26:27.520 the amount that they issued or spent into the economy grew over time because of course 198 00:26:27.520 --> 00:26:35.520 In response to this much larger sum of money in the economy, prices for goods and services 199 00:26:35.520 --> 00:26:42.440 increased, and of course the South did the same thing to a much greater extent, and so 200 00:26:42.440 --> 00:26:48.000 the value of the Confederate paper money fell much more dramatically, and actually in the 201 00:26:48.000 --> 00:26:55.760 final months of the Civil War, the South is faced with the prospects of hyperinflation 202 00:26:55.760 --> 00:26:59.400 and ultimately the money losing all of its value. 203 00:26:59.400 --> 00:27:05.200 There's a common commonality between fiat money and war. 204 00:27:05.200 --> 00:27:08.840 Our monetary systems throughout history 205 00:27:08.840 --> 00:27:13.680 have broken down because of countries that have gone to war 206 00:27:13.680 --> 00:27:18.920 and then sought to pay for those wars by issuing paper money. 207 00:27:18.920 --> 00:27:23.880 And so nowadays, for the first time in human history, 208 00:27:23.880 --> 00:27:33.280 Human beings think of unbacked paper government issued notes as being money and we think of 209 00:27:33.280 --> 00:27:35.520 it as a normal sort of thing. 210 00:27:35.520 --> 00:27:44.080 We've all grown up with using paper money and token coins that have no underlying value. 211 00:27:44.080 --> 00:27:46.000 They're not backed up by anything. 212 00:27:46.000 --> 00:27:49.240 You can't trade them in for gold or silver. 213 00:27:49.240 --> 00:27:58.240 are essentially have value, whatever value we place on those dollars and however many 214 00:27:58.240 --> 00:28:05.240 are actually issued by the central bank and the fact that we're forced to pay our taxes 215 00:28:05.240 --> 00:28:16.680 and our debts in terms of these government issued bank note in the form of fiat money. 216 00:28:16.680 --> 00:28:24.340 So, there was a big inflation in the Union, there was a big inflation in the Confederacy, 217 00:28:24.340 --> 00:28:29.880 the war comes to an end and the Confederate currency is worthless, you can't use it to 218 00:28:29.880 --> 00:28:37.680 buy anything essentially, whereas the US dollar still had remaining value, but the value wasn't 219 00:28:37.680 --> 00:28:41.640 the previous value in terms of gold. 220 00:28:41.640 --> 00:28:50.360 And so after the war, the Union government maintained that it would ultimately redeem 221 00:28:50.360 --> 00:28:57.200 all of these paper notes in terms of gold and it took a long time for that to actually 222 00:28:57.200 --> 00:28:58.200 occur. 223 00:28:58.200 --> 00:29:05.920 I think it was over 10 years before they could actually seek to redeem all of these 224 00:29:05.920 --> 00:29:08.640 greenbacks in terms of gold. 225 00:29:08.640 --> 00:29:17.640 So after the war, there was a persistent deflation as a result of the government's choice to 226 00:29:17.640 --> 00:29:23.120 go back to gold at the pre-war rate. 227 00:29:23.120 --> 00:29:32.240 And so the paper currency had to appreciate in sort of a forced-fed way. 228 00:29:32.240 --> 00:29:42.480 And so the currency after the war, both silver coinage and the paper dollars, there was sort 229 00:29:42.480 --> 00:29:49.840 of a persistent shortage of it because of this policy and there was a sort of a heavier 230 00:29:49.840 --> 00:29:53.920 than normal deflationary pressure. 231 00:29:53.920 --> 00:30:02.040 There were a few bank panics in that period of time and people looking at the situation 232 00:30:32.040 --> 00:30:43.160 was to increase the supply of money to both issue more greenbacks and to have a free coinage 233 00:30:43.160 --> 00:30:51.920 of silver so that there would be, instead of the, instead of money being sort of restricted 234 00:30:51.920 --> 00:30:58.120 through this deflationary process, that we would have free coinage of silver, we'd have 235 00:30:58.120 --> 00:31:22.760 I have a theory on this and I haven't talked to an actual economist about this particular 236 00:31:22.760 --> 00:31:29.840 or Theory. So you might have the opportunity to shoot it down. But it seems to me that 237 00:31:29.840 --> 00:31:36.840 governments love fiat money because they can engage in war, even unlimited amounts of war 238 00:31:36.840 --> 00:31:46.600 if they have unlimited amounts of fiat money. And so coming into the early 1900s, the tension 239 00:31:46.600 --> 00:31:51.400 between specifically between Great Britain and Germany was at a real high level due to 240 00:31:51.400 --> 00:31:56.560 to a lot of the problems they'd had with the Boer Wars and so forth. 241 00:31:56.560 --> 00:32:01.760 And the growing problem, well, the problem that had existed between France and Germany 242 00:32:01.760 --> 00:32:06.640 for some 70 years or so was kind of coming to a head. 243 00:32:06.640 --> 00:32:12.120 And so you didn't have to be a genius by about 1910 or 1912 to realize that there was gonna 244 00:32:12.120 --> 00:32:15.040 be a problem. 245 00:32:15.040 --> 00:32:19.360 And you know, I believe that there were people in the United States who were just chomping 246 00:32:19.360 --> 00:32:24.440 at the Bit for that to happen and for the U.S. to be involved in it. 247 00:32:24.440 --> 00:32:35.080 And so, I kind of speculate that around the early 1900 that the movers and the shakers 248 00:32:35.080 --> 00:32:39.960 in the economy knew that the people still had the taste in their mouth from the Greenbacker 249 00:32:39.960 --> 00:32:45.360 debacle that had happened 40 years earlier and they probably weren't going to go for 250 00:32:45.360 --> 00:32:51.680 for a True Fiat Money and thus we had the Federal Reserve brought on in the way that 251 00:32:51.680 --> 00:32:52.680 it was. 252 00:32:52.680 --> 00:32:55.640 Now, do you think, does that make any sense at all to you? 253 00:32:55.640 --> 00:32:59.440 Oh, I think that's definitely in a play. 254 00:32:59.440 --> 00:33:04.960 There's no doubt about that and of course these elites, these movers and shakers, we 255 00:33:04.960 --> 00:33:11.640 call them, they're very attuned to these things that are happening overseas and in world markets 256 00:33:41.640 --> 00:33:53.640 and other big military dispute over there and they're really playing like they did with Iran and they're still doing it with Iran. 257 00:33:53.640 --> 00:34:03.640 So this power of fiat money is something that would be appealing to everybody. 258 00:34:03.640 --> 00:34:12.080 The ability to increase your supply of money to an infinite level, practically speaking, 259 00:34:12.080 --> 00:34:19.480 while the cost of it, the price inflation being borne by everybody, that's so appealing. 260 00:34:19.480 --> 00:34:25.240 And I've even had people call me here at the Mises Institute and they want to know how 261 00:34:25.240 --> 00:34:31.000 to set up their own fractional reserve bank and they want to be able to create money. 262 00:34:31.000 --> 00:34:37.200 and you know I just got to tell them that that's a very exclusive right that's 263 00:34:37.200 --> 00:34:42.960 guarded very jealously by the US government and they're not going to give 264 00:34:42.960 --> 00:34:48.200 that up and they're not going to you know they're not going to let that go 265 00:34:48.200 --> 00:34:54.000 unless there's a ideological uprising in this country which I think is coming and 266 00:34:54.000 --> 00:34:59.880 it's just it's the key to their power it gives them the ability to write blank 267 00:34:59.880 --> 00:35:10.120 checks to obtain resources and to move elections one way or the other. 268 00:35:10.120 --> 00:35:12.740 We're going at the heart of the matter. 269 00:35:12.740 --> 00:35:22.720 Central banking and fiat money are at the heart of the power of the big brother state. 270 00:35:22.720 --> 00:35:32.000 The ability of the government to wean us off of gold coin money took a very long time. 271 00:35:32.000 --> 00:35:37.400 They had to prepare for several years before they could get the Federal Reserve Act passed 272 00:35:37.400 --> 00:35:38.400 in 1913. 273 00:35:38.400 --> 00:35:44.800 They actually had to draw up the legislation in secret with the big bankers and the powerful 274 00:35:44.800 --> 00:35:46.760 senators. 275 00:35:46.760 --> 00:35:55.800 and then they had the Federal Reserve in 1913, but it was a gold-backed Federal Reserve. 276 00:35:55.800 --> 00:36:02.120 Then the Fed ended up causing the boom of the 20s and the Great Depression of 1929 and 277 00:36:02.120 --> 00:36:11.680 early 1930s, which gave a leading cause for the government's ability to take away the 278 00:36:11.680 --> 00:36:12.680 gold. 279 00:36:12.680 --> 00:36:19.940 So after 1935 we didn't have gold, that was all confiscated at a reduced rate and we were 280 00:36:19.940 --> 00:36:28.660 left with basically a paper money with silver backing and it stayed that way until we became 281 00:36:28.660 --> 00:36:35.360 the world reserve currency for the entire globe after World War II and we started abusing 282 00:36:35.360 --> 00:36:41.240 that position by spending too much money and buying too many things in foreign markets 283 00:36:41.240 --> 00:36:50.280 until 1971 when Nixon took us off, closed the gold window and would not exchange the 284 00:36:50.280 --> 00:36:58.080 government's gold for the Federal Reserve notes, the dollar and so that process took 285 00:36:58.080 --> 00:37:01.720 a very long time and it continued on past that. 286 00:37:01.720 --> 00:37:08.680 The Monetary De-Control Acts of 1980 and 1982 also moved us further away from traditional 287 00:37:08.680 --> 00:37:14.840 Banking, things of that nature. It was supposedly a free market move but what it resulted in 288 00:37:14.840 --> 00:37:21.800 is one of the largest increases in the supply of money in our history basically. So it took 289 00:37:21.800 --> 00:37:25.840 a long time even though Americans you know have a hard time with economics and keeping 290 00:37:25.840 --> 00:37:30.800 up with all the stuff, they knew that they were going to have a fight on their hands 291 00:37:30.800 --> 00:37:37.800 with the American people and interest groups that were not centered in New York City or 292 00:37:37.800 --> 00:37:44.620 in Washington D.C., you know, your farmers and your ranchers and your manufacturers and 293 00:37:44.620 --> 00:37:53.620 your miners and your people like that, they know, they know that paper money works against 294 00:37:53.620 --> 00:38:00.120 the interests of people who produce goods and services and so it took them a long time 295 00:38:00.120 --> 00:38:04.760 and it's taken us a long time to turn that fight around on them. 296 00:38:04.760 --> 00:38:10.520 Now, I'd be doing my listeners a disservice if I had Mark Thornton on the phone talking 297 00:38:10.520 --> 00:38:15.280 to him and the opportunity to ask him about his first book, The Economics of Prohibition. 298 00:38:15.280 --> 00:38:19.880 I'd be doing a disservice to my listeners if I didn't bring that book up. 299 00:38:19.880 --> 00:38:22.080 Mark, it's a great book. 300 00:38:22.080 --> 00:38:31.160 It's spawned the phrase, Iron Law of Prohibition, and I had this in my mind long before I ever 301 00:38:31.160 --> 00:38:35.600 Before I heard the phrase or before I heard of you or your book or anything else, I observed 302 00:38:35.600 --> 00:38:43.400 firsthand that when something is prohibited and it's prosecuted the way that we see there, 303 00:38:43.400 --> 00:38:50.200 that it becomes more economical to transport and smuggle smaller, more concentrated parts 304 00:38:50.200 --> 00:38:56.240 of it, whether we're talking about brandy in the 13th century or opiates in the 1800s 305 00:38:56.240 --> 00:39:03.820 for Cocaine in the 1980s. And that's basically, you know, that's kind of the Law of Prohibition, 306 00:39:03.820 --> 00:39:10.280 the Iron Law of Prohibition wrapped up in one phrase. And I should have actually let 307 00:39:10.280 --> 00:39:16.600 you say all those things. But your book was one of the best things I've ever read on that 308 00:39:16.600 --> 00:39:17.600 topic. 309 00:39:17.600 --> 00:39:47.600 Profile Investment Services, Inc., www.profile-financial.com 310 00:39:47.600 --> 00:39:54.200 you know it's something that most people can get their hands around even if they 311 00:39:54.200 --> 00:39:59.520 haven't seen evidence you know in their own personal life as a matter of fact 312 00:39:59.520 --> 00:40:04.120 when when people ask me what I'm famous for I'll mentioned you know the iron law 313 00:40:04.120 --> 00:40:09.520 prohibition and then I'll explain it just as usually explained it and the 314 00:40:09.520 --> 00:40:16.240 most responses I get is you mean nobody had come up with that before and I have 315 00:40:16.240 --> 00:40:46.240 Profile Investment Services, Inc. www.profile-financial.com 316 00:40:46.240 --> 00:40:53.360 and that your property could be taken meant that it was a big risk for most people to 317 00:40:53.360 --> 00:41:01.800 be engaged in rum running or bootlegging or moonshining, all those terms that were developed 318 00:41:01.800 --> 00:41:09.600 to apply to illegal activities associated with the production distribution of alcohol 319 00:41:09.600 --> 00:41:10.600 products. 320 00:41:10.600 --> 00:41:40.600 and that increased risk which was tangible and substantial made for some big changes in the alcohol market and the alcohol market is basically divided into spirits or whiskey, rum, things of that nature, wine and then beer and prior to prohibition, Americans were a beer drinking society, the wine consumption was quite limited to pockets of southern European immigrants 321 00:42:10.600 --> 00:42:18.320 is that beer production fell almost to zero. You could get beer without alcohol in it legally 322 00:42:18.320 --> 00:42:24.000 but you couldn't get regular old-fashioned beer. That just wasn't being produced. It's 323 00:42:24.000 --> 00:42:31.720 too big and cumbersome. You need a lot of equipment and the amount of alcohol that you 324 00:42:31.720 --> 00:42:39.660 end up producing is quite small. But with whisky or spirits, once you produce that product, 325 00:42:39.660 --> 00:42:46.660 The Theory of Money and Credit 326 00:44:09.660 --> 00:44:20.340 The Age of the Cocktail was born and hundreds and thousands of new cocktails were drawn 327 00:44:20.340 --> 00:44:28.780 up or invented during this time in order to counteract the nasty, harmful product that 328 00:44:28.780 --> 00:44:34.780 was available basically and so they put things like orange juice in it to try to protect 329 00:44:34.780 --> 00:45:04.780 Transcription, Profile Investment Services, MSWordDoc, www.profile-financial.com 330 00:45:04.780 --> 00:45:27.780 I also studied the economics of marijuana prohibition, applying the same tool of analysis, and what I found there is that the data that I had, I got it from a government agency that was responsible for growing and tracking the government's marijuana programs, 331 00:45:57.780 --> 00:46:03.260 in the meantime, as the war on drugs became more and more effective in arresting more 332 00:46:03.260 --> 00:46:09.340 and more people and giving them more and more prison sentences, coming up with new detection 333 00:46:09.340 --> 00:46:16.460 devices and so forth, that over about a 12-year period that the potency of marijuana from 334 00:46:16.460 --> 00:46:22.040 this government study increased about 500% and I understand that it's increased even 335 00:46:22.040 --> 00:46:28.880 and further in the meantime is that sort of the prohibition tightening around the 336 00:46:28.880 --> 00:46:36.520 marijuana market continued and one thing to note is that marijuana is in a 337 00:46:36.520 --> 00:46:42.800 relative sense is more like beer than it is like whiskey and it's kind of bulky 338 00:46:42.800 --> 00:46:48.280 it takes a lot of room to grow if you're growing it it's sort of sitting there in 339 00:46:48.280 --> 00:46:58.040 in the open where the police can find it and then it's kind of bulky to move around relative 340 00:46:58.040 --> 00:47:05.420 to other drugs so that while marijuana is kind of like the beer to the alcohol market, 341 00:47:05.420 --> 00:47:10.680 other harder stronger drugs like cocaine and heroin are more like the whiskey component 342 00:47:10.680 --> 00:47:16.400 that are you know much more potent and much more potentially dangerous. 343 00:47:16.400 --> 00:47:23.360 I mean, there's probably more health issues that marijuana helps than it hurts. 344 00:47:23.360 --> 00:47:30.960 But cocaine, heroin and even prescription drugs like OxyContin, those things are very 345 00:47:30.960 --> 00:47:39.360 dangerous and lead to a lot of overdose deaths and emergency room visits and things of that 346 00:47:39.360 --> 00:47:40.360 nature. 347 00:47:40.360 --> 00:47:46.000 So, another thing that we saw as we look at the war on drugs over time is that marijuana 348 00:47:46.000 --> 00:47:56.360 China has become a smaller component of the marketplace and that the more dangerous drugs 349 00:47:56.360 --> 00:48:00.720 take on a bigger and bigger play as a result. 350 00:48:00.720 --> 00:48:08.920 So we've seen more heroin and cocaine, we've seen methamphetamines which is the poor man's 351 00:48:08.920 --> 00:48:15.980 drug and then as those drugs were getting squeezed, what we saw is a lot of people basically 352 00:49:15.980 --> 00:49:21.700 The chaos that prohibitions cause in humanity just really makes me want to weep. 353 00:49:21.700 --> 00:49:28.580 Yeah, it's, you know, Bastiat warns on taking actions, he didn't specifically say drugs, 354 00:49:28.580 --> 00:49:33.160 but he warns on the government actions like that that have repercussions that most people 355 00:49:33.160 --> 00:49:35.580 don't take the time to look at. 356 00:49:35.580 --> 00:49:43.180 On a business end, if you think of meth production in the, you know, it existed, meth existed 357 00:49:43.180 --> 00:49:49.080 in the 70s and in the 80s, in very small amounts, it was not a very popular drug at all, but 358 00:49:49.080 --> 00:49:58.980 in, as the drug war was prosecuted more and more heavy in the 80s, more people figured 359 00:49:58.980 --> 00:50:03.900 out they could, that meth is not hard to make in your basement or in your backyard or whatever, 360 00:50:03.900 --> 00:50:09.260 and so there was a lot of mom and pop meth cookers that popped up out of nowhere and 361 00:50:09.260 --> 00:50:14.960 started supplying the demand, but then in the 90s as the government started cracking 362 00:50:14.960 --> 00:50:22.920 down on the meth labs and up into 2000 when there was a lot of hype about cracking down 363 00:50:22.920 --> 00:50:26.500 on these mobile meth labs and so forth, about 2000. 364 00:50:26.500 --> 00:50:31.340 And so now most of the meth is in the hands of these powerful cartels. 365 00:50:31.340 --> 00:50:35.620 Most of the meth production is done offshore in the hands of powerful cartels. 366 00:50:35.620 --> 00:50:41.140 So, oddly enough, production, because of government action, the production is taken out of the 367 00:50:41.140 --> 00:50:47.820 private mom-and-pop market and pushed into, is pushed overseas, that we've lost the jobs 368 00:50:47.820 --> 00:50:49.660 to overseas, so to speak. 369 00:50:49.660 --> 00:50:53.820 Not only have we lost the jobs to overseas, but we're destroying these countries. 370 00:50:53.820 --> 00:51:01.140 I mean, Colombia, there's been some improvement, I think, lately, but, you know, with our efforts, 371 00:51:01.140 --> 00:51:08.920 The U.S. involvement in Colombia in our prohibition of the cocaine trade nearly brought that entire 372 00:51:08.920 --> 00:51:12.040 country and its government to its knees. 373 00:51:12.040 --> 00:51:20.020 Bolivia, the same way, all the northern South American countries have high levels of corruption, 374 00:51:20.020 --> 00:51:26.180 have high levels of murder because of our policy of enforcing a worldwide drug prohibition. 375 00:51:26.180 --> 00:51:31.120 Now the Central American countries have been infiltrated and these are countries that really 376 00:51:31.120 --> 00:51:38.120 Profile Investment Services, Inc., www.profile-financial.com, www.profile-financial.com, www.google.com, 377 00:52:01.120 --> 00:52:08.480 and you know so you see this rot because of US policy you know Mexico there's a 378 00:52:08.480 --> 00:52:14.000 lot of corruption all of the northern states of Mexico are in trouble with 379 00:52:14.000 --> 00:52:20.760 high murder rates high corruption rates with where police officers and military 380 00:52:20.760 --> 00:52:27.480 officers who try to enforce the laws are being killed and there's a lot of other 381 00:52:27.480 --> 00:52:57.480 The South American drug cartel companies are extending their reach into the United States and so we're seeing this South American crime that's ultimately based on US drug policy that's starting to rot into Southern California and into Houston, places like that where these South American drug cartel companies are extending their reach into the United States and so we're seeing this South American crime 382 00:52:57.480 --> 00:53:27.480 in the United States and killing people and you know in the process of getting their drugs across the border and to their markets and to the retailers that they serve and then of course some of those retailers are drug street gangs and so it's not just a point of entry that they're corrupting but then the drugs and the weapons go to these street gangs which you know ends up causing a lot more violence 383 00:53:57.480 --> 00:54:14.680 Mark, I want to thank you for coming on the show today. 384 00:54:14.680 --> 00:54:17.040 Did you want to give any kind of shout out to anything? 385 00:54:17.040 --> 00:54:21.280 We've already talked about the Mises Institute, but definitely I'll put a link to the Mises 386 00:54:21.280 --> 00:54:23.720 Institute in today's show notes. 387 00:54:23.720 --> 00:54:25.480 Anything else you'd like to give a shout out to? 388 00:54:25.480 --> 00:54:31.120 Well, we have our most important program coming up this summer, Mises University, and that's 389 00:54:31.120 --> 00:54:36.920 a program for basically undergraduate students to come and to learn for a week with the best 390 00:54:36.920 --> 00:54:44.040 Austrian economists, philosophers, so forth, historians, and they get a complete introduction 391 00:54:44.040 --> 00:54:45.700 to the Austrian Economic School. 392 00:54:45.700 --> 00:54:49.400 So if you're out there and you're interested in Austrian Economics and you're a college 393 00:54:49.400 --> 00:54:54.000 student and you would like to talk to other college students who are interested in the 394 00:54:54.000 --> 00:55:00.000 the same thing and to get access to some of the great professors of the Austrian 395 00:55:00.000 --> 00:55:04.000 School and that's a program you want to apply for and the deadline is coming up 396 00:55:04.000 --> 00:55:11.080 very quickly so get in line. And they can do that also at Mises.org. Yes, when 397 00:55:11.080 --> 00:55:16.400 you get a chance maybe this weekend or so just M-I-S-E-S dot O-R-G and go and 398 00:55:16.400 --> 00:55:22.640 explore sign up for the daily articles and you know look for the the senior 399 00:55:22.640 --> 00:55:52.640 scholars of the institute and our programs for students and adults. We have Mises Circles around the country and supporter summit. We just had our 30th anniversary conference and there's a lot of audio and video on there. You probably got about two or three years worth of audio and two or three years of video that you can get a great education in Austrian economics and learn how the world really works and why sometimes it doesn't. 400 00:55:52.640 --> 00:55:58.640 Mises Institute. Mark, thanks a ton for coming on with me today. I appreciate being on. I'd love to do it again.