We are used to distinguish between the public sector and the private sector of the economic
system, of the social system, of human cooperation.
But we have to realize that this distinction is not between two groups or two sectors,
two sections that are on the point of view of the importance of human action of the same
and Weight. There is, on the one hand, human cooperation. Human cooperation is different
from the individuality, let us take this word, of the primitive ages, pre-human ages, of the conditions, of the animal kingdom and so on.
What distinguishes men and what brings about all human civilization and everything that
men have produced is cooperation of people. Cooperation, that means that everybody tries
to contribute something to the improvement of human conditions and not only for himself
but also for others at any expectation that these others will do the same thing and will
make it possible for him to enjoy things which they couldn't have enjoyed if they had been
Cooperation of Man is the thing that brings about civilization and all the improvement
of human conditions which we are enjoying in the life of civilization.
And this is the market, that means a state of affairs in which I am giving something
in order to receive something from you.
I don't know how many of you have some inkling or idea of the Latin language, but in Latin
There was already, long ago, the best description of this situation in the words,
Doe would death, I give in order that you should give.
I contribute something in order that you should contribute something else.
This exchange, this cooperation, which is necessarily exchange,
needs, for reasons which it is not necessary to explain,
some medium of exchange.
That means the individual wants to receive something definite
from somebody else may not be able at the instant to receive precisely the thing which he wants,
and so he is satisfied for the time being with the reception of something which he will later use
in order to bring about the acquisition of the thing which he really wants.
A Medium of Exchange
And this medium of exchange is, like all conditions concerning the activities of men,
a product of the individual's actions.
It is not something what can be freely manipulated by the government.
We have the idea that the institutions of man are either the market, the exchange between
or the government, the institution which in the mind of many people is something superior
to the market and that could exist in the absence of the market.
The truth is that the government that is the recourse to violence, necessarily the recourse
to violence, cannot produce anything, everything that is produced is produced by the activities
of the individuals and is used on the market in order to receive something in exchange
Money or the medium of exchange is something that individuals are choosing in order to facilitate
the exchange of commodities.
And the government interference with the market and with the money results only or appears
only in cases in which the individuals are not prepared to do what they have promised
to do voluntarily. People believe or assume that it is the government that has been responsible
for the development of money. In the decades preceding the First World War, when many countries
And especially in Germany, people were producing all the doctrines that finally resulted in
the tremendous catastrophes of the big and great wars, and they acquired the German economist
Great Fame by declaring and teaching again and again, money is a product of the activities
of the government.
I have not the time to deal very much with it, I want only to say this doctrine resulted
in Germany and the complete breakdown of the monetary system.
And this doctrine will always again reside in the same outcome whenever it will be tried.
Money is not something that the government creates.
Money is a medium of exchange, something that people, when they cannot directly attain by
giving away what they have produced in order to receive what they want to consume, accept
for the time being as a medium of exchange with the intention to exchange it at a later
against the thing which you really want. We have the problem that misleads the thinking
of all of many people. But unfortunately also the thinking of those people who are operating
our governmental and political activities. This is the idea that the quantity of money
Money counts. It is for the individual certainly better to have more money than to have less
money. But it is not for the whole economic system. If you increase the quantity of money,
You do not improve the conditions, you only change something in the exchange ratio between
and the individuals evaluation and those of the thing.
I want to make this more clear by pointing out to a very simple case taking out of our
Daily Affairs. The government wants to improve the conditions of some of its employees. It
wants to pay higher salaries to its employees. As the government itself does not produce
The only method for the government, which could result in success, is to tax the people, to take away from one group of people and to give it to the government employees.
There is no other method, as the government does not produce anything directly.
Everything that is produced and everything therefore that is consumed is produced out
by the activities of the individuals.
Now there is for the government only one method available.
It has to take away from one group of the people and to give it to the other group of
the people.
There's no possibility for the government to improve the conditions of the government and produce in another way than in taking away from the rest of the population and therefore impairing their conditions.
Then what happens is that the prices, there's no reason for changing the prices.
One, if the government takes away something, taxes away, then the taxpayer is forced to
restrict his expenditure and those people to whom the government gives the higher salaries
are now in a position to buy what these other people lose to buy and can no longer buy because
This would be the method that government can resort to if it wants to change the situation
on the market, but there is another way, another method, and the government uses this method.
The government increases the quantity of money.
All the evils under which we are suffering in our market conditions every day are due
Listen to the fact that the government's belief that it is very permissible and natural way
to increase the power of the government to spend to produce the money.
In order to spend more, the government practically have nothing else to do than to give an order
to a printing office, print the quantity of money and give it to us.
If private citizens do this, the government doesn't like it.
The government doesn't like it if every individual would print the money he needs, but the government doesn't.
And this is the monetary problem.
We have the increase in the quantity of money.
The increase in the medium of exchange, the quantity of the medium of exchange, cannot
improve conditions, cannot change conditions otherwise than by making it possible for some
people to pay higher prices and to buy more, therefore, at the expense of other people
who are forced to restrict their spending and to buy less.
And this is, I would say, this is the whole situation and the whole problem.
The governments have some wonderful terms introduced in order to explain this.
They call it, for instance, deficit spending.
The government taxes and, let us say, we are talking about fantastic small country in which
the total amount of government revenue, let us say, is, by taxes, one million of something.
Yes, but the government wants to spend two millions.
The government adds to the million of units it has taxed away from the citizens,
a second million which it has printed especially for this purpose.
And then the result is that an increased quantity of money on the market is exchanged against
a not increased quantity of real goods, of consumers' goods and so on.
And this means that the prices are most necessary for a government that has a group of learned men
try to conceal this very simple relation in using terms that sometimes mean nothing and
sometimes mean precisely the opposite of what is really going on in the economic system.
If we are talking about inflation, what we mean is that the government increases the quantity
of money in order to spend more than it has collected in taxes from the citizens.
The government appears on the market with an additional quantity of money and this, offering
this additional quantity of money in exchange for the various commodities and services which
it wants to buy, brings about a general tendency toward higher prices or what is to say, toward
and a lower purchasing power of the individual monetary unit.
Now the governments have great power.
They use this power in order to conceal this.
Means, there are people who are teaching, writing, talking about somebody else's responsibility
for the increase in prices, for the upward movement of prices.
They are very bad people. Various names are given to them. I don't want to repeat these names. You know them, also, without my proclaiming.
Now, we have to realize historically that people lose everywhere at the beginning, as a medium
of exchange, a definite grind to product.
In books about the conditions in various countries in the past, you find mention what kind of goods and commodities were used in different countries at different ages as a general medium of exchange.
Finally, there remained only the precious metals, gold and silver, and leaving aside
silver that also disappeared as a medium of exchange in the last centuries, the fact that
The main was, there was the commodity gold which was used for as a medium of exchange.
And it, the function of the government consisted in producing small pieces of this medium of exchange
of which the weight and the content was determined by the government offices and acknowledged by the laws and by the courts.
I cannot enter into the whole history of money.
What resulted was the gold standard.
That means that the metal gold was used as a medium of exchange.
The advantage of this system is, of course, is of every system of a not governmental money,
that an increase in the quantity of money did not depend on the decisions of the government.
The advantage of the gold standard is that the quantity of gold available is independent
on the actions and the wishes and the projects and, I would say, the crimes of the various
governments.
Not because gold is yellow and shiny and heavy and so on, but on account of the fact that
the production of gold as the production of everything depends on factors which cannot
be manipulated by the government in the way in which the government can manipulate the
The production of government paper money, for instance.
It does not cost the government to print upon a piece of paper one hundred more than it
costs to print ten or one on this piece of paper.
And the situation of the market, the situation of all human exchanges, the whole economic
system is undermined, is destroyed by the government when they consider it as advisable
to increase the quantity of money by increasing the quantity of government money, this is the whole thing.
The government, in doing this, refers to certain aspects
which are certainly correct from merely a theoretical point of view,
but have nothing at all to do with the problem with which we are operating.
We had by and large, again and again,
attained a situation in which the medium of exchange was something that the government or nobody else could increase at limit, as it wanted, and again and again the government tried to destroy this.
If we are talking, if one is talking about money, one is talking about a field in which the governments were doing the worst things that can be done,
in which the government were doing things, destroying the market, destroying human cooperation,
destroying all peaceful relations between men.
And what we have to realize is this, every kind of human arrangements is in some way
or other connected with money payments and therefore if you destroy the monetary system
of a country or of the whole world, you are destroyed much more than simply one aspect
When you are destroying, in some regard, the basis of all inter-human relations, when you are destroying the momentary system.
We have, for instance, let us talk about the constitutional system.
One of the fundamental institutions of human cooperation
is the system of limiting the expenditures of the government
to the amount adopted by the representatives of the people.
We have the government.
The government needs money for everything that it wants to spend.
And the quantity of money, as the government does not produce anything,
This quantity of money has to be collected by the government by taxes.
The quantity of taxes that the government is permitted to collect is determined in the
constitutional countries by the constitution.
It is the voters, it is the people who declare the government has the right to collect the
and the Definite Quantity of Taxes. This right is not only a right but it is also a duty of the government and to use these taxes according to the purposes determined by the representatives of the people.
All our constitutional laws, all our system of government is based upon this fact that
that a government is not permitted to do something that disagrees with a system of laws that
are representing the moral and the factual ideas and philosophies of our people.
If the government is in a position to increase the quantity of money, all these provisions
become absolutely meaningless and useless.
If it is said that the government is entitled to spend a definite amount of money for keeping people in prisons,
This means something. There is a definite reason for it. All our legal provisions are to some extent, more or less, influenced by the fact that this is the amount of money which is given to the government for this purpose.
But if the government is in a position to increase the quantity of money, then all these
things become merely a theoretical expression of something which has practically no meaning
at all.
The difference between, let us say, the conditions of England in the 18th century and the conditions
of other countries, let us say, for instance, Russia in the 18th century, the difference
This consisted in the fact that while the Russian government was free to take away from
its subjects what it wanted, the British government had to comply with the provisions of a set
of laws that limited the amount of money that the government had the right to collect from
its citizens.
and we have to spend this money precisely according to the wishes of the people.
Now, the situation, all our, the situation of the political aspect of this,
It means all our laws, all our provisions concerning inter-human relations and the relations between
those parts of the population that has the right to interfere by force with the conditions
Provisions of Other People. All these provisions are based upon monetary determinants. And if
you undermine these monetary determinants, you undermine the whole social structure,
Nothing is left than conditions which have not been approved by anybody, by any group
of the population or by any reasonable taking into account the conditions and the future
of Inter-Human Relations.
It is absolutely that you can protect yourself
against the factors that bring about out of this inflationary conditions destruction of the social system.
I want to point out how this really works in some definite cases.
People think that, after all, changes in the purchasing power of the monetary unit are beneficial to some people, or to other people, or to all people.
We may see how it is.
The government inflates. The government brings about an increase in the quantity of money
in the way which I pointed out before. And this brings about a tendency toward higher
What is the result? What does this mean? That there are higher prices. Everybody realizes
that this means different things for different groups of people. It means that some people
People as the prices of the things which they are buying are going up earlier than the prices
of those things which they are selling, that some people are suffering for some time, but
after some time they sell.
It means, I would say this, when there is inflation in a country, the government increases
the quantity of money, then there are sufferings from various people according to the instance
in which the higher the prices of those things which they are buying are changing as against
the prices of those things which they are selling.
Let us say this, that the prices of certain things are going up sooner, the prices of
and other things later, and it can happen that therefore, it happens continuously, that therefore for some time certain groups are suffering and that only after some time they are too losing this disadvantage by getting higher prices for the things which they are selling.
But money has also other functions, let us point out the following conditions.
In a country like the United States, people are saving in the years in which they are
in full vigor and can earn money. They are saving not only in order to meet some unexpected conditions which could develop one day,
They are saving systematically to enjoy in their old age income without working any longer.
People are, for instance, taking out life insurance policies, they are accumulating savings deposits
in order to help. And they are making agreements with their employers according to which the
employers are bound to pay them later definite amounts as pensioners. When there is now an
When inflation is going on, all these people are suffering. Suffering because they are losing continually with the progress of inflation, because the progress of inflation means that the purchasing power of the monetary unit decreases.
All debtors are winning at the expense of the creditors.
Now people may say, of course, the creditors, the rich, are losing on account of the inflation.
The debtors, the poor, are winning. It's not so bad, they say.
From this point of view, they may say the inflation is not bad.
The poor debtors are seeing that their debts become smaller every day in real values,
And the creditors, or the creditors, the rich, if they are losing a little bit because the prices are going up, this does not make so much.
Wonderful. But who are in our economic system the creditors and who are the debtors?
We have still, we are still thinking of conditions as they were 2000 years ago in the Rome, in
the Republic of Rome, in the days of the Grach brothers, or we are thinking of the conditions
The Federal Reserve prevailed in the Middle Ages or until the 19th century, even in other
parts, in all parts of the world.
We think the debtor is the poor man because he has debts.
The creditor is the rich man. He doesn't mean very much of things. Unfortunately, the conditions
in the capitalistic country, in the capitalistic world of today, are precisely the opposite
Who are the creditors and who are the debtors? The creditors, say the people, the creditors
are the rich. But, in our system, the big enterprises is borrowed from the banks and
banks and via the banks from the masses. And who are the creditors in this case? The creditors
are the people who have savings deposits in the banks. The creditors are the people who
who are not familiar with big business, who do not know what kind of stock, of common stock of corporations to buy,
who prefer to buy bonds, government bonds and bonds of corporations, or should be corporations,
And these people precisely because they are foreign to the conditions of the market, foreign to the conditions of the stock exchange, they are the medium classes.
When in the days of Solon in ancient Athens, or in the days of the Grakha brothers in ancient Rome, or even in the 18th century or early 19th century, people were talking about creditors and debtors.
They were justified to consider the creditor as the wealthier and the debtor as the poorer.
And therefore from this point of view one could say after all what does inflation bring about,
improves the conditions of the poor and impairs the conditions of the richer people, but this
is no longer true for the capitalistic system of our day.
In our day, the capitalistic system, the creditors are the masses, the people who have savings
deposits, who have insurance policies, who have the right to collect later when they retire
a pension and so on. All these people are creditors and are therefore interested in the preservation
of the Purchasing Power of the Monetary Unit and the richer people who own the common stock
of corporations, who own whole enterprises who are not yet being transformed into corporations
and so on, these people have normally borrowed money which is also working in their enterprises.
Therefore, it is not correct to assume that the fact that conditions between creditors
and debitors are changed, that this fact brings about today the same effects which it used
is to bring about in pre-capitalistic ages.
Therefore, to give you an example, I will tell you a story.
There was in Austria, once the inflation went up to the end practically,
The monetary unit lost ninety-five or ninety-nine percent of its purchasing power.
A man, a very successful man, who was the manager of one of the biggest enterprises in the country, told me the story.
When I was a young man, he said, when I was in the twenties, I took out an insurance policy,
a life insurance policy.
I had a job in which I earned very much, much more than I needed.
And so I took out an insurance policy, a life insurance, in order to make provision for
And now, I expected at this time that this would make me a well-to-do borrower when I
will have reached my 60th anniversary, when the life insurance policy would be ready for
And now, what happened? As the prices went up and the monetary quantity remained the same,
I have in fact made for many, many decades savings for whom?
For the government to spend and to devastate it and I have nothing else than a quantity of money
which just is sufficient to cover my expenses for one week or something like that.
We must realize that we in the market economy, in the capitalistic system, have all inter-human
All inter-personal relations that are not simply personal and intimate, all inter-personal
relations are expressed, made, commented in money terms, and that the change in the purchasing
The power of money affects everybody and not in such a way that you could say it is good if the purchasing power of the money is going up or is going down.
All our relations, the relations between individuals and the state and the individuals and other individuals are based on money.
One uses it to typically, and this is not only true for the capitalistic countries, this is true for all kinds of conditions.
For instance, one of the predominantly agricultural countries in which the small or medium size farm prevails,
it is usual, necessarily usual, that at the death of the owner of such a farm,
One of his children only takes over the farm, and the other children, the brothers and sisters, are inheriting only an ideal part of the farm.
And the man who gets the fund has to pay out in the course of his life, step by step, the share of the inheritance which is theirs.
That means that the man who hides the fund gets not more and not less than the other members of the family.
But when this is made and arranged by transferring the property to this one heir
and giving to the others claims in money terms against this air, claims that have to be settled
in the course of the years.
Now if there is an inflationary progress this means that every day these shares of the other
The brothers and sisters are shrinking, and the share of the men who got the farm is increasing.
And in the same way you have everywhere changes in the relations of various individuals with
with other individuals, various enterprises with other enterprises and so on, that are
affected by something which couldn't be anticipated in its quantity, which couldn't be anticipated
at all and so on.
The whole economic system, everything, every relation between individuals in the capitalistic
Society is based upon the assumption that the purchasing power of the monetary unit will
not change considerably, will almost by and large remain the same.
And this, if into such a system enters a revolutionary change in the purchasing power of the individual
money, all human relations become distorted.
Everything, every relation depends, every inter-human relation depends as far as it is not purely personal,
it depends on the purchasing power of the monetary unit and on the assumption that this purchasing power will not use considerably.
What these things brought about, I will give you another thing.
There was another example.
There was in a European country,
there was a poor boy, educated in an asylum for orphans,
very well educated because when he had finished his school
in school and his life in the orphanage, he emigrated to the United States and in the United States, in the course of a long life, he accumulated a considerable fortune by selling, producing and selling something which was very successful in America.
When he, after 45 years of living in the United States, he died, he left a considerable fortune.
It was certainly exceptional that everybody left such a fortune of 2 million dollars.
And this man made a will according to which these 2 million dollars had to be given, had to be sent back to Europe in order to establish another kind of such an orphan asylum in which this man had been educated and so on.
It was done, the money was sent back to Europe and according to the usages had to be invested
in bonds of the government of this country and the interest should be paid every year
in order to upkeep this asylum, but the inflation came and the inflation is made out of this
fortune of 2 million dollars invested in European marks or something like that, 0, simply 0.
Did you have the same thing? There were in the European universities, for instance, that existed already for centuries.
There were lots of foundations which were made in the course of the centuries by people who wanted to make it possible for other poor boys to study at the university
and to achieve the same things which they had achieved on account of the good education which they had got at these universities.
And what happened to all these things?
At the University of Vienna in the year 1900, one in the following years, one said the government or the universities decided
and they will reorganize all this. There were hundreds of such small foundations, which
have very small yearly revenue, which were practically not of any value for students
who wanted to study. One made mergers of dozens of such things and had, therefore, about the
In the year 1910 or 1950, one had again a smaller number, but a number of foundations which could make some sense and use for students.
And what happened? Then came all these countries, in Germany, in France, in Austria, in Italy,
The Great Inflations and this inflation destroyed again these investments.
For whose benefit?
For the benefit, of course, of the government, you could say.
But what did the government do with it?
It spent it. It threw it away. It was throwing it away.
We must realize that money can operate, can work only if we have a system in which there is a prevention of the government to manipulate the value of the money.
We have not to ask whether it is better to have a kind of money that has a higher or
a smaller purchasing power per unit.
What we have to realize is that we don't ought to have a system of money in which the value
The value of the monetary unit is in the hands of the government and the government can operate, manipulate the money market in a way in which it wants it to.
Government is the most important institution, you may say.
Government is very important in many regards.
Perhaps one overrates the importance of the government,
but one does not overrate the importance of good government.
But if the government destroys the monetary system, it destroys one, perhaps the most important foundation of inter-human economic cooperation.
And therefore what we have to avoid is that the government should be able, should be permitted
to increase the quantity of money as it wants.
You will ask why should I not say to decrease it because there is no government, there is
There is no danger that it should be done, but of course it means also that it shouldn't
decrease.
It is necessary to prevent people from destroying the monetary system and therefore the quantities.
What we have to do is that the quantity of money shouldn't be manipulated by the government
according to the wishes of those people who want to sacrifice a few minutes or a few hours
or Days or Weeks of Good Life to Conditions of a Very Long Disastrous State of Affairs.
If you print something on a piece of paper, nobody cares, nobody will say it means something.
The inflation consists in the fact that the government changes a law, saying if you have to pay one dollar, the following government has the right to do it according to its own wishes.
If a growing free market economy were on a gold system, the price of gold would constantly
rise since its supply is relatively limited.
How does or how has, what, how would the market deal with this constant deflation?
There is no danger of deflation in this case. The quantity of gold is sufficient because
Suppose we have such arrangements that does it make possible to operate with the quantity
of World Existence. In the practical, there is not the problem of the rising purchasing
power of the monetary union, but the opposite problem.
Could you explain how governmental expansion of the money supply generates the business
cycle?
Can an autonomous expansion of the gold supply in a free market generate a business cycle?
You know, the difficulty in giving a lecture for one hour or less and one problem is that
People are sometimes asking all questions which cannot be pressed into one hour.
The business cycle has some aspects which are very closely connected with the problem which we are discussing here, but it is something else.
The business cycle is developing out of the intention of people to find some monetary solution
of the problem that commodities are not available without any limitations, that we have only
limited quantities of everything.
This is the connection, but everything else makes it some, leads us into some other field
which I wouldn't be possible to deal with.
I realize very well that the connection is very close,
is that the business cycle develops also out of the fact
that people think that it is possible to improve
Conditions of the Supply of Commodities and Services
by changing something in the books,
by changing the rights of different people to get something
and by changing, making changes in the books but not in the real world among the real agents.
How does the free market and money system keep the supply of money proportional to the supply of goods and services?
There is no proportionality that you know. It is not true that the quantity of commodities,
the increase in the quantity of commodities, the increase in wealth and so on requires an
increase in the quantity of money too.
The man who owns more money, does not need more money in the pocket.
The quantity of money of cash holdings does not increase.
On the contrary, it sometimes decreases with the improvement and the progress of wealth.
Therefore, it is not true. We are today, let us say, 100,000 times in better conditions than people were in the Middle Ages.
But we do not need 100,000 times more money. On the contrary.
Comparatively, compared with the purchasing power of the various assets and commodities and services we have, we need less money and not more.
On a free market, if you had a gold money, would there be an inducement to increase the production of gold, the mining of gold?
Wouldn't prices, wouldn't people mine gold if it was profitable?
You see, you are forgetting that the need for real gold, you know,
does not depend on the quantity of our wealth, but on the organization of the monetary problems.
That means, I can only give you in order to direct your attention to a definite point,
It means that comparatively in the countries in which there was less development of transportation
and of business interactions, comparatively the quantity of money was much greater.
That means in Turkey, in the European parts of Turkey, let us say, of a country like Bulgaria,
that until the middle of the 19th century was included in the most backward part of
Europe, in every regard, comparatively with the wealth which in such Bulgaria existed
At that time, there was the quantity of money in circulation, much, much greater than it was in Western Europe, where already there were these conditions that made simple payments possible without the use of gold.
in electronic industries. And since gold is also increasingly being consumed in aerospace research and in electronics and computers, is there any other possible basis for the money system?
Previously, gold and silver were stored in the form of jewelry or artifacts, but now, for the first time, these precious metals are being consumed in irrecoverable uses and convertible.
That means, gold is also used in metals for other purposes, but it could be, the danger is not that there will be a scarcity of gold.
The real problem is that perhaps, we don't know it, perhaps one day one would discover a system
of increasing the quantity of gold available in such an easy way in which one can increase today the quantity of paper.
Perhaps this will work.
And then we will have these generations, we have to solve another problem.
But we can't tell them today what they will have to do, because we don't know the conditions
under which these things will be desirable.
I am pointing out in my theory of money, especially this, perhaps it will be possible.
Say, we will have one day in such a situation, also physicists, the night today, if it is possible, but this we don't want to enter into this problem.
How can we make plans for a state of affairs whose various conditions we do not know?
We assume only that one condition will prevail, but we don't know anything else.
One more question.
This is the $64,000 question.
How can we get the United States back on the gold standard?
This is a very important thing, and it needs only one thing.
It doesn't need anything else than a change in the public opinion.
If today public opinion takes it for simply for granted,
If the government doesn't have enough money, then it prints it.
We are talking about the deficits
which are covered by additional money.
If this were something quite natural,
why is it we are making a great difference
between a government that prints an additional quantity of money
and Parliamentary Institutions that permit this
and the case of an individual that makes the same things.
Why is it possible, why is it permitted,
why is it permissible to a government
to increase the quantity of money.
There are many other things that governments are not permitted to do.
The main thing is that we have to realize that
Government, too, must be subject to definite rules of what is permitted and what is not permitted.