WEBVTT NOTE The Problems of Inflation 1 00:00:00.000 --> 00:00:04.560 I might say a word about this morning's lecture, particularly, and that is it's a slightly 2 00:00:04.560 --> 00:00:08.440 different format than the other lectures. There'll be no separate discussion sessions 3 00:00:08.440 --> 00:00:13.440 following this, and we'll stay right in here for one session until lunchtime. And following 4 00:00:13.440 --> 00:00:19.960 the lecture, there will be an opportunity to ask questions, but please, it's more convenient 5 00:00:19.960 --> 00:00:24.000 if the questions are in written form. So as the question occurs to you during the lecture, 6 00:00:24.000 --> 00:00:28.080 if you please write it down, I'll collect them afterward, and then we'll proceed with 7 00:00:28.080 --> 00:00:58.080 Question and Answer period on that basis. It said, as you know, that behind every great man there is a great woman. Some of you had an opportunity a few minutes ago out of coffee to discover the other half of the Mises combination. We're pleased to have with us today Mrs. Mises along for moral support and her husband and also of course our speaker this morning, Professor 8 00:00:58.080 --> 00:01:05.440 Ludwig von Mises, for many years now at New York University, before that a distinguished 9 00:01:05.440 --> 00:01:10.320 academic career in Europe, first at the University of Vienna and subsequently at the Graduate 10 00:01:10.320 --> 00:01:14.080 Center for International Studies in Geneva. 11 00:01:14.080 --> 00:01:18.920 The Dean, of course, of the Austrian School of Economics, the author of Human Action and 12 00:01:18.920 --> 00:01:26.440 many other works, our speaker this morning, originally, as you see from your schedule, 13 00:01:26.440 --> 00:01:32.560 They plan to speak on property, but because of the tremendous interest centering in questions of money and inflation, 14 00:01:32.560 --> 00:01:37.080 he'd asked me to announce that he would prefer to speak on another topic this morning, 15 00:01:37.080 --> 00:01:42.160 one that I'm sure would be of particular interest, the problems of inflation. 16 00:01:42.160 --> 00:01:47.400 And so, it's my very great pleasure to present to you, Professor Ludwig von Mises. 17 00:01:47.400 --> 00:02:04.400 It is very fashionable today to make silly jokes about our monetary system and especially 18 00:02:04.400 --> 00:02:07.200 about the problem of the gold standard. 19 00:02:07.200 --> 00:02:18.000 There are authors who are writing essays, leave the world to the dentists. 20 00:02:18.000 --> 00:02:25.680 Now the dentists are certainly interested in the world and other people too, but I would 21 00:02:25.680 --> 00:02:31.840 like to attack the problem from the other end and say there is nothing in the world 22 00:02:31.840 --> 00:02:43.160 less fit to serve as money than paper, printed paper, nothing is cheaper and practically 23 00:02:43.160 --> 00:02:56.520 what we have to see is that the governments are destroying the whole economic system of 24 00:02:56.520 --> 00:03:09.920 and Market Economy by destroying the monetary system. 25 00:03:09.920 --> 00:03:20.320 Some years ago, you could read again and again quotations saying that Lenin said that the 26 00:03:20.320 --> 00:03:29.820 The best method to destroy the free enterprise system would be to destroy the monetary system. 27 00:03:29.820 --> 00:03:37.480 Now, Professor in Germany has demonstrated that Lenin never said this, but if he had 28 00:03:37.480 --> 00:03:45.400 said it, it would have been the only correct thing that he ever said. 29 00:03:45.400 --> 00:03:53.000 Now, what we have to realize is this. 30 00:03:53.000 --> 00:03:57.400 Money is a market phenomenon. 31 00:03:57.400 --> 00:04:02.840 That means money is a medium of exchange. 32 00:04:02.840 --> 00:04:15.360 And in the course of the historical evolution, various commodities have been employed for 33 00:04:15.360 --> 00:04:29.360 had the service of a medium of exchange until finally only two commodities remained, precious metals, silver and gold, 34 00:04:29.360 --> 00:04:44.360 and then in the course of the 19th century also silver disappeared from its service as a medium of exchange and what remained was gold alone. 35 00:04:44.360 --> 00:05:06.640 Now, the quality that makes gold fit for the service is precisely the fact that the quantity 36 00:05:06.640 --> 00:05:14.760 The theory of gold cannot be manipulated by the government. 37 00:05:14.760 --> 00:05:21.440 The quantity of money is the decisive problem. 38 00:05:21.440 --> 00:05:40.920 And what the governments are doing is either to retain the character of gold as a medium 39 00:05:40.920 --> 00:05:52.560 of Exchange, and to make it possible for people to operate such a standard, or, and this is 40 00:05:52.560 --> 00:06:00.760 the reason that we have to deal with all these problems in such a way as we have to deal 41 00:06:00.760 --> 00:06:09.360 with them today, or the government employ the monetary system for the destruction of 42 00:06:09.360 --> 00:06:16.280 of the Money Economy. 43 00:06:16.280 --> 00:06:26.320 If a government doesn't know what to do, it wants to bribe the people by paying something 44 00:06:26.320 --> 00:06:28.320 to it. 45 00:06:28.320 --> 00:06:38.240 Paying without having collected the means required for this payment by taxation. 46 00:06:38.240 --> 00:06:43.440 And this means, this is what the governments are doing, this is inflation, you know. 47 00:06:43.440 --> 00:06:56.080 If we hear today the governments talk about inflation, they describe inflation as something 48 00:06:56.080 --> 00:07:05.640 that happens, one doesn't know why, or another version, that is due to the activities, to 49 00:07:05.640 --> 00:07:07.760 the bad actions of the people. 50 00:07:07.760 --> 00:07:31.240 Let us take the most popular case, the problem of foreign exchange. 51 00:07:31.240 --> 00:07:42.240 We have today a situation in which the various governments in their inflationary measures 52 00:07:42.240 --> 00:07:45.160 do not act in concert. 53 00:07:45.160 --> 00:07:52.240 That means one government goes farther in its inflationary measures and the other government 54 00:07:52.240 --> 00:07:55.840 does not go as far as these other governments. 55 00:07:55.840 --> 00:08:05.280 and therefore there are continually changes in the mutual exchange ratios of the various 56 00:08:05.280 --> 00:08:11.480 countries governmental money. 57 00:08:11.480 --> 00:08:21.120 I want to, as the time is very limited for the interpretation of such a complicated problem, 58 00:08:21.120 --> 00:08:25.680 The most important, practically today the most important problem. 59 00:08:25.680 --> 00:08:39.440 I want to enter immediately into a criticism of the popular governmental doctrine of the 60 00:08:39.440 --> 00:08:50.640 balance of payments according to the ideas of the government, the various governments 61 00:08:50.640 --> 00:09:01.480 or let us also say of the American government as manifested in its plans and measures of 62 00:09:01.480 --> 00:09:04.480 the last months. 63 00:09:04.480 --> 00:09:15.560 The reason why the prices expressed in dollars are going up quicker than prices expressed 64 00:09:15.560 --> 00:09:27.320 and some other currencies is due, of course, to you, to the people. 65 00:09:27.320 --> 00:09:31.280 The people is responsible. 66 00:09:31.280 --> 00:09:37.320 People are responsible because they are drinking champagne, 67 00:09:37.320 --> 00:09:41.680 because they are traveling to foreign countries. 68 00:09:41.680 --> 00:09:50.800 Why do they speak about champagne and about traveling in foreign countries? 69 00:09:50.800 --> 00:09:57.200 Because these are, as the governments consider it, luxury things. 70 00:09:57.200 --> 00:10:05.120 Therefore, what the government does is simply say, look at these bad people who are drinking champagne. 71 00:10:05.120 --> 00:10:09.920 They are responsible for the inflation, for the higher prices. 72 00:10:09.920 --> 00:10:15.680 They are responsible for all evils under the sun. 73 00:10:15.680 --> 00:10:27.720 What the government does not say is that these people, 74 00:10:27.720 --> 00:10:31.080 if they are prevented from drinking champagne 75 00:10:31.080 --> 00:10:35.560 and, therefore, sending money to France, 76 00:10:35.560 --> 00:10:39.320 would spend for something else. 77 00:10:39.320 --> 00:10:47.120 They would either invest this money or they would spend this money for consumption. 78 00:10:47.120 --> 00:10:56.800 They would not take the dollars which they are using today according to the ideas of the government for drinking champagne. 79 00:10:56.800 --> 00:11:03.080 They will not put these dollars into a package and send this package to the government 80 00:11:03.080 --> 00:11:13.080 Incentive here have more money for paying the deficits of your enterprises of the post office for instance and so on. 81 00:11:13.080 --> 00:11:15.080 They would buy something else. 82 00:11:15.080 --> 00:11:27.080 If they are buying something else on the domestic market, the prices of these things would go up on account of the fact that there is now a greater demand for it. 83 00:11:27.080 --> 00:11:36.080 And these things would become less available, less fit for exporting. 84 00:11:36.080 --> 00:11:44.080 Therefore, if you prevent people from spending the money abroad, 85 00:11:44.080 --> 00:11:55.080 then they will spend the money on the domestic market, either for consumption or for investment. 86 00:11:55.080 --> 00:12:05.680 But whatever they are doing, they will bring about higher prices for some things which previously were exported. 87 00:12:05.680 --> 00:12:08.920 And these things will no longer be exported. 88 00:12:08.920 --> 00:12:21.240 If the governments were consistent in their ideas, they would make all impacts impossible. 89 00:12:21.240 --> 00:12:26.480 and what will the people do with the money? 90 00:12:26.480 --> 00:12:30.560 They will buy more on the domestic market. 91 00:12:30.560 --> 00:12:34.240 They will bring about higher prices on the domestic market, 92 00:12:34.240 --> 00:12:36.840 either of consumer's goods or of producer's goods. 93 00:12:36.840 --> 00:12:42.120 There is no such group of commodities. 94 00:12:42.120 --> 00:12:56.520 and they would restrict exports to the same extent that they are important imports, necessarily. 95 00:12:56.520 --> 00:13:06.720 If the governments were consequent and could be consistent in this regard, they would prevent 96 00:13:06.720 --> 00:13:18.200 Every business with foreign countries, then every country will remain isolated economically 97 00:13:18.200 --> 00:13:23.520 and prices will go up on account of the fact that the government increases the quantity 98 00:13:23.520 --> 00:13:27.640 of domestic money. 99 00:13:27.640 --> 00:13:40.760 If this is done in a consistent way, it would bring about a restriction, complete end of 100 00:13:40.760 --> 00:13:45.240 international trade. 101 00:13:45.240 --> 00:13:58.120 The way in which the American government deals with the problem is only one of the ways in 102 00:13:58.120 --> 00:14:01.520 which the government justifies the action. 103 00:14:01.520 --> 00:14:13.720 This is the way of the luxury excuse, but there is a second way for countries in which 104 00:14:13.720 --> 00:14:27.240 The imports consist predominantly of goods that are considered as necessary and indispensable 105 00:14:27.240 --> 00:14:29.320 by public opinion. 106 00:14:29.320 --> 00:14:41.800 In such countries, for instance, these countries are all those European countries that are 107 00:14:41.800 --> 00:14:50.600 are predominantly industrial, exporting industrial products, manufactures, in order to import 108 00:14:50.600 --> 00:14:53.640 food and raw materials. 109 00:14:53.640 --> 00:15:07.080 In such countries they say what is responsible for our unfavorable development of foreign 110 00:15:07.080 --> 00:15:20.360 and Exchange Rate is the fact that we are poor insofar as we cannot produce on our own territory 111 00:15:20.360 --> 00:15:28.520 all the foodstuffs and raw materials we need and have to import them. 112 00:15:28.520 --> 00:15:35.360 These other nations, the heavy nations, are exploiting us. 113 00:15:35.360 --> 00:15:47.360 This is the version which, for instance, was used by Mussolini in order to justify his aggression. 114 00:15:47.360 --> 00:15:52.360 Why must we go to war against other countries? 115 00:15:52.360 --> 00:16:07.360 Because we are forced to import things which are absolutely necessary for the support of 116 00:16:07.360 --> 00:16:11.280 the life and health and so on of our population. 117 00:16:11.280 --> 00:16:25.640 You see, the result of all these policies would be more and more self-sufficiency or to use 118 00:16:25.640 --> 00:16:37.040 a foreign word, a Greek word, which is mostly pronounced in the wrong way outside of Greece, 119 00:16:37.040 --> 00:16:50.040 Autarky, autarkic, I mention this word because you will find it very often used in all articles 120 00:16:50.040 --> 00:16:57.160 and books dealing with these problems. 121 00:16:57.160 --> 00:17:08.360 Now why is this bad, can this bad situation only develop between national units and not 122 00:17:08.360 --> 00:17:11.400 within the national unit? 123 00:17:11.400 --> 00:17:25.480 In Europe, there are several governments of several nations, the population of which is 124 00:17:25.480 --> 00:17:33.120 either smaller or not much larger than the population of many American states. 125 00:17:33.120 --> 00:17:47.160 Why don't you hear the same complaints which you hear about, let us say, the comportment 126 00:17:47.160 --> 00:17:53.560 of some people who are buying champagne and are therefore enriching France and impoverishing 127 00:17:53.560 --> 00:18:02.640 of the United States, why don't you hear the same thing about the various American states? 128 00:18:02.640 --> 00:18:15.520 Because the various states of the Union have no independent monetary policy, can therefore 129 00:18:15.520 --> 00:18:26.240 You must not make an inflation in Iowa that is not at the same time and to the same extent 130 00:18:26.240 --> 00:18:32.400 also an inflation in 49 other states of the Union. 131 00:18:32.400 --> 00:18:34.720 And you must not go to the states. 132 00:18:34.720 --> 00:18:40.640 When you say, when people say what is bad interrelation between the United States and 133 00:18:40.640 --> 00:18:47.600 France is, is that France produces and sells to the United States only goods which are 134 00:18:47.600 --> 00:18:57.280 very frivolous, very bad goods, immoral goods, books, novels, theatrical performance in Paris, 135 00:18:57.280 --> 00:19:04.040 opera production and concerts in Paris, and champagne, you know, which is the worst of 136 00:19:04.040 --> 00:19:05.040 all these things. 137 00:19:05.040 --> 00:19:13.040 You could say the same thing also between, let us say, Brooklyn and Manhattan. 138 00:19:13.040 --> 00:19:23.040 Manhattan sells theatrical performances, concerts and so on in a greater number to the people from Brooklyn. 139 00:19:23.040 --> 00:19:28.760 These people of Brooklyn are spending, this other man in Brooklyn says, 140 00:19:28.760 --> 00:19:39.640 why does my neighbor spend his money to attend the performance of an opera in Manhattan? 141 00:19:39.640 --> 00:19:44.800 Why does he not spend his money in Brooklyn? 142 00:19:44.800 --> 00:19:50.880 And if you go step by step farther in the same direction, 143 00:19:50.880 --> 00:20:00.040 To arrive to perfect autarky, self-sufficiency, isolation, economic isolation of every individual 144 00:20:00.040 --> 00:20:09.120 family and perhaps even within the family, one could say, why should not a boy say against 145 00:20:09.120 --> 00:20:18.120 his brother or sister or against his parents, I want to be autarkic, for the same reasons 146 00:20:18.120 --> 00:20:28.280 consequently and consistently developed for which one of the countries in the world wants 147 00:20:28.280 --> 00:20:34.120 to be autarkic and prevents the importation of things from other countries. 148 00:20:34.120 --> 00:20:43.200 It is one of the many things, of the many contradictions which we have in our not economic 149 00:20:43.200 --> 00:20:46.920 system, in our political system. 150 00:20:46.920 --> 00:20:56.440 The dreadful contradiction that, for instance, only to refer to one point in order to explain 151 00:20:56.440 --> 00:21:03.680 you what I have in mind, dreadful contradiction that, for instance, the American government 152 00:21:03.680 --> 00:21:16.560 says we have to wage war against poverty, so many people are poor and we must make them 153 00:21:16.560 --> 00:21:26.120 and this government taxes the people in order to make bread more expensive. 154 00:21:26.120 --> 00:21:33.160 And you will say also bread more expensive, this is an exception, it's not an exception, 155 00:21:33.160 --> 00:21:39.240 because the American government spends also billions of tax money in order to make cotton 156 00:21:39.240 --> 00:21:41.200 more expensive. 157 00:21:41.200 --> 00:21:45.760 Cotton goods, cotton goods are certainly, or they were in the past, cotton goods are 158 00:21:45.760 --> 00:21:52.200 are certainly not luxury goods, they are perhaps luxury goods when compared with bread, but 159 00:21:52.200 --> 00:21:57.200 with bread the government makes the same policy. 160 00:21:57.200 --> 00:22:02.600 But we must not refer to this point. 161 00:22:02.600 --> 00:22:22.160 The thing is that the individual cannot do anything that makes the inflationary machine 162 00:22:22.160 --> 00:22:24.400 and mechanism work. 163 00:22:24.400 --> 00:22:27.440 This is done by the government. 164 00:22:27.440 --> 00:22:30.040 The government makes the inflation. 165 00:22:30.040 --> 00:22:36.760 If the government complains about the fact that prices are going up and appoints committees 166 00:22:36.760 --> 00:22:47.760 of learned men to fight against inflation, we have only to say, nobody else, then the 167 00:22:47.760 --> 00:22:52.360 government brings about inflation. 168 00:22:52.360 --> 00:23:07.360 If the government wants to spend, the government has two ways that do not make inflation, that 169 00:23:07.360 --> 00:23:13.000 do not destroy the monetary system and the market organization. 170 00:23:13.000 --> 00:23:26.520 It can tax the citizens, you know what this means, or it can borrow from somebody who 171 00:23:26.520 --> 00:23:35.000 has the money, you know, but if the government prints simply the money, increases the quantity 172 00:23:35.000 --> 00:23:47.040 Or borrows from the commercial banks by forcing them to credit the government on checking 173 00:23:47.040 --> 00:23:48.040 accounts. 174 00:23:48.040 --> 00:24:02.400 Then there is a greater quantity of money available and available in an environment, 175 00:24:02.400 --> 00:24:10.720 in a milieu in which the quantity of goods and services did not increase. 176 00:24:10.720 --> 00:24:19.960 On the one hand, the government increases the quantity of money, on the other hand, the 177 00:24:19.960 --> 00:24:25.520 government has not the power to increase the quantity of goods. 178 00:24:25.520 --> 00:24:37.440 And the result is that the exchange ratio is changed, and the result is higher prices, 179 00:24:37.440 --> 00:24:45.440 and the government says higher prices, look these people, look this corporation, this 180 00:24:45.440 --> 00:24:53.360 bad man, the president of this corporation, even if the government, I don't want to talk 181 00:24:53.360 --> 00:25:01.200 about the unions, but also if the government blames the unions, we have to realize what 182 00:25:01.200 --> 00:25:12.000 the unions cannot do is to increase the quantity of money, and therefore all the activities 183 00:25:12.000 --> 00:25:21.960 of the unions are within the frame that is built by the government in influencing the 184 00:25:21.960 --> 00:25:37.040 If the government issues additional money for a wonderful purpose, let us say, the government 185 00:25:37.040 --> 00:25:49.880 wants, for instance, let us say, to make it possible for everybody to spend some time in 186 00:25:49.880 --> 00:26:01.680 in Paris Drinking Champagne, and the French are nice enough to say, we will take your 187 00:26:01.680 --> 00:26:05.160 American paper dollars. 188 00:26:05.160 --> 00:26:06.960 What will the result be? 189 00:26:06.960 --> 00:26:17.320 There will be on the market a higher quantity of this American money and this higher quantity 190 00:26:17.320 --> 00:26:24.040 The Theory of Money will necessarily bring about a change in the exchange ratio between 191 00:26:24.040 --> 00:26:40.960 the various goods and services on the one hand and the monetary unit on the other hand. 192 00:26:40.960 --> 00:26:47.720 This is the problem which we have to take into account. 193 00:26:47.720 --> 00:26:56.680 And now the government says, or let us say, it's not the government, it is the servants 194 00:26:56.680 --> 00:27:08.840 of the government, they say, yes, who is against this increase in the quantity of money? 195 00:27:08.840 --> 00:27:20.840 Who is it, the rich people, who are doing something very useful, necessary and beneficial for the masses? 196 00:27:22.840 --> 00:27:35.840 Why? Because if the quantity of money increases and therefore the purchasing power of the monetary unit, 197 00:27:35.840 --> 00:28:03.840 The popularly called in this country the dollar decreases, this means that the burden of debt becomes easier, that the poor debtors are favored at the expense of the rich creditors. 198 00:28:03.840 --> 00:28:07.840 Wonderful idea. 199 00:28:07.840 --> 00:28:12.000 And it was what the government says, what the American government says in this direction 200 00:28:12.000 --> 00:28:26.440 or some people say, it was perfectly correct 2,500 years ago in the city of Athens when 201 00:28:26.440 --> 00:28:39.040 The wise man Solon had to deal with some problems which we in our language, which we use today, would call social problems. 202 00:28:39.040 --> 00:28:49.640 At that time, the debtor was typically the poor man, and the creditor was the rich man. 203 00:28:49.640 --> 00:29:12.640 If these people said, if Salerno said, I have made a reform in favor of the poor, straighter of the population and for the benefit and at the expense of the richer groups, he was perfectly right. 204 00:29:12.640 --> 00:29:17.640 So there were many reformers in later ages, you know. 205 00:29:17.640 --> 00:29:26.640 But under capitalistic conditions, it is very different. 206 00:29:26.640 --> 00:29:44.640 In the pre-capitalistic ages, people who were creditors were rich people. 207 00:29:44.640 --> 00:29:50.640 And you could say that the debtor is a poor man. 208 00:29:50.640 --> 00:30:00.640 But we do no longer live in the days of Solon of Athens, unfortunately some people may say, 209 00:30:00.640 --> 00:30:07.640 and we do no longer live under the conditions in which the authors in the Middle Ages 210 00:30:07.640 --> 00:30:12.640 and in the 16th and 17th century dealt with these problems. 211 00:30:12.640 --> 00:30:24.320 Capitalism has enriched the masses, not all of them, of course, because capitalism has 212 00:30:24.320 --> 00:30:35.400 still to fight with the hostility of the governments, but under capitalistic conditions, it is no 213 00:30:35.400 --> 00:30:48.720 It is no longer true that the creditors are the rich and the debtors are the poor. 214 00:30:48.720 --> 00:31:00.400 Capitalism has developed a great system of making possible for the masses of the poorest 215 00:31:00.400 --> 00:31:03.840 rate of the population, that means of the people who have less. 216 00:31:03.840 --> 00:31:13.120 I don't want to say that they are poor in the sense in which one uses the term, I want 217 00:31:13.120 --> 00:31:22.280 only to say they are poorer than the rich people, than the entrepreneurs and so on. 218 00:31:22.280 --> 00:31:31.560 And capitalism has developed a system in which these people are in a position to save and 219 00:31:31.560 --> 00:31:44.560 to invest indirect savings in the operation of business. 220 00:31:44.560 --> 00:31:57.520 The rich people are owners, for instance, of common stock of a corporation. 221 00:31:57.520 --> 00:32:13.040 But the corporations owe money either because they have issued bonds, corporate bonds, or 222 00:32:13.040 --> 00:32:23.040 because they have a current connection with a bank in employing and the conduct of their 223 00:32:23.040 --> 00:32:28.440 and their first money lent to them by the banks. 224 00:32:28.440 --> 00:32:35.840 And the banks have this money from the savings account of simple citizens. 225 00:32:35.840 --> 00:32:49.800 The masses, the great people, whom we call less wealthy than the richer people, have 226 00:32:49.800 --> 00:33:00.920 have invested their savings in savings deposits and wants in insurance policies and so on. 227 00:33:00.920 --> 00:33:13.400 And they are therefore creditors, while the great millionaires, the owners of real estate, 228 00:33:13.400 --> 00:33:25.680 The owners of common stock and so on are, in this regard, debtors. 229 00:33:25.680 --> 00:33:39.240 And if you do something, as all the governments practically do, if you do something against 230 00:33:39.240 --> 00:33:52.560 The purchasing power of the monetary unit, you are hurting today under present-day conditions. 231 00:33:52.560 --> 00:34:02.440 Not the rich, but you are hurting the middle classes and the masses of people who are saving 232 00:34:02.440 --> 00:34:31.560 Therefore, one of the greatest changes brought about by capitalism is precisely this, the 233 00:34:31.560 --> 00:34:56.560 The part that the less fortunate, I don't want to use the term the poorest, the less fortunate groups of the population at all, have, is legally, in the sense in which we are talking about creditors and debtors, 234 00:34:56.560 --> 00:35:02.880 have an activity of the masses. 235 00:35:02.880 --> 00:35:12.680 And if the government, and if there are certain smaller exceptions. 236 00:35:12.680 --> 00:35:18.000 And one of the exceptions in this country is precisely the fact that the government 237 00:35:18.000 --> 00:35:33.820 gives special privileges to the rich in order to attract them to the market of government 238 00:35:33.820 --> 00:35:34.820 bonds. 239 00:35:34.820 --> 00:35:46.080 Government bonds are to some extent tax-free, it is a very complicated system but it is 240 00:35:46.080 --> 00:35:55.440 One could call it simply a system, they have privileges in the way of taxes in order to 241 00:35:55.440 --> 00:36:04.440 make also the wealthier state of the population to be interested in buying government bonds 242 00:36:04.440 --> 00:36:10.160 and in this way to make it possible for the government to spend more. 243 00:36:10.160 --> 00:36:24.680 But if the government, by and large, we have to say, the much greater part of the privileges 244 00:36:24.680 --> 00:36:39.200 of the benefits, under quotation marks, benefits, which the people derive from the inflationary 245 00:36:39.200 --> 00:36:48.160 Policy does not go to the masses but on the contrary is paid by the masses. 246 00:36:48.160 --> 00:37:01.800 That means, to give you an example, I don't want to refer to Germany because the German 247 00:37:01.800 --> 00:37:15.800 And inflation was really so excessive and so crazy, and so done without any idea of economic wisdom, 248 00:37:15.800 --> 00:37:18.800 that I don't want to talk about it at all. 249 00:37:18.800 --> 00:37:43.800 But take France. Not so long ago, the French government had to declare what we call today 100 francs is from tomorrow on only one franc, you know, and this was not the first time that they did it and it was not the last time. 250 00:37:43.800 --> 00:37:58.080 It means that the French government has deprived the great number of middle class and lower 251 00:37:58.080 --> 00:38:05.160 class Frenchmen of their savings. 252 00:38:05.160 --> 00:38:14.520 The interest, everything that is done by a government against the purchasing power of 253 00:38:14.520 --> 00:38:26.600 the monetary unit is under present-day conditions done against the middle classes and the working 254 00:38:26.600 --> 00:38:34.880 classes of the population, only that these people don't know it, and this is a tragedy. 255 00:38:34.880 --> 00:38:43.680 The tragedy is that the unions and all these peoples are supporting a policy that makes 256 00:38:43.680 --> 00:38:47.840 all these savings valueless. 257 00:38:47.840 --> 00:38:57.400 And this is the great danger of the whole situation. 258 00:38:57.400 --> 00:39:07.280 that people are destroying the purchasing power of the monetary unit is not only to be seen 259 00:39:07.280 --> 00:39:18.040 and to be judged and appreciated from the point of view of what is done to current incomes 260 00:39:18.040 --> 00:39:24.880 Consumptions and Current Consumption Habits, it has to be seen also from the point of view 261 00:39:24.880 --> 00:39:46.640 of the accumulation of reserves and of private ownership by the masses. 262 00:39:46.640 --> 00:40:02.240 That such movements as the revolutionary movements in various European countries developed was 263 00:40:02.240 --> 00:40:13.360 due to the fact that one day the people had to discover that what they have saved to all 264 00:40:13.360 --> 00:40:20.760 in order to improve the conditions of the members of their families, in order to improve 265 00:40:20.760 --> 00:40:31.840 the conditions of their children and grandchildren, that all this has disappeared, entirely disappeared 266 00:40:31.840 --> 00:40:38.480 by the monetary policy which the governments had adopted. 267 00:40:38.480 --> 00:40:46.160 I say entirely disappeared because, take this French example which I mentioned, 100 francs 268 00:40:46.160 --> 00:40:54.160 are only one franc today, that means if it had been the only time that this was done 269 00:40:54.160 --> 00:40:59.640 in France, it was done several times, I can't enter into the whole history of this, but 270 00:40:59.640 --> 00:41:10.520 It means that nothing is left because the number of people who could consider as something 271 00:41:10.520 --> 00:41:22.600 valuable, one percent of their life savings is very small, practically non-existent. 272 00:41:22.600 --> 00:41:32.040 Therefore, what the individual American has to realize if he deals with these problems 273 00:41:32.040 --> 00:41:45.600 is that a policy of inflation, a policy which reduces the purchasing power of the monetary 274 00:41:45.600 --> 00:42:02.000 of the Unit makes it impossible for him to organize his working, earning, and spending 275 00:42:02.000 --> 00:42:12.640 and saving in such a way that he could provide for the future of his family. 276 00:42:12.640 --> 00:42:30.760 This is why inflationary policy is the most radical revolutionary institution in the world. 277 00:42:30.760 --> 00:42:41.040 We have to realize this and we have to change the opinion of the people who believe that 278 00:42:41.040 --> 00:42:49.400 But the problem of the gold standard means something that concerns only groups of business, 279 00:42:49.400 --> 00:42:54.200 small groups of the people and so on. 280 00:42:54.200 --> 00:43:10.640 If we want to have a system in which the individual can plan for his own life and for the life 281 00:43:10.640 --> 00:43:31.200 If we want to have a system in which people can say, if I have the opportunity to work 282 00:43:31.200 --> 00:43:41.920 and to save, I will improve my own conditions and the conditions of my family. 283 00:43:41.920 --> 00:43:52.440 Then you can have a regular system of what one used to call bourgeois security ones. 284 00:43:52.440 --> 00:44:08.200 But if the governments destroy again and again the savings of their citizens, they bring 285 00:44:08.200 --> 00:44:20.080 about a situation in which people do what these people in the various communist countries 286 00:44:20.080 --> 00:44:34.080 and in which you think, in which you hear of violence and actions of destruction again 287 00:44:34.080 --> 00:44:36.580 and again. 288 00:44:36.580 --> 00:44:47.920 You have to realize that there are no miracles possible for government, that the government 289 00:44:47.920 --> 00:45:01.320 is not in a position to spend something that it didn't previously collect from its citizens. 290 00:45:01.320 --> 00:45:12.120 And in order to avoid the visible collection, the governments prefer invisible collection. 291 00:45:12.120 --> 00:45:20.880 And then they say, you see, you never had it so good as you have today, right? 292 00:45:20.880 --> 00:45:31.440 Because when you are looking backward at the end of the year, on the past year, you say 293 00:45:31.440 --> 00:45:37.880 now my income increased by several percents. 294 00:45:37.880 --> 00:45:40.360 Why did it increase? 295 00:45:40.360 --> 00:45:46.000 Because the government, it's very modest the government, the government says not because 296 00:45:46.000 --> 00:45:53.560 we printed the money, the government says because everything is so wonderful when we 297 00:45:53.560 --> 00:45:56.880 are dealing with these systems. 298 00:45:56.880 --> 00:46:04.160 And therefore all these, if you read in the newspapers these wonderful stories about paper 299 00:46:04.160 --> 00:46:10.200 gold, nobody knows what paper gold is, you know, there are paper cigarettes, but paper 300 00:46:10.200 --> 00:46:30.200 The goal is something which the government promises, perhaps, but there is no thing that can really achieve these things. 301 00:46:30.200 --> 00:46:40.760 And then I want to add something which is also very important to realize. 302 00:46:40.760 --> 00:46:51.240 There is no way of increasing the quantity of money, although decreasing, but nobody 303 00:46:51.240 --> 00:46:54.680 talks of decreasing openly, they only do it. 304 00:46:54.680 --> 00:46:59.720 There is no way of increasing the quantity of money in a neutral way. 305 00:46:59.720 --> 00:47:03.520 It means, money can never be neutral. 306 00:47:03.520 --> 00:47:13.240 If the government says, and this is one of the great mistakes that are very popular, 307 00:47:13.240 --> 00:47:22.560 people say as conditions are improving, one needs more and more money. 308 00:47:22.560 --> 00:47:27.520 One doesn't need more and more money. 309 00:47:27.520 --> 00:47:36.200 And if one increases the money, one can never increase the quantity of money in a neutral 310 00:47:36.200 --> 00:47:37.200 way. 311 00:47:37.200 --> 00:47:47.200 That means in a way that does not further the economic conditions of one group at the 312 00:47:47.200 --> 00:47:53.400 expense of other groups. 313 00:47:53.400 --> 00:48:04.520 This is, for instance, something which this great, I don't find a nice word to describe 314 00:48:04.520 --> 00:48:12.360 it, let us say this great error in starting the International Monetary Fund didn't realize. 315 00:48:12.360 --> 00:48:20.360 Even this dreadful ignoramus who was called Lord Cain had not the slightest idea of it, 316 00:48:20.360 --> 00:48:44.000 The idea is this, if there is an international bank issuing a world money for all countries, 317 00:48:44.000 --> 00:48:50.280 and now they say we want to increase the quantity of money. 318 00:48:50.280 --> 00:48:55.480 Because, they say, because there are now more people born. 319 00:48:55.480 --> 00:48:56.960 All right. 320 00:48:56.960 --> 00:48:59.800 Give it to them. 321 00:48:59.800 --> 00:49:07.040 Then, the question is, who gets the additional money? 322 00:49:07.040 --> 00:49:09.920 And the same is true for the problem 323 00:49:09.920 --> 00:49:14.840 if there are lots of books of so-called economists 324 00:49:14.840 --> 00:49:16.720 who are publishing textbooks, 325 00:49:16.720 --> 00:49:18.480 and in every edition of the textbook, 326 00:49:18.480 --> 00:49:26.480 In every new edition, they give another figure for the yearly increase of the quantity of money. 327 00:49:26.480 --> 00:49:30.480 For us, we said 8%, 6%, 5%. 328 00:49:30.480 --> 00:49:35.480 This is useless to know. 329 00:49:35.480 --> 00:49:44.480 The thing is that the question would always be, to whom give you this additional quantity? 330 00:49:44.480 --> 00:49:55.480 Because if the additional quantity is given to somebody else, your conditions are impaired. 331 00:49:55.480 --> 00:50:06.480 Let us say this, the idea of the international bank again and again was, there are poor countries in the world. 332 00:50:06.480 --> 00:50:13.480 Yes, there are. Give them additional money. 333 00:50:13.480 --> 00:50:28.680 This additional money means that somebody has the power to buy more than he bought yesterday. 334 00:50:28.680 --> 00:50:36.040 And this brings prices going up. 335 00:50:36.040 --> 00:50:48.640 This means that those people who didn't get the additional money are now not only in the same situation they were yesterday, 336 00:50:48.640 --> 00:51:03.280 this wouldn't be, no, they are now in a poorer position, they are worse because their quantity of money in their pockets did not increase, 337 00:51:03.280 --> 00:51:06.480 But prices did increase, you know. 338 00:51:06.480 --> 00:51:19.240 This is the problem that people never understood. 339 00:51:19.240 --> 00:51:27.280 If you take, for instance, such an American textbook says, 340 00:51:27.280 --> 00:51:30.080 and forget about the rest of the world, 341 00:51:30.080 --> 00:51:34.640 They take only America, isolated from the whole world. 342 00:51:34.640 --> 00:51:39.720 They say they need every year more money. 343 00:51:39.720 --> 00:51:42.160 We will give them more money. 344 00:51:42.160 --> 00:51:44.560 All right. But to whom? 345 00:51:44.560 --> 00:51:46.160 No. 346 00:51:46.160 --> 00:51:49.600 Those people who are getting, who are first getting the money, 347 00:51:49.600 --> 00:51:52.640 that is certainly to the government, you will say, yes. 348 00:51:52.640 --> 00:51:58.520 But the people who are the first to receive the money from the government, 349 00:51:58.520 --> 00:52:14.200 because the government buys these things, because the government, let us say, says we will give to all people of a certain quality, a certain quantity of money. 350 00:52:14.200 --> 00:52:21.080 They are now in a position to buy more. 351 00:52:21.080 --> 00:52:34.720 Their competition on the market raises prices and you are here and you did not get anything 352 00:52:34.720 --> 00:52:36.840 from traditional money. 353 00:52:36.840 --> 00:52:40.800 You are there for hard-paid, you know. 354 00:52:40.800 --> 00:52:46.400 This does not mean simply as these people, if you read these books, if you take this 355 00:52:46.400 --> 00:53:03.360 It can distribute more money, but it cannot distribute more goods, and this is the question. 356 00:53:03.360 --> 00:53:11.480 As this additional money will raise the prices of wood, you who did not get anything of this 357 00:53:11.480 --> 00:53:16.560 This additional money, you are out. 358 00:53:16.560 --> 00:53:20.880 And this is what people don't realize and they don't see. 359 00:53:20.880 --> 00:53:34.120 And therefore, this money that is increased every year means only that other groups will 360 00:53:34.120 --> 00:53:41.040 then say, why did we not get more than the government gives them to a quantity? 361 00:53:41.040 --> 00:53:45.660 and then against the others and this is what we are getting today, you know. 362 00:53:45.660 --> 00:53:49.680 This is the present day situation in most of the countries. 363 00:53:49.680 --> 00:53:56.140 There is one group that wants to get something, the government gives them and the other groups 364 00:53:56.140 --> 00:54:08.240 may also demand and in this way the purchasing power of the monetary unit is continually dropping. 365 00:54:08.240 --> 00:54:16.240 This means that the debts are getting smaller. 366 00:54:16.240 --> 00:54:24.240 But the debts are precisely the riches of the masses. 367 00:54:24.240 --> 00:54:41.040 The process, debts are getting smaller means that the owners of common stock are getting 368 00:54:41.040 --> 00:54:52.840 richer at the expense of those who have bought corporate bonds and so on. 369 00:54:52.840 --> 00:55:03.600 I would say therefore to the government, there are among the government people some who really believe in this thing, that they should study the problem. 370 00:55:03.600 --> 00:55:10.920 They should study the problem because there is no such thing as a neutral money. 371 00:55:10.920 --> 00:55:18.160 There is no neutrality on the market because the situation of the various people is different. 372 00:55:18.160 --> 00:55:30.000 Because every group is in another situation and if you do something for the benefit of one group, 373 00:55:30.000 --> 00:55:39.760 you must ask yourself that the printing press cannot make people richer. 374 00:55:39.760 --> 00:55:46.000 The government prints money and gives it to one group of the people and makes them richer. 375 00:55:46.000 --> 00:55:53.120 Yes, at the expense, necessarily at the expense of other people, you know. 376 00:55:53.120 --> 00:56:03.360 And this is the thing that people do not realize when they are talking about these various plans, you know. 377 00:56:03.360 --> 00:56:10.960 It's unbelievable that we have now already for a long time, for many years already, textbooks that from time to time say, 378 00:56:10.960 --> 00:56:18.720 that in every new edition say that the quantity of money must increase, but this 2 percent 379 00:56:18.720 --> 00:56:23.080 or 5 percent or 7 percent, they change it from year to year. 380 00:56:23.080 --> 00:56:30.000 This is without any importance, but the question is they do not see that the increase in the 381 00:56:30.000 --> 00:56:39.080 quantity of money, that inflation does not at the same time and to the same extent affect 382 00:56:39.080 --> 00:56:46.760 the wealth and the income of various groups of the population, that money therefore necessarily 383 00:56:46.760 --> 00:57:01.360 cannot be neutral and therefore we must be very modest in planning new monetary ideas. 384 00:57:01.360 --> 00:57:10.800 In a time of inflation, in a time of monetary troubles, it is a very popular pastime for 385 00:57:10.800 --> 00:57:20.640 certain people to make plans for an ideal money, but there is no ideal money, and the 386 00:57:20.640 --> 00:57:32.320 The money which will have as gold standard money has the advantage that its changes are 387 00:57:32.320 --> 00:57:39.520 very slowly and are completely within the system of the monetary organization. 388 00:57:39.520 --> 00:57:41.520 Thank you very much. 389 00:57:41.520 --> 00:57:57.520 Thank you, Professor Mises. Now we have time for several people to go to lunch. 390 00:57:57.520 --> 00:58:08.520 about inflation, because deflation is unpopular enough also without any observations which I may add to it. 391 00:58:08.520 --> 00:58:26.520 To give you an, let us say, not very scientific but rather correct interpretation, 392 00:58:26.520 --> 00:58:37.720 In interpretation, I would say, some people believe that the cure of inflation is deflation. 393 00:58:37.720 --> 00:58:46.520 And some people believe, but there are very few, that if a man was hurt by a motor car, 394 00:58:46.520 --> 00:58:52.520 then the cure is to let the motor car go over him in the opposite direction. 395 00:58:56.520 --> 00:59:15.920 What do you suggest as a means of settling temporary balance of payment situations? 396 00:59:15.920 --> 00:59:19.360 Do we continue using gold at the present price? 397 00:59:19.360 --> 00:59:43.360 I want to say, gold, what I said at the beginning, gold has one virtue, that it cannot be printed. 398 00:59:43.360 --> 00:59:58.720 And whatever you can say, you cannot prevent governments from using the printing press if 399 00:59:58.720 --> 01:00:10.840 they are, if their period in office, the length of their period in office depends on it. 400 01:00:10.840 --> 01:00:22.040 However you may say, even if one were to say that capital punishment has to be resorted 401 01:00:22.040 --> 01:00:27.320 to and so on, this wouldn't make any change. 402 01:00:27.320 --> 01:00:34.080 But it is impossible to fabricate gold. 403 01:00:34.080 --> 01:00:43.760 Perhaps one day people, science will discover a method to produce gold in the same way in 404 01:00:43.760 --> 01:00:54.600 which we tend to produce today these paper things which we call money. 405 01:00:54.600 --> 01:00:58.680 Then people will have to find something else. 406 01:00:58.680 --> 01:01:05.360 If we don't know what the situation, if this can happen, what the situation will be, and 407 01:01:05.360 --> 01:01:09.680 therefore we can't make plans for such an event. 408 01:01:09.680 --> 01:01:25.760 But today we have this situation and we must not abandon it for some reasons in order to 409 01:01:25.760 --> 01:01:49.160 What part has a massive expansion of credit played in the prosperity of our present economy? 410 01:01:49.160 --> 01:02:02.040 Would the economy have expanded at its present rate without the modern credit economy? 411 01:02:02.040 --> 01:02:04.240 The second question. 412 01:02:04.240 --> 01:02:16.440 What the expansion of credit means and what it brings about has been described by a doctrine 413 01:02:16.440 --> 01:02:24.800 which is very unpopular with the governments and with the bankers, but that describes it 414 01:02:24.800 --> 01:02:25.800 precisely. 415 01:02:25.800 --> 01:02:34.120 The trade cycle, the business cycle, and the end of the trade and business cycle, the depression, 416 01:02:34.120 --> 01:02:46.280 are the effects of the attempt of various governments again and again to improve conditions 417 01:02:46.280 --> 01:02:56.280 Expansion. The details can be read in some books. I recommend you especially the book 418 01:02:56.280 --> 01:03:05.280 by Dr. Rothbard. I think the title is America's Great Depression. 419 01:03:05.280 --> 01:03:19.280 There are a number of these. I'm sorting through. Some of these, of course, repeat one another. I'm trying to avoid some of those. 420 01:03:19.280 --> 01:03:21.280 We'll try another one here. 421 01:03:21.280 --> 01:03:26.280 You say that the government, increasing the amount of money in circulation, really helps no one. 422 01:03:26.280 --> 01:03:32.280 If the money is distributed to people with no money before this new distribution, are not they in a better economic position? 423 01:03:32.280 --> 01:03:45.160 If the money is distributed to people with no money before this new distribution, I'm 424 01:03:45.160 --> 01:03:50.840 not denying that economic position. 425 01:03:50.840 --> 01:04:01.040 You cannot by increasing the quantity of money avoid effect upon production. 426 01:04:01.040 --> 01:04:03.480 And this is what brings about this thing. 427 01:04:03.480 --> 01:04:11.440 I want to say, you know, we could, one should not talk about money in the way in which I 428 01:04:11.440 --> 01:04:12.440 have talked today. 429 01:04:12.440 --> 01:04:19.720 That means one should say to an audience, if you want to hear something about money, 430 01:04:19.720 --> 01:04:27.680 then you must, I am prepared to talk to you about money. 431 01:04:27.680 --> 01:04:43.080 But let us say two weeks every day of two weeks, this is 14 days, four hours a day, 56 hours, 432 01:04:43.080 --> 01:04:49.400 and then two hours every day for you to ask questions, which I will answer. 433 01:04:49.400 --> 01:04:54.880 In one hour you can't deal with this problem, which is possible to deal with the problem 434 01:04:54.880 --> 01:05:05.200 of Money in one hour and put the other problems of the economy in five or six hours or eight 435 01:05:05.200 --> 01:05:10.880 hours, I don't know how much the seminar has, then the world would be very simple. 436 01:05:10.880 --> 01:05:14.600 Unfortunately, the world is not as simple as that. 437 01:05:14.600 --> 01:05:27.560 and we must try to make these things as clear as possible. 438 01:05:27.560 --> 01:05:37.280 I want what I consider as very important under present conditions is to tell people that it 439 01:05:37.280 --> 01:05:51.280 It is impossible to improve conditions by inflation, while inflation is something that 440 01:05:51.280 --> 01:05:57.200 can only destroy and not produce something. 441 01:05:57.200 --> 01:06:03.280 And secondly, that inflation is something that is always done by the government alone, 442 01:06:03.280 --> 01:06:28.840 It is useless, what people are believing today is that if a corporation or an individual raises 443 01:06:28.840 --> 01:06:35.400 Prices, this is inflation, this is not inflation, and an individual cannot do this if there 444 01:06:35.400 --> 01:06:38.120 is no conditions. 445 01:06:38.120 --> 01:06:46.680 If a man asks a higher price than the potential market price, then the result is that he does 446 01:06:46.680 --> 01:06:50.360 not sell anything. 447 01:06:50.360 --> 01:06:57.520 The inflation consists not in the fact that prices are going up, but it consists in the 448 01:06:57.520 --> 01:07:10.880 The fact that the quantity of money is increased and therefore a greater quantity of money chases, 449 01:07:10.880 --> 01:07:17.200 as people sometimes say, a not increased quantity of goods.