WEBVTT

NOTE Global Currency and Central Banking

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As recently as 1985, the United States dollar purchased 230 Japanese Yen.

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One dollar would trade for 230 Japanese Yen.

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The dollar reached a low of around 80 a few months ago.

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Now it's back up to 90.

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It's clear that the international monetary system,

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or really a non-system that we're operating under, is intolerable.

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In fact, the monetary chaos that we're experiencing now, and have been, really goes back to 1914.

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From 1914 onward, the international monetary system, the system of currencies used by the world economies,

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have lurched from one crisis to the next.

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Governments have attempted to alleviate these crises by coming up with new systems.

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But the systems that they come up with are unsatisfactory from the point of view of an ideal system.

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In other words, if you look at the first handout that I've gotten for you that's titled,

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Spectrum of International Monetary Systems,

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the systems that economists have come up with to alleviate each crisis as it occurs

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are really only systems that are under that right branch labeled government monopolized fiat money.

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There are really two thinkable systems of government monopolized fiat monies in the international sense

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and they are fluctuating exchange rates and fixed exchange rates.

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Under fluctuating exchange rates, the values of different currencies change continually

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or maybe less quickly if the government interferes.

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Under fixed exchange rates, national governments coordinate the exchange rates.

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Central banks get together to coordinate the exchange rates.

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Now if you notice at the bottom, there are a number of these systems that are held up by various schools of economists to be ideal.

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Freely floating exchange rates, which we fortunately had a very brief experience with from 1981 to 1984,

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in which the government doesn't interfere at all with the value of its currency on foreign exchange markets.

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That is the monetarist dream.

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What's called the gold exchange standard, which was the Bretton Woods system,

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which the world operated under from about 1946 to 1971, that's a supply-side dream.

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Supply-side economists, the Wall Street Journal as an example, Jude Wineski, Arthur Laffer,

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a number of conservative financial writers look upon this era with nostalgia.

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But in fact, as we'll see, that system was a second best system set up by Keynesians

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because they couldn't achieve the Keynesian dream, which is the last, farthest to the rightmost currency system.

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and that's a world central bank issuing paper reserves. Keynes called his

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reserve the bankor. He wanted a funny money, a paper money just issued to back

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up world currencies. He called it the bankor. The United States negotiator at

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the Bretton Woods Conference, Harry Dexter White, who was a communist spy and

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our chief negotiator, wanted it to be called the UNITA. And recently the

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The Economist, the British magazine, came up with the name Phoenix, okay?

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Well, these are all the dreams of modern economists, and I'll get to them in a little bit more detail in a moment,

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but they're really the American public's nightmare, okay?

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We've been living with these nightmares from, as I said, 1914 onward.

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What is forgotten is that there's another type of system, a system that worked very, very well throughout the 19th century,

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up until World War I, and in the United States, up until 1933, and that was the classical gold standard.

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This, and there's an actual harder gold standard, which was in the Middle Ages, for example,

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before there was banks and bank deposits, fractional reserve banking, every ounce of gold, or rather every bank deposit,

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was backed up by a full, an ounce of gold, for example, if the denomination of the deposit was one ounce, then there would be a gold ounce backing it up.

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And that's the Austrian dream, and that is the Austrian School of Economics, represented lately by Professor Rothbard so ably.

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In the Austrian dream, the government is totally separated from money.

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Not only that but you get a full global money.

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Now let me go through these systems and tell you a little bit about each one

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and try to show you that or demonstrate that really a gold standard is the only system under which we don't get monetary chaos.

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Under which we get saving and investment and a steady increase in living standards and a steady fall in prices.

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And I'll get to that.

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Let me start with the classical gold standard.

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It's a gold standard that we have experience with.

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Under the classical gold standard, money was defined as a unit of weight.

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In other words, from 1834 until 1933 in the United States, the dollar was defined as one twentieth of an ounce of gold.

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And it was redeemable as such.

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That is, if you brought in $20, you would get a full gold ounce.

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Gold was money. There was no price fixing here. The dollar wasn't fixed in terms of gold.

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The dollar was redeemable, which meant that each dollar was a legally enforceable title to a certain weight of gold.

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In redeeming the dollars for gold, the banks or the treasury were not playing some game.

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They weren't obeying rules of the game. They were carrying out a contract.

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A contract to redeem your gold for dollars, just as when you go and redeem, let's say, a ticket at dry cleaners for your shirts, there's a contract there.

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If for some reason those shirts weren't there, it would be fraud.

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Now, there were some problems with this classical gold standard.

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There was a central bank in many countries, not in the U.S., but in many countries during the 19th century, there was a central bank.

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There was fractional reserve banking. Banks didn't necessarily hold the full amount of gold deposited with them and for which they gave out warehouse receipts.

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They only held a fraction, 20%, 30%, or 40%. But yet, the gold standard provided what we might call golden handcuffs.

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That is, it put strict limits on how banks could, how much banks could inflate the money supply.

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Now let me just give you three principles of operation.

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First of all, it's wrong to think, as is often said, that the gold standard involves fixed exchange rates.

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Under the gold standard, as I said, each money was defined as the weight of gold.

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The British pound was defined as about one-fourth of an ounce of gold.

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So that for a hundred years, without variation, it took about $5, $4.87 or so, to purchase one British pound.

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Now, that's not a fixed exchange rate, that's just a rule of arithmetic.

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If in fact, one dollar was equal to one twentieth of an ounce of gold, and one pound was equal to five times as much gold,

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well then they were just different denominations of the same money.

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In other words, what's very important is that under the gold standard, there was one money, one world money.

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Just as in the United States today, throughout the United States, the dollar is the money for all states.

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We don't say that there's fixed exchange rates between dimes, ten dimes equal one dollar, which is equal to four quarters.

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There's no fixed exchange rates there.

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A quarter is defined as one-fourth of a dollar, and therefore four quarters can be redeemed for one dollar.

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So there's no fixed exchange rates, there's one world money, and because there was one world money,

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people didn't worry about balance of payments deficits. Think about it today.

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Do you know what the balance of payments is between Oklahoma and Texas, or California and New Jersey?

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In fact, there are, from day to day, deficits and surpluses between those states.

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If there's a deficit between, let's say, Texas and Oklahoma,

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it indicates that the people in Texas feel that they have excess amount of money on hand

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and they want to trade some of that excess for goods.

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Some of that money is spent on goods from Oklahoma. That's all.

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At some point, the people then feel, the Texans then feel that they have sufficient cash on hand,

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that they're no longer going to reduce the amount that they're holding, and the deficit stops naturally.

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naturally. Now this was true under the gold standard. There was no need to worry about

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balance of payments deficits or surpluses with one qualification which I'll get to.

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So we had one world money, we had no problem with balance of payments deficits if the government

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refrained from inflation and that's the qualification. In fact, balance of payments deficits is called

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When they did a car, and when they were very large and ongoing, indicated that somewhere in the world, governments were inflating the money supply through their central banks.

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There were central banks, as I mentioned, under the classical gold standard.

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What would happen, though, is that the deficits, which were a market phenomenon, was a way of stopping the inflation.

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It was a limit on how much governments could inflate.

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For example, you might have a country.

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I'm going to draw an inverted pyramid for you to give you an example of how this,

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give you an illustration rather of how this works.

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One country might have $2 billion in gold.

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On top of that, its central bank would then create $5 billion worth of its own bank notes.

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So it was maintaining about 40% reserves.

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Each dollar of its banknotes was backed up by 40% in terms of gold reserves.

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And then when people got hold of these banknotes, they went and deposited the banknotes in commercial banks in exchange for deposits.

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And I don't know if Hans, Professor Hoppe went over this, but once these reserves, these banknote reserves get into the banking system,

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they can be multiplied depending on what percentage reserves are being held by the banking system.

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So let's say that it was now $10 billion of checking deposits.

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And that was the money supply for the country.

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Notice that it was backed only by $2 billion ultimately worth of gold.

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Now if the governments didn't inflate, and if prices in this country,

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let's say the United States, were about equal to prices in the rest of the world,

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you wouldn't have any problems with deficits and surpluses.

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However, if for some reason the central bank decided to increase the amount of banknotes it's held to stimulate business activity or to finance a government deficit,

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what would happen would be that this would increase, let's say, to 6 billion.

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The extra 1 billion would get into the banking system and would cause banks holding about 50% of these notes to back up their checking deposits.

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This would increase by about 2 billion.

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Now the money supply would increase by $2 billion. You'd have inflation.

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People would begin to spend these new checking account deposits,

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driving prices up above the world level in this particular country.

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As prices rose, however, two things would happen.

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The country's exports would become more expensive.

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So their exports would begin to fall.

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Their imports, people have more money, domestic prices are rising,

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so they're buying more foreign imports.

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Suddenly you begin to get a balance of payments deficit, but foreigners don't want these, let's assume they're dollars, okay?

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Let's assume that now you're getting a billion dollars per year of a balance of deficit.

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How are you going to balance a payments deficit? How are you going to pay this?

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Foreigners do not want your paper money, okay? They want gold.

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So what would happen would be that people would go to the banks and begin to redeem their dollars for gold.

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The central bank would start to see its gold reserve fall from $2 billion to $1 billion with no end in sight until prices had come down again.

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So its natural inclination would be at this point to stop the inflation and in fact reverse it, to begin to reduce the money supply, to prevent gold from flowing out.

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Because if the gold flow continued, people would begin to lose confidence in the banking system.

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And then for that reason, they would rush and cash in their bank deposits, causing a further loss of gold.

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So the fact that there was a real gold standard, in the sense that people could go in at a fixed price

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and redeem their checking deposits for gold, put strict limits on the amount of inflation that could occur under the classical gold standard.

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So balance of payments deficits, far from being something that should be condemned as they often are by economists looking back in the gold standard period,

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in fact, was something that was very salutary, it tied the hands of government.

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Now if you'll take a look at, well actually let me get to another point and then I'll ask you to look at another chart.

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The other attribute of the classical gold standard was that over time it is true the money supply increased.

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That is, gold mining continued and at times it was really spurred on by the fact that there were new discoveries of gold

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or that new technology of extracting gold was developed that made the extraction of gold from the ground less expensive.

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But overall, the money supply grew very slowly.

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That is, the amount of checking deposits in the economy could not grow unless there was an increase in gold.

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So as gold from the mines spread throughout the world economy, we had some growth in the money supply.

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But it was very small compared to the growth in the amount of goods and services in the 19th century.

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What did that mean? It meant that prices fell every year for the most part.

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There was a nice gentle downward trend in prices.

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Just as prices are falling today or have fallen in the last few decades in the high-tech industries,

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The first hand calculator I can remember, which barely had a subtraction function, certainly could add, didn't have much beyond that,

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was introduced by Texas Instruments in 1970 or so at $300. The price today is $5 to $10 for a much higher quality hand calculator.

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The price started out at $20,000 or more. I don't know what the first Apple cost 15 years ago, but today they're around $1,500, so prices fell year after year.

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And this was consistent with expanding goods and services. In fact, the only way that people would be able to purchase the additions to goods and services that were being produced was by this competitive bidding down of prices.

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and that's exactly what happened throughout the economy under the classical gold standard.

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So if you'll just take a look at the handout that has two panels on it,

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one top one labeled wholesale price index United Kingdom 1800 to 1979,

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the bottom one wholesale price index in the United States 1800 to 1879.

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Notice that from the early 1800s onward, prices trended downward, until approximately 1914 or so,

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and then there was an increase in the price level due to the inflation during World War I.

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And then we went off the gold standard in 1933 completely, and notice that the trend then is upward.

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But under the classical gold standard, prices tended to fall, year after year.

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And as a result, everyone benefited from the increase in labor productivity.

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That resulted from saving, investment and technological improvement.

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Even people on fixed incomes.

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That is, take a period of time from 1880 when the United States went back on the gold standard until 1896,

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we had a tremendously high rate of growth, 4% per year.

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Today, we're lucky if we get 2.5% per year.

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That is, the amount of goods and services in the economy was increasing by 4%.

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Prices fell every year by about 1% during that period.

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This is glorious. This is something that, certainly in my lifetime, I've never seen.

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Each year, your wages and salaries buy more than the year before.

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So the classical gold standard was an idyllic period. It provided us with a global currency.

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Yes, there was a central bank, though not in the United States until 1914.

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Yes, there was fractional reserve banking, but at the base of the money supply was gold.

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And as long as the public was able to redeem, to convert the bank-issued currency and deposits in gold, there was a strict limit on inflation.

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So much so that we actually experience falling prices.

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Now let me jump from there to some of the other systems and see how they compare.

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One other system that we have lived under, the fixed exchange rate system.

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In fact, before I talk about that, let me just mention that in 1933, the link between gold and the dollar was broken by FDR.

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The goal of the American public was seized. No one was permitted to own gold by law, except dentists and jewelers and so on, until 1976.

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There was a period of monetary chaos in the 1930s.

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Each government tries to manipulate the exchange rate of their currency, that is the exchange rate between their currency and other currencies, to its own benefit.

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They try to drive down the value of their currency.

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If you make your currency cheaper, we hear calls for a cheaper dollar, at least in the early 90s.

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If you make your currency cheaper, it makes your goods and services cheaper on world markets.

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It increases your exports.

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It also, since your currency is cheaper, makes it more expensive to buy other currencies.

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That's the other side of the coin.

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Meaning that foreign goods are more expensive.

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So you give protection to your own import competing industries.

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But of course the other nations can also manipulate the exchange rate.

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So you get competing devaluations.

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With each country attempting to outdo the other and making their currency cheaper.

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You get tariffs and quotas.

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You get currency blocks where certain groups of countries hook on to a given currency

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and then the blocks attempt to depreciate to gain an advantage.

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In any case, you get chaos.

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Now, the world came out of this period during World War II, the United States in particular and also Great Britain,

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with a firm resolve never to allow this system to be created again,

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of chaotic exchange rate variations and what they did instead of going back to the classical gold standard they came up with a phony gold standard a pseudo gold standard the conference at Bretton Woods in 1944 was dominated by by John Maynard Keynes and Keynesian economists in general and as I said what they would have loved to have was a world central bank issuing paper money which could be inflated at will but because of the national

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because of sovereignty, because of suspicions between the different nations and so on,

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because of the unwillingness of Europe to place itself under the domination of the United States,

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or rather actually, that's how it wound up, but of the United States placing itself under the domination of Great Britain.

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We settled on, or the world settled on a compromise.

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It was known as the gold exchange standard, came to be known as the Bretton Woods system.

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As I said, this was a phony gold standard.

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Under this system, what we had was the United States defining the dollar in terms of gold.

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The dollar was now equal to one-thirty-fifth of an ounce of gold.

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In other words, you could purchase an ounce of gold from the U.S. Treasury,

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not URI, by the way, for $35.

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But it was only redeemable for, as I said, not URI, but for foreign official institutions,

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Foreign Central Banks, Foreign Governments.

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They only could redeem their dollars for gold.

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Now, in addition, the foreign nations set the exchange rates between their currencies and the dollar.

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So, for example, Great Britain, the exchange rate was $2.40 equals one pound.

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So exchange rates were fixed then between all other currencies and the dollar.

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The price of gold was fixed in terms of the dollar, only the U.S. really held gold and converted dollars into gold.

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The other currencies backed their money up with dollars.

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Now this built in very perverse incentives.

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The U.S. was known as the key currency country, we were the key currency.

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We were the currency, the dollar was the currency which backed up all foreign currencies.

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In effect, what happened, if you look at this pyramid, was that the US gold stock, which at the beginning of the war, at the end of the war, was about 25 billion dollars, we had 25 billion dollars of gold,

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pyramid on top of that was the central banknotes, the banknotes that the Federal Reserve System issued, on top of that were the checking deposits that our own banks issued,

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And then on top of that was the money of foreign currencies, or foreign countries rather.

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In other words, they held checking deposits, essentially, to back up their own money.

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So you had the foreign M's up here.

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Now, at the end of the war, the U.S. dollar was perceived as as good as gold.

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In other words, our gold stock, if you look at it over here, was, as I said, $25 billion.

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dollars, foreign dollar liabilities, dollars outside the United States were approximately

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12 billion dollars.

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So there was more than enough gold to convert all the outstanding dollars.

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Now here's where this perverse incentive comes in.

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Given that foreign countries were willing to hold our dollars, to pile them up to back

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up their own money, the incentive was for the United States to continue to inflate.

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And we began to, in 1958, the effect of this began to be seen, as we continued to inflate,

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what happened was that our gold stock began to decline, as some foreigners began to convert

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their dollars, and the dollar liabilities being held by foreign central banks began

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to go up.

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So eventually, they went up as high as $80 billion.

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Our gold stock fell to $9 billion.

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The reason why this happened was because as the U.S. inflated, U.S. prices went up.

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Again, our exports became much less competitive.

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We also encouraged imports.

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We bought more foreign goods and services.

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So we began to run balance of payments deficits year after year.

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A French economist named Jacques Rouef, who was in favor of the gold standard, called

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these deficits, deficits without tiers.

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The United States didn't have to suffer any of the effects of its deficits, as long as

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and as foreign countries were willing to hold our dollars.

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In fact, what we were doing was this.

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If our deficit happened to be $10 billion one year,

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all that happened was that $10 billion paper dollars went into foreign central banks.

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And in return, we get $10 billion worth of real goods and services.

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As our inflation increased to finance the Vietnam War

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and at the same time the Great Society programs of President Johnson in the mid-1960s,

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We put a lot of the burden of this financing onto foreign countries.

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They sent us real goods and services in exchange for paper dollars.

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Well, this couldn't go on forever, especially since the foreign liabilities were piling up.

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France and West Germany began to complain.

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They began to threaten wholesale redemptions of their dollars,

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which would have meant our gold stock would have disappeared.

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And the United States reacted by basically threatening to remove our nuclear umbrella.

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Okay, so we threatened West Germany, we threatened France.

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That's why France dropped out of NATO, developed its own independent nuclear force, one of the reasons.

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West Germany, which was an occupied country, occupied by U.S. troops, just knuckled under.

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Okay, but the public was still able to convert dollars into gold in foreign countries.

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There were free gold markets in Zurich and in London, and people continued to turn in dollars for gold,

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which meant that as people got rid of these excess dollars, these depreciating dollars,

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it would push the gold price up above $35 per ounce.

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The U.S. couldn't let that happen.

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So the U.S. continued to sell gold and our gold stock continued to drop.

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And as I said, it dropped to $12 billion by the end of the 60s at which point in 1968,

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we said we're no longer going to sell gold, central banks no longer sell gold to the public.

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We'll just trade gold among ourselves.

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So from 1968 to 1971, the U.S. continued its inflationary ways. Foreigners, foreign central banks, continued to put pressure on the Fed to redeem gold.

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The U.S. still, even though it claimed that it would not sell gold, tried to keep the gold price down in foreign markets.

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In any case, by August 1971, during what's called a gold rush, it was a rush on gold, dollars were being dumped.

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At the rate at which this was occurring within a two-week period of time, if this continued, we would have lost our entire gold stock.

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So at that point, President Nixon ignominiously declared national bankruptcy and closed the gold window.

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So this system, this system of fixed exchange rates was not a gold standard, it was a phony gold standard, collapsed in 1971.

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Now what was the world to do at this point?

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Well economists, led by many economists, led by Milton Friedman, had been arguing from the early 1950s

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that we should completely get rid of gold, completely get rid of fixed exchange rates.

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Let's get rid of this phony gold standard, this pseudo gold standard.

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Now Friedman was a little bit disingenuous because he basically took this to be the true gold standard in some of his writings.

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He argued as if this is the gold standard, it's outmoded, we don't need it in any case, let's just get rid of it, there's a better way of doing all this.

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Let's let free markets determine these exchange rates, supply and demand in the world economy.

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This was the monetarist dream of freely floating exchange rates.

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Now Friedman argued that these were much more efficient for a number of reasons.

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One of which was that you would no longer have any balance of payments crises.

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If a government was inflating, for example in the US in the last, let's say since the mid-80s,

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if a government was inflating at a higher rate than other countries,

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well what would happen would be their exchange rate would fall, their currency would become cheaper.

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The high prices wouldn't cause a balance of payments deficit, they would simply be offset, that is the high prices within the nation, high price of goods and services, they would simply be offset by a decline in the value of the currency, so that going from 230 yen in 1985, because we've inflated much more rapidly than the Japanese, we went to 85 yen. So even though our prices were increasing much more rapidly than the Japanese prices, our goods didn't necessarily become uncompetitive, because our currency became cheaper.

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So we would never have to worry about balance of payments, deficits again.

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So for Friedman, that was something that was great, that we should want.

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And he had something of a point there.

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But beyond that, he also pointed out that there would never be an importation of business cycles any longer.

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In the old days, if some country was, let's say, deflating, its prices were falling, for whatever reason,

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the U.S. would have a balance of payments deficit, we'd buy more of these low-priced goods and gold would flow out of the country.

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When gold flowed out of the country, this base would become narrower and we'd get a deflation of our own money supply.

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Well, that would be avoided now. All that would happen would be that the value of our currency would change.

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And the third point that's important is that since there are no balance of payments deficits,

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then there would be no pressure on government to implement tariffs, quotas, and other means of protecting our gold stock.

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The government would no longer need to interfere with free trade in order to prevent our gold from flowing out of the country.

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So that was the dream. What was the reality?

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First of all, let me mention how naive this scheme is.

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Basically, what Friedman was saying was this.

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The government should, even though having the monopoly of money now, there's no gold any longer,

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So the government could create new money at will.

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The government would refrain, would restrain itself from increasing the money supply.

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Increase it at a steady, slow rate, in which case we would not have inflation

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and we wouldn't have to worry about our exchange rates depreciating.

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If other people inflate it faster than us, fine.

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Their exchange rates will depreciate vis-à-vis our own.

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The value of our own would go up, but there would be no problem in the trade sphere.

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Well, that was naive. And the second point, it's also naive to tell government, look, don't interfere in exchange rates.

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Don't try to drive down the value of your currency to benefit your auto industry.

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Remember, if you drive down the value of your currency, you stimulate the amount of exports from your country to other countries.

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Just as, for example, the United States from 1991 to 1993, or actually from 1994, the US dollar was falling.

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And even though some people in government circles may have bemoaned the fact that the value of the dollar was falling, it was beneficial.

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It benefited, for example, beneficial from the point of view of government, it benefited certain export industries in the US.

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And it also kept out Japanese imports, kept them more expensive than they would have been.

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when our currency declined in value.

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So that's the second point.

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Now what was the upshot of this monetarist experiment?

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And by the way, it didn't begin in 1973.

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There was still what was called dirty floating.

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From 1973 to 1980, the US government as well as other governments

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did interfere with the value of their currencies

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trying to either keep them up or push them down.

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But by 1980, the monetarists had prevailed on President-elect Reagan

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Reagan, and when he took office, the policy was to allow the value of the dollar to float on the market, and from 1981 to 1984, the dollar appreciated, its value went up, our export industries were hurt, there was tremendous pressure to reverse this, this policy, and it was reversed in 1985, and from 1985 until, well actually from 1987 or so,

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In 1985, the U.S. got together with other major industrial currencies and began to manipulate the value of the dollar, attempting to push it down by inflating the U.S. money supply from 1985 to 1987.

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And in mid-87, the dollar was dropping so rapidly that fear took hold among the policymakers in the U.S. that there would be a flight of capital.

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In other words, foreigners seeing and expecting this decline in the dollar to continue

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would pull their money out of the U.S., pull their capital out of the U.S., and that would cause our interest rates to skyrocket.

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So the Federal Reserve system, the creator of money, stepped on, jammed on the brakes in early 1987.

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The money supply began to decrease. We actually had a little bit of a deflation that summer in 1987.

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And we all know what happened after the summer of 1987. We got the stock market crash.

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The interest rates skyrocketed. In any case, things haven't been much better since then.

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We still haven't had floating exchange rates, freely floating exchange rates. They've been fluctuating.

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And there have been attempts on occasion to get together with the Bank of Japan and the Bundesbank

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and stabilize the value of the dollar. But what has been the experience with fluctuating exchange rates?

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From 1971 onward. First of all, let's see how well they worked as a method or means to stop inflation.

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If you take the last chart I've given out, and this really only goes up to 1986 or 7, I think, but you get the idea.

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Notice that when the gold window was shut, when that last link with gold was cut, the rate of inflation, the rate increased tremendously.

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So you see what happened to the price level. The price level shot up from 1971 onward.

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In fact, I have the figures here, from 1971 to 1992, the Federal Reserve System created about 800 billion new dollars out of thin air.

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With the last link to gold gone, our money supply had increased from $230 billion in 1971 to $1,026,000,000.

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So there's a tremendous increase in paper money with that last link, that last external discipline gone now.

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So it increased by about 350%, this is M1. What happened to prices?

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Prices, if you take a price index, price index was 24 in 1950, just as a point of reference.

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During the course of the Bretton Woods system it increased, there was inflation.

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It went up to 40.5 by 1971 and 140 by 1992.

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So the price level increased by about 250% during the period of fluctuating exchange rates.

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The value of the dollar, just from 1985, dropped from 230 yen to about 85 yen in 1995.

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The value of the dollar in terms of German marks dropped from 2 to about 1.3.

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So we lost about 48% of the value of the dollar vis-a-vis the yen and about 20% with regard to the mark.

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Real wage rates fell from about $8.55 per hour in 1973.

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I'll explain why in a moment.

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In 1992, they were about $7.42.

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These are average wage rates for manufacturing workers here in the United States.

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Now, that does not include benefits. Benefits have certainly gone up.

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But this touches on a question that was asked to Lew Rockwell before.

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It appears that there has been a decline in productivity and in living standards in the American economy.

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Now one of the reasons is because with the government able now to create money at will under fluctuating exchange rates,

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there is an incentive to run big deficits.

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Now the deficits can be easily financed. There is absolutely no external discipline left.

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With deficits being financed, government spending has ballooned, has exploded.

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And government spending is generally on not capital goods, which enhance our productivity, but on present goods.

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So with the spending on consumption being stimulated tremendously by government

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and in the process, the spending on capital goods, investment in capital goods being discouraged,

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it's very, very likely that we've experienced a fall in our capital stock or relative to our population,

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the working population, and therefore a fall in labor productivity.

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In other words, American workers are working with, per worker, we have less capital.

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Now, I'll stop here, and in my talk this afternoon, what I'll do is I'll go on and ask what is a solution to these problems.

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Is it to push forward to the Keynesian dream of a one-world money?

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Or is it to go back to the Austrian dream, and of course, you know my preferences, of a 100% gold standard?

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And if it is that, then I'll show you some of the steps that can be taken, but also I'll stop here.

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Thanks.