I would say that we're fortunate to be living in these times, for we're seeing the unfolding of events long explained and predicted by the Austrian tradition.
Now maybe that sounds implausible. What's fortunate about our times?
The economy is tanking, stocks have tumbled, unemployment is rising, and Washington is pursuing the worst combination of economic policies since Hoover and Franklin Roosevelt.
Nor does the guy in charge now seem to have a clue about the limits of what government can do.
Consider what it means, however, to live through our times in the light of economic understanding.
Even in the face of calamity, there is no mystery, and hence fear is reduced.
You look at department stores going belly up, and you know why.
You see empty mall parking lots, and you know the reason.
You see people losing their jobs, and there is clarity concerning the cause.
You see depositors and failing banks lose some of their money, and you're not surprised.
Prices behave in ways that shock and surprise everyone else, but you know what's what.
In many ways, it's like watching the movement of the planets with scientific knowledge provided
by Astronomy, or observing the effects of a plague with medical knowledge.
Without that understanding, the events look mysterious, like a curse from the gods, and
their patterns appear random.
With the knowledge, with the understanding, we can make sense of the events, patterns
of cause and effect emerge.
You see events before they happen, like turning the pages of a script before the movie catches
This gives you a sense of intellectual coherence and some inner peace, even in the midst of calamity.
If you read what Mises wrote during the Great Depression and World War II, you can see firmness of conviction and steadfast calm, even though the whole world was going nuts.
Intellectual clarity is the key to seeing the right things and doing the right things.
It is a matter of knowing the shape of things even before things take shape.
Knowledge provides a means as well of curing the ill.
It provides a way out, an answer that gives hope.
This is a major reason why people with an Austrian understanding,
in the midst of financial meltdown, keep their wits about them.
Yes, it is frustrating beyond belief to see people in Washington
spending trillions in a futile effort to repeal economic law.
It is sheer madness that they are creating vast quantities of new dollars by means of the Fed's power.
Even with evidence from the whole of human history,
that new money only waters down the value of the old
and does nothing to provide a long-term boost to the economy
and rather only further distorts economic structures.
it's like watching barbers bleed patients in the name of curing them or bringing in the witch doctor to cast out demons from people who were sick but even if our knowledge of events cannot stop what people are doing for now it provides us with a sense of solace in the face of disaster we can keep our heads even as others around us act as if theirs have been cut off in order to understand events there is no
Let us substitute for doing what the media and indeed most economists refuse to do, which
is to look at the big picture and the long view over decades.
It is a matter of applying the rule that Henry Hazlitt brings home so clearly in economics
in one lesson.
Economics consists in looking at the effects of policies not only on one group, but on
all groups, and not only in the short run, but in the long run.
From the long run point of view, we observe an intriguing illustration of the Austrian
warning against ever attempting to bail out an economy that is pushing towards recession.
In 2001, the economy wanted to go into recession, but the government wouldn't let it happen.
It was the first stimulus package of the new millennium, consisting of vast new funding
and vast money creation, with the Fed driving down rates and keeping them at rock bottom.
If you look to just the short run, it seems that this worked.
But looking at the long run, we can see that the attempt to forestall recession only ended
in creating a much greater disaster down the line.
Something very similar happened in 1991.
Clinton came to power and shortened the recession, which only created another bubble in financials
that broke and so on until we are where we are today.
Arguably the last time that a recession was permitted to run its course appeared following
the crackup boom at the end of the Carter years as a result of the inflation under Richard
Nixon. Reagan came to power with Volcker at the Fed. Volcker had been appointed by Carter.
Reagan doggedly refused to listen to the screaming and the crying from Congress and the press.
He held the line. He let interest rates rise. The federal funds rate was 20 percent. Prime
was 21.5 percent. In 1982, unemployment reached nearly 11 percent. Inflation, however, fell
from 13.5 percent in 1980 to 3.2 percent in 1983. If we include the SNL debacle, this
was a nearly total blowout, and if Reagan had left it at that, it would have been a
model for how to deal with recession. There is pain and suffering, but wait it out and
and you have a fertile ground in which to build a solid prosperity.
Sadly, you also produce a firm financial footing that invites the government to abuse the system,
as Reagan did with record spending and record deficits.
If we want to look back even further to find better examples of how to handle recession,
we can look at 1920 and 1921.
The less the government did, the better the long-term results.
Murray Rothbard's own dissertation on the panic of 1819 shows us a pure case in which nothing was done to fix a problem.
What was notable about this panic is precisely that it never made it into the history books.
It didn't because government didn't make it worse.
In the months ahead, we're going to witness more of these ridiculously futile attempts to patch up a failing economy.
And we're going to pay a huge price this time.
It won't be like 2001 or 1992. We'll be lucky if it ends up like 1978, 1982. More likely, it's going to be much worse.
And how much worse depends in part on just how stupid the Obama administration is going to be.
Hard to imagine anybody worse than the Bush administration, but we may find out.
We all must deal also with the possible death of the dollar.
Many plans have been proposed through the years to restore a gold dollar, and many have merit.
All these plans provide a means to go back to gold. They're not lacking in technical detail.
They are lacking in something that they can't provide, that is the political will to do the right thing.
They're all premised on an idea that our leaders might be interested in doing the right thing.
thing. But the same people who would be in charge of implementing the reform are
the very ones who got us into the mess. It's hard enough in the course of regular
life to find out anyone who admits an error and reverses course. In politics, it
virtually never happens. Even in the case of egregiously immoral effects, the
political class persists in error because it is much more interested in
in saving itself than in saving society.
Giedl Hulsman points out in his new book, The Ethics of Money Production, that, quote,
governments inflate the money supply because they gain revenue from the inflation, unquote.
This is hardly a new insight.
Hulsman quotes the 14th century bishop, Nicolas Heuresme, as follows, I am of the opinion
that the main and final cause of why the prince pretends the power of altering the coinage
is that the profit or gain which he can get from it, it would otherwise be vain to make
so many and so great changes. Besides, the amount of the prince's profit is necessarily
that of the community's loss." The techniques are different today, but the incentive and
moral result are the same.
Holzman points to another change. Today's prince's, quote, have received absolution
from the scientific authorities of our day. Princes used to do their work in secret and
and be disgraced when caught.
Now they announce the policy as responsible statecraft that is consistent with the teachings
of modern economics, and the economists stand ready to nod their heads in agreement.
In the face of this, it is time to deal with political reality that no one in Washington,
except of course Ron Paul, has any interest in whatsoever an orderly plan to restore some
money.
And yet the problems of fiat money and financial collapse cannot go unaddressed.
What's more, the institutions of fiat money are failing, and this fact will be undeniably
obvious to everyone in a matter of years.
We will look back on the end of the Bush administration as an economic disaster, a capstone of many
horrible years of foreign policy moved to domestic policy.
They will be disgraced, as will be the new administration that pursues all the wrong
measures as a response.
The new messiah will face the same reality that the old one did.
No amount of bluster, political will, determined speeches, and money flowing from the printing
press can get around the problem of economic reality.
In an essay written at the end of his career, and recently brought back to life by the Mises
and the Mises Institute. F. A. Hayek discusses the only serious means of reform that is open
to us. Of course we need to get rid of the central bank, but money itself must be wholly
untied from the state. It must be restored as a private good, privately produced for
private markets. Government must have no role at all in monetary affairs. Money should be
produced by private enterprise alone. Banks must exist only as free enterprise institutions
with No Privileges from the State.
Ron Paul outlined a similar program
when he was running for president.
What strikes me is how these policies
accord precisely with what Hulsman writes in his book,
The Ethics of Money Production.
For he ends with a call to end all intervention
and monetary affairs.
Coinage must be private.
Banking must receive no privileges.
There should be no legal tender laws,
no guarantees, no restrictions on currency use,
a fully laissez-faire system.
What further striking about the Holzman and the Hayek and the Ron Paul idea is that they
offer no plan for restoring a gold dollar.
It is not that any of them would disagree with the idea, but all of them have fully
confronted the reality that the idea of converting the existing fiat currency to sound money
is essentially a 19th century ideal that presupposes an enlightened class of political managers.
This condition is not met today.
So what is the means?
It is the same as we propose in every area of national life.
Get the government out.
Let the people be free to manage their own affairs.
Stop interfering with commercial acts between consending adults.
Stop using violence to interfere with economic affairs.
Let the people pursue mutually beneficial exchange based on their own self-awareness and self-assessment of the advantages.
Let property owners accept the risk and rewards for their own decisions.
It is the same with monetary policy and banking policy too.
Let failing banks die. Let profitable banks live.
Let the people choose any form of money. Let the people choose any means of payment.
Let entrepreneurs create any form of financial instrument.
Law applies only in the way it applies to all other human affairs, punishing force and fraud.
Otherwise, the law should have nothing to do with it.
And what would be the result?
Well, we actually cannot know for sure, but history can be a guide in our speculation.
Throughout all time and in all places, precious metals have emerged as the foundation of the monetary system.
I think we can have every expectation that the same would be true today.
Evidence comes from how many people turn to gold in difficult times as a store of value,
a safe house from the machinations of government.
Gold is probably destined to be the foundation of any new free market monetary system.
To this extent, and with this expectation, all believers in liberty can consider themselves advocates of the gold standard.
But we have to be careful with this phrase.
It's identified with a particular set of policies associated again with 19th century practice.
It was a policy choice among many, but some favored and some opposed.
A free market monetary system of the future will not be a policy option in this sense.
It is not something we want the government to adopt as its own.
In fact, we don't want the government to adopt any particular policy,
but rather abandon the policy option altogether.
There should be no policy at all in the sense that this word is routinely used today.
In this way, a path forward in money and banking is no different from the path forward in agriculture,
labor, health care, education or any other sector.
The right policy is no policy.
The job of the government is to stop interfering altogether.
I'm aware that this is a big intellectual leap for most everyone these days.
But you only need to consider the myriad ways in which government fails at everything it attempts, whereas the market succeeds.
There is nothing about the structure of the universe that confers upon money and banking any special status that requires the government to regulate it,
to serve as the lender of last resort, the marker of money, the guarantor of stability, or anything else.
A free market on money would work the same as a free market in anything else.
What about making the case for freedom? It's not easy these days. But consider what we are asking.
We're not asking the President to do anything. We're not asking for Congress to intervene with a plan.
No one is demanding that the Fed adopt this policy as versus that policy.
All we are asking is that they not intervene in the attempts by the market to fix the problems
They have created that the central bank and the executive department have fastened upon us.
Just imagine what would happen if legal tender laws were repealed and the government stopped intervention in the market for money.
Virtually overnight, we would see the appearance of hundreds, if not thousands, of new payment systems and alternative monies online.
Merchants would be free to accept any means of payment.
There would be intense competition among them. Some would be foreign currencies like the euro.
Some would be new currencies based on existing commodities such as gold and silver.
I'm certain that we would even see a period of wild experimentation take place
for the market to settle back down into a standard system that would be famed for its reliability and stability and honesty.
Would we be able to endure the process of discovery? Of course.
We do this every day with our shopping online and searches for good providers of services and products in the physical world and our habits on how to invest our money.
The market is a process of trial and error, one that never stops innovating and changing.
We see every day on the World Wide Web how this process of creation and change create the right balance between chaos and order, experimentation and standardization.
This would happen in the field of money too.
In fact, it might have happened already had the Feds not intervened to stop the rise of alternative payment systems.
Walmart might have already entered the banking sector.
We might have a wide variety of currencies available to us.
Google might have created its own currency based on a number of goods.
We might have more elaborate use of barter in the online world taking place,
and that barter solely converting itself into currency.
This might be based on, who knows, Google ad points, PayPal dollars, some other currency.
Had a free market in money been permitted to develop over the last ten years, we would
have an option today.
As it is, we're being forced to stay within a falling dollar system.
What we've been hearing from Washington is that the economy in this country will be patched
up by sheer force of will.
If we have hope and work together, everything is possible.
There's only one thing standing in the way of this wish.
It's called economics.
Economic reality is more than a brick wall.
It's like the sea or the world's tallest mountain
or like the force of gravity itself.
Economic forces pay no attention to the wishes
of charismatic leaders and their throngs
of Adoring Followers.
However, there is a kernel of truth in the idea that the force of will can make a difference.
Transfer this hope and that will outside the institutions of government and into the free
market.
Let experimentation and innovation begin to take place under conditions of freedom.
We will begin to see the emergence of an answer.
We need the government merely to let the market be free of political violence.
We will begin to see our way out of this mess.
The government today is marshaling every resource and every means at its disposal to prop up
a failing system of the past. Meanwhile, we live in completely new times. These new times
are characterized by an international division of labor, global capital flows, digital information
delivery and the slow but systematic destruction of the establishment in media, banking and
and Finance. What is emerging to replace them is something that no government on the planet
can stop. Markets will not be crushed and they will resist control as never before.
These new times are not the 1930s when a few eggheads in Washington could set most prices
and wages and gather the captains of industry to cobble together business cartels. The economic
The economic and financial world moves at the speed of light and is so diffuse that no political authority can act quickly enough to control it.
The establishment is going down.
This is another reason that all believers in freedom have reason to rejoice today.
In 12 to 18 months from now, it will be obvious there is nothing the new administration can do to patch things up.
Obama will be humbled before the market, just as Bush and Clinton were before him.
But this time, the humbling will overwhelm any attempt to patch things up or put a spin on the much-needed upheaval.
Yes, there is suffering, thanks to what the Federal Reserve and its allies have done to us in past years.
But as a student of the Austrian School and a student of the history of liberty, you have
the confidence and the clarity to see that freedom alone provides the answers.
It is time for calm in the face of the storm.
Let advocates of freedom be steadfast, rational, clear and focused on the long term.
Be of good cheer and never stop pointing out the truth about freedom.
The answer is not the left, nor the right, nor the state. The way out of this mess is freedom.
It is time we defer to it, and to the revolution in the status quo that freedom implies, and give up pretending as if any politician is going to be able to stop it.
Thank you very much.