WEBVTT NOTE How Recessions Become Depressions 1 00:00:00.000 --> 00:00:07.000 Good afternoon ladies and gentlemen, before I start I'd just like to briefly thank everyone who's made this conference possible 2 00:00:07.000 --> 00:00:13.000 and done the hard work for it and on my particular occasion for inviting me to be the first to address you. 3 00:00:13.000 --> 00:00:19.000 I can only assume they did that in the knowledge that all good vaudeville performances traditionally start with a comedy routine 4 00:00:19.000 --> 00:00:24.000 and mine is entitled How Recessions Become Depressions. 5 00:00:24.000 --> 00:00:32.000 As all Austrians should be aware, recessions themselves only come about as a reaction to the unsustainable tempo of the preceding boom. 6 00:00:32.000 --> 00:00:39.000 They also know that at root the boom itself has always has its genesis in an unwarranted expansion of the means of payment. 7 00:00:39.000 --> 00:00:45.000 When the central bank actively encourages or retroactively endorses a credit expansion, 8 00:00:45.000 --> 00:00:51.000 the subtle interconnections between supply and demand, between investment and saving, consumption and production, 9 00:00:51.000 --> 00:01:21.000 In the end, after a seeming period of extraordinary vitality, the economy is seen to be suffering from a cancer, or perhaps an autoimmune disease, one where the costs of resources no longer correspond to the prices realized from their use, in a manner which sufficiently awards the entrepreneurs and their backers, so that they will, or even care, to make the most of their time. 10 00:01:21.000 --> 00:01:25.000 can maintain and extend their stock of useful capital equipment 11 00:01:25.000 --> 00:01:28.000 and continue to support an equal or greater payroll outlay 12 00:01:28.000 --> 00:01:32.000 and so perform their vital role of driving the community onward 13 00:01:32.000 --> 00:01:35.000 up the slopes of advancing material progress. 14 00:01:35.000 --> 00:01:40.000 In short, though in a truly free market even the largest business concerns 15 00:01:40.000 --> 00:01:43.000 would like Kiplings, cities and thrones and powers 16 00:01:43.000 --> 00:01:47.000 stand in time's eye almost as long as flowers which daily die, 17 00:01:47.000 --> 00:01:50.000 others would constantly be rising to take their place 18 00:01:50.000 --> 00:01:54.900 and in a progressive, increasingly capitalistic and classically liberal society, 19 00:01:54.900 --> 00:01:57.800 the profits made by the foresighted and the fortunate 20 00:01:57.800 --> 00:02:01.400 would unbalance that way the losses made by the foolish and the foredoomed 21 00:02:01.400 --> 00:02:05.000 and would thus provide the seed corn for future progress. 22 00:02:05.000 --> 00:02:10.300 The music of commerce would thus be harmonious and evenly paced and its dynamics restrained. 23 00:02:10.300 --> 00:02:12.900 There would be no swelling crescendo of the boom, 24 00:02:12.900 --> 00:02:15.600 no cacophonous accelerando to the climax, 25 00:02:15.600 --> 00:02:19.000 and no minor key diminuendo into the bust. 26 00:02:19.000 --> 00:02:29.000 But once the government takes over from the free market as the musical director and certainly after it appoints the central bank to conduct the orchestra, things are never quite so euphonious. 27 00:02:29.000 --> 00:02:37.000 Too many brass players are hired while there are empty seats left in the woodwind section. The timpani play too fast and the strings play too slowly. 28 00:02:37.000 --> 00:02:43.000 The piano fails to arrive on time for the performance since the instrument maker has been too busy churning out penny whistles 29 00:02:43.000 --> 00:02:50.000 and ultimately, what the band plays, the public no longer wants to hear, certainly not at the prices being charged for tickets. 30 00:02:50.000 --> 00:02:58.000 At last then the reaction sets in. Investment projects are revealed as hopelessly optimistic or plain wrongly conceived. 31 00:02:58.000 --> 00:03:02.000 Wages turn out to be too high for the ultimate value the workers can generate. 32 00:03:02.000 --> 00:03:10.000 Certain vital inputs become too scarce and hence too costly to use to complete and train production processes and to bring goods profitably to market. 33 00:03:10.000 --> 00:03:40.000 Denied those current or prospective profits, capital investment dries up, unemployment rises, general business expenditures are reduced, intensifying the squeeze on the sub-marginal and the overstretched, as well as revealing many of the deceits and defalcations which have been hidden during the boom suspension of critical faculties, and which have been cultivated amid that erosion of personal morality and professional integrity, which always accompanies the fever of the seemingly instant prosperity of the economy. 34 00:03:40.000 --> 00:04:10.000 At this point the clamour goes up for a cure, a cry all the more plaintive, because so many have been rudely disabused of the mirage to which they have succumbed. Fearing for their jobs, seeing their pensions and their college funds slashed in value, as inflated asset prices come into closer coincidence with the much lesser real wealth to which these ultimately lay claim, feeling at first rueful and then vengeful that they have been gullible enough to participate in the madness, people everywhere are waiting for their turn. 35 00:04:10.000 --> 00:04:21.000 So having imbibed too much at the wild bacchanalia of the previous night, what is the prescription which should now be followed in order to relieve the distress of this thunderous hangover most swiftly? 36 00:04:21.000 --> 00:04:30.000 Well actually we do little more than take the advice of the tactical but mildly sceptical doctor who advises us to take to aspirin and semen in the morning. 37 00:04:30.000 --> 00:04:37.000 Well actually we do little more than take the advice of the tactical but mildly skeptical doctor who advises us to take to aspirin and see me in the morning. 38 00:04:37.000 --> 00:04:47.000 We need no deficit spending, no unfinanced tax cuts, no protectionism, no lowered interest rates or expanded credit, no vendettas against short sellers or speculators, 39 00:04:47.000 --> 00:04:53.000 no extra unemployment benefits or increased minimum wages, nothing, absolutely nothing. 40 00:04:53.000 --> 00:04:57.000 minimum wages, nothing, absolutely nothing. 41 00:04:57.000 --> 00:05:02.000 True, if an earthquake then resounds in the unsound credit structure 42 00:05:02.000 --> 00:05:07.000 and threatens to topple too many of our intrinsically insolvent banks at once, 43 00:05:07.000 --> 00:05:11.000 and so risks burying more innocents in the rubble than is necessary, 44 00:05:11.000 --> 00:05:17.000 emergency finance might just and extremist be temporarily provided to the most urgent supplicants, 45 00:05:17.000 --> 00:05:22.000 but only at such a swinging cost that it makes this particular avenue unattractive to all but the truly desperate, 46 00:05:22.000 --> 00:05:36.000 moreover, once this liquidity crisis abates, recourse must categorically not be perpetuated to this as a support mechanism for the living dead, no matter how illustrious their pedigree, or how many presidents, prime ministers, princes and pontiffs they have owned in the past. 47 00:05:36.000 --> 00:05:49.000 Rather, we must hold unflinchingly to the practice of financial triage, realising that if the monetary value of our liabilities has grown disproportionately large, then we are in a state of emergency. 48 00:05:49.000 --> 00:05:54.000 has grown disproportionately large in relation to the income and the real assets which it underpinned. 49 00:05:54.000 --> 00:05:59.000 It is much better, far more equitable and vastly less threatening to liberty, 50 00:05:59.000 --> 00:06:03.000 to bring the debts down to the assets through bankruptcy and write-down, 51 00:06:03.000 --> 00:06:06.000 than to engineer the converse upward matching of the assets to the debt 52 00:06:06.000 --> 00:06:09.000 through the insidious mechanism of inflation. 53 00:06:09.000 --> 00:06:13.000 Further, if as well might happen in the throes of the boom, 54 00:06:13.000 --> 00:06:17.000 the nation has become drastically uncompetitive on the world stage. 55 00:06:17.000 --> 00:06:19.000 are competitive on the world stage. 56 00:06:19.000 --> 00:06:24.000 A one-off devaluation might just be seen as a more politically certain address 57 00:06:24.000 --> 00:06:27.000 than a protracted domestic deflation. 58 00:06:27.000 --> 00:06:29.000 But any resort made to this lesser evil 59 00:06:29.000 --> 00:06:32.000 should be sternly reinforced with credit restriction at home, 60 00:06:32.000 --> 00:06:35.000 so that the need for it will not shortly recur 61 00:06:35.000 --> 00:06:37.000 to the disruption of world trade 62 00:06:37.000 --> 00:06:39.000 and to the detriment of that international division of labor 63 00:06:39.000 --> 00:06:41.000 which so enriches us all. 64 00:06:41.000 --> 00:06:45.000 Above all, recognizing that much capital has been lost 65 00:06:45.000 --> 00:06:48.920 and that our wealth has been greatly diminished, all sectors of society, 66 00:06:48.920 --> 00:06:52.360 householders, corporations and above all governments 67 00:06:52.360 --> 00:06:57.440 should tighten their belts and attempt to live within their sadly reduced circumstances. 68 00:06:57.440 --> 00:07:00.880 For it is saving, not newly elevated spending, 69 00:07:00.880 --> 00:07:04.200 which will ultimately rebuild people's fortunes in this past. 70 00:07:04.200 --> 00:07:10.160 And the sooner that it is grasped that there are no shortcuts by which the penitents may recover the grace from which they've fallen, 71 00:07:10.160 --> 00:07:13.760 the more readily the right course of action will be followed. 72 00:07:13.760 --> 00:07:17.920 After all, if Robinson Crusoe loses the roof of his hut and sees his maize crop flattened 73 00:07:17.920 --> 00:07:22.800 and his goat herd scattered by a passing hurricane, the last thing he should do is to pour all 74 00:07:22.800 --> 00:07:27.440 his remaining food stocks into a cooking pot, use what's left of his thatch and his stockade 75 00:07:27.440 --> 00:07:32.040 fence to set a fire under it and to sit back and smoke a pipe while this last great feast 76 00:07:32.040 --> 00:07:34.320 is simmering. 77 00:07:34.320 --> 00:07:38.120 For though this is exactly the equivalent of what the powers that be recommend to us 78 00:07:38.120 --> 00:07:43.360 today, in the vain hope that once Crusoe has consumed his goods and chattels and has expressed 79 00:07:43.360 --> 00:07:59.360 Now, if Crusoe doesn't want to starve, he needs to ration his residual provisions as closely as possible to see him through while he sets to work with redoubled effort in order to make repairs and to replenish what has been lost, paying particular attention to the timeliest possible replacement of his capital assets. 80 00:07:59.360 --> 00:08:03.360 And nor is there any fallacy of composition at play here. 81 00:08:03.360 --> 00:08:08.360 Paying particular attention to the timeless possible replacement of his capital assets. 82 00:08:08.360 --> 00:08:11.360 And nor is there any fallacy of composition at play here. 83 00:08:11.360 --> 00:08:17.360 What works for Crusoe on his island will also work for us in the big scary global economy. 84 00:08:17.360 --> 00:08:23.360 But all this common sense and sound reasoning, so painstakingly laid out on the foundations of the classical economists 85 00:08:23.360 --> 00:08:29.360 by four generations of Austrian masters, has still to penetrate through the mental miasma 86 00:08:29.360 --> 00:08:35.000 to penetrate through the mental miasma that is the Keynesian fixated mainstream. 87 00:08:35.000 --> 00:08:40.000 What we need, they cry, is for purchasing power to be maintained, as if this comes about 88 00:08:40.000 --> 00:08:44.520 by the issue of paper shopping coupons in isolation from the corresponding production 89 00:08:44.520 --> 00:08:45.880 of value. 90 00:08:45.880 --> 00:08:50.680 We need to stimulate effective demand, they contend, rather than accepting the price adjustments 91 00:08:50.680 --> 00:08:54.240 required to bring about appropriate supply. 92 00:08:54.240 --> 00:08:57.040 Appropriate that is, in terms of its composition as well as its price. 93 00:08:57.040 --> 00:09:02.040 And as if demand, in other words the sum of human wants, ever truly wanes in any case. 94 00:09:02.040 --> 00:09:10.040 If no one is buying because prices are too high, rather than the sellers yielding in their now outdated estimations of value 95 00:09:10.040 --> 00:09:14.040 to the worthy buyers who should be sovereign in all economic transactions, 96 00:09:14.040 --> 00:09:20.040 both the Keynesians and monetarists' central banks must be induced to ensure that enough new credit floods in 97 00:09:20.040 --> 00:09:26.040 so that even the most undesirable goods gain in attractiveness to this now more abundant money. 98 00:09:26.040 --> 00:09:32.040 In other words, the thrifty must be assailed and the improvident deluded through the trickery of inflation. 99 00:09:32.040 --> 00:09:37.040 If those who don't earn the right to buy through first selling their own wares, 100 00:09:37.040 --> 00:09:42.040 and thus cannot otherwise maintain a lifestyle which requires an income beyond their productive capacity, 101 00:09:42.040 --> 00:09:46.040 well, the reserve bank must enable them to consume capital instead, 102 00:09:46.040 --> 00:09:51.040 through borrowing for the purpose, if necessary, against the collateral of their homes, 103 00:09:51.040 --> 00:09:56.120 Infusions, something which can more than adequately be inflated for the purpose by the very same 104 00:09:56.120 --> 00:09:59.960 credit infusions at work elsewhere in the system. 105 00:09:59.960 --> 00:10:04.680 If companies will not invest, then governments must borrow to squander people's savings, 106 00:10:04.680 --> 00:10:09.080 and ideally this must be financed by the bank, not the savers, because that puts prices up 107 00:10:09.080 --> 00:10:11.380 even more. 108 00:10:11.380 --> 00:10:16.520 This is as if replacing entrepreneurs inhibiting fears of a low return on a project by the 109 00:10:16.520 --> 00:10:22.520 The actual delivery of the state of a low return is the route to renewed well-being. 110 00:10:22.520 --> 00:10:26.520 If companies will not hire, we are told, the government must commandeer private property 111 00:10:26.520 --> 00:10:30.520 in order to pay the masses to undertake such tasks as it deems fit, 112 00:10:30.520 --> 00:10:37.520 building bridges to nowhere, or worse, bombing bridges nowhere it should be interfering. 113 00:10:37.520 --> 00:10:42.520 If there are more job seekers than jobs, which implies, as with all uncleared markets, 114 00:10:42.520 --> 00:10:47.840 Those offering the good, in this case their labour, are pricing it too high, the state 115 00:10:47.840 --> 00:10:53.000 must otherwise subsidise this withholding of services by increasing the dull for unemployment, 116 00:10:53.000 --> 00:10:57.320 all the while helping enforce this withholding through minimum wages, mandatory benefits 117 00:10:57.320 --> 00:10:59.720 and maximum hours rules. 118 00:10:59.720 --> 00:11:04.160 If capital emigrates to hire cheaper and more marginally productive workers abroad rather 119 00:11:04.160 --> 00:11:08.900 than at home, vote-hungry congressmen must not make the local environment more conducive 120 00:11:08.900 --> 00:11:37.900 If businesses complain that all manner of costs are now too high to justify maintaining production in the homeland, those costs must never be cut, for that would imply a shrinkage of the role and patronage of the state, but instead the costs must be equalized upwards across the whole economy through the application of tariffs on imports and subsidies on exports. 121 00:11:37.900 --> 00:11:42.220 If entrepreneurialism is in decline at home, the state's central planners must renew their 122 00:11:42.220 --> 00:11:47.660 homage to the dictatorial collectivists of the 1930s to compensate for the supposed market 123 00:11:47.660 --> 00:11:52.780 failures, in truth market encumbrances, which are in operation. 124 00:11:52.780 --> 00:11:58.420 No, never must today's nomenclature stop to wonder at the plethora of bureaucratic and 125 00:11:58.420 --> 00:12:04.340 highly unconstitutional rules and regulations, of licenses and quotas, combined with obligatory 126 00:12:04.340 --> 00:12:10.260 Social Insurance Charges, unbridled legal vulturism, environmental, gender-related and 127 00:12:10.260 --> 00:12:16.260 ethnic irrationalism, or the rapidly declining educational standards prevalent today, all 128 00:12:16.260 --> 00:12:20.440 of these incidentally ills which the very same corporatists have done so much to inflict 129 00:12:20.440 --> 00:12:21.860 upon us. 130 00:12:21.860 --> 00:12:26.760 Never will they ask, might these impediments perhaps so have shackled the country's traders 131 00:12:26.760 --> 00:12:31.020 and industrialists that they are no longer able to run in the same race as those less 132 00:12:31.020 --> 00:12:32.020 hobbled abroad. 133 00:12:32.020 --> 00:12:39.020 If, as it does, the US trade gap for goods amounts to a whopping 28% of all cross-border 134 00:12:39.020 --> 00:12:44.800 traffic, most graphically represented in the 4 million a year inbound-to-outbound container 135 00:12:44.800 --> 00:12:49.580 imbalance stacking up at the west coast ports of Long Beach and LA, we must naturally hold 136 00:12:49.580 --> 00:12:54.460 it to be the fault of the exporting nations' monetary policy, for the beaming RI does not 137 00:12:54.460 --> 00:12:57.620 prevent us from seeing the moat in theirs. 138 00:12:57.620 --> 00:13:02.100 No one must ask just how it comes to be that Americans as well as the Britons and their 139 00:13:02.100 --> 00:13:08.220 kin can continue to buy so much from foreigners with so little to offer in return unless credit 140 00:13:08.220 --> 00:13:13.140 is too cheap and too plentiful at home, unless it is our criminally lax military policy which 141 00:13:13.140 --> 00:13:18.700 is culpable, a policy of course of which the loudest congressional complainers are also 142 00:13:18.700 --> 00:13:22.300 likely to be the most fervent advocates. 143 00:13:22.300 --> 00:13:27.980 If Asian workers have sweated long, hard hours to make us goods, earning barely $700 a year 144 00:13:27.980 --> 00:13:33.180 in urban China, for example, and if they have also been inveigled into holding onto, rather 145 00:13:33.180 --> 00:13:38.940 than spending or selling, the paper promises of goods tomorrow which we gave them in return, 146 00:13:38.940 --> 00:13:43.660 and if those pledges, in all their $4 trillion dollar glory, are now too much to contemplate 147 00:13:43.660 --> 00:13:48.420 redeeming in full, we must fulminate against these fiendish orientals for their unfair 148 00:13:48.420 --> 00:13:58.420 and try to force them to accept less than they do recompense by devaluing our currency and hence the scale of our obligations, while all our other excesses remain unchecked. 149 00:13:58.420 --> 00:14:06.420 Finally, if, as is most probable, none of this succeeds in promoting rather than actively preventing a recovery, 150 00:14:06.420 --> 00:14:14.420 and so regaining, for whichever jack in office it is with whom we happen to be beset, the popularity needed for him and his crew to retain power, 151 00:14:14.420 --> 00:14:22.420 In order to retain power, we must not be allowed to throw the fellow out summarily and to enjoin his replacement to do it our way henceforward. 152 00:14:22.420 --> 00:14:34.420 No. Our leader will first be expected to appeal to the darker side of politics and to sublimate our widespread angst, projecting it onto conveniently identified monsters abroad. 153 00:14:34.420 --> 00:14:38.660 It will be a little comfort to note that the declared national emergency never more seems 154 00:14:38.660 --> 00:14:44.180 to call forth a cincinatus to return straight away to his plough after the occasion for 155 00:14:44.180 --> 00:14:46.900 his dictatorial powers have passed. 156 00:14:46.900 --> 00:14:51.380 What we rather get is a caesar or a duche, whose hands have to be forcibly prized from 157 00:14:51.380 --> 00:14:56.140 the staff of office once they have first grasped it so tightly. 158 00:14:56.140 --> 00:15:02.020 And sadly, it is also a lesson still to be learned by the elite and their court intellectuals 159 00:15:02.020 --> 00:15:06.020 that the Second World War did not, in fact, end the Great Depression 160 00:15:06.020 --> 00:15:09.020 and so this is a myth of economic salvation 161 00:15:09.020 --> 00:15:13.020 through the Clausewitzian continuation of policy by other means, 162 00:15:13.020 --> 00:15:18.020 a myth which exerts an ever more dangerous and compelling fascination for the powerful 163 00:15:18.020 --> 00:15:24.020 the longer the recession is protracted by all their other policy misadventures. 164 00:15:24.020 --> 00:15:30.020 So, summing up, what is the answer to the question implicit in the title of this address? 165 00:15:30.020 --> 00:15:45.020 Pursue inflationism, frustrate the market, extend socialism, adopt protectionism, embrace militarism, extirpate theft, thrift, expropriate the middle classes, consume capital, ignore the Austrians. 166 00:15:45.020 --> 00:15:49.020 That's the way to turn a recession into a depression. 167 00:15:49.020 --> 00:15:57.020 Unfortunately, it is the only way the vast majority of our leaders of whatever outward political stripe know how to act. 168 00:15:57.020 --> 00:16:03.860 Thus, the avoidance of its effects will entail a hard-headed and rational redistribution of our assets and undertakings, 169 00:16:03.860 --> 00:16:10.660 with the preservation of as much valuable capital as we can secure from the tempest, an overriding objective. 170 00:16:10.660 --> 00:16:18.020 Avoiding depression altogether will require of us Huculean efforts of political activism and economic preselectizing, 171 00:16:18.020 --> 00:16:22.260 in the attempt to avoid reaping the whirlwind we have already sown. 172 00:16:22.260 --> 00:16:29.860 In this, perhaps, we can look for no better examples than two of the men who we will be privileged to hear speak at this very conference, 173 00:16:29.860 --> 00:16:37.260 the Mises Institute's owner, Rockwell, and the Constitutional Republic's most staunch defender, Dr. Ron Paul. 174 00:16:37.260 --> 00:16:43.060 It would be well to listen to them closely, and indeed to the other distinguished speakers on this agenda here. 175 00:16:43.060 --> 00:16:47.360 A great deal may depend on heeding the lessons they have to impart to us. 176 00:16:47.360 --> 00:16:49.360 Thank you for your kind attention.