WEBVTT NOTE What is Money? - Part Two 1 00:00:00.000 --> 00:00:07.440 What is money, part two? The question of money, as I've already indicated, is a very important one. 2 00:00:08.000 --> 00:00:13.040 There are three kinds of money that we use, fundamentally, or have used in the long 3 00:00:13.040 --> 00:00:21.440 history of man's use of money. One is commodity money, one is credit money, and one is fiat money. 4 00:00:22.160 --> 00:00:25.840 Now this business of fiat money is extremely interesting. 5 00:00:25.840 --> 00:00:37.900 Banking. Fiat money is not a commodity, and also it is not credit money. Fiat money is 6 00:00:37.900 --> 00:00:46.200 exclusively a type of government money. Government is the only agency that can create fiat money. 7 00:00:46.200 --> 00:00:52.780 The marketplace will produce commodity money. It can also, and often does, create credit 8 00:00:52.780 --> 00:00:54.140 Money. 9 00:00:54.140 --> 00:00:59.480 But when we get into the area of the fiat, we get into the area of the usage of something 10 00:00:59.480 --> 00:01:04.600 that is money because some leading politician says that it's money. 11 00:01:04.600 --> 00:01:05.600 And that's all. 12 00:01:05.600 --> 00:01:06.600 It makes it money. 13 00:01:06.600 --> 00:01:11.120 In other words, there's simply somebody that stands up and says, this is money because 14 00:01:11.120 --> 00:01:15.420 I say it's money and therefore you will use it as though it is money. 15 00:01:15.420 --> 00:01:20.480 And at that point, if this man has that type of prestige, then it becomes money. 16 00:01:20.480 --> 00:01:26.340 Now we've had a fascinating history in the area of fiat money. And by no means should 17 00:01:26.340 --> 00:01:33.760 we accept the notion that fiat money is a modern invention. Although most modern governments 18 00:01:33.760 --> 00:01:41.140 are using it, and most governments have always used it, it has originated in the horrid past. 19 00:01:41.140 --> 00:01:50.460 A number of primitive tribes have pioneered in the use of fiat money. They have used whatever 20 00:01:50.460 --> 00:01:58.960 The chief told them was money because the chief said so and he could wrap their knuckles pretty substantially if they didn't use it. 21 00:01:58.960 --> 00:02:06.460 One of the common items of money among primitive peoples, for instance, is the cowrie shell. 22 00:02:06.460 --> 00:02:17.460 You'll find the cowrie shell in wide usage in the Pacific archipelagos and in just about, well, in many place contact at an early date. 23 00:02:17.460 --> 00:02:23.460 You'll find the native trading in cowrie shells. Now the cowrie shells are not a commodity. 24 00:02:23.460 --> 00:02:29.460 A few natives may use it for decorative purposes, but most do not. They're simply a kind of money. 25 00:02:29.460 --> 00:02:38.460 And they're used to facilitate exchanges. They have no other usage as such. You can't eat them. 26 00:02:38.460 --> 00:02:43.460 You can't wear them. Mostly they don't even use them for decorative purposes. And there they are. 27 00:02:43.460 --> 00:02:49.060 They're a kind of fiat money. They are used as money because the chief said they're money, and that's that. 28 00:02:49.060 --> 00:02:58.860 Another typical example, and to me a vastly interesting one, is what goes on on the island of Yap, even today. 29 00:02:58.860 --> 00:03:10.060 The Yapese use a kind of fiat money. What they have is a series of giant boulders, I think the smallest weighs two tons, 30 00:03:10.060 --> 00:03:25.060 and they go up in size I guess to 8, 10, 12 tons a piece. These boulders are mined on another island and brought over to Yap in canoes and then they are placed outside and they stand up. 31 00:03:25.060 --> 00:03:34.060 There's a hole bored through each one so you know it's not just a loose boulder, it's a piece of money because when it has that hole in it, that makes it money. 32 00:03:34.060 --> 00:03:38.380 and of course the yappies say there's one tremendous advantage to this type of money. 33 00:03:38.380 --> 00:03:45.020 It's never stolen and I can see why nobody could steal it but everybody knows who owns it and they 34 00:03:45.020 --> 00:03:52.380 use this in exchange. What happens of course is that when a yappies wants to exchange something 35 00:03:52.380 --> 00:03:59.740 with another yappies he identifies himself as the owner of a particular piece of money on the island 36 00:03:59.740 --> 00:04:04.940 and then he transfers his ownership of the money to the party he's doing business with 37 00:04:04.940 --> 00:04:11.100 and the party he's doing business with accepts the new ownership of the money and then it's his 38 00:04:11.100 --> 00:04:17.100 and the money doesn't move oh it is only the ownership that moves and apparently the yappies 39 00:04:17.100 --> 00:04:24.780 are perfectly happy with this obviously the money is not a commodity you couldn't use it for building 40 00:04:24.780 --> 00:04:34.100 Banking Blocks, to have a utility as such. It is simply a case of fiat money. And it 41 00:04:34.100 --> 00:04:40.540 seems to work. The yappies like it. They like it better than our money, for instance. They 42 00:04:40.540 --> 00:04:46.260 think ours is subject to inflation. And they don't necessarily like it. But they don't 43 00:04:46.260 --> 00:04:50.500 think theirs is. So they're happy with it. And that's fine. 44 00:04:50.500 --> 00:04:56.900 I merely wanted to indicate that you can have a kind of fiat money even among people who 45 00:04:56.900 --> 00:05:04.740 do not accept modern ideas and have modern governments and so on. Actually, of course, 46 00:05:04.740 --> 00:05:13.220 the use of fiat money has only recently come to the United States. To begin with, in our 47 00:05:13.220 --> 00:05:19.880 history, we thought we would prefer commodity money. Now, that's the safest kind. And we 48 00:05:19.880 --> 00:05:26.280 We began to have pretty much that type of money. We used of course at the outset, back 49 00:05:26.280 --> 00:05:31.740 in the colonial days, before we had the Constitution and got our own government, we used the money 50 00:05:31.740 --> 00:05:39.560 of other countries. We used British pounds and the pound sterling and of course the shillings 51 00:05:39.560 --> 00:05:47.040 and pence and we also used the French franc and the Dutch gilder and the German mark and 52 00:05:47.040 --> 00:05:52.800 and the Spanish pieces of eight. We used all of those in this country, and most of these 53 00:05:52.800 --> 00:05:58.960 were metallic coins that were in use. There was a little bit of paper money in existence, 54 00:05:58.960 --> 00:06:07.440 but most was metallic, not necessarily gold. A lot of it was silver or alloy of one sort 55 00:06:07.440 --> 00:06:12.560 or another, though there was quite a bit of gold in circulation. Money was very scarce, 56 00:06:12.560 --> 00:06:20.160 We made worth a great deal, and the result was that we began with these foreign currencies, 57 00:06:20.160 --> 00:06:25.880 these foreign monies, and then we gradually got into the business of providing our own. 58 00:06:25.880 --> 00:06:31.920 And so we began pretty much in the commodity area and with direct barter. 59 00:06:31.920 --> 00:06:35.560 Then we began to create banks of our own. 60 00:06:35.560 --> 00:06:40.760 We had state banks and we had some private banks set up, and the banks began issuing 61 00:06:40.760 --> 00:06:42.440 credit money. 62 00:06:42.440 --> 00:06:47.820 That is to say, they got a supply of gold and silver on deposit, and then they issued 63 00:06:47.820 --> 00:06:53.480 paper against it, and said that if you came in at the bank at such and such a time, you 64 00:06:53.480 --> 00:06:59.000 could redeem your paper in terms of the gold or silver that they would theoretically at 65 00:06:59.000 --> 00:07:04.200 least have on deposit for you. As long as they did, well, it worked fine. Sometimes 66 00:07:04.200 --> 00:07:10.320 you find a bank that puts out things like this, but then they don't keep it on deposit, 67 00:07:10.320 --> 00:07:16.240 And you've got an unfortunate situation when the party holding the paper comes in and wants 68 00:07:16.240 --> 00:07:20.840 to convert it to gold or silver, then the bank doesn't have the gold or silver, and 69 00:07:20.840 --> 00:07:23.640 you have a run on the bank. 70 00:07:23.640 --> 00:07:28.040 And of course we've had a few of those in the history of this country. 71 00:07:28.040 --> 00:07:30.360 But anyway, that's the way we began. 72 00:07:30.360 --> 00:07:33.480 Then we got our Constitution. 73 00:07:33.480 --> 00:07:37.740 It was ratified, as you know, in 1788 and 1789. 74 00:07:37.740 --> 00:07:46.020 It was completely ratified by all of the then 13 states. And then we began and one of the 75 00:07:46.020 --> 00:07:52.260 first things that happened was we got a national bank, the first bank of the United States. 76 00:07:52.260 --> 00:07:59.900 It was founded by Alexander Hamilton. And we got into the area then of having the federal 77 00:07:59.900 --> 00:08:04.960 government get into the banking business and into the creation of money. Now a very interesting 78 00:08:04.960 --> 00:08:11.160 The thing happened here, we decided, you see, that having a commodity base was important. 79 00:08:11.160 --> 00:08:18.160 So we wrote into the Constitution the idea that gold and silver, both of them, would 80 00:08:18.160 --> 00:08:21.440 be what we call legal tender. 81 00:08:21.440 --> 00:08:28.040 This means that the government approved and officially stated that gold and silver are 82 00:08:28.040 --> 00:08:30.560 the base of our money supply. 83 00:08:30.560 --> 00:08:33.120 Now that's never been changed. 84 00:08:33.120 --> 00:08:40.400 Technically, gold and silver are really the only constitutionally approved money we have 85 00:08:40.400 --> 00:08:41.800 in the country. 86 00:08:41.800 --> 00:08:48.840 But of course, as long as a bank is merely issuing credit certificates against gold or 87 00:08:48.840 --> 00:08:54.240 silver, they haven't created money, they have merely created credit and are dealing 88 00:08:54.240 --> 00:09:00.760 with credit certificates and the base is still on the gold or silver in existence wherever 89 00:09:00.760 --> 00:09:01.760 it may be. 90 00:09:01.760 --> 00:09:08.080 Now, to understand what happened in this country, it would be important to understand one particular 91 00:09:08.080 --> 00:09:19.960 law. It's called Gresham's Law. Actually, what it is, it's a law that helps to explain 92 00:09:19.960 --> 00:09:25.720 a particular market phenomenon which I've already indicated and that is that we tend 93 00:09:25.720 --> 00:09:31.640 to value most those things. We tend to value least those things that are in plentiful supply. 94 00:09:31.640 --> 00:09:39.140 The way this law came into existence was this. It's a real interesting story. 95 00:09:39.140 --> 00:09:48.640 It goes back to the time of Henry VIII in England. Henry VIII had an advisor whose name was Sir Thomas Gresham. 96 00:09:48.640 --> 00:09:56.640 And what was going on at this time, as you may recall, was a war between King Henry 97 00:09:56.640 --> 00:10:02.640 and the papal authorities in Rome. 98 00:10:02.640 --> 00:10:07.840 Henry had broken with the Catholic Church over the question of succession. 99 00:10:07.840 --> 00:10:10.160 He wanted to get a divorce. 100 00:10:10.160 --> 00:10:15.120 He was married to Catherine and she had presented him with a girl. 101 00:10:15.120 --> 00:10:22.080 He wanted a son and then it was discovered that Catherine could not have another child 102 00:10:22.080 --> 00:10:27.200 and Henry had found a girl that he thought would make an excellent substitute for Catherine, 103 00:10:27.200 --> 00:10:33.760 and so he wanted a divorce. The Pope refused to grant a special dispensation to Henry, 104 00:10:33.760 --> 00:10:39.120 contending that Henry, even though King, was bound by the same rules that bound every other member 105 00:10:39.120 --> 00:10:44.320 of Christendom, and the result was that Henry broke with the Church, a civil war ensued, 106 00:10:44.320 --> 00:10:50.640 and I'm sure you are familiar with the outcome of that. In any case, in the process of waging a war, 107 00:10:50.640 --> 00:10:57.800 A war is not an economic activity, it is dysfunctional, and Henry used up all the money that he had, 108 00:10:57.800 --> 00:11:00.040 and he borrowed wherever he could. 109 00:11:00.040 --> 00:11:04.760 Then he began confiscating church lands and church property, and he spent the proceeds 110 00:11:04.760 --> 00:11:10.300 from that, and he still was going broke and not getting enough money to wage the war. 111 00:11:10.300 --> 00:11:15.160 So he finally called in his advisors and he said he would need a sizable amount of money 112 00:11:15.160 --> 00:11:20.000 and he would prefer some silver shillings, and would his advisors please get busy and 113 00:11:20.000 --> 00:11:24.160 and give him a nice supply of silver shillings. I don't recall the precise amount, now it 114 00:11:24.160 --> 00:11:30.840 isn't too important, but it was a substantial sum. Let me just hazard about £50,000 in 115 00:11:30.840 --> 00:11:35.800 new silver coins, and let's have it right away if you don't mind. And of course the 116 00:11:35.800 --> 00:11:41.440 advisor said, well, Your Majesty, this is a great idea, and we'd love to supply you 117 00:11:41.440 --> 00:11:45.760 with the silver coins, but unfortunately you can't make silver coins if you don't have 118 00:11:45.760 --> 00:11:50.920 the silver. There is a problem here and we don't have the silver so we can't get you 119 00:11:50.920 --> 00:11:54.840 the silver coins. And Henry said, I can't take that kind of an answer. You're going 120 00:11:54.840 --> 00:11:58.400 to have to get them. And they said, well, Your Majesty, to get the silver you have to 121 00:11:58.400 --> 00:12:02.440 mine and you have to do all these various things and it would take quite a while to 122 00:12:02.440 --> 00:12:06.920 get the kind of, the amount of silver that you're talking about. But if you'll give 123 00:12:06.920 --> 00:12:11.920 us the time, we can get it. And he said, no, I've got to have it now. Well, they said, 124 00:12:11.920 --> 00:12:13.480 it can't be done. 125 00:12:13.480 --> 00:12:19.480 Well, Henry came back with the idea, well, if we can't make these coins out of silver, 126 00:12:19.480 --> 00:12:23.480 let's make them out of some other kind of metal. We've got some other kind of metal, haven't we? 127 00:12:23.480 --> 00:12:27.480 And they said, well, sure, you know, if it's just metal, we can get the metal. 128 00:12:27.480 --> 00:12:31.480 Well, what kind of metal would you suggest? He says, let's have a scrap metal drive 129 00:12:31.480 --> 00:12:36.480 and get everybody to donate whatever kind of metal they have, and this will be good for the realm. 130 00:13:06.480 --> 00:13:13.480 and of course, here it says on its face, one silver shilling and here it says on its face 131 00:13:36.480 --> 00:13:41.320 Here's the picture of Henry, the King of England, and you look at it, and obviously 132 00:13:41.320 --> 00:13:45.040 it is not a silver shilling. It is something that looks like it's made out of something 133 00:13:45.040 --> 00:13:49.900 a little less valuable than brass. It's just, and of course if you drop it, it goes thud, 134 00:13:49.900 --> 00:13:54.640 it doesn't clink. It's just an unhappy-looking piece of metal. 135 00:13:54.640 --> 00:14:00.440 So as these things began coming off the assembly line, Sir Thomas Gresham was there, and he 136 00:14:00.440 --> 00:14:04.920 took a look at them and said, Your Majesty, you're not going to get away with this. The 137 00:14:04.920 --> 00:14:10.120 The silliest, most ignorant oath that you have in the country will spot these. 138 00:14:10.120 --> 00:14:13.760 These are not silver shillings, and he'll know it, and he won't accept it. 139 00:14:13.760 --> 00:14:15.520 You're going to have a rebellion on your hands. 140 00:14:15.520 --> 00:14:17.720 People aren't going to buy this. 141 00:14:17.720 --> 00:14:19.640 And Henry was a little disappointed himself. 142 00:14:19.640 --> 00:14:22.120 They looked worse than even he thought they would. 143 00:14:22.120 --> 00:14:24.680 And he said, well, we've got to pass them somehow. 144 00:14:24.680 --> 00:14:26.120 He says, don't we have some silver? 145 00:14:26.120 --> 00:14:27.840 And he said, oh, yeah, we've got some. 146 00:14:27.840 --> 00:14:29.680 And he says, how about melting that down? 147 00:14:29.680 --> 00:14:32.040 We'll give all these coins a silver bath. 148 00:14:32.040 --> 00:14:34.640 Well, that's what they did. 149 00:14:34.640 --> 00:14:39.280 Incidentally, if you think that these sandwich quarters that we have now have been invented 150 00:14:39.280 --> 00:14:41.680 currently, forget it. 151 00:14:41.680 --> 00:14:44.580 This was done back in the days of Henry VIII. 152 00:14:44.580 --> 00:14:47.520 That's where they began using a sandwich coin, you see. 153 00:14:47.520 --> 00:14:50.680 Only in those days the bread was even thinner than it is now. 154 00:14:50.680 --> 00:14:56.760 Anyway, they took these coins in England and they dipped them in a silver wash. 155 00:14:56.760 --> 00:15:00.180 And when they first came out, they didn't look bad. 156 00:15:00.180 --> 00:15:01.180 They looked like silver. 157 00:15:01.180 --> 00:15:03.800 Of course, if you dropped one it still went thud. 158 00:15:03.800 --> 00:15:11.260 But by this appearance they got a fairly respectable looking coin and Henry took these that were 159 00:15:11.260 --> 00:15:15.920 made of old tea kettles and he passed them off as though they were silver. Now obviously 160 00:15:15.920 --> 00:15:22.080 these are counterfeit coins but they are made by the government so that removes the onus 161 00:15:22.080 --> 00:15:29.660 of counterfeit and curiously everybody accepted the coins. But Sir Thomas was sort of a prophet 162 00:15:29.660 --> 00:15:36.600 of Bloom. He stood looking around at this terribly disapproving and he predicted the 163 00:15:36.600 --> 00:15:41.020 worst. He said, the people one day will discover that you have defrauded them here and they'll 164 00:15:41.020 --> 00:15:44.800 rise up and demand the real coins and you won't have them and you're going to be in 165 00:15:44.800 --> 00:15:49.880 trouble. And Henry said, in effect, we'll cross that bridge when we come to it. 166 00:15:49.880 --> 00:15:58.880 So the time passed and no rebellion appeared. And Sir Thomas began to be puzzled. And he 167 00:15:58.880 --> 00:16:03.840 He went out into the market and ran a survey to find out what the people were doing with 168 00:16:03.840 --> 00:16:10.000 the coins that were obviously spurious and which everybody now knew were spurious. And 169 00:16:10.000 --> 00:16:15.760 he discovered an interesting thing. Exactly the opposite of his prediction was coming 170 00:16:15.760 --> 00:16:22.680 true. People weren't rejecting these coins. They were avidly accepting them and using 171 00:16:22.680 --> 00:16:26.900 them. And then he made another discovery. The real 172 00:16:26.900 --> 00:16:31.740 All silver coins that were still in the market had virtually disappeared. 173 00:16:31.740 --> 00:16:36.380 And he conducted a study to find out where they were and he discovered that people were 174 00:16:36.380 --> 00:16:38.180 hoarding them. 175 00:16:38.180 --> 00:16:43.400 They had taken the good silver, the good coins, which they could easily detect, and they put 176 00:16:43.400 --> 00:16:44.800 them aside. 177 00:16:44.800 --> 00:16:50.260 And they were dealing only with the bad coins and the worse they were, the quicker they 178 00:16:50.260 --> 00:16:52.000 exchanged hands. 179 00:16:52.000 --> 00:16:53.700 And that's Gresham's Law. 180 00:16:53.700 --> 00:17:01.320 Gresham's law contends that when the king declares that two unlike substances are equal 181 00:17:01.320 --> 00:17:08.460 in purchasing power, the bad metal driveth out the good. 182 00:17:08.460 --> 00:17:12.960 And that's exactly what happened during the reign of Henry VIII. 183 00:17:12.960 --> 00:17:18.220 Now coming back to the American experience, in a sense we had a similar experience. 184 00:17:18.220 --> 00:17:25.180 You see, we set up a bi-metal system with gold and silver to be the base of our monetary 185 00:17:25.180 --> 00:17:27.140 system. 186 00:17:27.140 --> 00:17:32.460 And then, because they were different metals, Congress felt, and of course this is in the 187 00:17:32.460 --> 00:17:37.800 Constitution, it says that the Congress has the power to mint coins and to regulate the 188 00:17:37.800 --> 00:17:39.260 value of them. 189 00:17:39.260 --> 00:17:47.060 And so, acting on this constitutional prerogative, Congress proceeded to pass a law declaring 190 00:17:47.060 --> 00:17:52.180 and a ratio of purchasing power between gold and silver. 191 00:17:52.180 --> 00:17:54.900 There was a very, very famous law that came out. 192 00:17:54.900 --> 00:17:57.860 It's the 16 to 1 law. 193 00:17:57.860 --> 00:18:04.500 It declared that 16 units of silver of such and such a kind and fineness would be the 194 00:18:04.500 --> 00:18:11.060 equivalent in value to one unit of gold of such and such a weight and fineness. 195 00:18:11.060 --> 00:18:13.580 Now that was the congressional decision. 196 00:18:13.580 --> 00:18:14.860 What happened in the market? 197 00:18:14.860 --> 00:18:19.100 Well, the people dealing with these coins apparently had an independent judgment on 198 00:18:19.100 --> 00:18:23.860 it, and they began to hoard the gold coins and spend the silver. So the gold disappeared 199 00:18:23.860 --> 00:18:27.460 and people weren't dealing with the gold. The result was there just didn't seem to 200 00:18:27.460 --> 00:18:32.340 be enough coinage in circulation, and the government was very much disturbed about this 201 00:18:32.340 --> 00:18:37.140 because people were complaining about a shortage of money, but they weren't using all the 202 00:18:37.140 --> 00:18:43.420 money that was out because they were hoarding the gold. So the government became distressed 203 00:18:43.420 --> 00:18:48.400 with this and they said if people feel this way about the gold, we'll do this. We'll 204 00:18:48.400 --> 00:18:54.440 collect gold and we'll deposit it in the treasury and we'll issue paper certificates 205 00:18:54.440 --> 00:19:01.280 against the gold. These will be credit certificates and then the people will have the paper gold 206 00:19:01.280 --> 00:19:07.060 and the silver in coins and they'll trade with that. So what do you think happened? 207 00:19:07.060 --> 00:19:12.900 This was done and the people began to hoard the silver and use the paper. 208 00:19:12.900 --> 00:19:19.900 So again there was a shortage and so Congress acted again and well what they did, they began 209 00:19:19.900 --> 00:19:22.620 changing the ratio. 210 00:19:22.620 --> 00:19:28.480 They started at 16 to 1, then they went to I think 18 or 19, then 20, 21 to 1. 211 00:19:28.480 --> 00:19:32.100 They kept trying to adjust that to come up with whatever the market said. 212 00:19:32.100 --> 00:19:34.060 Well they never got it. 213 00:19:34.060 --> 00:19:37.360 It didn't make any difference what the Congress said, the market said something else. 214 00:19:37.360 --> 00:19:43.440 So they constantly had this apparent shortage and so then the next thing they did, they 215 00:19:43.440 --> 00:19:48.760 collected some silver and put it in the treasury and they issued some silver certificates. 216 00:19:48.760 --> 00:19:53.040 You know for a while we even did it with grain. I don't know if you've ever heard of that 217 00:19:53.040 --> 00:20:00.540 but we used to have credit certificates in circulation that were redeemable in terms 218 00:20:00.540 --> 00:20:06.700 of so many units of wheat. We had wheat certificates in circulation in the country. But the interesting 219 00:20:06.700 --> 00:20:23.700 The interesting thing in the market was that when people had gold and silver certificates to deal with, well you've already guessed, they hoarded the gold certificates and dealt with the silver certificates because people make independent value judgments. 220 00:20:23.700 --> 00:20:30.880 Judgments. Every human being does and there's always a tendency for you to deal to yourself 221 00:20:30.880 --> 00:20:39.320 the best. So if you get coins or any kind of money that in your judgment is better than 222 00:20:39.320 --> 00:20:44.940 something else, you hold on to the best for yourself and you deal with the worst as long 223 00:20:44.940 --> 00:20:50.660 as anybody will accept it. And of course people will accept it as long as the government says 224 00:20:50.660 --> 00:20:56.040 says you've got to accept it because we're declaring that it is official money and so 225 00:20:56.040 --> 00:21:01.480 given a situation with the government intervening in the money area, the tendency will be, as 226 00:21:01.480 --> 00:21:09.240 Sir Thomas Gresham pointed out, the bad money will drive out the good and the worse it is, 227 00:21:09.240 --> 00:21:15.520 the more it will be used and if it's positively worthless, well, it'll be spent very rapidly. 228 00:21:15.520 --> 00:21:20.620 I don't know if you've ever had this experience but have you ever gotten a questionable coin 229 00:21:20.620 --> 00:21:23.260 Hand it to you in change. 230 00:21:23.260 --> 00:21:25.260 You know what most people do? 231 00:21:25.260 --> 00:21:27.420 That's the first coin they spend. 232 00:21:27.420 --> 00:21:30.060 They want to get it out of their possession as fast as they can. 233 00:21:30.060 --> 00:21:35.260 Of course, if they were probably being perfectly honest about it, they'd turn it in and take the loss. 234 00:21:35.260 --> 00:21:38.700 But they don't want to take the loss, so they spend that one as fast as they can. 235 00:21:38.700 --> 00:21:43.980 The spurious coins, counterfeit money, circulates with a rapidity you wouldn't believe. 236 00:21:43.980 --> 00:21:48.300 And the better the money is, the less it tends to circulate. 237 00:21:48.300 --> 00:21:54.140 We hold back on that which is the best according to our independent judgment and our independent 238 00:21:54.140 --> 00:21:59.260 judgment as people will always differ from what the politicians say. So this is the kind of dichotomy 239 00:21:59.260 --> 00:22:06.460 that you get in a situation where the government intervenes. Now we went through this kind of 240 00:22:06.460 --> 00:22:13.340 process for quite a while on up into the 20s and you know in the 20s we got about as good a balance 241 00:22:13.340 --> 00:22:21.420 in considering that government was intervening as we've ever had in the history of the country. 242 00:22:21.420 --> 00:22:28.060 At that time, we had gold and silver in general circulation, and we had gold certificates 243 00:22:28.060 --> 00:22:33.820 and silver certificates in general circulation, and you could exchange any item, paper or 244 00:22:33.820 --> 00:22:41.380 metal, for any other item, paper or metal, anywhere in the country without discounting. 245 00:22:41.380 --> 00:22:49.140 And that was a phenomenon. It was virtually unheard of. But we did attain that at that time. 246 00:22:49.140 --> 00:22:54.180 Other factors of course appeared and presently the whole thing broke down and we were in 247 00:22:54.180 --> 00:23:03.840 what we call the Great Depression. But just prior to that time we had an extremely satisfactory 248 00:23:03.840 --> 00:23:09.520 money system, although of course the constant complaint was heard and always will be heard, 249 00:23:09.520 --> 00:23:12.280 There just isn't enough money. 250 00:23:12.280 --> 00:23:14.280 Nobody ever has enough money. 251 00:23:14.280 --> 00:23:16.200 And let me get that point across. 252 00:23:16.200 --> 00:23:19.240 It's an extremely important one. 253 00:23:19.240 --> 00:23:23.120 Let me cue you in on a little secret. 254 00:23:23.120 --> 00:23:28.960 If you ever had enough money, money would become worthless. 255 00:23:28.960 --> 00:23:35.160 Just imagine a situation in this country where every human being in the country had all the 256 00:23:35.160 --> 00:23:36.920 money that he wanted. 257 00:23:36.920 --> 00:23:39.160 Now what would the result be? 258 00:23:39.160 --> 00:23:43.320 And the result would be he wouldn't accept any more because he has all the money he wants. 259 00:23:43.320 --> 00:23:46.640 Well if he wouldn't accept any, what good would your money be? 260 00:23:46.640 --> 00:23:50.440 He wouldn't take any of your money for any reason because he has all the money that he 261 00:23:50.440 --> 00:23:51.440 wants. 262 00:23:51.440 --> 00:23:55.800 And if everybody had all the money he wanted, then nobody would accept anybody else's money 263 00:23:55.800 --> 00:23:57.560 and the money would be worthless. 264 00:23:57.560 --> 00:24:03.280 I know many people have been intrigued by the idea that if the government can issue 265 00:24:03.280 --> 00:24:09.120 do money, and it obviously can and does, then why doesn't simply solve the problem of 266 00:24:09.120 --> 00:24:14.680 poverty by giving everybody a million dollars and have done with it? The printing presses 267 00:24:14.680 --> 00:24:19.900 will easily handle it. In fact, we could do it in a week. We could get a million dollars 268 00:24:19.900 --> 00:24:25.920 in currency into the hands of every human being in the country, including babes in arms. 269 00:24:25.920 --> 00:24:31.300 But you know what would happen if we did it? That money, so-called, wouldn't be worth 270 00:24:31.300 --> 00:24:38.920 With waste paper, or it wouldn't be worth more than waste paper, it would simply not 271 00:24:38.920 --> 00:24:45.140 purchase anything because the purchasing power of the money would have been debased by this 272 00:24:45.140 --> 00:24:49.260 reckless increase in the amount of money in existence. 273 00:24:49.260 --> 00:24:51.840 So that's of course why it isn't done. 274 00:24:51.840 --> 00:24:56.120 In order for money to be valuable it has to be scarce. 275 00:24:56.120 --> 00:25:05.080 And another curiosity about money is that it will never and cannot ever be equally distributed. 276 00:25:05.080 --> 00:25:10.840 If you did it arbitrarily by the use of great force, if you equally distributed all the 277 00:25:10.840 --> 00:25:17.080 money in the country or in the world, within a matter of a few minutes it would be disequally 278 00:25:17.080 --> 00:25:21.120 distributed again, or it would again be worthless. 279 00:25:21.120 --> 00:25:28.880 So your use of money is dependent upon general acceptance. 280 00:25:28.880 --> 00:25:31.600 And people won't accept it if they don't want it. 281 00:25:31.600 --> 00:25:35.380 So they only want it because it's relatively scarce. 282 00:25:35.380 --> 00:25:41.540 And so there has to be less money around than you and I would probably like to experience 283 00:25:41.540 --> 00:25:42.880 for ourselves. 284 00:25:42.880 --> 00:25:46.800 And this means it will always be unequally distributed and that's the nature of the world 285 00:25:46.800 --> 00:25:47.800 we live in. 286 00:25:47.800 --> 00:25:48.800 It's too bad. 287 00:25:48.800 --> 00:25:53.700 I am very unhappy to have to tell you that that's the way it is. It would be so nice 288 00:25:53.700 --> 00:25:58.280 to be a Pollyanna and to tell you that everything is going to come up roses and all we need 289 00:25:58.280 --> 00:26:03.100 is to just print more money and everybody gets a lot more of it and it would be one 290 00:26:03.100 --> 00:26:07.640 of the greatest disasters that could overtake us. So I certainly can't recommend it. But 291 00:26:07.640 --> 00:26:13.300 anyway, that is one of the natures of money. Now while we're thinking in terms of Gresham's 292 00:26:13.300 --> 00:26:20.220 Law, we should also think in terms of Watt's law, which is the necessary corollary. You 293 00:26:20.220 --> 00:26:25.180 see, Gresham's law is predicated upon the idea of the government intervening in the 294 00:26:25.180 --> 00:26:32.580 field of money. Remember what he said, that when the king declares that two unlike metals 295 00:26:32.580 --> 00:26:38.860 are of equal value, then the good metal being used as coin will be driven out by the bad 296 00:26:38.860 --> 00:26:47.100 Now what does Watts say? Dr. Watts points out that if we didn't have the government 297 00:26:47.100 --> 00:26:54.980 involved in the money market, the reverse condition would appear. In other words, given 298 00:26:54.980 --> 00:27:03.240 a free market in money, the good money will drive out the bad. Why? Because given a free 299 00:27:03.240 --> 00:27:09.640 If we market in money, none of us would be required by law to accept any particular kind 300 00:27:09.640 --> 00:27:10.980 of money. 301 00:27:10.980 --> 00:27:21.100 And that means that if I were to go to work for you and you said, I'm going to pay you 302 00:27:21.100 --> 00:27:28.340 in terms of Smithsonian relics, I would say I don't want that payment. 303 00:27:28.340 --> 00:27:33.760 I would like to be paid in terms of silver or gold, and I won't work for you until 304 00:27:33.760 --> 00:27:37.460 I get a kind of money that is satisfactory to me. 305 00:27:37.460 --> 00:27:41.460 All of us would like to make our own money, you know, print it and buy things with it. 306 00:27:41.460 --> 00:27:42.460 That would be a delight. 307 00:27:42.460 --> 00:27:45.900 I'd love to do that myself, but you wouldn't accept it. 308 00:27:45.900 --> 00:27:46.980 So it would be useless. 309 00:27:46.980 --> 00:27:51.780 The only kind of money that would be any good given a free market would be the kind of money 310 00:27:51.780 --> 00:27:56.300 that has intrinsic characteristics that make it valuable. 311 00:27:56.300 --> 00:27:57.860 And so I couldn't produce money. 312 00:27:57.860 --> 00:28:03.160 I would have to go to somebody that was in the business of doing this and this of course 313 00:28:03.160 --> 00:28:06.480 can be done and often has been done in the marketplace. 314 00:28:06.480 --> 00:28:13.480 So keep in mind that if you have a free market in money, the better money will tend to drive 315 00:28:13.480 --> 00:28:18.760 out the bad and if you have government intervention in the money market, the bad money tends to 316 00:28:18.760 --> 00:28:22.840 drive out the good and of course that's been the history in this country. 317 00:28:22.840 --> 00:28:28.000 Again, this is an extremely important area and we'll have to talk more about it later, 318 00:28:28.000 --> 00:28:31.760 but keep in mind some of the things that I've said and thanks very much.