WEBVTT NOTE The Origin and Nature of Money 1 00:00:00.000 --> 00:00:09.480 I just have to mention that I was born in Brooklyn, and I'm Jewish, I guess. 2 00:00:09.480 --> 00:00:16.080 My talk today is on money, the origin and nature of money. 3 00:00:16.080 --> 00:00:20.320 There are many fairy tales that abound with regard to money, and I'd like to begin with 4 00:00:20.320 --> 00:00:25.360 a fairy tale of my own, only I think that mine has a kernel of truth unlike some of 5 00:00:25.360 --> 00:00:28.680 the others, although some do have a kernel of truth. 6 00:00:28.680 --> 00:00:35.260 Once upon a time, long, long ago, in a faraway land, all fairy tales have to start that way, 7 00:00:35.260 --> 00:00:43.840 there was no trade. Everyone consumed only that which they produced. They had to produce 8 00:00:43.840 --> 00:00:51.200 everything that they consumed. Food, clothing, shelter, you name it. If they ate it or used 9 00:00:51.200 --> 00:01:02.200 Finally, self-sufficiency had been attained, of which the anti-globalists and the economic nationalists whacked so eloquent. 10 00:01:02.200 --> 00:01:06.200 In effect, there was a tariff wall around each individual. 11 00:01:06.200 --> 00:01:09.200 Naturally, they were very, very poor. 12 00:01:09.200 --> 00:01:13.200 How can you be rich when you're a jack of all trades and a master of none? 13 00:01:13.200 --> 00:01:20.200 When everything you consume has to be produced by you and you have no efficiency, 14 00:01:20.200 --> 00:01:30.200 No efficiency, no innovation, no division of labor, no perfection of skills, because you're making 25, 50, 100 different things. 15 00:01:30.200 --> 00:01:38.200 Then some genius got the idea that he would specialize in the production of only one thing. 16 00:01:38.200 --> 00:01:45.200 And this was a great idea because now he could specialize and learn and get more skills. 17 00:01:45.200 --> 00:01:49.200 If you want to become a concert pianist, you have to practice all day. 18 00:01:49.200 --> 00:02:19.200 There's one exception I would offer for this, and that is the CRITs. These are the Critical Legal Studies Theoreticians at Harvard University, the Marxists at Harvard Law School, and they are the critical legal theorists at Harvard University, the Marxists at Harvard Law School, and they are the critical legal theorists at Harvard University. 19 00:02:19.200 --> 00:02:28.200 They may have this idea that they should really swap with the people who wash the floors 20 00:02:28.200 --> 00:02:32.200 because they don't want to be seen as too high and mighty or anything like that. 21 00:02:32.200 --> 00:02:37.200 And I would say that here is one exception to the general rule that only proves the general rule. 22 00:02:37.200 --> 00:02:44.200 Yes, it would be a good idea for these Marxist legal professors to, you know, get behind a broom once in a while, probably do less harm. 23 00:02:44.200 --> 00:02:48.200 But apart from that, I think it's a good idea to specialize. 24 00:02:48.200 --> 00:02:56.200 There's only one problem with specialization, and that is if you specialize in any one thing, it'll pile up. 25 00:02:56.200 --> 00:02:59.200 I mean, suppose you're a shoemaker and you make tons of shoes. 26 00:02:59.200 --> 00:03:03.200 You get good at making shoes, but you can't eat shoes. 27 00:03:03.200 --> 00:03:06.200 You can't medicate yourself with shoes. 28 00:03:06.200 --> 00:03:12.200 So in order to have specialization in division of labor, productivity, growth and innovation, 29 00:03:12.200 --> 00:03:19.200 You have to have trade so that you can swap some of your shoes for a frisbee or what have you. 30 00:03:19.200 --> 00:03:27.200 But trade is very difficult without money because you have this thing called the double coincidence of wants. 31 00:03:27.200 --> 00:03:35.200 If you have a chicken and you want a pickle, you're a chicken-owning pickle-wanter and you have to find a pickle-owning chicken-wanter. 32 00:03:35.200 --> 00:03:40.200 And the odds of doing this is pretty small. 33 00:03:40.200 --> 00:03:48.200 You go to a new city, you have computer expertise, you want an apartment, you have to find a landlord who needs computers. 34 00:03:48.200 --> 00:03:51.200 It's very difficult. 35 00:03:51.200 --> 00:03:59.200 So it was found that indirect trade, still border, no money yet, indirect trade was more efficient than direct trade. 36 00:03:59.200 --> 00:04:06.200 So if you had a chicken and you wanted a pickle, you wouldn't try to find a guy who had a pickle and wanted a chicken. 37 00:04:06.200 --> 00:04:25.200 For example, salt. So you'd make a two-stage thing out of it. First, the chicken traded for salt. Then you take the salt and trade it for a pickle. It's a pain in the neck. You have to go through two stages, but it's actually more efficient than trying to overcome the double coincidence of wants. 38 00:04:25.200 --> 00:04:34.200 The pain in the neck, you have to go through two stages, but it's actually more efficient than trying to overcome the double coincidence of wants. 39 00:04:34.200 --> 00:04:37.200 So, salt began to be used for two purposes now. 40 00:04:37.200 --> 00:04:46.200 One, as good old salt, and secondly, to intermediate trade or to facilitate trade. 41 00:04:46.200 --> 00:04:51.200 And then salt became more valuable because in addition to the demand for salt as a commodity, 42 00:04:51.200 --> 00:04:56.200 There is now a demand for salt to facilitate or intermediate trade. 43 00:04:56.200 --> 00:05:02.200 There were many items used in this money-ish kind of a way as a trade facilitator. 44 00:05:02.200 --> 00:05:09.200 Salt, sugar, tobacco, fish hooks, cows, metal, brass, copper, silver, gold. 45 00:05:09.200 --> 00:05:14.200 But notice one thing about all of these facilitators or intermediators of trade. 46 00:05:14.200 --> 00:05:18.200 They're all commodities. 47 00:05:18.200 --> 00:05:22.200 They all had some sort of intrinsic value apart from the trade. 48 00:05:22.200 --> 00:05:30.200 Now, I'm not a Marxist, so I don't believe in intrinsic value, but I mean a value apart from the trade, based on supply and demand. 49 00:05:30.200 --> 00:05:39.200 Notice that we didn't start with, we couldn't start with pieces of tiny paper saying, you know, ten money units or something like that. 50 00:05:39.200 --> 00:05:43.200 Murray Rothbard, when he would explain this, would give an example. 51 00:05:43.200 --> 00:05:48.200 Well, suppose I wrote out a paper, you know, ten Rothbards, would anyone give me anything for it? 52 00:05:48.200 --> 00:05:53.200 And I was a snotty kid in those days. I still am, although I'm no kid anymore. 53 00:05:53.200 --> 00:05:57.200 And I would pipe up and say, Murray, Murray, yeah, give me, I'll take ten Rothbards. 54 00:05:57.200 --> 00:06:04.200 I swear, if I had ten Rothbards signed by him now, I could probably auction it off and get a hundred bucks for it. 55 00:06:04.200 --> 00:06:09.200 But I think the point is that it's sentimental value, and it's just a story. 56 00:06:09.200 --> 00:06:15.000 A story. I mean, if it was a million Rothbards or, you know, if he wanted a million bucks for it, I wouldn't give him a million bucks for that. 57 00:06:15.000 --> 00:06:24.400 So, he's making a very important point, and mine was sort of silly, but what the heck. 58 00:06:24.400 --> 00:06:31.900 The key to money is knowing that others will later accept it, that you won't get caught holding the bag, 59 00:06:31.900 --> 00:06:39.100 that you won't sell your pickle or your chicken or your frisbee for a piece of paper, and then no one else will take the piece of paper. 60 00:06:39.100 --> 00:06:51.100 So that's why you can't start out with a piece of paper in any serious way as opposed to the joking way that I had with Murray. 61 00:06:51.100 --> 00:06:55.100 So that's why it had to be a commodity and it couldn't start out as a piece of paper. 62 00:06:55.100 --> 00:06:59.100 Now there was a competitive struggle over which commodity would be the money. 63 00:06:59.100 --> 00:07:05.100 Everywhere in the civilized world where there was free competition allowed between these various items 64 00:07:05.100 --> 00:07:25.100 The gold standard is just a name for a competitive process which eventuates in one commodity becoming the money. 65 00:07:25.100 --> 00:07:30.100 We are not fetishists about gold, as some people accuse us of. 66 00:07:30.100 --> 00:07:35.100 The picture I get is Scrooge McDuck who was a boyhood hero of mine. 67 00:07:35.100 --> 00:07:40.100 He'd get into the money bin and he'd throw money and sort of, you know, get a little lift off of this. 68 00:07:40.100 --> 00:07:49.100 We have been accused of this by Milton Friedman and others who claim we're gold bugs or gold fetishists. 69 00:07:49.100 --> 00:07:57.100 If platinum had won out instead of gold, nobody here in this group, I don't think, would say, 70 00:07:57.100 --> 00:08:00.100 would say, well, you know, platinum is no good. 71 00:08:00.100 --> 00:08:01.300 Platinum would then be the money. 72 00:08:01.300 --> 00:08:03.420 There's nothing specific about gold. 73 00:08:04.380 --> 00:08:08.500 It's rather that it's the name for a competitive process. 74 00:08:08.500 --> 00:08:09.860 So if you favor the gold standard, 75 00:08:09.860 --> 00:08:11.300 you don't favor gold per se, 76 00:08:11.300 --> 00:08:14.820 you favor whatever the market comes up with 77 00:08:14.820 --> 00:08:17.260 as a result of its competitive process. 78 00:08:18.300 --> 00:08:19.260 Why gold? 79 00:08:20.160 --> 00:08:21.760 What were the advantages of gold? 80 00:08:21.760 --> 00:08:26.300 Well, it's malleable, it's cheaply divisible. 81 00:08:26.300 --> 00:08:29.060 You can break it in two, make change. 82 00:08:29.060 --> 00:08:30.940 Whereas with diamonds, wouldn't be good money 83 00:08:30.940 --> 00:08:33.100 because if you break a diamond in two, 84 00:08:33.100 --> 00:08:36.500 you get the square root or the cube root 85 00:08:36.500 --> 00:08:37.860 or something like that, the value. 86 00:08:37.860 --> 00:08:40.380 You lose most of the value by breaking a big diamond 87 00:08:40.380 --> 00:08:41.220 into two bits. 88 00:08:41.220 --> 00:08:43.740 The two bits are worth a very small fraction 89 00:08:43.740 --> 00:08:45.500 of the bigger one diamond. 90 00:08:46.860 --> 00:08:51.860 It's low cost transport, high value per volume and weight. 91 00:08:52.100 --> 00:08:54.180 That is gold, whereas cement and iron 92 00:08:54.180 --> 00:09:00.180 wouldn't make good money for that reason. Bananas wouldn't make good money because they rot too quickly. 93 00:09:00.180 --> 00:09:05.180 What are the advantages of the gold standard? Well, checks and balances. 94 00:09:05.180 --> 00:09:10.180 Not only internal to government, the so-called three branches and the state versus the federal, 95 00:09:10.180 --> 00:09:17.180 which I think don't really stop much of anything, but this is a citizen check on the government as a whole. 96 00:09:17.180 --> 00:09:31.180 Because the government raises money in three ways. This is why money is very important. 97 00:09:31.180 --> 00:09:39.180 Taxing, borrowing and inflation. The advantage of taxes, that's a horrible way to say it, but I'll stick to it. 98 00:09:39.180 --> 00:09:46.180 One advantage of taxes is at least it's easy to see who's doing the taxing. They can't blame someone else for the taxes. 99 00:09:46.180 --> 00:09:53.180 for the Taxes. Even borrowing, when they freeze out other borrowers, it's easy to see who's doing the borrowing. 100 00:09:53.180 --> 00:09:57.180 But when it's inflation, it's very hard to see who's responsible. 101 00:09:57.180 --> 00:10:02.180 I remember when I was a kid, I used to watch this TV show, maybe some of you are familiar with it, T-Men. 102 00:10:02.180 --> 00:10:08.180 And the T-Men would come out of the treasury building and they'd go look for counterfeiters. 103 00:10:08.180 --> 00:10:13.180 And I felt like saying, why don't you guys turn around and go back to the building from which you 104 00:10:13.180 --> 00:10:19.180 have you eventuated and, you know, look for counterfeiters there, because that's where the counterfeiters are. 105 00:10:19.180 --> 00:10:24.180 What they do is they blame everyone and his uncle for inflation. 106 00:10:24.180 --> 00:10:28.180 They blame the businessman, the profiteer, the consumer. 107 00:10:28.180 --> 00:10:31.180 The consumer is buying too much. That's causing inflation. 108 00:10:31.180 --> 00:10:38.180 Even unions. Now, I'm no big fan of unions, and I'm not going to get into that, but I don't blame unions for inflation. 109 00:10:38.180 --> 00:10:41.180 Inflation is a monetary phenomenon. 110 00:10:41.180 --> 00:10:53.180 Why is this hard to see? Well, because the correlation between increases in money on the one hand and increases in prices on the other hand is not exactly direct. 111 00:10:53.180 --> 00:11:10.180 It varies based on expectations. Take the typical housewife who is going to buy a pot and a pan and suppose that her expectations of the prices of pots and pans is that the prices will be flat because they always have been flat. 112 00:11:10.180 --> 00:11:15.220 and now all of a sudden government fiat currencies starts increasing and there's 113 00:11:15.220 --> 00:11:19.900 a tendency more money chasing the same number of pots and pans for the prices 114 00:11:19.900 --> 00:11:24.880 to go up on the other hand the housewife seeing prices going up and expecting 115 00:11:24.880 --> 00:11:31.580 them to be back down will buy less so that counteracts the increase in other 116 00:11:31.580 --> 00:11:35.860 words there's an increase in the money supply which would push prices up and 117 00:11:35.860 --> 00:11:40.120 there's a decrease in prices because the housewife expects them to fall and the 118 00:11:40.120 --> 00:11:44.880 The two cancel each other out and the government starts creating money and prices don't rise 119 00:11:44.880 --> 00:11:49.880 and they say, you know, hot diggity dog, this is great. We'll put in more money and prices 120 00:11:49.880 --> 00:11:55.760 won't rise and, you know, we'll get to spend that extra money. Well, that's the first stage. 121 00:11:55.760 --> 00:12:00.720 The second stage is, well, the first stage is the housewife says, I'll wait till tomorrow 122 00:12:00.720 --> 00:12:05.320 to buy the pot and the pan because prices will go down. The second stage when the government 123 00:12:05.320 --> 00:12:09.320 The reason why the government keeps doing this is I need the pot now, I'll buy it now. 124 00:12:09.320 --> 00:12:17.320 And now you sort of get into a correlation of money and prices, the monetary theory, monetarism. 125 00:12:17.320 --> 00:12:23.320 And here there is a high correlation between the increase in the money supply and the increase in prices. 126 00:12:23.320 --> 00:12:30.320 But if the government keeps pumping in more money, then eventually the expectations of the populace change. 127 00:12:30.320 --> 00:12:39.320 The housewife thinks, well, you know, her expectations are not that prices will fall because they're higher than she expects them, but that they'll keep rising. 128 00:12:39.320 --> 00:12:45.320 And her motto is, I'll need the pot or the pan in two years, but I'll buy it now because the prices will be higher then. 129 00:12:45.320 --> 00:12:51.320 And now, all of a sudden, the price increases are higher than the increase in the money supply. 130 00:12:51.320 --> 00:12:57.320 Because not only are prices increasing because of the increase in the money supply, they're also increasing because of her expectations. 131 00:12:57.320 --> 00:13:14.320 Then in the fourth stage when you have this crack-up boom like they had in 1923 Germany, I don't need the pot, I don't need the pan, I won't need it in two years, I'm up to my armpits in pots and pans, but I'm going to buy one anyway, because the money is going to be worthless, at least I'll have a pot or a pan. 132 00:13:14.320 --> 00:13:23.320 So the correlation between money increases and price increases is more complicated, it's not just the one-to-one correlation. 133 00:13:23.320 --> 00:13:30.320 And then people say, well, you see, the one has nothing to do with the other because there's not this one-to-one correlation. 134 00:13:30.320 --> 00:13:33.320 But it's intermediated by these expectations. 135 00:13:33.320 --> 00:13:36.320 Did the gold standard collapse? No. 136 00:13:36.320 --> 00:13:40.320 Government abolished it to make inflation easy. 137 00:13:40.320 --> 00:13:44.320 Because, again, taxes you can only do so much. 138 00:13:44.320 --> 00:13:46.320 Borrowing you can only do so much. 139 00:13:46.320 --> 00:13:51.320 Inflation gives you a little bit more mobility on the part of the government. 140 00:13:51.320 --> 00:14:21.320 government. With the gold standard there are no balance of payments problems, no competing devaluations, no impetus toward protectionism, at least from the money side. The entire world economy would be integrated just like the economy of any one country where they have the same amount of money or the euro in Europe which now integrates them. It's no accident that the period from 1815 to 1914 was a hundred 141 00:14:21.320 --> 00:14:27.320 100 years of relative peace, and it was also 100 years of the gold standard. 142 00:14:27.320 --> 00:14:36.320 So I think the gold standard takes some credit, not only for prosperity and economic growth, but also for world peace. 143 00:14:36.320 --> 00:14:40.320 Okay, the fairy tale continued. How did inflation start? 144 00:14:40.320 --> 00:14:44.320 Well, now we have a pure gold standard in our fairy tale, 145 00:14:44.320 --> 00:14:52.320 People are in the habit of leaving their extra stores of gold with the person with the biggest safe in town, the goldsmith. 146 00:14:52.320 --> 00:15:01.320 He would store it, charge a warehouse fee, give a receipt, and then people would start trading these receipts for gold. 147 00:15:01.320 --> 00:15:07.320 They don't have to trade the gold because if the goldsmith has good veracity and people trust him, 148 00:15:07.320 --> 00:15:15.320 You'll accept a one ounce receipt for gold or a receipt for one ounce of gold in lieu of the one ounce of gold. 149 00:15:15.320 --> 00:15:20.320 So everyone doesn't have to keep running back to the goldsmith to get the money or keep it in their pocket. 150 00:15:20.320 --> 00:15:24.320 They can trade these little pieces of paper around. 151 00:15:24.320 --> 00:15:31.320 Well, one day he realized that there's a lot of gold that he's got and there's a lot of warehouse receipts out there. 152 00:15:31.320 --> 00:15:38.920 And the odds of everyone coming in all at once to get the gold would be very, very small. 153 00:15:38.920 --> 00:15:40.920 It hasn't happened for years. 154 00:15:40.920 --> 00:15:44.120 And his wife needs a new mink coat or a carriage or something. 155 00:15:44.120 --> 00:15:47.320 It's always the woman's fault. 156 00:15:47.320 --> 00:15:53.920 And he starts to create a few extra warehouse receipts for which there is no gold. 157 00:15:53.920 --> 00:15:56.320 And his wife says, wow, what a great businessman. 158 00:15:56.320 --> 00:15:58.420 You know, he's creating wealth. 159 00:15:58.420 --> 00:16:00.720 He's helping the economy. 160 00:16:00.720 --> 00:16:04.920 and thus fractional reserve banking was born. 161 00:16:04.920 --> 00:16:13.080 The Mises Rothbard radical proposal for free market money is no legal tender laws, 100% reserves, no fractional reserve banking, 162 00:16:13.080 --> 00:16:20.720 denationalization of fiat currency, abolition of the Fed, central bank, private coinage. 163 00:16:20.720 --> 00:16:29.160 Speaking of private coinage, I was going over the newspaper here and just yesterday's newspaper 164 00:16:29.160 --> 00:16:35.320 When they have this thing fed's lower boom on alternative money, there's a thing called the Liberty Dollar, 165 00:16:35.320 --> 00:16:38.640 which is not a U.S. dollar, it's created privately. 166 00:16:38.640 --> 00:16:42.440 And people are using this to facilitate trade. 167 00:16:42.440 --> 00:16:51.200 And the U.S. Mint is threatening to put these people in jail because they have a monopoly over the Mint. 168 00:16:51.200 --> 00:16:56.320 Well, this certainly would not exist in a free market society. 169 00:16:56.320 --> 00:17:08.120 There would be private coinage, return of the gold hoard to private hands, no government monopoly in the supply of money, mining, minting, certification, storage of money would all be done privately. 170 00:17:08.120 --> 00:17:23.360 There would be a complete separation of money and state, just as some people want religion and state, or school and state, or health and state, or X, Y, and Z and state, well, also money and state. 171 00:17:23.360 --> 00:17:29.960 If this occurred, another benefit of it would be that the Austrian business cycle would not be created. 172 00:17:29.960 --> 00:17:35.360 The way the Austrian business cycle runs is government creates more money, 173 00:17:35.360 --> 00:17:42.560 not only raises prices as the Chicago types are aware of, but also reduces interest rates. 174 00:17:42.560 --> 00:17:48.360 And when interest rates are initially reduced, this leads to greater roundaboutness of production. 175 00:17:48.360 --> 00:17:59.460 Namely, entrepreneurs are subsidized into and fooled into undertaking longer-run investments than they would have taken had the interest rate been higher. 176 00:17:59.460 --> 00:18:08.860 And when these things that never should have been built in the first place fail during a recession or a depression, the cleansing period, 177 00:18:08.860 --> 00:18:16.860 well, then we have a disruption of the economy, whereas with gold, gold is part and parcel of the economy. 178 00:18:16.860 --> 00:18:21.140 Gold is dependent upon the time preference rates 179 00:18:21.140 --> 00:18:23.380 which determine the market interest rates. 180 00:18:23.380 --> 00:18:25.660 So gold is endogenous to the market. 181 00:18:25.660 --> 00:18:27.400 Government fiat currency isn't. 182 00:18:27.400 --> 00:18:30.220 Gold will not create the business cycle. 183 00:18:30.220 --> 00:18:31.620 The fiat currency will. 184 00:18:34.700 --> 00:18:37.580 So much for our brief look at the Misesian case 185 00:18:37.580 --> 00:18:38.620 for the gold standard. 186 00:18:38.620 --> 00:18:42.220 Peace, prosperity, no inflation, 187 00:18:42.220 --> 00:18:45.300 no artificial creation of the business cycle. 188 00:18:45.300 --> 00:18:46.660 That's the gold standard. 189 00:18:48.500 --> 00:18:52.220 Now, I claim it's not enough to show 190 00:18:52.220 --> 00:18:54.700 the glorious, insightful analysis of Mises 191 00:18:54.700 --> 00:18:56.260 to truly appreciate him. 192 00:18:56.260 --> 00:18:59.060 Because suppose every economist believed this. 193 00:18:59.060 --> 00:19:01.180 Then, you know, we might applaud Mises, 194 00:19:01.180 --> 00:19:04.060 but, you know, the applause would be limited. 195 00:19:05.220 --> 00:19:08.260 However, I think Mises deserves a lot more applause 196 00:19:08.260 --> 00:19:13.180 because the profession of economics 197 00:19:13.180 --> 00:19:16.540 is not at all receptive to the gold standard. 198 00:19:16.540 --> 00:19:18.980 There was a survey of economists 199 00:19:18.980 --> 00:19:21.940 and they asked them 27 different questions 200 00:19:22.860 --> 00:19:26.700 to see, to gauge where economists stand 201 00:19:26.700 --> 00:19:30.860 and gold wasn't even on the top 27 list of questions. 202 00:19:30.860 --> 00:19:33.460 So gold is a non-issue in the economics profession. 203 00:19:34.700 --> 00:19:37.660 So I don't think we have to compare Mises 204 00:19:37.660 --> 00:19:39.980 with mainstream economists, 205 00:19:39.980 --> 00:19:42.500 certainly not with Marxists or Keynesians. 206 00:19:42.500 --> 00:19:45.200 That's sort of like shooting fish in a barrel. 207 00:19:45.200 --> 00:19:48.340 Rather what I'd like to do is to compare Mises 208 00:19:48.340 --> 00:19:52.180 with four free market economists. 209 00:19:52.180 --> 00:19:54.180 I don't know that I'll have time to go through all four 210 00:19:54.180 --> 00:19:56.860 because I want to stop and have questions soon. 211 00:19:56.860 --> 00:19:58.340 But the people I have on my list, 212 00:19:58.340 --> 00:20:00.980 and I'll get as far through them as I can, 213 00:20:00.980 --> 00:20:04.620 are Milton Friedman, Alan Greenspan, 214 00:20:04.620 --> 00:20:07.420 Friedrich Hayek, and Robert Mundell. 215 00:20:07.420 --> 00:20:10.220 All these people are free market economists 216 00:20:10.220 --> 00:20:13.060 who are either bitter opponents of the gold standard 217 00:20:13.060 --> 00:20:16.860 or opponents of the gold standard in one way or another. 218 00:20:16.860 --> 00:20:18.180 Let's start with Milton Friedman 219 00:20:18.180 --> 00:20:20.940 and let me read you a quote from Milton Friedman. 220 00:20:20.940 --> 00:20:23.700 This is from his program for monetary stability. 221 00:20:25.620 --> 00:20:28.500 The classical liberal, this is Milton speaking, 222 00:20:28.500 --> 00:20:30.260 is suspicious of assigning to government 223 00:20:30.260 --> 00:20:33.140 any functions that can be performed through the market, 224 00:20:33.140 --> 00:20:35.080 both because this substitutes coercion 225 00:20:35.080 --> 00:20:37.860 for voluntary cooperation in the area in question 226 00:20:37.860 --> 00:20:41.940 and because by giving government an increased role, it threatens freedom in other areas. 227 00:20:41.940 --> 00:20:45.420 Control over monetary and banking arrangements 228 00:20:45.420 --> 00:20:48.500 is a particularly dangerous power to entrust the government 229 00:20:48.500 --> 00:20:51.980 because of its far-reaching effects on economic activity at large 230 00:20:51.980 --> 00:20:55.460 as numerous episodes from ancient times of the present over the whole globe 231 00:20:55.460 --> 00:20:56.720 tragically demonstrate, 232 00:20:56.720 --> 00:21:00.460 unquote. Well, wait a second, that's pretty good stuff. 233 00:21:00.460 --> 00:21:04.300 This is wonderful. 234 00:21:04.300 --> 00:21:09.100 We can almost infer that he favors the gold standard or that he's a Missessian. 235 00:21:09.100 --> 00:21:12.800 After all, he's talking about voluntary cooperation, better than coercion. 236 00:21:12.800 --> 00:21:15.600 He's talking about the tragic history of government control. 237 00:21:15.600 --> 00:21:19.200 What more could you want? Enroll this man in the Mises Institute. 238 00:21:19.200 --> 00:21:21.300 But wait, not so fast. 239 00:21:21.300 --> 00:21:25.000 We have another quote from Milton Friedman where he takes it all back. 240 00:21:25.000 --> 00:21:26.800 What he says is, 241 00:21:26.800 --> 00:21:30.300 The fundamental defect of a commodity standard, read gold standard, 242 00:21:30.300 --> 00:21:32.700 from the point of view of society as a whole, 243 00:21:32.700 --> 00:21:35.500 You have to watch out for that. 244 00:21:35.500 --> 00:21:39.500 Is that it requires the use of real resources to add to the stock of money. 245 00:21:39.500 --> 00:21:45.600 People must work hard to dig gold out of the ground in South Africa in order to rebury it in Fort Knox or some similar place. 246 00:21:45.600 --> 00:21:54.000 The necessity of using real resources for the operation of a commodity standard establishes a strong incentive for people to find ways 247 00:21:54.000 --> 00:21:57.900 to achieve the same result without employing these resources. 248 00:21:57.900 --> 00:22:01.700 If people will accept as money pieces of paper on which it is printed, 249 00:22:01.700 --> 00:22:04.800 I promise to pay X units of the commodity standard, 250 00:22:04.800 --> 00:22:08.060 these pieces of paper can perform the same function 251 00:22:08.060 --> 00:22:10.180 as the physical pieces of gold or silver, 252 00:22:10.180 --> 00:22:12.100 and they require very much less 253 00:22:12.100 --> 00:22:14.040 in the form of resources to produce. 254 00:22:15.600 --> 00:22:17.460 This is very disappointing. 255 00:22:17.460 --> 00:22:19.480 The argument amounts to this, 256 00:22:19.480 --> 00:22:22.140 a ringing statement for freedom, 257 00:22:22.140 --> 00:22:25.180 but then to note that freedom costs real resources, 258 00:22:25.180 --> 00:22:33.940 and then the conclusion is well then don't do it. This is very strange. Let's have coercion 259 00:22:33.940 --> 00:22:38.920 because it costs money to have freedom. But this doesn't follow logically. There's no 260 00:22:38.920 --> 00:22:43.820 deduction here. What about justice though the heavens fall or our lives, our fortunes 261 00:22:43.820 --> 00:22:49.320 and our sacred honors or millions for defense, not a penny for tribute or kick butt or something. 262 00:22:49.320 --> 00:22:54.320 But we don't get that from Milton Friedman. What we get is a total surrender. 263 00:22:54.320 --> 00:22:58.320 First of all, it's not true that it costs real resources. 264 00:22:58.320 --> 00:23:03.320 Digging in South Africa and burying in Fort Knox or a similar place would take place anyway. 265 00:23:03.320 --> 00:23:07.320 Because gold has a value. 266 00:23:07.320 --> 00:23:12.320 Maybe there'd be a little less gold mined because of the monetary value, 267 00:23:12.320 --> 00:23:16.320 but there'd still be gold mined here and stuck there. 268 00:23:16.320 --> 00:23:18.320 So it's not as if it's going to cost resources. 269 00:23:18.320 --> 00:23:24.440 But suppose it did cost significant resources. Does it now follow that it shouldn't be done? No. 270 00:23:24.440 --> 00:23:29.000 The question is, is gold worth the cost of resources and also who should decide? 271 00:23:29.000 --> 00:23:35.360 Should Milton be deciding for us or should each individual decide through a marketplace? 272 00:23:35.360 --> 00:23:42.520 Well, obviously, I take the view that markets are better than governments for deciding these things. 273 00:23:42.520 --> 00:23:49.920 The political marketplace, if you want to use that word, which I don't, only occurs every four years, thank goodness. 274 00:23:49.920 --> 00:23:53.720 Whereas economic decision making occurs every day. 275 00:23:53.720 --> 00:23:59.520 Whereas in the political realm, when you vote every four years, you have to vote for a package deal. 276 00:23:59.520 --> 00:24:05.920 But suppose you like Bush on policy one, three, five, and seven, and you like Kerry on policy two, four, six, and eight. 277 00:24:05.920 --> 00:24:09.920 You have no way of registering anything. You have to take one or the other. 278 00:24:09.920 --> 00:24:16.800 Whereas in the market, you can vote for a blue striped tie or a white shirt or a red tie or whatever you want. 279 00:24:16.800 --> 00:24:23.120 It's like a scalpel rather than a bludgeon. 280 00:24:23.120 --> 00:24:29.000 And when people are free to choose, which is the name of one of his books, which he isn't really upholding, 281 00:24:29.000 --> 00:24:37.360 they've always chosen gold. So why are we cramming some other system down their throat? 282 00:24:37.360 --> 00:24:49.520 This leads to the question, why would people choose gold when it costs real resources, when they could have had these green pieces of paper fiat currency, which are a lot cheaper because you can always add a zero and ink and paper don't cost that much? 283 00:24:49.520 --> 00:24:57.720 Well, to ask this is to answer it. People have been victimized throughout history by government fiat currency inflation. 284 00:24:57.720 --> 00:25:05.520 Even as Professor Friedman has stated, gold is an insurance policy. It's sort of like locks and fences and doors. These too use up real resources. 285 00:25:05.520 --> 00:25:09.320 Does that mean that we shouldn't have fences and doors and locks? 286 00:25:09.320 --> 00:25:13.260 What about the, I mean, it's just silly. 287 00:25:13.260 --> 00:25:15.100 Just because a thing costs real resources, 288 00:25:15.100 --> 00:25:17.280 you don't say, well, therefore we shouldn't do it. 289 00:25:17.280 --> 00:25:20.720 A rational way is, okay, it costs real resources, 290 00:25:20.720 --> 00:25:24.120 assuming that it does, arguendo, but what's the value of it? 291 00:25:24.120 --> 00:25:26.660 And if we think the value is higher than the resource cost, 292 00:25:26.660 --> 00:25:27.940 then we should do it. 293 00:25:31.320 --> 00:25:35.360 Alan Greenspan, the next person I'll be considering, 294 00:25:35.360 --> 00:25:42.540 presents the greatest challenge to the task of contrasting Mises and other prominent economists for, for Greenspan is good on gold. 295 00:25:42.540 --> 00:25:48.080 He's as good as gold. Read his contribution to capitalism, the unknown and ideal. 296 00:25:48.080 --> 00:25:52.640 And it is written as if it was by a student of Mises, which is also true. 297 00:25:52.640 --> 00:25:58.560 Let me just read a quote or two from Alan Greenspan. 298 00:25:58.560 --> 00:26:05.460 An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. 299 00:26:05.460 --> 00:26:10.560 They seem to sense, perhaps more clearly and subtly than many consistent defenders of laissez-faire, 300 00:26:10.560 --> 00:26:18.660 that gold and economic freedom are indispensable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. 301 00:26:18.660 --> 00:26:22.760 One more quote. 302 00:26:22.760 --> 00:26:36.760 But the opposition to the gold standard in any form from a growing number of welfare state advocates was prompted by a much subtler insight, the realization that the gold standard is incompatible with chronic deficit spending, the hallmark of the welfare state. 303 00:26:36.760 --> 00:26:43.760 I could go on and on with quotes from Alan Greenspan about how great the gold standard is. He really is eloquent on this. 304 00:26:43.760 --> 00:26:51.760 Well then how can we account for the fact that Greenspan was head of the Fed, an amazing place for a supposed Misesian to be, 305 00:26:51.760 --> 00:26:57.760 and that the Fed hasn't been disbanded and that he hasn't promoted the gold standard. 306 00:26:57.760 --> 00:27:02.760 Well, Murray Rothbard's analysis in the free market has the ring of truth. 307 00:27:02.760 --> 00:27:10.760 What Murray says in effect, and I'll quote Murray, is that Greenspan does favor gold and laissez-faire, but only in the high philosophical level. 308 00:27:10.760 --> 00:27:15.760 In practice, he's a conservative Keynesian like his predecessors and successor. 309 00:27:15.760 --> 00:27:20.760 Here is Murray on Greenspan, on gold and the Fed. 310 00:27:20.760 --> 00:27:25.560 Thus, Greenspan is only in favor of the gold standard if all conditions are right. 311 00:27:25.560 --> 00:27:30.680 If the budget is balanced, trade is free, inflation is licked, everyone has the right philosophy. 312 00:27:30.680 --> 00:27:34.440 In the same way, he might say he only favors free trade if all conditions are right. 313 00:27:34.440 --> 00:27:39.040 The budget is balanced, unions are weak, we have a gold standard, the right philosophy. 314 00:27:39.040 --> 00:27:44.220 In short, never are one's high philosophical principles applied to one's actions. 315 00:27:44.220 --> 00:27:49.460 It becomes almost piquant for the establishment to have this man in its camp. 316 00:27:49.460 --> 00:27:54.980 Over the years, Greenspan has, for example, supported President Ford's imbecilic Whip 317 00:27:54.980 --> 00:28:00.020 Inflation Now buttons when he was chairman of the Council of Economic Advisers. 318 00:28:00.020 --> 00:28:06.020 Much worse is the fact that this high philosophical adherent of laissez-faire saved the racketeering 319 00:28:06.020 --> 00:28:10.780 Social Security program in 82, just when the general public began to realize that the program 320 00:28:10.780 --> 00:28:12.020 was bankrupt. 321 00:28:12.020 --> 00:28:17.460 He did it as head of a bipartisan conservative and liberal-centrist Social Security commission 322 00:28:17.460 --> 00:28:22.860 and Save the System from Bankruptcy by Slapping Higher Social Security Taxes on. 323 00:28:22.860 --> 00:28:29.280 So Mises is starting to look good now compared not just to the mainstream economists but compared 324 00:28:29.280 --> 00:28:34.180 to free enterprise people, Friedman and Greenspan. 325 00:28:34.180 --> 00:28:38.900 How does Hayek stand? 326 00:28:38.900 --> 00:28:44.660 Well in his monograph, Choice in Currency, Hayek specific, I have to ask someone, I'm 327 00:28:44.660 --> 00:28:48.860 I'm supposed to leave time for questions. Is it time yet? 328 00:28:48.860 --> 00:28:52.060 A little bit more and then we'll have questions, okay. 329 00:28:52.060 --> 00:28:54.700 Let me do Hayek and then I'll call for questions. 330 00:28:54.700 --> 00:28:56.620 In his monograph, Choice and Currency, 331 00:28:56.620 --> 00:28:59.620 Hayek specifically opposes any organized attempt 332 00:28:59.620 --> 00:29:01.120 to restore the gold standard. 333 00:29:02.740 --> 00:29:07.380 This leads some people to say, well, even Hayek says, 334 00:29:07.380 --> 00:29:08.980 the idea is, well, Hayek is supposed to be 335 00:29:08.980 --> 00:29:11.860 a laissez-faire person and even Hayek admits, 336 00:29:11.860 --> 00:29:14.100 so you people who stand for the gold standard, 337 00:29:14.100 --> 00:29:31.600 or Weirdo Extremist Crackpots, instead Hayek proposes elimination of legal tender laws, well this is good to be sure we should get rid of legal tender laws by all means, but this is necessary not sufficient, it's good to do but we must do more. 338 00:29:31.600 --> 00:29:46.100 The reason we all accept U.S. currency is not because of legal tender, it's because of its moneyness, 339 00:29:46.100 --> 00:29:54.600 because of its expectation that when we are handed a dollar, we will be able to hand off the dollar to someone else. 340 00:29:54.600 --> 00:30:08.600 So even if the legal tender law was ended tomorrow, we would still accept the currency because we have the expectation that the currency will be accepted by other people. 341 00:30:08.600 --> 00:30:13.600 So it's good to get rid of legal tender law, but that's not enough. 342 00:30:13.600 --> 00:30:19.600 Experience shows that only hyperinflation can get us out of the money. 343 00:30:19.600 --> 00:30:28.600 When they had the German hyperinflation of 1923, people started using other sorts of money other than the German money. 344 00:30:30.600 --> 00:30:39.600 There's nothing wrong with competition, but only competition on the market and not between fiat currency of the sort that Hayek is proposing with his Ducat. 345 00:30:39.600 --> 00:30:46.600 Consider an analogy. Do we as free market advocates want competition between government bureaus? 346 00:30:46.600 --> 00:30:51.600 Not really. That's the whole problem with the school voucher thing. 347 00:30:51.600 --> 00:31:00.600 Competition means competition for a laissez-faire advocate between private companies, not between government entities. 348 00:31:00.600 --> 00:31:05.600 Competition between this public school and that public school, another Friedmanian idea. 349 00:31:05.600 --> 00:31:11.600 Well, I don't know what we can say about that. Friedman would say it's better. 350 00:31:11.600 --> 00:31:15.600 To me, it's like the market socialism of Yugoslavia and Tito. 351 00:31:15.600 --> 00:31:33.600 Do we really want more efficient government? No, because unless we think that what government is doing is somehow good, we don't want government to engage in competitive processes between these bureaus and those bureaus to see which bureau can do better or worse. 352 00:31:33.600 --> 00:31:43.600 That's what we had in the bailout of Gulf after Katrina. Various government bureaucrats were competing with each other. 353 00:31:43.600 --> 00:31:47.080 Much better would be privatize them all. 354 00:31:47.080 --> 00:31:52.200 So the Hayek-Ducat is an attempt to have competition 355 00:31:52.200 --> 00:31:57.200 between his Ducat and the legal tender present fiat currency. 356 00:31:59.560 --> 00:32:01.520 The Ducat system makes a similar area 357 00:32:01.520 --> 00:32:04.240 as those flexible exchange rates. 358 00:32:04.240 --> 00:32:07.200 Trade is okay, but between what? 359 00:32:07.200 --> 00:32:10.080 We wanna have trade between market items, 360 00:32:10.080 --> 00:32:16.080 and not between other things that are part and parcel of the government.