WEBVTT NOTE The Revolutionary War and the Destruction of the Continental 1 00:00:00.000 --> 00:00:11.200 Ladies and gentlemen, very happy to be here in New York City where I lived for about five years, 1994 to 1999. 2 00:00:11.200 --> 00:00:15.240 I'm also happy to be at a Mises Circle event. I love the idea. 3 00:00:15.240 --> 00:00:18.120 I think it's an excellent idea to take the show on the road, so to speak. 4 00:00:18.120 --> 00:00:22.360 And unfortunately, I was not able to attend one earlier this year. 5 00:00:22.360 --> 00:00:28.800 I was invited to take part, but it was taking place right at the time that my wife was expecting. 6 00:00:28.800 --> 00:00:33.040 and so I thought not it would not be a good time to be away from her so I 7 00:00:33.040 --> 00:00:36.280 didn't attend that one it turned out that she ended up delivering the baby 8 00:00:36.280 --> 00:00:40.560 almost exactly at the time of the event so I would have had to cancel wouldn't 9 00:00:40.560 --> 00:00:45.800 have worked anyway so I'm very glad to be here and and you know Burt mentioned 10 00:00:45.800 --> 00:00:54.520 that I've been sort of prolific in terms of having children and just the last 11 00:00:54.520 --> 00:00:59.520 One of the times I saw Hans Hoppe last year, he was saying to me, 12 00:00:59.520 --> 00:01:01.520 oh, I see that you have a new book. 13 00:01:01.520 --> 00:01:03.520 And this was after we had just had our second child. 14 00:01:03.520 --> 00:01:08.520 And I said, well, not only do I have a new book, but even happier, we have a new baby. 15 00:01:08.520 --> 00:01:10.520 And he said, oh, isn't it? Congratulations. 16 00:01:10.520 --> 00:01:16.520 And I said, so it sort of seems as if we're doing one book per baby or one baby per book or something. 17 00:01:16.520 --> 00:01:22.520 And he said, well, I don't think you can keep up that pace. 18 00:01:22.520 --> 00:01:26.520 And I never tracked him down to ask him if he was talking about books or babies. 19 00:01:30.520 --> 00:01:36.520 Well, we've denounced a lot of living people today, so now I'm going to go after the dead 20 00:01:37.520 --> 00:01:39.520 by talking about the 18th century. 21 00:01:40.520 --> 00:01:45.520 And Joe mentioned that it was colonial Massachusetts 22 00:01:46.520 --> 00:01:51.520 that in the modern period in the West initiated the use of paper money 23 00:01:52.520 --> 00:02:22.520 in order to pay for what we might politely describe as foraging expeditions against Quebec but actually government paper money not in the West originated in 9th century China where it was redeemable in gold eventually it was transformed into irredeemable fiat paper isn't that a surprise I mean who could have seen that coming right and then all the consequences that we've come to expect so I've sometimes asked myself what would be the most 24 00:02:22.520 --> 00:02:34.520 I'm a historian. I think maybe an economist has a more depressing job in that he has to deal with the same fallacies over and over and over again. 25 00:02:34.520 --> 00:02:44.520 I mean, you turn 21, you've got your freshly minted economics degree, and you're ready to go out there and explain to people why rent control doesn't work, and this will do it. 26 00:02:44.520 --> 00:02:49.520 and this will do it and then you find it you know there you are retiring you know 27 00:02:49.520 --> 00:02:54.080 you're in your 60s and you're still saying the same darn thing over and over 28 00:02:54.080 --> 00:02:59.280 just to different people what is going on here and then you find out that in 29 00:02:59.280 --> 00:03:04.720 ninth century China already the seeds are being sown I mean where do you even 30 00:03:04.720 --> 00:03:13.240 begin really well the history of the the colonial experience with paper money is 31 00:03:13.240 --> 00:03:21.840 is not a particularly edifying one and, in fact, this history has really been written very well by Murray Rothbard, of course. 32 00:03:21.840 --> 00:03:27.540 In fact, almost anything has been written very well by Murray Rothbard, but in particular, in his books on his four-volume series 33 00:03:27.540 --> 00:03:33.240 Conceived in Liberty on the Colonial Period, he deals with the monetary history very nicely. 34 00:03:33.240 --> 00:03:40.740 And also in the book that Joe edited, wrote an introduction for on the history of money and banking in the United States that came out several years ago, 35 00:03:40.740 --> 00:03:44.740 He also deals with the subject in the course of an overall history 36 00:03:44.740 --> 00:03:47.740 of pretty much a history of the gold standard, 37 00:03:47.740 --> 00:03:51.740 really a history of money in the US from a pro-gold standard perspective. 38 00:03:51.740 --> 00:03:53.740 He deals with this very well. 39 00:03:53.740 --> 00:03:56.740 But other than Murray and a few other of our people in our day, 40 00:03:56.740 --> 00:03:59.740 really the best work that's been written 41 00:03:59.740 --> 00:04:04.740 in the history of money and banking in the US was written a long time ago. 42 00:04:04.740 --> 00:04:07.740 In the 1830s, in the Jacksonian period, 43 00:04:07.740 --> 00:04:15.740 There is tremendous work that you can still profit from today by economists or political economists and historians. 44 00:04:15.740 --> 00:04:20.740 And even all the way up to the turn of the century, the 19th and into the 20th, 45 00:04:20.740 --> 00:04:28.740 you see some very, very good work being done by mainstream people in the first years of the 20th century. 46 00:04:28.740 --> 00:04:38.740 And then it really begins to deteriorate because oftentimes history is tied up and bound so tightly to current events 47 00:04:38.740 --> 00:04:45.740 that when people begin to believe in the idea of a government-managed currency in the popular media, 48 00:04:45.740 --> 00:04:48.740 that's the way the historians interpret the past through that lens. 49 00:04:48.740 --> 00:04:52.740 And so the history became pretty rotten after that. 50 00:04:52.740 --> 00:04:57.740 So that's why I've sort of come to the conclusion that in the area of the history of money and banking, 51 00:04:57.740 --> 00:05:02.260 Really, the only good historian is a dead historian, unfortunately. 52 00:05:02.260 --> 00:05:07.140 Now, certain historical cases of inflation have become sufficiently notorious 53 00:05:07.140 --> 00:05:12.460 to become textbook examples of what happens when the government printing press spins out of control. 54 00:05:12.460 --> 00:05:16.860 And, of course, what's already been mentioned today, the textbook example from the 20th century 55 00:05:16.860 --> 00:05:20.740 involves the famous German hyperinflation of 1923. 56 00:05:20.740 --> 00:05:26.340 The 18th century affords us the cases of the American and French revolutions. 57 00:05:26.340 --> 00:05:31.340 and the monetary debasement for which those countries' governments were responsible. 58 00:05:31.340 --> 00:05:36.340 In the American case, it's well known that the continental currency lost so much of its value 59 00:05:36.340 --> 00:05:42.340 that it became common to describe something as worthless by saying that it was not worth a continental. 60 00:05:42.340 --> 00:05:47.340 Now, it's very common to hear it said that, yes, inflation is a bad thing, 61 00:05:47.340 --> 00:05:52.340 but that in emergencies, it may have to be used as a last resort. 62 00:05:52.340 --> 00:05:55.260 Governments always is a very, very last resort. 63 00:05:55.260 --> 00:05:57.580 They just have to resort to inflation. 64 00:05:57.580 --> 00:06:02.540 Just the way war is always a last resort after they've tried painstakingly 65 00:06:02.540 --> 00:06:06.380 every possible alternative, they just have to resort to it. 66 00:06:06.380 --> 00:06:09.060 Well, in The Theory of Money and Credit, 67 00:06:09.060 --> 00:06:13.060 Mises addressed the emergency argument for inflation, 68 00:06:13.060 --> 00:06:16.900 which he summed up as follows, that some people he said believe 69 00:06:16.900 --> 00:06:19.580 that there are emergencies which peremptorily require 70 00:06:19.580 --> 00:06:29.580 A nation, they say, can be menaced by evils which are incomparably more disastrous than the effects of inflation. 71 00:06:29.580 --> 00:06:38.580 If it is possible to avoid the total annihilation of a nation's freedom and culture by a temporary abandonment of sound money, 72 00:06:38.580 --> 00:06:42.580 no reasonable objection can be raised against such a procedure. 73 00:06:42.580 --> 00:06:46.580 It would simply mean preferring a smaller evil to a greater one. 74 00:06:46.580 --> 00:06:52.580 Well, Mises replied to this argument by reminding people of the fairly, what should be the fairly obvious point, 75 00:06:52.580 --> 00:06:59.580 that printing up additional green paper tickets does not increase the available resources in society, 76 00:06:59.580 --> 00:07:02.580 which of course remain at the same level as before. 77 00:07:02.580 --> 00:07:09.580 And again, Mises, in order to appraise correctly the weight of this emergency argument in favor of inflation, 78 00:07:09.580 --> 00:07:14.580 there is need to realize that inflation does not add anything to a nation's power of resistance, 79 00:07:14.580 --> 00:07:17.580 or to its spiritual and moral strength. 80 00:07:17.580 --> 00:07:19.580 Whether there is inflation or not, 81 00:07:19.580 --> 00:07:22.580 the material equipment required by the armed forces 82 00:07:22.580 --> 00:07:25.580 must be provided out of the available means 83 00:07:25.580 --> 00:07:28.580 by restricting consumption for non-vital purposes, 84 00:07:28.580 --> 00:07:31.580 by intensifying production in order to increase output 85 00:07:31.580 --> 00:07:35.580 and by consuming a part of the capital previously accumulated. 86 00:07:35.580 --> 00:07:38.580 All these things can be done if the majority of citizens 87 00:07:38.580 --> 00:07:41.580 are firmly resolved to offer resistance 88 00:07:41.580 --> 00:07:46.540 Americans are firmly resolved to offer resistance to the best of their abilities and are prepared 89 00:07:46.540 --> 00:07:51.820 to make such sacrifices for the sake of preserving their independence and culture. 90 00:07:51.820 --> 00:07:57.140 The great emergency can be dealt with without recourse to inflation. 91 00:07:57.140 --> 00:08:00.060 Well how was the American war for independence paid for? 92 00:08:00.060 --> 00:08:02.160 Well in a variety of ways. 93 00:08:02.160 --> 00:08:06.700 For example, the French government provided the American government with loans and subsidies 94 00:08:06.700 --> 00:08:12.380 and the Congress received modest sums as a result of its requisitions upon the states. 95 00:08:12.380 --> 00:08:17.100 But it was paper money that was really at the center of revolutionary war finance. 96 00:08:17.100 --> 00:08:21.500 Now when I was very young, my mother found it sort of endearing 97 00:08:21.500 --> 00:08:26.140 that whenever the family was saying that we needed money for this or that purpose, 98 00:08:26.140 --> 00:08:31.460 I would simply reply that they should go to the bank and get some. 99 00:08:31.460 --> 00:08:35.980 Well, the thing is though that I was about four when I said that. 100 00:08:35.980 --> 00:08:50.980 So, yet another depressing aspect of being an economist or, worst of all, an economic historian is to discover that something like that view is not far removed from the actual views of a great many people of influence over the years. 101 00:08:50.980 --> 00:09:04.980 So, for example, a flabbergasted Pelletier-Webster in his history of continental money tells us that when the subject of increased taxation for the support of the war was under consideration by the Continental Congress, 102 00:09:04.980 --> 00:09:10.820 One member arose and indignantly asked if he was expected to help tax people 103 00:09:10.820 --> 00:09:14.900 when they could go to the printing office and get money by the cartload. 104 00:09:14.900 --> 00:09:19.340 Well, there's the four-year-old Tom Woods argument right there on display. 105 00:09:19.340 --> 00:09:23.660 So what exactly happened? Well, already in 1775, 106 00:09:23.660 --> 00:09:26.300 Congress in effect turned on the printing press 107 00:09:26.300 --> 00:09:30.380 and engaged in printing up what would be called bills of credit, 108 00:09:30.380 --> 00:09:32.940 which really are just fiat paper money 109 00:09:32.940 --> 00:09:36.240 that is receivable as payment for taxes. 110 00:09:36.240 --> 00:09:39.460 So that's already been mentioned as an important factor 111 00:09:39.460 --> 00:09:42.180 that gets the money accepted by people is the knowledge 112 00:09:42.180 --> 00:09:46.020 that it will be received for payment of taxes. 113 00:09:46.020 --> 00:09:48.220 Well, the Congress wasn't levying taxes at the time. 114 00:09:48.220 --> 00:09:51.460 So the idea was that these bills of credit that you receive 115 00:09:51.460 --> 00:09:54.540 will be payable for some taxes at some point in the future. 116 00:09:55.440 --> 00:10:00.440 So the idea was that these bills of credit would be issued 117 00:10:00.440 --> 00:10:06.160 and then the states individually would levy taxes for the purpose of collecting them 118 00:10:06.160 --> 00:10:11.660 and then the Congress would at some point then collect them back from the states. 119 00:10:11.660 --> 00:10:15.120 But that's not exactly how it happened. 120 00:10:15.120 --> 00:10:20.800 The states never laid any of these taxes and in fact simply introduced 121 00:10:20.800 --> 00:10:22.120 their own paper money, 122 00:10:22.120 --> 00:10:26.400 one state at a time. So you've got the paper money being issued by the Congress at the 123 00:10:26.400 --> 00:10:28.080 national level as it were 124 00:10:28.080 --> 00:10:35.280 and then by the individual states and so all the bills stay in circulation and continue to accumulate 125 00:10:35.280 --> 00:10:41.880 and more and more and more was printed and within about five years it was worth almost nothing. 126 00:10:41.880 --> 00:10:48.680 Now how soon do we notice the depreciation of that currency? 127 00:10:48.680 --> 00:10:54.880 This is a matter of dispute. Scott Trask has written on this that William Graham Sumner, who was a great, 128 00:10:54.880 --> 00:10:57.680 I mean, a great figure intellectually for a great many reasons, 129 00:10:57.680 --> 00:11:01.680 but in addition to being very sound on very important matters, 130 00:11:01.680 --> 00:11:05.280 Sumner was also an excellent monetary historian. 131 00:11:05.280 --> 00:11:09.580 And Sumner observed that the Massachusetts Provincial Congress, 132 00:11:09.580 --> 00:11:15.280 June 28, 1775, declared that anyone who refused to accept these notes 133 00:11:15.280 --> 00:11:17.680 or demanded a premium for them, 134 00:11:17.680 --> 00:11:18.880 that if you're going to pay me in these notes, 135 00:11:18.880 --> 00:11:22.980 you have to pay more nominally than you would in the precious medal, 136 00:11:22.980 --> 00:11:28.740 Any such person was declared an enemy of the country. 137 00:11:28.740 --> 00:11:36.780 He also noted that it's difficult to gauge the extent of the depreciation of this money 138 00:11:36.780 --> 00:11:42.180 because from the beginning or from very early on, from late 1775, 139 00:11:42.180 --> 00:11:45.020 even before the Declaration of Independence, 140 00:11:45.020 --> 00:11:51.060 it was already becoming something dangerous even to say that the money is depreciating 141 00:11:51.060 --> 00:12:13.060 In late 1775, the Congress resolved that if any person shall hereafter be so lost to all virtue and regard for his country as to refuse to accept this money, such person shall be deemed an enemy of his country. 142 00:12:13.060 --> 00:12:16.060 Not surprisingly, people kept quiet about it. 143 00:12:16.060 --> 00:12:24.060 Well, equally unsurprisingly, this paper money provoked all manner of economic chaos and dislocation. 144 00:12:24.060 --> 00:12:30.060 According to John Witherspoon, the New Jersey clergyman who signed the Declaration of Independence, 145 00:12:30.060 --> 00:12:39.060 for two or three years we constantly saw and were informed of creditors running away from their debtors. 146 00:12:39.060 --> 00:12:45.060 and the debtors pursuing them in triumph, and here's my favorite part, 147 00:12:45.060 --> 00:12:48.060 and paying them without mercy. 148 00:12:54.060 --> 00:12:56.060 I just love that image. 149 00:12:56.060 --> 00:12:59.060 The creditors saying, no, no, please, no. 150 00:12:59.060 --> 00:13:04.060 In Rhode Island, sources tell us of creditors leaping from rear windows of their houses 151 00:13:04.060 --> 00:13:08.060 or hiding themselves in their attics in order to avoid debtors, 152 00:13:08.060 --> 00:13:13.060 Perhaps hoping for a better day someday when they would rather collect the debts. 153 00:13:13.060 --> 00:13:20.060 As usual, the most vulnerable in society also felt the effects of this paper money inflation. 154 00:13:20.060 --> 00:13:24.060 For example, an early 20th century historian tells us that 155 00:13:24.060 --> 00:13:28.060 guardians of trust funds were able to acquit themselves of their obligations 156 00:13:28.060 --> 00:13:35.060 by paying widows and orphans in paper that was worth only the smallest fraction of its nominal value. 157 00:13:35.060 --> 00:13:44.060 Now, when you think about the 1923 German hyperinflation, you can actually recall, if you've seen any of the photographs, 158 00:13:44.060 --> 00:13:51.060 examples of young children gluing the paper together and flying it as a kite, or people burning it to keep warm, 159 00:13:51.060 --> 00:13:54.060 or using it for any reason like that. 160 00:13:54.060 --> 00:13:59.060 And we have examples of this during the revolutionary period of American history as well. 161 00:13:59.060 --> 00:14:06.060 as well. So one writer tells us that the annihilation, that is the annihilation of the value of the currency was so complete 162 00:14:06.060 --> 00:14:12.060 that barber shops were papered in jest with the bills and the sailors on returning from their cruise 163 00:14:12.060 --> 00:14:17.060 being paid off in bundles of this worthless money had suits of clothes made of it 164 00:14:17.060 --> 00:14:24.060 and with characteristic light-heartedness turned their loss into a frolic by parading through the streets in decayed finery 165 00:14:24.060 --> 00:14:28.060 and the refinery, which in its better days had passed for thousands of dollars. 166 00:14:28.060 --> 00:14:34.060 Now some of you may know that Murray Rothbard had a series of what he called Rothbard's laws 167 00:14:34.060 --> 00:14:43.060 that were not laws of a praxeological nature, but laws that he had derived through long and painful empirical observation. 168 00:14:43.060 --> 00:14:49.060 And one of them was his famous law that everyone concentrates in the area in which he is the worst. 169 00:14:49.060 --> 00:14:53.060 So that you have people who are perfectly sound on praxeology and this and that or whatever. 170 00:14:53.060 --> 00:14:57.020 or whatever. They're unsound on money or something. So what do they concentrate their life's work 171 00:14:57.020 --> 00:15:02.900 on? Money, naturally. Or another one is laws that nobody ever resigns. Now again, we know 172 00:15:02.900 --> 00:15:07.420 this isn't apodictically true. We've all seen people resign, but most of the time people 173 00:15:07.420 --> 00:15:11.620 don't resign. I think if Murray were alive today, I think he would take the Iraq War 174 00:15:11.620 --> 00:15:17.940 fiasco as all the confirmation that his law needs. It's a complete fiasco. Nobody resigned. 175 00:15:17.940 --> 00:15:29.940 Well, I think that another such law that we might add to the list would be that the state always blames actors other than itself for the unpleasant consequences of its own activities. 176 00:15:29.940 --> 00:15:38.940 So in some situations, it even goes so far as to stigmatize people for not wanting to enter into transactions that would impoverish them, 177 00:15:38.940 --> 00:15:45.940 as when, for instance, they are expected to accept payment for their goods and services in severely depreciated currency. 178 00:15:45.940 --> 00:15:50.940 So, we have this testimony from an early 20th century historian. 179 00:15:50.940 --> 00:15:55.940 Persons who refused to sell their lands, houses or merchandise for nearly worthless paper 180 00:15:55.940 --> 00:16:00.940 were stigmatized as misers, traders, for-stallers and enemies of liberty. 181 00:16:00.940 --> 00:16:05.940 But prices continued to rise as the inflation of the currency proceeded apace. 182 00:16:05.940 --> 00:16:10.940 Stores were closed or pillaged and merchants were mobbed, fined or imprisoned. 183 00:16:10.940 --> 00:16:17.940 George Washington condemned, quote, the monopolizers, four-stallers and engrossers, who he said should be hunted down as, quote, pests of society and hanged upon a gallows. 184 00:16:17.940 --> 00:16:24.940 In May 1776, Virginia alleged that the depreciation was attributable to people's refusal to accept the notes or to the insistence on higher prices in terms of paper money than in cash. 185 00:16:40.940 --> 00:16:46.620 and Coin, or by other devices, the following year the Virginia Assembly blamed the depreciation 186 00:16:46.620 --> 00:16:52.100 on, quote, the pernicious artifices of the enemies of American liberty to impair the 187 00:16:52.100 --> 00:16:58.060 credit of the said bills by raising the nominal value of coin. The Massachusetts General Court 188 00:16:58.060 --> 00:17:04.180 spoke of, quote, the avaricious conduct of many persons by daily adding to the now exorbitant 189 00:17:04.180 --> 00:17:10.220 price of every necessary and convenient article of life. The Connecticut government likewise 190 00:17:10.220 --> 00:17:16.220 has blamed this phenomenon on, quote, monopolizers, the great pest of society. 191 00:17:16.220 --> 00:17:19.220 I think we have another candidate for great pest of society. 192 00:17:19.220 --> 00:17:25.220 It went on to note that, quote, some evil-minded persons, some, yeah, who's that? 193 00:17:25.220 --> 00:17:26.220 The government? 194 00:17:26.220 --> 00:17:34.220 Inimical to the liberties of the United States of America have endeavored to depreciate the bills of credit of this and the said United States. 195 00:17:34.220 --> 00:17:38.220 and it noted that many of its citizens are so abandoned and lost 196 00:17:38.220 --> 00:17:44.220 to all the feelings of humanity as to prey upon the bowels of their country. 197 00:17:44.220 --> 00:17:49.220 According to the legislature of Pennsylvania, the prices of goods and merchandise 198 00:17:49.220 --> 00:17:54.220 are greatly enhanced by the practices and combinations of evil and designing men. 199 00:17:54.220 --> 00:18:01.220 Well, I have no doubt that that's true, but exactly the identity of those evil and designing men is what is in dispute. 200 00:18:01.220 --> 00:18:06.420 As the Continental depreciated, the States came under pressure to make it legal, tender, 201 00:18:06.420 --> 00:18:12.620 and thus force people to accept it in exchange for goods and services and in payment for debts. 202 00:18:12.620 --> 00:18:15.120 The States complied with this request. 203 00:18:15.120 --> 00:18:18.720 Rhode Island declared that anyone who would not accept the paper money would 204 00:18:18.720 --> 00:18:21.420 incur the displeasure of the General Assembly 205 00:18:21.420 --> 00:18:26.720 and ought to be held and esteemed as an enemy to its credit, reputation and happiness, 206 00:18:26.720 --> 00:18:33.020 and totally destitute of that regard and obligation he is under to his country and the cause of liberty. 207 00:18:33.020 --> 00:18:41.120 The good people of this colony and America ought to withdraw all communication from such person or persons. 208 00:18:41.120 --> 00:18:45.320 Now, the law varied across the states, but in Virginia, for example, 209 00:18:45.320 --> 00:18:48.820 it was understood that if you refused to accept the bills, 210 00:18:48.820 --> 00:18:53.920 then any debt that you were owed is considered canceled and extinguished. 211 00:18:53.920 --> 00:18:57.640 In North Carolina, if you so much as spoke disrespectfully of the paper, 212 00:18:57.640 --> 00:19:01.040 you were treated as an enemy to your country. 213 00:19:01.040 --> 00:19:03.920 Well, naturally, again, this is all predictable, 214 00:19:03.920 --> 00:19:08.560 the depreciating continental also led to calls for economic controls 215 00:19:08.560 --> 00:19:10.720 in order to contain the upward pressure 216 00:19:10.720 --> 00:19:14.760 that the inflation was having on wages and prices. 217 00:19:14.760 --> 00:19:19.240 Well, in December 1776, there was a conference of the New England states, 218 00:19:19.240 --> 00:19:25.240 after which all of them began to adopt price control measures early the following year. 219 00:19:25.240 --> 00:19:30.240 At least one or two had already started and then by 1777 they were all doing it. 220 00:19:30.240 --> 00:19:32.240 Other states followed. 221 00:19:32.240 --> 00:19:38.040 Even after the obvious failure of the New England price control regime should have been obvious to everyone. 222 00:19:38.040 --> 00:19:42.240 Within a couple of years those experiments in price controls had been discontinued 223 00:19:42.240 --> 00:19:49.140 partly at the behest of the very Congress that had at one time enthusiastically urged them upon the states. 224 00:19:49.140 --> 00:19:57.140 The price controls had all the predictable effects, massive shortages, disruption of the division of labor and more government moralizing, 225 00:19:57.140 --> 00:20:04.140 because it was bad people, you see, rather than stupid policy that was responsible for the economic chaos. 226 00:20:04.140 --> 00:20:09.140 But John Witherspoon and at least several other commentators saw through this and he said, 227 00:20:09.140 --> 00:20:14.140 Fixing the prices of commodities has been attempted by law in several states among us. 228 00:20:14.140 --> 00:20:17.140 And it has increased the evil it was intended to remedy, 229 00:20:17.140 --> 00:20:22.140 as the same practice has done since the beginning of the world. 230 00:20:22.140 --> 00:20:26.140 Now, as a result of all these controls, we get testimonies like this. 231 00:20:26.140 --> 00:20:31.140 Stores were closed or pillaged, and merchants were mobbed, fined or imprisoned. 232 00:20:31.140 --> 00:20:36.140 But such action merely drove men out of business and tended to produce a real scarcity. 233 00:20:36.140 --> 00:20:40.140 A June 1777 letter from Boston read, 234 00:20:40.140 --> 00:20:47.140 We are all starving here. People will not bring in provision and we cannot procure the common necessaries of life. 235 00:20:47.140 --> 00:20:50.140 Two years later, a letter from the same person read, 236 00:20:50.140 --> 00:20:57.140 We are likely to be starved throughout Boston. Never such a scarcity of provisions. 237 00:20:57.140 --> 00:21:02.140 Again, the great monetary commentator and scholar, Palletier-Webster, observed, 238 00:21:02.140 --> 00:21:07.140 As experiment is the surest proof of the natural effects of all speculations of this kind, 239 00:21:07.140 --> 00:21:12.140 it is strange, it is marvelous to me, that any person of common discernment 240 00:21:12.140 --> 00:21:16.140 who has been acquainted with all the above-mentioned trials and effects 241 00:21:16.140 --> 00:21:21.140 should entertain any idea of the expediency of trying any such methods again. 242 00:21:21.140 --> 00:21:25.140 Trade, if left alone, will ever make its own way best, 243 00:21:25.140 --> 00:21:31.140 and like an irresistible river, will ever run safest, do least mischief and do most good, 244 00:21:31.140 --> 00:21:36.140 suffered to run without obstruction in its own natural channel. 245 00:21:36.140 --> 00:21:43.140 On June 4th, 1778, the Continental Congress adopted a resolution calling for an end to price controls. 246 00:21:43.140 --> 00:21:49.140 Whereas it hath been found by experience that limitations upon the prices of commodities 247 00:21:49.140 --> 00:21:56.140 are not only ineffectual for the purposes proposed, but likewise productive of very evil consequences 248 00:21:56.140 --> 00:22:02.340 Consequences to the Great Detriment of the Public Service and Grievous Oppression of Individuals 249 00:22:02.340 --> 00:22:08.280 Resolve that it be recommended to the several states to repeal or suspend all laws or resolutions 250 00:22:08.280 --> 00:22:13.540 within the said states, respectively limiting, regulating or restraining the price of any 251 00:22:13.540 --> 00:22:17.580 article, manufacture or commodity. 252 00:22:17.580 --> 00:22:20.500 Pause for a moment and consider what's just happened here. 253 00:22:20.500 --> 00:22:24.980 Here we have an official government statement to the effect that its previous policy had 254 00:22:24.980 --> 00:22:30.980 had been unwise, had produced only mischief and should therefore be repealed. 255 00:22:30.980 --> 00:22:37.980 Now try to imagine a particular member of the executive branch of the United States today giving any such speech. 256 00:22:37.980 --> 00:22:42.980 I made a mistake. I better do the opposite now. We better forget the whole thing. It just never happens. 257 00:22:42.980 --> 00:22:49.980 So there is something sort of quaint about this. This is a bygone era when people were fallible and made mistakes. 258 00:22:49.980 --> 00:22:55.580 Thankfully, we live in an era where apparently the last mistake maker must have died several years ago. 259 00:22:55.580 --> 00:22:57.980 We don't have them anymore. 260 00:22:57.980 --> 00:23:02.280 A couple of 20th century economists reviewing all this wreckage concluded this. 261 00:23:02.280 --> 00:23:07.180 Public jawboning, private threats, ostracism, boycotts, fines, 262 00:23:07.180 --> 00:23:10.580 all proved useless against the flood of paper money. 263 00:23:10.580 --> 00:23:15.380 The price of common labor in Boston, which was fixed at three shillings a day in 1777, 264 00:23:15.380 --> 00:23:19.380 had risen to 60 shillings by mid-1779. 265 00:23:19.380 --> 00:23:27.780 In April 1779, George Washington complained that a wagonload of money will scarcely purchase a wagonload of provisions. 266 00:23:27.780 --> 00:23:35.080 In 1779, when the Continental Congress again endorsed price controls, the request was for state laws limiting wage and price increases 267 00:23:35.080 --> 00:23:39.580 quote, not to exceed twenty-fold the levels of 1774. 268 00:23:39.580 --> 00:23:48.340 Not even that modest goal was attainable, however, and Congress allowed controls to expire when it met again in February 1780. 269 00:23:48.340 --> 00:23:53.620 Meanwhile, all this time, the Continental Congress had repeatedly assured anyone who would listen 270 00:23:53.620 --> 00:23:58.340 that the Continental currency would one day be redeemed at its face value 271 00:23:58.340 --> 00:24:02.300 and that it was, quote, derogatory to the Congress's honor 272 00:24:02.300 --> 00:24:06.180 that anyone would spread rumors to the contrary. 273 00:24:06.180 --> 00:24:13.740 In March 1780, Congress announced a plan for redeeming the currency at one fortieth of its face value. 274 00:24:13.740 --> 00:24:18.380 After 1780, the value of the remaining continentals plummeted still further. 275 00:24:18.380 --> 00:24:22.460 By early the following year, it had reached a ratio of 100 to 1, 276 00:24:22.460 --> 00:24:26.820 and in some areas even 1,000 to 1. 277 00:24:26.820 --> 00:24:30.780 Now, during the war between the states or whatever, 278 00:24:30.780 --> 00:24:33.940 we could have a whole conference on what you'd like to name it, 279 00:24:33.940 --> 00:24:39.140 it's interesting to note that when both the governments of the Union and the Confederacy 280 00:24:39.140 --> 00:24:43.380 were engaged in all kinds of monetary manipulations to fund, 281 00:24:43.380 --> 00:24:50.900 Their war efforts. It's interesting that Scott Trask notes that when people at that time, in the 1860s, 282 00:24:50.900 --> 00:24:56.420 reminded everybody that we've already done this, we did this during the Revolutionary War years, 283 00:24:56.420 --> 00:25:03.300 and it was simply catastrophic. It hurt everybody. It created all kinds of dislocation and chaos. 284 00:25:03.300 --> 00:25:10.100 If you raised that objection, the answer you got was that you're unpatriotic for raising it. 285 00:25:10.100 --> 00:25:12.460 So history becomes unpatriotic. 286 00:25:12.460 --> 00:25:13.860 William Graham Sumner wrote, 287 00:25:13.860 --> 00:25:15.860 when the lessons of history were quoted, 288 00:25:15.860 --> 00:25:19.740 they were answered by the flag and the eagle. 289 00:25:19.740 --> 00:25:22.700 So our patriotism is no, 290 00:25:22.700 --> 00:25:25.940 your facts are no match for our patriotism. 291 00:25:25.940 --> 00:25:29.260 There was a Republican congressman who asked 292 00:25:29.260 --> 00:25:31.660 why the government should have to lower itself 293 00:25:31.660 --> 00:25:32.980 to the level of having to, quote, 294 00:25:32.980 --> 00:25:36.020 go into the streets to borrow money. 295 00:25:36.020 --> 00:25:38.380 Another said that he preferred to assert the power 296 00:25:38.380 --> 00:25:42.700 Power and Dignity of the Government by the Issue of Its Own Notes 297 00:25:42.700 --> 00:25:46.860 And finally we have the example of Thaddeus Stevens of Pennsylvania, the great radical 298 00:25:46.860 --> 00:25:53.340 Republican who actually claimed that if you made the paper money legal tender, that would 299 00:25:53.340 --> 00:25:55.940 prevent any depreciation. 300 00:25:55.940 --> 00:25:59.140 So no lesson learned whatsoever. 301 00:25:59.140 --> 00:26:10.140 In 1863, I came across an article in the New York Herald that I found in a collection that recounted this history. 302 00:26:10.140 --> 00:26:18.140 So in the 1860s, again, people were interested in monetary issues, and the New York Herald had an article talking about the Revolutionary War experience. 303 00:26:18.140 --> 00:26:25.140 And it read, on the return of peace, no attempt was made to cancel the original obligation by redeeming the bills, 304 00:26:25.140 --> 00:26:30.140 For as the depreciation had been slowly progressing while the paper money was gradually circulating, 305 00:26:30.140 --> 00:26:34.140 it was obviously impossible to measure the exact loss each holder had suffered. 306 00:26:34.140 --> 00:26:39.140 To pay the last holder in full would only have aggravated the injustice 307 00:26:39.140 --> 00:26:42.140 by taxing the nation again to give him more than his due 308 00:26:42.140 --> 00:26:47.140 while his predecessors, whose loss was greater than his own, were left without any compensation, whatever. 309 00:26:47.140 --> 00:26:52.140 It was strongly urged that the depreciation of the paper money ought to be considered as a tax 310 00:26:52.140 --> 00:26:58.140 and the tax, inasmuch as the issue was made only to relieve the people from the necessity of paying tax. 311 00:26:58.140 --> 00:27:03.140 Each person through whose hands the money had passed parted with it again at a small loss, 312 00:27:03.140 --> 00:27:07.140 according to the quantity he held and the time for which he held it. 313 00:27:07.140 --> 00:27:11.140 As the currency circulated among the whole people, the rich and the poor holding it, 314 00:27:11.140 --> 00:27:17.140 and suffering from its depreciation in proportion to the respective amounts of their cash purchases, 315 00:27:17.140 --> 00:27:21.140 nearly in just proportion to their ability and liability to pay tax, 316 00:27:21.140 --> 00:27:24.940 The payment of the whole value born on the face of the bill to one who had received it, 317 00:27:24.940 --> 00:27:30.140 perhaps at the rate of 100 for one, could have been fairly and heavily taxed by its depreciation. 318 00:27:30.140 --> 00:27:36.140 Well, ultimately, what this is getting at is that what finally happened to the continental currency, 319 00:27:36.140 --> 00:27:38.740 in effect, it simply went out of existence. 320 00:27:38.740 --> 00:27:41.840 It was either destroyed, people just gave up on it. 321 00:27:41.840 --> 00:27:46.540 The New York Herald reported that in some places its value fell to 1,000 for one, 322 00:27:46.540 --> 00:27:50.140 and then it expired without a groan. 323 00:27:50.140 --> 00:27:53.740 People kept some of it as souvenirs, but people had more or less given up on it. 324 00:27:53.740 --> 00:27:56.460 So it really is true, that description just there, 325 00:27:56.460 --> 00:27:59.500 that it was viewed as having been a tax really became true. 326 00:27:59.500 --> 00:28:03.500 It really just was treated as just a tax and you don't get reimbursed for taxes. 327 00:28:03.500 --> 00:28:08.500 You're always going to get compensated for what they suffered from the paper money. 328 00:28:08.500 --> 00:28:12.220 Well, let me close by bringing to your attention something I read not long ago 329 00:28:12.220 --> 00:28:15.900 in arguably the most prestigious historical journal in the English speaking world. 330 00:28:15.900 --> 00:28:19.260 Now, I realize I probably shouldn't be surprised at much of what I read 331 00:28:19.260 --> 00:28:24.260 I read in the professional journals, but I was really quite shocked looking through the American Historical Review 332 00:28:24.260 --> 00:28:30.260 to come across a 1929 article on revolutionary war finance by Ralph Harlow. 333 00:28:30.260 --> 00:28:37.260 Harlow was anxious to show that wartime inflation really was not that bad 334 00:28:37.260 --> 00:28:41.260 because he said that, sure, people under an inflated currency, 335 00:28:41.260 --> 00:28:45.260 since they see their savings sometimes dramatically reduced in value, 336 00:28:45.260 --> 00:28:48.260 they do suffer, and he acknowledges that. 337 00:28:48.260 --> 00:28:55.300 finds us that after all quote, what the public might lose through depreciation would be counterbalanced 338 00:28:55.300 --> 00:29:00.540 by the gain to the government of means to finance the war. Well, all right, well you 339 00:29:00.540 --> 00:29:06.300 don't say. The government is enriched to the extent that the public is looted. These 340 00:29:06.300 --> 00:29:12.120 are the insights for which the American Historical Review eagerly opens its pages. But Harlow 341 00:29:12.120 --> 00:29:17.700 goes on and says, to be sure depreciated paper would inflict irreparable damage on some individuals 342 00:29:17.700 --> 00:29:19.700 But what of it? So, too, would the war. 343 00:29:19.700 --> 00:29:24.700 That's pretty convoluted, isn't it? 344 00:29:24.700 --> 00:29:28.700 And as for the ethical principle involved in partial or complete repudiation, 345 00:29:28.700 --> 00:29:34.700 that, judged by the accepted standards of wartime morality, is a small matter. 346 00:29:34.700 --> 00:29:38.700 Well, that's true, but all the worse for wartime morality, I would say. 347 00:29:38.700 --> 00:29:40.700 In every department of wartime activity except financial, 348 00:29:40.700 --> 00:29:44.700 we have long accepted the maxim that the war justifies the means. 349 00:29:44.700 --> 00:30:05.700 The public becomes resigned to extraordinary practices, the suppression of private privilege, compulsory military service, the most abandoned distortion of facts, to stimulate and maintain the necessary war spirit, in general the purposeful cultivation of a deep and far-reaching spiritual and intellectual dishonesty. 350 00:30:05.700 --> 00:30:11.700 For ages all this has been taken for granted as a part of the necessary trappings of war." 351 00:30:11.700 --> 00:30:16.100 So, really, what's a little inflation? You're being lied to, conscripted, killed? 352 00:30:16.100 --> 00:30:20.400 You're complaining about inflation? 353 00:30:20.400 --> 00:30:24.700 Well, ladies and gentlemen, as long as people can be led to believe that running the printing press 354 00:30:24.700 --> 00:30:29.200 and issuing fiduciary media can substitute for saving and capital accumulation 355 00:30:29.200 --> 00:30:34.500 as a way to achieve prosperity, create wealth or, yes, prosecute a war, 356 00:30:34.500 --> 00:30:41.600 government will continue to get away with this particularly insidious and underhanded form of expropriation. 357 00:30:41.600 --> 00:30:52.600 The situation we face today, which is not my topic, I want to add though, is much worse because at least in the 18th century people by and large understood the process. 358 00:30:52.600 --> 00:30:58.600 The government's printing up these bills, they're becoming worth less and less over time, they're depreciating. 359 00:30:58.600 --> 00:31:02.600 We understand who the culprit is and what the cause and effect relationship is. 360 00:31:02.600 --> 00:31:07.600 But today, the process of money creation is much more obscure to most people. 361 00:31:07.600 --> 00:31:13.440 Today, I mean, if one in twenty people could seriously explain how the Fed works, I would 362 00:31:13.440 --> 00:31:14.440 be surprised. 363 00:31:14.440 --> 00:31:19.520 And, of course, that's just the way the Fed likes it, all the better to get away with 364 00:31:19.520 --> 00:31:20.520 it. 365 00:31:20.520 --> 00:31:24.960 In addition, there is always a moral hazard involved in government activity because government 366 00:31:24.960 --> 00:31:27.920 can socialize the cost of everything it does. 367 00:31:27.920 --> 00:31:33.520 So if it goes to war and it can simply... people who constitute the government don't 368 00:31:33.520 --> 00:31:36.920 have to pay the cost of the war out of their own pockets, well, obviously, there'll be 369 00:31:36.920 --> 00:31:43.920 George Bush had to pay the whole war out of his savings account, so there's a moral hazard there. 370 00:31:43.920 --> 00:31:45.920 There's more likely to be war than there would otherwise be. 371 00:31:45.920 --> 00:31:54.920 But the moral hazard is much worse in a case like this, in which the war is being financed not through the taxation that everybody can see, 372 00:31:54.920 --> 00:32:02.920 at least people can see the taxation, but when they can invisibly tax using methods that, as I say, are obscure and unknown to most people. 373 00:32:02.920 --> 00:32:07.920 In the 18th century, people learned from their experience. 374 00:32:07.920 --> 00:32:12.920 There was tremendous interest in and support for hard money after the war. 375 00:32:12.920 --> 00:32:14.920 Tremendous support for that. 376 00:32:14.920 --> 00:32:20.920 Today, given the situation we have now, where the process of inflation is so obscured, 377 00:32:20.920 --> 00:32:23.920 people don't even know there is a lesson to be learned. 378 00:32:23.920 --> 00:32:30.920 And it is under these circumstances that government is able to get away with its greatest mischief.