WEBVTT NOTE Austrian Monetary Economics 1 00:00:00.000 --> 00:00:04.640 I always say this is one of my favorite times of the year, and generally speaking it is, 2 00:00:04.640 --> 00:00:14.640 though we're sort of in the dreaded November, and as it turns out somebody's going to win. 3 00:00:14.640 --> 00:00:21.400 Now, my job is to introduce this year's award winner, and I'm going to do that. 4 00:00:21.400 --> 00:00:26.840 But before I do that, I have a few paragraphs I'm going to read to you. 5 00:00:26.840 --> 00:00:45.840 And interestingly, this is from a Congressional speech and a Congressional speech in 1948 and it turns out even before Ron Paul there were people who cared about sound money in the U.S. 6 00:00:45.840 --> 00:00:54.240 And I quote, before 1933, the people themselves had an effective way to demand economy from politicians. 7 00:00:54.240 --> 00:01:03.140 Before 1933, whenever the people became disturbed over federal spending, they could redeem their paper currency in gold 8 00:01:03.140 --> 00:01:06.440 and wait for common sense to return to Washington. 9 00:01:06.440 --> 00:01:09.540 Now, I suppose it would take a very long time today for that to occur. 10 00:01:09.540 --> 00:01:20.540 But that happened on various occasions and conditions sometimes became strained but nothing occurred like the ultimate consequence of paper money inflation. 11 00:01:20.540 --> 00:01:25.540 When the people's right to restrain public spending by demanding gold coin was taken away from them, 12 00:01:25.540 --> 00:01:32.540 the automatic flow of strength from the grassroots to enforce economy in Washington was disconnected. 13 00:01:32.540 --> 00:02:02.540 It goes on, but I leap to the end. The connection between money redeemable in gold and the rare prize known as liberty is irrefutable because in a free country the monetary unit rests upon a fixed foundation of gold or silver independent of the ruling politicians and is redeemable for a certain weight of specie at the free option and choice of holders of paper money. 14 00:02:02.540 --> 00:02:27.540 So, it ends saying, the choice is clear, paper money or gold. Interestingly, the speaker was Howard Buffett, Warren Buffett's father, and I, you know, many people admire Warren Buffett, and I'm in the investment business, and you sort of have to say that, but there are times I think he has indeed lost his way. 15 00:02:27.540 --> 00:02:56.540 On to the business at hand. I'm going to introduce Professor Salerno. One of the great Austrian economists of our time, Pascho Salerno, taught at the University of Paris, where he became a full professor at the age of 27, and having been an academic once upon a time, I understand, extraordinary. 16 00:02:56.540 --> 00:03:02.540 and he had to be envied by all of his colleagues, produced many important students who are now teaching themselves. 17 00:03:02.540 --> 00:03:14.540 He is the author of 11 books, dozens of scholarly papers, hundreds of articles in which he explains and develops economic science and courageously advocates individual liberty. 18 00:03:14.540 --> 00:03:20.540 Throughout his career he has earned great distinctions and gained enthusiastic followers, 19 00:03:20.540 --> 00:03:24.740 not least of all because of his patent intellectual prowess combined with the 20 00:03:24.740 --> 00:03:30.480 elegant civility of a gentleman of the old French school. He's been vice 21 00:03:30.480 --> 00:03:34.440 president and president of the Mount Pelerin Society, he's a knight of the 22 00:03:34.440 --> 00:03:40.940 Legion of Honor and an officer of the Order of Merit. More important than his 23 00:03:40.940 --> 00:03:45.440 career though are his intellectual achievements and especially the moral 24 00:03:45.440 --> 00:03:55.440 and all qualities that turned him into a source of inspiration for students and readers in France and abroad. 25 00:03:55.440 --> 00:04:03.440 And I do confess to saying I'm surprised to find libertarian economists in France. 26 00:04:03.440 --> 00:04:09.440 Already an advocate of free markets in the late 1970s, he returned from a trip to the US and said to his friends, 27 00:04:09.440 --> 00:04:15.640 And finally, I understand what economics is all about. He had discovered Austrian economics. 28 00:04:15.640 --> 00:04:20.320 He had just met the author of a book called The Denationalization of Money. Through his 29 00:04:20.320 --> 00:04:24.720 discussions with Friedrich Hayek, he had come to understand how encompassing economic analysis 30 00:04:24.720 --> 00:04:30.840 can be and how precious is an intellectual foundation of a free society. He began to 31 00:04:30.840 --> 00:04:37.360 read Mises and Rothbard and other Austrians. He began to understand that these contemporary 32 00:04:37.360 --> 00:04:45.360 have modernized and radicalized the approach of Say, Bastiat, and other 19th century French economists. 33 00:04:45.360 --> 00:04:55.360 And like his predecessors, he did not shy away from endorsing the radical political conclusions that followed from the logic of human action. 34 00:04:55.360 --> 00:05:02.360 Salerno would also write Austrian textbooks on competition, free trade, and macroeconomics, 35 00:05:02.360 --> 00:05:14.360 Then a treatise on liberalism, the first comprehensive restatement of libertarian doctrine by a major European academic since Ludwig von Mises' liberalism in the 1920s. 36 00:05:14.360 --> 00:05:26.360 Here he delivered, among other things, a sweeping critique of the notion that democracy, not private property, is the distinguishing mark of a free society. 37 00:05:26.360 --> 00:05:32.360 And that's one that is so hard for people in the United States to understand this very day. 38 00:05:32.360 --> 00:05:41.360 In all of his work, as you can imagine, being there on the continent, he meant hostility from much of the academic establishment, 39 00:05:41.360 --> 00:05:46.360 which is even more, believe it or not, statist than in the U.S. 40 00:05:46.360 --> 00:05:50.360 But he has never faltered in steadfastness nor courage. 41 00:05:50.360 --> 00:06:04.360 It is for these reasons that I am so pleased to present him with the 2008 Gary G. Schlarbaum Award for Lifetime Achievement in Liberty in the tradition of Ludwig von Mises. Professor Salerno. 42 00:06:04.360 --> 00:06:27.360 Thank you very much. My pleasure. Now you have to remove your glasses, because I'm going to put this around your neck and I've destroyed at least one person's glasses. Can you take off your glasses just for a moment? 43 00:06:27.360 --> 00:06:55.360 This you will not want to lose, and here is the certificate. 44 00:06:55.360 --> 00:07:03.240 Dear friends of the Mises Institute, I want to begin my lecture by expressing all my thanks 45 00:07:03.240 --> 00:07:11.680 to the Mises Institute, which honours me with the Gary Schlarbaum Prize. 46 00:07:11.680 --> 00:07:19.560 And I want to thank Mr. Gary Schlarbaum both for delivering me this award and for the kind 47 00:07:19.560 --> 00:07:22.300 words he just said. 48 00:07:22.300 --> 00:07:30.300 I think it was a very good idea to found this award and I'm really very, very pleased to receive it. 49 00:07:30.300 --> 00:07:42.300 I think that for me, receiving this award is really one of the best achievements I could dream of in all my professional life. 50 00:07:42.300 --> 00:07:50.300 I particularly appreciate this recognition and this support you are offering to me 51 00:07:50.300 --> 00:08:01.300 because I live in a country, my country, France, which has been home of some of the best classical liberal thinkers 52 00:08:01.300 --> 00:08:07.300 but which is now, as you know, maybe one of the most socialist countries in the world. 53 00:08:07.300 --> 00:08:14.300 And so having this recognition from the Mises Institute is for me very important. 54 00:08:14.300 --> 00:08:39.300 And I feel honoured in particular because I have a very great admiration for the Mises Institute, for Lew Rockwell, for his staff and for all of you here, academics, members of the business community who have understood that the clear principles are fundamental for day-to-day life. 55 00:08:39.300 --> 00:08:46.300 and certainly the Mises Institute is the place where these principles are best given. 56 00:08:46.300 --> 00:08:56.300 The Mises Institute in some sense is the center of the world for all those who cherish liberty. 57 00:08:56.300 --> 00:09:06.300 I can testify that outside the U.S. the Mises Institute brings a unique intellectual support 58 00:09:06.300 --> 00:09:14.300 to all those who are longing for a rigorous analysis in the defense of a free world 59 00:09:14.300 --> 00:09:23.300 and who could feel isolated so that they might become even doubtful about the relevance of their own thinking 60 00:09:23.300 --> 00:09:31.300 if there was not the support and the ideas given by the Mises Institute. 61 00:09:31.300 --> 00:09:36.740 The title of my presentation is Austrian Monetary Economics. 62 00:09:36.740 --> 00:09:43.140 In this speech, I would like to deliver some thoughts along the lines of Austrian Economics 63 00:09:43.140 --> 00:09:52.100 about the working of monetary systems, a topic which has been splendidly developed in the present conference. 64 00:09:52.100 --> 00:10:09.100 But I would also like, as it was suggested to me, to explain how I happened to discover Austrian economics and to draw some lessons from this intellectual trip in the world of liberty. 65 00:10:09.100 --> 00:10:19.100 For long I had been an Austrian economist without knowing I was, because I had no opportunity to know about Austrian economics. 66 00:10:19.100 --> 00:10:22.100 and I would like to explain that a little more. 67 00:10:22.100 --> 00:10:28.100 But anyhow, when I did discover Austrian economics, I was amazed 68 00:10:28.100 --> 00:10:39.100 because economics appeared to me as it ought to be, not a lot of piecemeal fields of thought without any links together. 69 00:10:39.100 --> 00:10:42.100 Economics became coherent for me. 70 00:10:42.100 --> 00:10:57.100 As Mises rightly wrote, there are no such things as economics of labour or economics of agriculture, there is only one coherent body of economics. 71 00:10:57.100 --> 00:11:09.100 What is fascinating in economics, and at least in Austrian economics, and which doesn't exist in other fields of knowledge, such as physics or biology, 72 00:11:09.100 --> 00:11:21.100 is a fact that all economics can be deducted from one single principle, the axiom of action or the principle of individual rationality. 73 00:11:22.100 --> 00:11:30.100 In physics, there can be a change of paradigm, an intellectual revolution with a complete change in assumptions. 74 00:11:30.100 --> 00:11:47.100 This cannot happen in economics. It is meaningless to try to develop an economic theory which would be based on the assumption that man is not acting or that individuals are not basically rational. 75 00:11:47.100 --> 00:12:02.100 The founding principles of economics are eternal and universal, and it is completely foolish to believe that there can be specific theories dependent on specific time and places. 76 00:12:02.100 --> 00:12:14.100 Just think of a French economist who did not believe that. He wrote a book which was named Economics for Arab People, 77 00:12:14.100 --> 00:12:18.540 as if economics were different for Arab people and other people. 78 00:12:18.540 --> 00:12:26.900 I for long taught a course in the theory of monetary systems and international monetary systems. 79 00:12:26.900 --> 00:12:33.740 But when beginning the course, I warned the students, I told them, you know, I am teaching that. 80 00:12:33.740 --> 00:12:42.140 But what I mainly want is not to give you ideas and facts about the working of the international monetary system. 81 00:12:42.140 --> 00:12:50.140 What I want just is to take this specific field as an example of the economic way of thinking. 82 00:12:50.140 --> 00:12:58.140 And I demonstrated to them how, starting from the assumption that individuals are rational, 83 00:12:58.140 --> 00:13:06.140 one could logically deduct how monetary systems could develop and be spontaneously organized. 84 00:13:06.140 --> 00:13:27.140 I explained to them that in order to fully understand the working of monetary systems, what was important was not to focus on monetary techniques, but to have a coherent theory of competition, monopolies and cartels, I should say, an Austrian theory of competition. 85 00:13:27.140 --> 00:13:36.140 In other words, there is not on the one hand a theory of competition and on the other hand a theory of monetary system. 86 00:13:36.140 --> 00:13:39.140 There is one single economic theory. 87 00:13:39.140 --> 00:13:50.140 However, there is a strange phenomenon in economic theory in spite of the fact all economists are starting from the same basic assumption 88 00:13:50.140 --> 00:13:56.140 which is that individuals are rational, they are able to make choices. 89 00:13:56.140 --> 00:14:04.140 In spite of that, there are a lot of different and even completely opposite economic schools. 90 00:14:04.140 --> 00:14:11.140 It seems to be a paradox, since if ever economists are starting from the same principle, 91 00:14:11.140 --> 00:14:18.140 they ought, if they are able to reason logically, they ought to arrive at the same conclusions. 92 00:14:18.140 --> 00:14:22.140 I will not elaborate on that, but it is a very important problem. 93 00:14:22.140 --> 00:14:29.140 But let me just stress one example. At the very beginning of all textbooks in economics, 94 00:14:29.140 --> 00:14:37.140 students are presented with the theory of the consumer and then the theory of the producer 95 00:14:37.140 --> 00:14:43.140 as if there were different behaviors for two different kinds of people. 96 00:14:43.140 --> 00:15:00.140 This is completely in contrast with the coherent view of Ludwig von Mises about human action. A man is an acting individual who is producing in order to get satisfaction. 97 00:15:00.140 --> 00:15:09.140 Mainstream economics are full of inconsistencies and only Austrian economics are rigorously coherent. 98 00:15:09.140 --> 00:15:24.140 Now, if it is so, one may wonder why Austrian economics are not recognized as purely and simply economics in contrast with opinions, prejudices and value judgement. 99 00:15:24.140 --> 00:15:38.140 This is in some sense a great mystery, but I think one explanation may be that Austrian economics precisely are at odds with common prejudices and people cannot accept that. 100 00:15:38.140 --> 00:15:45.180 but paradoxically instead of recognizing the scientific character of Austrian 101 00:15:45.180 --> 00:15:54.500 economics they quite often blame this approach as being ideological. It is this 102 00:15:54.500 --> 00:16:00.860 outstanding coherence of Austrian economics which is so appealing for me 103 00:16:00.860 --> 00:16:10.460 and which has been when I discovered it. Let me please anyhow go back to my past 104 00:16:10.460 --> 00:16:19.060 and try to say some words about my intellectual trip. Although maybe I don't 105 00:16:19.060 --> 00:16:26.220 like to speak too much about me but I think that anyhow it can illustrate some 106 00:16:26.220 --> 00:16:32.220 and some of the trips that some of you may have known in the past. 107 00:16:32.220 --> 00:16:40.220 When I was a schoolboy or a university student, there were no strong ideological debates in public opinion. 108 00:16:40.220 --> 00:16:46.220 And what was more or less accepted was a sort of social democratic approach. 109 00:16:46.220 --> 00:16:55.220 However, in intellectual circles and at the university, Marxism was certainly the mainstream doctrine. 110 00:16:55.220 --> 00:17:09.220 Personally, I never understood Marxism, but I must confess that anyhow, I had some socialist leaning, let me say so, because I was in a family of Christian Democrat tradition. 111 00:17:09.220 --> 00:17:21.220 And so I shared the view that social justice was one of the main roles of the state or that public firms could be managed in the public interest. 112 00:17:21.220 --> 00:17:28.220 There has never been an economist in my family, and anyhow I wanted to become an economist. 113 00:17:28.220 --> 00:17:33.100 It could be surprising, but the reason for that was that I wanted to understand why there 114 00:17:33.100 --> 00:17:40.820 were so many differences between countries as regards to their development levels. 115 00:17:40.820 --> 00:17:47.740 And I had some spontaneous interest in social problems, I wanted to understand how societies 116 00:17:47.740 --> 00:17:48.740 are working. 117 00:17:48.740 --> 00:17:54.740 The education I received at the university was very far from what the students can get right now. 118 00:17:54.740 --> 00:18:04.740 It was a sort of mix of good feelings, some history of thought and some concepts of economic theory, more or less well interpreted. 119 00:18:04.740 --> 00:18:10.740 In spite of this, I got two important things from my education in economics. 120 00:18:10.740 --> 00:18:16.740 First, I discovered that economic theory was the best way to understand reality. 121 00:18:16.740 --> 00:18:24.740 and I used to say to my students, there is nothing more practical than economic theory. 122 00:18:24.740 --> 00:18:31.740 And second, I understood from microeconomics that you cannot understand the working of a society 123 00:18:31.740 --> 00:18:34.740 without referring to individual behavior. 124 00:18:34.740 --> 00:18:43.740 Anyhow, I was unsatisfied because I had the feeling that economic theory was developed outside in the world 125 00:18:43.740 --> 00:18:48.900 and I did not know enough about economic theory and just at the time when I was 126 00:18:48.900 --> 00:18:55.660 finishing my studies I met some students, some friends of mine who were also 127 00:18:55.660 --> 00:19:02.860 unsatisfied and we decided to learn by ourselves and we created, it was in 128 00:19:02.860 --> 00:19:09.180 December 1961, a long time ago, and we decided to work together and to create 129 00:19:09.180 --> 00:19:16.740 what we called the Jean-Baptiste Say seminar in economic theory. We wanted to 130 00:19:16.740 --> 00:19:22.060 stress two things, the fact that we were devoted to economic theory and the fact 131 00:19:22.060 --> 00:19:28.140 that we were classical liberals. And we decided to write a book about permanent 132 00:19:28.140 --> 00:19:33.580 income hypothesis and we were just introduced to the ideas of Milton Friedman. 133 00:19:33.580 --> 00:19:48.580 We became Chicagoan at that time. I have to confess that. But anyhow, it was maybe a necessary step in this intellectual trip I had to do. 134 00:19:48.580 --> 00:19:58.580 We had a feeling that this approach was scientific, logical, and it was based on individualistic principles. 135 00:19:58.580 --> 00:20:11.580 And thus Chicago Economics made possible for us to reconcile our classical liberal convictions and our desire of a scientific approach of economics. 136 00:20:11.580 --> 00:20:23.580 It is quite clear that by choosing such a name for our seminar, we wanted to stress that, our interest in economic theory and our classical liberal inclination. 137 00:20:23.580 --> 00:20:30.500 but it was very provocative at the Paris University at that time and we did it 138 00:20:30.500 --> 00:20:40.100 with purpose and it was also provocative to work together to do some what we 139 00:20:40.100 --> 00:20:44.940 called collective research because it was considered that people have to be 140 00:20:44.940 --> 00:20:49.660 completely isolated to write their doctoral dissertation alone without 141 00:20:49.660 --> 00:20:51.660 discussing with other people and so on. 142 00:20:51.660 --> 00:20:56.460 And more than that, what was really, really very criticized 143 00:20:56.460 --> 00:20:59.820 by our professors and the university 144 00:20:59.820 --> 00:21:05.860 was that we were reading Anglo-Saxon reviews, 145 00:21:05.860 --> 00:21:08.780 such as the American Economic Review. 146 00:21:08.780 --> 00:21:10.740 And it was a very great thing. 147 00:21:10.740 --> 00:21:12.580 It was said at the time that we had 148 00:21:12.580 --> 00:21:17.260 to develop a completely French economic science, completely 149 00:21:17.260 --> 00:21:25.260 are very different from what was developing outside and as readers of these American reviews 150 00:21:25.260 --> 00:21:31.260 we were considered as people who were supporting American imperialism. 151 00:21:31.260 --> 00:21:37.260 Let me mention at this point that the Jean-Baptiste Say seminar in economic theory still exists. 152 00:21:37.260 --> 00:21:45.260 It is located at Université Paris Dauphin. Some of the members are still Chicagoans. 153 00:21:45.260 --> 00:21:54.260 Some others are close to the public choice school and some are Austrian, but we are all certainly classical liberal. 154 00:21:54.260 --> 00:22:00.260 What I want to stress by that is that there are several ways in order to discover truth. 155 00:22:00.260 --> 00:22:10.260 It may be revealed at the outset and I think that those who have discovered the Mises Institute early in their life are lucky people. 156 00:22:10.260 --> 00:22:20.260 Anyhow, had I known about Austrian economics when I was a young student and wanted to go to the university, 157 00:22:20.260 --> 00:22:24.260 maybe I would have never been appointed as a professor in France. 158 00:22:24.260 --> 00:22:32.260 From this point of view, I am lucky not to have met Austrian economics earlier in my life. 159 00:22:32.260 --> 00:22:39.260 Anyhow, you can discover it early or you can discover it little by little, path by path. 160 00:22:39.260 --> 00:22:47.760 And at that time, being a Friedmanian was somewhat obscene. 161 00:22:47.760 --> 00:22:53.260 May I just mention at this point that a former Prime Minister of France, 162 00:22:53.260 --> 00:22:57.760 Rocard, who was considered as a modern socialist, 163 00:22:57.760 --> 00:23:03.260 once said that Friedman is a destroyer of civilizations. 164 00:23:03.260 --> 00:23:08.760 And some days ago, very recently, he said it's a pity that Friedman is dead, 165 00:23:08.760 --> 00:23:17.360 because he is responsible for the financial crisis and because he supported free market 166 00:23:17.360 --> 00:23:25.820 and he could have been convicted of being a criminal against humankind by the International 167 00:23:25.820 --> 00:23:34.200 Court of Justice. So you see the intellectual environment in which we had to live. Anyhow, 168 00:23:34.200 --> 00:23:50.200 Now, Freedman was defending individual freedom and to me it was the first step and believe me it needed some courage both to be a supporter of Freedman at the time and to create something called the Jean-Baptiste Say seminar. 169 00:23:50.200 --> 00:24:02.200 I was also a supporter of flexible exchange rates and Raymond Barr, another Prime Minister of France who was a professor of economics and who was a member of the committee in my, 170 00:24:02.200 --> 00:24:09.200 from the defense of my dissertation was disagreed strongly. 171 00:24:09.200 --> 00:24:12.200 It was also obscene to be in favor of flexible rates. 172 00:24:12.200 --> 00:24:20.200 So I quite understand that we may wish a world with fixed rates, at least fixed rates with the gold standard, 173 00:24:20.200 --> 00:24:29.200 but whenever there are discretionary monetary policies made by different countries, 174 00:24:29.200 --> 00:24:32.880 I think that it is better to have flexible rates. 175 00:24:32.880 --> 00:24:41.400 I have seen so many countries destroyed by foolish monetary policies and trying to maintain 176 00:24:41.400 --> 00:24:46.560 fixed rates that I believe it is better to have flexible rates. 177 00:24:46.560 --> 00:24:51.320 I just remember the case of an African country, Zambia. 178 00:24:51.320 --> 00:24:58.040 I was doing some research there and I met the governor of the central bank and Zambia 179 00:24:58.040 --> 00:25:05.120 Africa had been relatively rich country in Africa and it had been completely destroyed 180 00:25:05.120 --> 00:25:12.320 by fixed exchange rate with a very expansionary monetary policy and the consequence was what 181 00:25:12.320 --> 00:25:18.800 was wrongly called balance of payments problem and the authorities tried to solve that by 182 00:25:18.800 --> 00:25:34.800 I met the governor of the central bank and he told me that the interest rate is too high, it is 50%. 183 00:25:34.800 --> 00:25:40.800 I asked him what is the rate of inflation and he told me 100%. 184 00:25:40.800 --> 00:25:43.800 He had been educated in Moscow. 185 00:25:43.800 --> 00:25:52.280 Then I went and visited the Minister of Economics and Finance and I put upon him a question 186 00:25:52.280 --> 00:25:57.320 about the exchange rate because as I just said it was a real problem in this country 187 00:25:57.320 --> 00:26:02.480 and he answered to me, oh you know, I think the best is that you write to me and I will 188 00:26:02.480 --> 00:26:03.480 answer to you. 189 00:26:03.480 --> 00:26:09.840 He was unable to understand anything so whenever people say that the authorities have to control, 190 00:26:09.840 --> 00:26:16.560 have to decide and so on. They ought to see that quite often the minister and the governor 191 00:26:16.560 --> 00:26:23.400 of central bank even do not understand what is going on in economists. So I just mentioned 192 00:26:23.400 --> 00:26:30.320 my doctoral dissertation. The doctoral dissertation was about monetary equilibrium in an open 193 00:26:30.320 --> 00:26:38.560 economies. And I was fascinated as I am right now by money and monetary systems. My dissertation 194 00:26:38.560 --> 00:26:52.560 was not yet Austrian. It was based mainly on the work of Robert Mendel. When I discovered an article in the American Economic Review by Mendel, to me it was a shock anyhow, because it was rigors and so on. 195 00:26:52.560 --> 00:27:04.560 In fact, the approach which was used by Robert Mendel at that time was both Chicagoan and more or less Kinesian, and I became most critical of it later on. 196 00:27:04.560 --> 00:27:10.560 But anyhow it was one more step which was necessary in my intellectual trip. 197 00:27:10.560 --> 00:27:16.560 Later on I discovered Hayek and that was an intellectual revolution for me. 198 00:27:16.560 --> 00:27:24.560 I think that the first article I read from Hayek was either the use of knowledge in society 199 00:27:24.560 --> 00:27:28.560 or maybe the confusion of language in political thought. 200 00:27:28.560 --> 00:27:38.560 It was really a great shock and now I knew that it was the approach I was longing for, I had been longing for ever. 201 00:27:38.560 --> 00:27:49.560 That was my home. And I also remember that at that time I was invited to deliver a paper at a conference in Paris about the free market 202 00:27:49.560 --> 00:27:57.560 and I was asked to discuss about monetary problems and I read only one page of currency competition by Hayek 203 00:27:57.560 --> 00:28:07.560 And I was so excited that I wrote my report without taking time of reading the whole of this booklet. 204 00:28:07.560 --> 00:28:12.560 The idea of currency competition was the first time I discovered that. 205 00:28:12.560 --> 00:28:18.560 It was so fascinating for me that I wanted just to write down what I thought because of that. 206 00:28:18.560 --> 00:28:27.560 And after that, after having written my report, I went back to the booklet and finished it, and I was really convinced. 207 00:28:27.560 --> 00:28:39.560 In fact, you know, I had heard of Hayek when I was a student, but in very loose terms, very critical terms, and I even believed that he was dead. 208 00:28:39.560 --> 00:28:54.560 So, to me, it was a great surprise and a great satisfaction to have several opportunities to meet him, to discuss with him, especially at the Montpéreux Society. 209 00:28:54.560 --> 00:29:05.560 And may I just say one anecdote. It was in 1980, a small group of academics and congressmen 210 00:29:05.560 --> 00:29:12.760 invited Hayek in Paris to deliver a lecture at the National Assembly. And it was a great 211 00:29:12.760 --> 00:29:18.960 moment for us. And after that, we had a dinner in a famous restaurant in Paris, La Tour d'Argent. 212 00:29:18.960 --> 00:29:28.200 some of you know La Tour d'Argent and during the dinner Hayek stopped speaking, he took a postcard 213 00:29:28.200 --> 00:29:32.880 from the restaurant and he wrote down something and he gave me this postcard I think it is 214 00:29:32.880 --> 00:29:41.200 something which is not a quotation by Hayek which had not been written anywhere else and I just 215 00:29:41.200 --> 00:29:56.200 I give it because it is pure Hayek. The market is not merely a better adaptation but an adaptation to the constant necessity of re-adaptation to ever-changing circumstances. 216 00:29:56.200 --> 00:30:01.200 During the dinner he holds that and I think it's pure Hayek. 217 00:30:01.200 --> 00:30:11.200 And happily, if I had the chance of knowing Hayek, I had not the chance, the chance of meeting and knowing Ludwig von Mises. 218 00:30:11.200 --> 00:30:19.200 After Hayek, I discovered Mises and Rothbard with the same sort of enthusiasm. 219 00:30:19.200 --> 00:30:30.200 This gradual approach led me to a conviction, one has to be tolerant with people not tolerant with ideas. 220 00:30:30.200 --> 00:30:50.200 You have to be tolerant with ideas because you must not compromise, but you have to be tolerant with people because they don't have always the privilege to meet the right ideas, they have to discover them and there are several possible ways to discover ideas. 221 00:30:50.200 --> 00:31:02.200 This is why I think we have to be tolerant with persons and accept that they may have different views and maybe not. Why not? Sometimes a tiny bit of truth. 222 00:31:02.200 --> 00:31:14.200 Austrians are quite often considered as extremists and intolerant. They have in fact strong convictions and from this point of view they have to be intolerant. 223 00:31:14.200 --> 00:31:27.200 But they must be open to discussion and accept that a gradual approach does exist and sometimes there can be a convergence or compatibility between different approaches. 224 00:31:27.200 --> 00:31:36.200 To me, it was the case, for instance, with Robert Mandel, who, as you know, has been a Nobel Prize winner. 225 00:31:36.200 --> 00:31:46.200 As I said, the Mendel of the beginning, the Mendel of the policy mix, is more than debatable because he was a Chicagoan and a Keynesian. 226 00:31:46.200 --> 00:31:53.200 But I would not say the same about the Mendel of the monetary approach of the balance of payments. 227 00:31:53.200 --> 00:32:03.200 I do know that we ought not to care about the balance of payments and the best way to solve so-called balance of payments problem 228 00:32:03.200 --> 00:32:09.200 just consists in avoiding to collect and to publish statistics of balance of payments. 229 00:32:09.200 --> 00:32:24.200 However, the monetary approach of the balance of payments does shed some useful light on the interdependence between monetary policies in different countries in fixed rates. 230 00:32:24.200 --> 00:32:33.200 And there is also, I think, one element in Robert Mandel which could be emphasized and which is not in contradiction with Austrian economics. 231 00:32:33.200 --> 00:32:40.200 Contrary to most economists, Robert Mandel is in favor of deflation. 232 00:32:40.200 --> 00:32:49.200 And he has well understood that whenever there is a deflation, there is an increase in the purchasing power of money 233 00:32:49.200 --> 00:33:19.200 and the individuals hold more real cash balances and what he says is that whenever there are more real cash balances as it can be considered as a factor of production, the productivity of other factors of production is increased and for instance the interest rate, the real interest rate is increased by deflation and I think that it is acceptable for Australians but it really 234 00:33:19.200 --> 00:33:25.200 It remains true that someone like Robert Mandel remains a Chicagoan 235 00:33:25.200 --> 00:33:32.200 and he cares mainly about the overall effect of money creation on inflation. 236 00:33:32.200 --> 00:33:39.200 Austrian economists do know that what is important is the way by which money is introduced 237 00:33:39.200 --> 00:33:47.200 into the economic system and the effect on relative prices and interest rates. 238 00:33:47.200 --> 00:33:54.000 I think that the present financial crisis is a perfect illustration of this view. 239 00:33:54.000 --> 00:34:02.200 What is the most disturbing when there is an expansionary policy is not inflationary effect, 240 00:34:02.200 --> 00:34:11.200 but the drastic changes in the relative prices and interest rates and the deep disequilibria which are brought about by this policy. 241 00:34:11.200 --> 00:34:14.200 Contrary to the mainstream opinion, 242 00:34:14.200 --> 00:34:21.200 Austrian economists do know that in any society there is no need to create money. 243 00:34:21.200 --> 00:34:29.200 In other words, as soon as a certain quantity of money exists, there is no need to create additional units. 244 00:34:29.200 --> 00:34:37.200 Quite the contrary. In fact, individuals need real cash balances and not nominal cash balances. 245 00:34:37.200 --> 00:34:47.200 And the best way to create real cash balances is deflation, which means destroying nominal cash balances. 246 00:34:47.200 --> 00:34:52.200 This is a very important truth, but most people do not accept that. 247 00:34:52.200 --> 00:34:59.200 They just believe that it is necessary to create nominal money because they know that in an existing system, 248 00:34:59.200 --> 00:35:07.200 system. Money is created against credit and they believe that this wrong credit 249 00:35:07.200 --> 00:35:12.720 anyhow stimulates the economy. Austrian economists do know that it is a 250 00:35:12.720 --> 00:35:19.520 dangerous illusion. Monetary authorities pretend that the amount of savings is 251 00:35:19.520 --> 00:35:26.760 higher than the amount which is freely decided by people. Before addressing 252 00:35:26.760 --> 00:35:33.760 and the present problems of the financial crisis, I would like to give some more thoughts about monetary systems. 253 00:35:33.760 --> 00:35:42.760 It is not my intention to develop here a whole theory of monetary systems, 254 00:35:42.760 --> 00:35:51.760 but I would like just to draw some more lessons from my past intellectual experience 255 00:35:51.760 --> 00:35:58.760 and I would like to stress once more the uniqueness of economic theory 256 00:35:58.760 --> 00:36:03.760 at least in the coherent approach of Austrian economics. 257 00:36:03.760 --> 00:36:11.760 In the 80s I was asked by a friend who was a minister of telecommunication 258 00:36:11.760 --> 00:36:17.760 to write a report about liberalization of telecommunications. 259 00:36:17.760 --> 00:36:29.760 I did not know anything about this sector and I had to discuss with advisors of the ministers who were engineers and who had very special words I did not really understand. 260 00:36:29.760 --> 00:36:38.760 But very rapidly I understood that the ideas I had met and I had developed when studying monetary systems 261 00:36:38.760 --> 00:36:48.760 could be applied to any network activity, at least if one has a correct approach of competition, monopolies and cartels. 262 00:36:48.760 --> 00:36:57.760 Mainstream economics are founded on a completely arbitrary definition of competition, pure and perfect competition. 263 00:36:57.760 --> 00:37:07.760 And it implies in particular that competition should prevail whenever there is a great number of producers producing exactly the same product. 264 00:37:07.760 --> 00:37:22.760 This has nothing in common with reality and it could be considered as a purely intellectual game, but as you do know, it is considered as a norm and it is inspiring most anti-trust policies. 265 00:37:22.760 --> 00:37:33.760 If one clings to this theory, it is obvious that one cannot accept the idea of competition in network activities in money and so on. 266 00:37:33.760 --> 00:37:35.680 and so on. 267 00:37:35.680 --> 00:37:37.440 Because there are a lot of reasons 268 00:37:37.440 --> 00:37:40.320 to believe that it is impossible to have 269 00:37:40.320 --> 00:37:43.440 a great number of producers. 270 00:37:43.440 --> 00:37:45.920 And they speak, in the mainstream economics, 271 00:37:45.920 --> 00:37:50.080 they speak of natural monopolies. 272 00:37:50.080 --> 00:37:53.080 And similarly, it is impossible to understand 273 00:37:53.080 --> 00:37:57.720 the working of monetary systems with the mainstream definition 274 00:37:57.720 --> 00:38:00.600 of competition. 275 00:38:00.600 --> 00:38:12.600 It appears that it is not optimal to have a great number of firms, a great number of currencies and so on, and there is a need for public intervention. 276 00:38:12.600 --> 00:38:26.600 But this traditional definition of competition is meaningless for Austrians, both because it is unrealistic and because Austrians care about processes and not about results. 277 00:38:26.600 --> 00:38:33.600 They don't care about the number of producers. They care about the process by which the market is developing. 278 00:38:33.600 --> 00:38:41.600 And competition prevails for Austrians whenever there is free entry and whatever is the result of this process. 279 00:38:41.600 --> 00:38:49.600 Now, competition, contrary to what is implied by the mainstream economics, competition means differentiation. 280 00:38:49.600 --> 00:38:56.600 Producers compete in order to differentiate, to propose different products. 281 00:38:56.600 --> 00:39:02.600 But for many goods, that's the case with money, it is the case for network activities, 282 00:39:02.600 --> 00:39:09.600 there is a demand for homogenization, because it would not be considered as optimal, 283 00:39:09.600 --> 00:39:15.600 either by the producers or the consumers, to have too many different products. 284 00:39:15.600 --> 00:39:29.600 And finding the optimal degree of differentiation, of the optimal degree of homogenization may be one of the great problems which have to be solved in any society. 285 00:39:29.600 --> 00:39:35.600 There are two ways to discover the optimal degree of differentiation. 286 00:39:35.600 --> 00:39:43.600 One can be by the constraints. The state decides that there ought to be only one producer, the public producer. 287 00:39:43.600 --> 00:39:59.600 That's exactly what has been done with the Euro. It was said that there were too many currencies in Europe, which certainly could be considered as true, but it was also said that Europeans need one single currency. 288 00:39:59.600 --> 00:40:07.600 We don't know. We don't know. Maybe it's too much, maybe it's not enough and so on. We have to experiment. 289 00:40:07.600 --> 00:40:15.600 And the other way to discover the optimal degree of differentiation certainly to let the market decide, 290 00:40:15.600 --> 00:40:19.600 which means the users and the producers. 291 00:40:19.600 --> 00:40:26.600 The reason why I was personally against euro was that I thought that it would have, 292 00:40:26.600 --> 00:40:33.600 it is impossible to decide from the outset that it is necessary to have a single currency 293 00:40:33.600 --> 00:41:03.600 with the possibility of having in the future legal tender laws and things like that and certainly having a European central bank and the best way for European monetary integration would have been for long just to decide to repeal legal tender laws and certainly also to make possible competition currencies as it had been underlined by 294 00:41:03.600 --> 00:41:12.960 Friedrich Hayek. In the free determination on the market is the only meaningful solution and the 295 00:41:12.960 --> 00:41:20.640 reason is that optimality cannot be decided from outside, it has to be decided by those who are 296 00:41:20.640 --> 00:41:29.120 concerned. According to the activity we consider, the optimal degree of differentiation is not the 297 00:41:29.120 --> 00:41:47.120 It has to be revealed by the market. However, homogenization, the fact that there is a need for homogeneous products, if it is desirable, doesn't imply that the producers have to be a monopoly. 298 00:41:47.120 --> 00:41:59.120 It is possible that different several producers are entering into an agreement to produce an homogenous good. 299 00:41:59.120 --> 00:42:01.120 That's what is called a cartel. 300 00:42:01.120 --> 00:42:10.120 I published an article on cartels in the quarterly journal of Austrian economics where I developed a positive view of cartels. 301 00:42:10.120 --> 00:42:23.120 Quite often, cartels are defined as arrangements between producers in order to create a monopoly position and to try to extract an extra profit from consumers. 302 00:42:23.120 --> 00:42:37.120 But a cartel, in fact, is a cooperative arrangement by which different producers make efforts to homogenize their products and make them substitutable one to the other. 303 00:42:37.120 --> 00:42:42.120 A cartel, in fact, means cooperation or coordination. 304 00:42:42.120 --> 00:42:49.120 But strangely enough, cooperation is considered as very useful when it is done by officials. 305 00:42:49.120 --> 00:42:53.120 People speak about the necessity for international cooperation. 306 00:42:53.120 --> 00:42:59.120 But whenever cooperation exists between firms, it is considered as collusion, as bad. 307 00:42:59.120 --> 00:43:03.120 Cooperation must not exist between producers. 308 00:43:03.120 --> 00:43:15.120 Quite often the words are used differently according to the reality to which they are linked. 309 00:43:15.120 --> 00:43:23.120 For instance, in Europe, most people are in favor of harmonization of policies. 310 00:43:23.120 --> 00:43:26.120 Because harmonization suggests harmony. 311 00:43:26.120 --> 00:43:32.680 but if ever firms want to harmonize the products it is considered as something 312 00:43:32.680 --> 00:43:39.960 which is bad, it is collusion, it is trust, it is and they have to go before the trust, before the course. 313 00:43:39.960 --> 00:43:54.680 As regards money, different banks can issue their own currency but decide to make them perfectly 314 00:43:54.680 --> 00:44:01.680 are basically substitutable just to enlarge the area of circulation. 315 00:44:01.680 --> 00:44:04.680 Let us consider, for instance, a real gold standard. 316 00:44:04.680 --> 00:44:10.680 What I call a real gold standard is a gold standard without a central bank. 317 00:44:10.680 --> 00:44:19.680 The participant banks in the capital give two sorts of convertibility guarantees. 318 00:44:19.680 --> 00:44:28.680 give a guarantee in gold and each bank is responsible for giving this guarantee and for honoring it. 319 00:44:28.680 --> 00:44:41.680 And meanwhile, each bank gives a guarantee, a convertibility guarantee for its own money against the currencies produced by the other members of the cartel. 320 00:44:41.680 --> 00:44:53.680 In such a case, I think that there is a low risk of overissue of money because each bank is responsible for giving convertibility guarantee. 321 00:44:53.680 --> 00:45:09.680 And there may be also a system of mutual surveillance as far as the participants want to preserve the good reputation of the brand of the currency they are issuing. 322 00:45:09.680 --> 00:45:14.680 Systemic risks have not many chances to occur in such a system, 323 00:45:14.680 --> 00:45:18.680 contrary to what exists in a system with a central bank, 324 00:45:18.680 --> 00:45:24.680 where the system is protected from the competition coming from outside 325 00:45:24.680 --> 00:45:30.680 by legal tender laws and where banks are induced to overissue money 326 00:45:30.680 --> 00:45:35.680 because of the role of the lender of last resort of the central bank. 327 00:45:35.680 --> 00:45:42.680 We have not to decide, I think, from outside, whether a gold standard is the best monetized system, 328 00:45:42.680 --> 00:45:49.680 or even, I should say, if a 100% reserve system is the best. 329 00:45:49.680 --> 00:45:53.680 I know that many people here would prefer a 100% reserve system. 330 00:45:53.680 --> 00:45:56.680 I just believe that we have to experiment. 331 00:45:56.680 --> 00:46:00.680 Maybe the best system is preferred by people, 332 00:46:00.680 --> 00:46:05.680 But maybe there are some reasons to prefer fractional reserves. 333 00:46:05.680 --> 00:46:11.680 What is important is to have currency competition and to have capitalist solutions. 334 00:46:11.680 --> 00:46:17.680 You cannot maybe prevent banks from creating fiat currency, 335 00:46:17.680 --> 00:46:23.680 but what is important is to design a system in which there are limits to money creation 336 00:46:23.680 --> 00:46:27.680 and to instability in money creation. 337 00:46:27.680 --> 00:46:29.680 And I think that competition is the best for that. 338 00:46:29.680 --> 00:46:41.400 I would like to finish by giving some attention to the financial crisis. I do not intend to give 339 00:46:41.400 --> 00:46:49.320 a full account of the financial crisis. It would be presumptuous in fact because I'm speaking here 340 00:46:49.320 --> 00:46:57.320 in the temple of the right theory of business cycle and during this conference we have had many 341 00:46:57.320 --> 00:47:04.320 and opportunities to hear very important thoughts about the financial crisis. 342 00:47:04.320 --> 00:47:11.320 And I must say that in past months I have been intellectually fed by the Mises Institute 343 00:47:11.320 --> 00:47:17.320 which helped me to better understand the events and to better explain them in France. 344 00:47:17.320 --> 00:47:25.320 By the way, may I say that I was surprised because in recent weeks journalists discovered 345 00:47:25.320 --> 00:47:55.320 that there was a different approach, you know, in all TV, radio, newspapers and so on, there's a mainstream approach of this financial crisis, people say that it is a crisis of capitalism, that it is necessary to regulate more financial institutions, but in spite of that, I have been invited by a lot of TV and radio much more than 346 00:47:55.320 --> 00:48:12.320 than I had ever been and I have the pretension to believe that it may be a small sign that anyhow something is changing and people, some people discover that the truth may be somewhere else. 347 00:48:12.320 --> 00:48:29.320 I think that the present financial crisis ought to induce people to recognize that there is no valid theory of the business cycle except the Austrian one. 348 00:48:29.320 --> 00:48:40.320 In spite of this, it is obvious that for many people, they believe that the crisis has been caused by an excess of capitalism. 349 00:48:40.320 --> 00:48:48.120 and the same statements are endlessly repeated. People say that self-adjustment 350 00:48:48.120 --> 00:48:54.440 by markets have failed and we have to celebrate the coming back of the state. 351 00:48:54.440 --> 00:49:02.280 So I don't want to discuss in detail all of that but I would like just to stress 352 00:49:02.280 --> 00:49:22.280 Yes, that the business cycle of our time is certainly not, as you are convinced, all of you, a consequence of capitalism, but certainly a consequence of a lack of capitalism, and I see several reasons for that. 353 00:49:22.280 --> 00:49:29.280 I think that the crisis is the outcome both of tax policies and monetary policies. 354 00:49:29.280 --> 00:49:43.280 There is, I think, in many developed countries a lack of real savings and more precisely a lack of equity capital, a lack of real property rights on capital, a lack of capitalists. 355 00:49:44.280 --> 00:49:56.280 Capitalism means ownership of capital, property rights on capital, but we have now more or less pseudo-capitalisms without capital and without capitalists. 356 00:49:56.280 --> 00:50:08.200 Capitalist. One major reason for this low level of equity capitalizing is tax policies. Contrary to 357 00:50:08.200 --> 00:50:18.240 what is quite often said, the tax system we have in all our countries are over-taxing capital and so 358 00:50:18.240 --> 00:50:23.240 Because there is a lack of savings, a lack of accumulation of capital. 359 00:50:23.240 --> 00:50:34.240 And because of that, maybe, monetary authorities pretend to find a substitute in the creation of money and the creation of credit. 360 00:50:34.240 --> 00:50:40.240 The main cause of the crisis, certainly of the financial crisis, has been the past monetary policy. 361 00:50:40.240 --> 00:50:48.240 The world has been overflowed by huge amounts of liquidity obtained at a low interest rate 362 00:50:48.240 --> 00:50:54.240 and there were huge opportunities of short-term financing for financial institutions. 363 00:50:54.240 --> 00:51:03.240 Anyhow, one may wonder why financial institutions have been so short-term, so short-sighted 364 00:51:03.240 --> 00:51:13.240 and we are unable to forecast the future to discover that this easiness in monetary policy was a pure illusion. 365 00:51:13.240 --> 00:51:21.240 Certainly, there is the fact that most bankers do not know the Austrian theory of the business cycle. 366 00:51:21.240 --> 00:51:31.240 But there is, I think, another reason which is once more a shortfall of real capitalists, namely owners of capital. 367 00:51:31.240 --> 00:51:42.240 Big banks are some sort of big bureaucracies. The decisions are not taken by the innumerable shareholders. 368 00:51:42.240 --> 00:51:48.240 They are not taken by the capitalists, by the owners of the banks. They are taken by the managers. 369 00:51:48.240 --> 00:51:57.240 And the managers are wage earners. They are not capitalists. And wage earners, contrary to capitalists, are short-sighted. 370 00:51:57.240 --> 00:52:02.240 They rationally try to maximize their incomes in the short run. 371 00:52:02.240 --> 00:52:06.240 If their bank fails, they do not lose any capital. 372 00:52:06.240 --> 00:52:13.240 They may lose their job for some time, but their human capital remains undestructed. 373 00:52:13.240 --> 00:52:18.240 Banks in the 19th century were real capitalist banks, 374 00:52:18.240 --> 00:52:25.240 and the equity capital of banks was about 60 to 80% of their balance sheets. 375 00:52:25.240 --> 00:52:34.240 Bankers were lending or investing their own money so that they were responsible and they did not accept too high a risk. 376 00:52:34.240 --> 00:52:44.240 We are now in a world of limited capitalism with central banks and banking decisions made by managers and not by capitalists. 377 00:52:44.240 --> 00:52:48.240 This is the deep cause of the financial crisis. 378 00:52:48.240 --> 00:53:04.740 So, contrary to what is claimed by the French president Nicolas Sarkozy, along with so many politicians, journalists, academics, there is no need to regulate capitalism and to improve the morals of capitalism. 379 00:53:04.740 --> 00:53:11.740 There is a need for a revival of capitalism. How to do it? That's not easy. 380 00:53:11.740 --> 00:53:21.740 In the short run it is very disturbing because it appears that states are the only able to save the financial system. 381 00:53:21.740 --> 00:53:26.740 There is a lack of confidence and banks don't want to lend to each other. 382 00:53:26.740 --> 00:53:33.740 And the state appears as the only one, the only possible intermediary because it cannot fail. 383 00:53:33.740 --> 00:53:39.740 It has a privilege, a unique privilege. It can do anything, it cannot fail. 384 00:53:39.740 --> 00:53:55.740 So, ironically, most people interpret this fact as meaning that state intervention is necessary and they say that it is necessary to have a lender of last resort to avoid a systemic increase. 385 00:53:55.740 --> 00:54:14.740 They don't see that if there is the appearance of the need for a lender of last resort, it is because the one who has destroyed the system now appears as the one, the only one, which is able to save it. 386 00:54:14.740 --> 00:54:24.740 But instead of celebrating monetary authorities for their risky decisions, one ought to blame them for having created a problem. 387 00:54:24.740 --> 00:54:35.740 The threat of a general collapse of financial institutions is one of the main arguments offered by the supporters of state intervention. 388 00:54:35.740 --> 00:54:41.740 Had state intervention in the financial system and the monetary system not existed, 389 00:54:41.740 --> 00:54:51.740 I think that there would not have been any systemic risk in how this intervention exists. 390 00:54:51.740 --> 00:54:59.740 And if the state is not here to save the banks, certainly more of them would fail. 391 00:54:59.740 --> 00:55:08.740 But I think it is characteristic that in recent weeks, some banks which were failing were bought by other banks, 392 00:55:08.740 --> 00:55:17.740 which means that there is a great diversity of situations and it is obvious that some banks have been managed better than some other ones. 393 00:55:17.740 --> 00:55:27.740 And it is also certain that the managers of the failing banks prefer to be saved by the state because they have a chance to keep their job, 394 00:55:27.740 --> 00:55:33.740 whereas if ever there is a purchase by another bank, they would probably be fired. 395 00:55:33.740 --> 00:55:38.740 In the long run, the solution is a revival of capitalism. 396 00:55:38.740 --> 00:55:46.740 It implies certainly decreasing the role of the state and it implies tax system more friendly to capital accumulation. 397 00:55:46.740 --> 00:55:54.740 It implies the end of monetary policy and, if possible, the disappearing of central banks. 398 00:55:54.740 --> 00:55:58.740 Finally, I would like to address a specific problem. 399 00:55:58.740 --> 00:56:04.740 It seems that in financial matters there are gains from a great dimension. 400 00:56:04.740 --> 00:56:11.740 But there is also a risk that big firms be managed by managers and not by capitalists. 401 00:56:11.740 --> 00:56:37.740 And I think that the solution would be a system with a great number of banks belonging to real capitalists but entering into agreements, what I call the cartel, in order to make in common some part of their activities, at least the activities where it is possible to have economies of scale. 402 00:56:37.740 --> 00:56:47.740 A monetary cartel makes possible to reconcile a great dimension for some activities and management by real capitalists. 403 00:56:47.740 --> 00:56:57.740 So we are convinced, all of us, that the present crisis is not a crisis of capitalism. 404 00:56:57.740 --> 00:57:10.500 It is a crisis of state interventionism, but I may have also that it may be a consequence of a mechanistic approach of economic problems. 405 00:57:10.500 --> 00:57:27.500 Quite often people have been confident in mathematical models of financial management without having a sufficient concern about the behaviors and the incentives of individuals. 406 00:57:27.500 --> 00:57:37.500 A banker who would have been educated in the Austrian tradition would have not accepted such high degrees of risk 407 00:57:37.500 --> 00:57:45.500 and he would have been doubtful about the laxist monetary policy of the beginning of the 21st century. 408 00:57:45.500 --> 00:57:51.500 We now have, and happily, a vicious circle of destruction of capitalism 409 00:57:51.500 --> 00:58:02.500 Under the pretext of curing the ills brought about by the capitalist system, states are reinforcing the non-capitalist aspect of the financial system. 410 00:58:02.500 --> 00:58:07.500 States become shareholders of banks and financial institutions. 411 00:58:07.500 --> 00:58:11.500 There are big mergers which create ever bigger banks. 412 00:58:11.500 --> 00:58:20.500 Monetary authorities are beginning to decrease interest rates and to distribute excess money, thus preparing another monetary cycle. 413 00:58:20.500 --> 00:58:35.500 People have to be convinced that the capitalist system is self-adjusting and that regulations are not the necessary way to obtain adjustment. 414 00:58:35.500 --> 00:58:45.500 But there is a terrific job to do in order to educate people and to persuade governments that they have to reverse the stream, 415 00:58:45.500 --> 00:58:52.500 not gradually and piece by piece but through a complete and rapid change of system. 416 00:58:52.500 --> 00:59:06.500 From this point of view, the Mises Institute has a historical responsibility as one of the rare places where a correct analysis of the working of free markets can be found. 417 00:59:06.500 --> 00:59:17.500 Back in 1987, Lew Rockwell wrote, great change must originate in the world of ideas. 418 00:59:17.500 --> 00:59:23.500 But we will never bring about a monetary revolution without mobilizing the people. 419 00:59:23.500 --> 00:59:28.500 And great popular movements cannot be built on a repealing legal tender. 420 00:59:28.500 --> 00:59:42.500 gold and anti-central banking, as our own history shows, are mobilizing issues, they also have the not inconsiderable virtue of being true. 421 00:59:42.500 --> 00:59:55.500 To end, let me just recall some statements I have made in the present lectures, and I think statements which are acceptable for all those who are here. 422 00:59:55.500 --> 01:00:13.500 There is no need to create money, there is never any balance of payments problem, the financial crisis is not a crisis of capitalism but a crisis of state intervention, one ought to suppress central banks and the IMF. 423 01:00:13.500 --> 01:00:23.500 Such statements in which I strongly believe are not easily accepted by public opinion and even by most economists. 424 01:00:23.500 --> 01:00:40.500 When expressing such views in France, I may be considered as foolish or as a dangerous extremist, a ultra-liberal, and I must confess that I need some courage to go on with such ideas. 425 01:00:40.500 --> 01:00:54.500 But I cannot do it alone. I need the support of people I do admire and that is why I want to thank the Mises Institute and you all here from the bottom of my heart. Thank you.