WEBVTT NOTE Gold and the Good Guys: A Short History of American Thinkers on Money 1 00:00:00.000 --> 00:00:19.000 Ladies and gentlemen, Mark mentioned this rock star phenomenon, and much as I hate that term, nevertheless, I can't help mentioning to you something that happened to me early last month in Minneapolis. 2 00:00:19.000 --> 00:00:24.000 Ron Paul was having a big event, a rally for the republic, and I was one of the speakers. 3 00:00:24.000 --> 00:00:29.000 When you prepare remarks for an event like that, you usually know what your applause lines are going to be. 4 00:00:29.000 --> 00:00:34.000 You throw some red meat out to the crowd and they always oblige. 5 00:00:34.000 --> 00:00:39.000 But I just had sort of a throwaway line in there about, well, you know, by the way, 6 00:00:39.000 --> 00:00:42.000 more and more people are looking into the Austrian theory of the business cycle. 7 00:00:42.000 --> 00:00:51.000 I had to stop speaking. The place erupted in cheers. 8 00:00:51.000 --> 00:01:01.000 See? See? I have to rethink my whole philosophy of applause lines, right? 9 00:01:01.000 --> 00:01:05.000 Absolutely astonishing. So I actually ad-libbed a little something after that. 10 00:01:05.000 --> 00:01:10.000 I said, just recalling what John McCain had said about his knowledge of economics, 11 00:01:10.000 --> 00:01:14.000 I said, because this was taking place right down the street from the Republican Convention, 12 00:01:14.000 --> 00:01:18.000 I said, let's go ask John McCain what he knows about Austrian business cycle theory. 13 00:01:18.000 --> 00:01:35.000 So the world has changed. The fact that this garners cheers. In fact, Bob Murphy, who is another adjunct scholar of the Mises Institute, posted on his own blog under the title Tom Woods, Manipulator of Crowds. 14 00:01:35.000 --> 00:01:45.000 He wondered how it was possible that I could give a speech whose dorkiest portions got the biggest applause. 15 00:01:45.000 --> 00:01:49.000 I just couldn't understand this. So I'm quite pleased about that. 16 00:01:49.000 --> 00:01:53.000 So this is a hot topic that we're dealing with right now, of course. 17 00:01:53.000 --> 00:01:58.000 Now right now I'm under a really extraordinary book deadline. 18 00:01:58.000 --> 00:02:04.000 So some of you whom I owe emails to, my sincere apologies, but I have a book deadline of November 17th. 19 00:02:04.000 --> 00:02:15.000 and I think I've been working on it for about three weeks now at most, so this is ridiculous, there's no way anyone could possibly make this deadline. 20 00:02:15.000 --> 00:02:24.000 But I was just under the, I had the view that somebody should write a book that was short, understandable to the layman, 21 00:02:24.000 --> 00:02:30.000 and would be published really fast to get the sort of Austrian take out there in the general public. 22 00:02:30.000 --> 00:02:33.500 Don't let the Fed get away with pretending it's the savior in this crisis. 23 00:02:33.500 --> 00:02:38.000 We should blame it as the culprit and do it quickly before all the books calling for evil come out. 24 00:02:38.000 --> 00:02:48.000 Now, no one appreciates more than I do how, well, unfit for this task I am. 25 00:02:48.000 --> 00:02:52.000 But I thought, you know, I have published a couple of books with this particular publisher in the past, 26 00:02:52.000 --> 00:02:56.000 so I already have a relationship with them. They might be likely to rush my book. 27 00:02:56.000 --> 00:03:03.000 Sure enough, if I can have it to them by November 17th, given that Christmas slows down everything in publishing, 28 00:03:03.000 --> 00:03:10.000 they can have it in the stores in January, which will mean I'll beat Paul Krugman, you know, whatever book he's coming up with. 29 00:03:10.000 --> 00:03:22.000 So, in any event, that means that it's a little difficult for me to hurry up and throw something together for this event, you know, so, you know, suddenly crept up on me. 30 00:03:22.000 --> 00:03:34.000 So I'm reminded of the Simpsons episode in which Homer unfortunately has to go back to college because of course he is grossly incompetent when it comes to his job as the safety inspector at the nuclear plant. 31 00:03:34.000 --> 00:03:41.000 So he's got to go back to school and he's totally unprepared for his exam in nuclear physics. 32 00:03:41.000 --> 00:03:46.000 And so the geeky kids he's hanging around with say to him, Mr. Simpson, what are you going to do? You're totally unprepared. 33 00:03:46.000 --> 00:03:55.000 Well, on the day of the exam, I'll hide under some coats and hope that somehow everything works out. 34 00:03:55.000 --> 00:03:59.000 Well, that's sort of how I feel today, you know, just hide under some coats. 35 00:03:59.000 --> 00:04:04.000 So we're going to find out together whether what I've assembled here is a coherent presentation. 36 00:04:04.000 --> 00:04:06.000 We're all going to find this out together. 37 00:04:06.000 --> 00:04:11.000 Well, Jeff Tucker, I believe, is the originator of all these titles and topics, 38 00:04:11.000 --> 00:04:15.000 and so he's given me what I first thought was a pretty joke-proof topic. 39 00:04:15.000 --> 00:04:19.000 How am I going to joke about monetary theorists throughout American history? 40 00:04:19.000 --> 00:04:22.000 I'll do my best, you know, we'll just have to wing this. 41 00:04:22.000 --> 00:04:25.000 But it is nevertheless an important topic. 42 00:04:25.000 --> 00:04:32.000 And yet as I read and as I looked through some of the great American thinkers on money and banking, 43 00:04:32.000 --> 00:04:35.000 it occurred to me that, present company accepted, 44 00:04:35.000 --> 00:04:41.000 on these issues the only good economist is a dead economist. 45 00:04:41.000 --> 00:04:43.000 The best ones are from the 19th century. 46 00:04:43.000 --> 00:04:45.000 Now, of course, I leave out Murray Rothbard. 47 00:04:45.000 --> 00:04:47.000 I figure people have more or less heard of him. 48 00:04:47.000 --> 00:04:51.000 I want to focus on people you might be less likely to have heard of. 49 00:04:51.000 --> 00:04:55.000 So there are a few honorable mentions who may deserve to be in here, 50 00:04:55.000 --> 00:04:57.000 and I'll at least mention them quickly. 51 00:04:57.000 --> 00:05:02.000 One would be Pelletier Webster, who's considered to be one of the first American economists. 52 00:05:02.000 --> 00:05:06.000 And he wrote an awful lot about money and, in particular, 53 00:05:06.000 --> 00:05:09.000 about the historical experience with the continental currency. 54 00:05:09.000 --> 00:05:14.000 and Financial Currency. He had a book of his writings come out in 1791. 55 00:05:14.000 --> 00:05:20.000 You can actually find those writings fairly easily online with an astute Google search. 56 00:05:20.000 --> 00:05:24.000 So, Pelletier-Webster deserves sort of honorable mention. 57 00:05:24.000 --> 00:05:31.000 Condé Regé is the author of an 1840 treatise called A Treatise on Currency and Banking, 58 00:05:31.000 --> 00:05:37.000 which is an outstanding hard money book that the Mises Institute has available at Mises.org 59 00:05:37.000 --> 00:05:43.000 in PDF form, his last name is R-A-G-U-E-T, and you just can't believe what you're reading, 60 00:05:43.000 --> 00:05:48.000 that there were people putting these views out to the public at that time. 61 00:05:48.000 --> 00:05:54.000 Charles Holt Carroll is another, but I decided that I'm going to focus on three individuals in particular, 62 00:05:54.000 --> 00:05:57.000 all named William, and that's actually the reason I chose them. 63 00:05:57.000 --> 00:06:00.000 I thought, isn't this a funny coincidence? It's three Williams. 64 00:06:00.000 --> 00:06:02.000 So we're going to talk about the three Williams. 65 00:06:02.000 --> 00:06:06.000 The first William I want to talk about is a guy named William Leggett. 66 00:06:06.000 --> 00:06:12.000 This is the only William whose book, or at least one of whose books, we do not feature here in the bookstore, 67 00:06:12.000 --> 00:06:16.000 but we're ecumenical, broad-minded people. That's not any reason not to mention you. 68 00:06:16.000 --> 00:06:19.000 So I want to talk about William Leggett for a minute. 69 00:06:19.000 --> 00:06:27.000 This fellow was a New Yorker who wrote editorials for the New York Evening Post in the 1830s. 70 00:06:27.000 --> 00:06:33.000 He was a Jacksonian. He later went on to found two of his own publications, The Plain Dealer and The Examiner. 71 00:06:33.000 --> 00:06:42.000 He devoted his pen to the causes of free trade, opposition to slavery, and limited government in the Jeffersonian tradition. 72 00:06:42.000 --> 00:06:46.000 But most significantly, for our purposes, he was a hard money man. 73 00:06:46.000 --> 00:06:53.000 And even more significantly, he was not a professional economist. He was just a popular journalist. 74 00:06:53.000 --> 00:07:01.000 And yet, just this little collection of his editorials that Liberty Fund publishes, called Democratic Editorials, 75 00:07:01.000 --> 00:07:16.000 to maintain some of the old-timey usage, that book, there is more genuine knowledge and enlightenment about money and banking than in whole shelves of modern treatments of this subject put together. 76 00:07:16.000 --> 00:07:25.000 Now, he begins this way. He says, the basis of our banking system is certainly wrong. Good so far. 77 00:07:25.000 --> 00:07:29.000 Good so far. 78 00:07:29.000 --> 00:07:34.000 Banks should be established on a foundation which neither panic nor mismanagement, 79 00:07:34.000 --> 00:07:37.000 neither ignorance nor fraud could destroy. 80 00:07:37.000 --> 00:07:43.000 That which is received as money and which is designed to pass from hand to hand as such 81 00:07:43.000 --> 00:07:48.000 should not be liable to change into worthless paper in the transition. 82 00:07:48.000 --> 00:07:54.000 He argued that the banking establishment of his day had poisoned the culture. 83 00:07:54.000 --> 00:07:55.000 He said, 84 00:08:24.000 --> 00:08:31.000 The great castle of credit is suddenly overturned, burying hundreds of industrious mechanics and laborers under its ruins. 85 00:08:31.000 --> 00:08:35.000 Such a man would once have been execrated, he is now pitied. 86 00:08:35.000 --> 00:08:45.000 Interestingly, Leggett had a kind of inchoate understanding of Austrian business cycle theory, 87 00:08:45.000 --> 00:08:49.000 which of course would not be fully developed until the early 20th century. 88 00:08:49.000 --> 00:08:55.400 But right away, we notice in at least every other editorial he wrote on this subject, 89 00:08:55.400 --> 00:08:57.740 this general conclusion. 90 00:08:57.740 --> 00:09:03.020 The alternate inflations and contractions of the paper currency incident to such a pernicious 91 00:09:03.020 --> 00:09:09.000 system as ours will continue to produce their inevitable consequence on wholesome activity 92 00:09:09.000 --> 00:09:13.660 of business followed by prostration, sudden and disastrous. 93 00:09:13.660 --> 00:09:17.840 So right away, he's got some kind of sense that there's a monetary explanation for the 94 00:09:17.840 --> 00:09:19.440 and the boom-buzz cycle. 95 00:09:19.440 --> 00:09:24.000 But I want to suggest to you that in fact his insight is far greater and more impressive 96 00:09:24.000 --> 00:09:30.480 than even this, although this alone would place him in the top rank of monetary economists 97 00:09:30.480 --> 00:09:33.680 in our day. 98 00:09:33.680 --> 00:09:37.280 So first what I want to do is say a little something about Austrian business cycle theory 99 00:09:37.280 --> 00:09:42.040 and then return to leg it because the passage I'm going to quote to you is just absolutely 100 00:09:42.040 --> 00:09:44.560 stunning and I want to prepare it properly. 101 00:09:44.560 --> 00:09:47.500 Now I'm sure I'm not going to be the only one who will say something about business 102 00:09:47.500 --> 00:09:51.500 I'm the first one, so I steal the thunder of everybody else. 103 00:09:51.500 --> 00:09:56.500 If I misstate it, everybody has to spend the rest of the weekend hurriedly correcting me. 104 00:09:56.500 --> 00:10:01.500 The simple version that I would use to explain it is as follows. 105 00:10:01.500 --> 00:10:06.500 I assume most people in this room know about this, but so many people have become interested in these topics 106 00:10:06.500 --> 00:10:09.500 just in the past 18 months that I think it's wrong to just take for granted. 107 00:10:09.500 --> 00:10:13.500 Everybody knows Austrian business cycle theory. We can just throw this lingo around. 108 00:10:13.500 --> 00:10:17.660 not necessarily but it's one of these things that when you hear it it has such 109 00:10:17.660 --> 00:10:22.020 explanatory power and it makes so much sense that it changes can change the way 110 00:10:22.020 --> 00:10:24.780 you think sort of instantaneously so we'll run a little experiment see if 111 00:10:24.780 --> 00:10:29.900 that works for anyone here in the room so according to the theory here we have 112 00:10:29.900 --> 00:10:35.220 the economy we have the interest rate whose function is to coordinate 113 00:10:35.220 --> 00:10:39.060 production across time and when the interest rate is artificially 114 00:10:39.060 --> 00:10:43.060 When the money is interfered with, this function is disrupted. 115 00:10:43.060 --> 00:10:46.060 It can't coordinate production across time the way it's supposed to. 116 00:10:46.060 --> 00:10:50.060 So when the monetary authority, let's say, I don't know, the Federal Reserve system, 117 00:10:50.060 --> 00:10:58.060 when they artificially lower interest rates, the result is an unnatural artificial boom in capital goods production, 118 00:10:58.060 --> 00:11:04.060 in production of goods that are farther removed from the production of final consumer goods, 119 00:11:04.060 --> 00:11:08.060 things like raw materials or construction, that sort of thing. 120 00:11:08.060 --> 00:11:13.940 You see a boom there, but this is an unsustainable boom and the reason that it's unsustainable 121 00:11:13.940 --> 00:11:19.700 is that there aren't enough real resources in the economy to complete all these projects. 122 00:11:19.700 --> 00:11:24.180 There is this superstition in our day that says that the Federal Reserve system can, 123 00:11:24.180 --> 00:11:29.160 by manipulating the interest rate, can create wealth, but of course it can't. 124 00:11:29.160 --> 00:11:32.320 If it could, we could solve all the problems of the world, but it was just a single fed 125 00:11:32.320 --> 00:11:33.380 computer. 126 00:11:33.380 --> 00:11:37.000 But of course, by artificially lowering the interest rate, you haven't increased the number 127 00:11:37.000 --> 00:11:42.000 The number of projects that can be completed, you may have increased the number of loans that can be taken out, 128 00:11:42.000 --> 00:11:51.000 the number of projects that can be initiated, but the pool of real savings is not there to support the completion of all these projects. 129 00:11:51.000 --> 00:11:58.000 So as time passes, businesses will find that the complementary factors of production that they need to complete their projects 130 00:11:58.000 --> 00:12:03.000 are not available in the abundance they might have expected at the time that they need them. 131 00:12:03.000 --> 00:12:09.200 And that, in fact, they find that their costs are rising for these complementary factors 132 00:12:09.200 --> 00:12:10.200 of production. 133 00:12:10.200 --> 00:12:15.160 So, for example, in the dot-com boom of the 1990s, well, everybody's just going to become 134 00:12:15.160 --> 00:12:19.120 rich though, just make an IPO and suddenly they're billionaires or something. 135 00:12:19.120 --> 00:12:21.480 Everybody can just become rich this way. 136 00:12:21.480 --> 00:12:25.160 But sooner or later they realize, well, whoa, whoa, what happened to the cost of web programmers? 137 00:12:25.160 --> 00:12:28.000 They suddenly doubled in their salaries. 138 00:12:28.000 --> 00:12:33.840 or the cost of domain names increasing by a factor of 10. 139 00:12:33.840 --> 00:12:39.480 So suddenly it just turns out that the complementary factors of production are scarcer than entrepreneurs 140 00:12:39.480 --> 00:12:41.080 could have been led to expect. 141 00:12:41.080 --> 00:12:45.760 And so now they're going to need more credit to see them through a more expensive cycle 142 00:12:45.760 --> 00:12:51.400 of production and yet that credit is either not going to be there, the Fed could just 143 00:12:51.400 --> 00:12:55.400 keep pumping it in, but then we have an even bigger problem because again the pool of real 144 00:12:55.400 --> 00:12:57.720 savings has not increased. 145 00:12:57.720 --> 00:13:00.720 So the economy is being pulled in two different directions at once. 146 00:13:00.720 --> 00:13:04.480 You've got all this long-term investment going on on the one hand, but you've got all this 147 00:13:04.480 --> 00:13:06.960 consumption pulling from this direction. 148 00:13:06.960 --> 00:13:08.880 This just can't go on. 149 00:13:08.880 --> 00:13:15.360 And so some people are of the opinion that if only the central bank could just keep inflating 150 00:13:15.360 --> 00:13:16.360 forever, the problems would go away. 151 00:13:16.360 --> 00:13:19.160 You know, we could have the boom forever. 152 00:13:19.160 --> 00:13:23.280 If only the central bank would just keep doing it, keep drugging the patient, then we could 153 00:13:23.280 --> 00:13:26.560 just stay high forever. 154 00:13:26.560 --> 00:13:32.160 And that is one of the reasons that the boom ends up, not being a boom, ends up crashing 155 00:13:32.160 --> 00:13:36.920 is typically that the monetary authority will put the brakes on credit and suddenly a lot 156 00:13:36.920 --> 00:13:39.020 of these projects are going to fail. 157 00:13:39.020 --> 00:13:43.480 And Ludwig von Mises said a lot of times they feel obligated to do this because they're 158 00:13:43.480 --> 00:13:49.560 afraid that if they keep, they continue inflating the money supply in order to keep this boom 159 00:13:49.560 --> 00:13:53.720 going, eventually they'll have to increase the money supply and credit so substantially 160 00:13:53.720 --> 00:13:57.840 in order to keep it going that the result will be hyperinflation and the destruction 161 00:13:57.840 --> 00:14:03.640 of the whole system, but even if that weren't the case, given that the pool of real resources 162 00:14:03.640 --> 00:14:08.120 has not increased, sooner or later the bust has to come regardless of what the monetary 163 00:14:08.120 --> 00:14:13.440 authority does. The resources are not there as they would have been if the low interest 164 00:14:13.440 --> 00:14:18.040 rates had been the result of actual saving, actual deferral of consumption and releasing 165 00:14:18.040 --> 00:14:48.040 So, during the boom phase, there's this tendency for people to feel like, you know, they can do no wrong, the boom phase tends to include an increase in the stock market, the stock market booming, well, the stock market is the market in prices of titles to capital, so of course we would expect this, likewise for real estate, so it's not surprising that people would think, hey, you know, I can go into the stock market and become a millionaire. 166 00:14:48.040 --> 00:14:52.040 or, hey, I can make my living flipping houses. I can do this for a living. 167 00:14:52.040 --> 00:14:56.040 And then eventually reality comes crashing down. 168 00:14:56.040 --> 00:15:01.040 Well, now let me share with you a couple of observations by William Leggett. 169 00:15:01.040 --> 00:15:04.040 The first one is pretty good. The second one is unbelievable. 170 00:15:04.040 --> 00:15:08.040 Here's Leggett. He says, and he's writing in 1837. 171 00:15:08.040 --> 00:15:13.040 He says, any person who has soberly observed the course of events for the last three years 172 00:15:13.040 --> 00:15:17.040 must have foreseen the very state of things which now exists. 173 00:15:17.040 --> 00:15:20.040 He will see that the banks have been striving with all their might, 174 00:15:20.040 --> 00:15:23.040 each emulating the other, to force their issues, 175 00:15:23.040 --> 00:15:25.040 that is their paper money, into circulation, 176 00:15:25.040 --> 00:15:29.040 and flood the land with their wretched substitute for money. 177 00:15:29.040 --> 00:15:33.040 He will see that they have used every art of cajolery and allurement 178 00:15:33.040 --> 00:15:36.040 to entice men to accept their proffered aid, 179 00:15:36.040 --> 00:15:39.040 that in this way they gradually excited a thirst for speculation, 180 00:15:39.040 --> 00:15:44.040 which they sedulously stimulated until it increased to a delirious fever, 181 00:15:44.040 --> 00:15:50.640 and men in the epidemic frenzy of the hour wildly rushed upon all sorts of desperate adventures. 182 00:15:50.640 --> 00:15:55.440 They dug canals where no commerce asked for the means of transportation. 183 00:15:55.440 --> 00:15:58.840 They opened roads where no travelers desired to penetrate. 184 00:15:58.840 --> 00:16:02.440 And they built cities where there were none to inhabit. 185 00:16:02.440 --> 00:16:04.240 But now this passage. 186 00:16:04.240 --> 00:16:11.940 What has been, whatever must be the consequences of such a sudden and prodigious inflation of the currency? 187 00:16:11.940 --> 00:16:14.940 Business stimulated to the most unhealthy activity, 188 00:16:14.940 --> 00:16:17.940 a vast amount of overproduction in the mechanic arts, 189 00:16:17.940 --> 00:16:22.940 a vast amount of speculation in property of every kind and name at fictitious values, 190 00:16:22.940 --> 00:16:28.940 and finally a vast and terrific crash when the treacherous and unsustainable basis 191 00:16:28.940 --> 00:16:33.940 crumbles beneath the stupendous fabric of credit and the structure falls to the ground 192 00:16:33.940 --> 00:16:39.940 burying in its ruins thousands who exalted in the fancied security of their elevation. 193 00:16:39.940 --> 00:16:47.940 Men nowadays go to bed deeming themselves rich and wake in the morning to find themselves stripped of even the little they really had. 194 00:16:47.940 --> 00:16:56.940 They count deluded creatures on the continued liberality of the banks, whose persuasive entreaties seduced them into the slippery paths of speculation. 195 00:16:56.940 --> 00:16:58.940 So think house flipping and housing bubble. 196 00:16:58.940 --> 00:17:03.940 But they have now to learn that the banks cannot help them if they would and would not if they could. 197 00:17:03.940 --> 00:17:07.940 They were free enough to lend their aid when assistance is not needed. 198 00:17:07.940 --> 00:17:27.940 Well that's pretty good for 1837, I would say. Yeah, pretty good for 2008, sure. 199 00:17:27.940 --> 00:17:35.940 He also noted that it becomes easy to blame the inevitable crash and bust on scapegoats, 200 00:17:35.940 --> 00:17:40.840 Convenience scapegoats, people, society generally doesn't like. 201 00:17:40.840 --> 00:17:45.340 Because he puts it this way, he says the average person when this terrible time comes, 202 00:17:45.340 --> 00:17:48.340 of course from the economy's point of view, it's a cleansing time, 203 00:17:48.340 --> 00:17:52.440 is bewildered in his attempts to investigate the cause of the confusion 204 00:17:52.440 --> 00:17:58.240 and is ready to listen to any explanation that fixes the blame of the disaster 205 00:17:58.240 --> 00:18:02.540 on those whom he had previously regarded with dislike. 206 00:18:02.540 --> 00:18:08.140 so rich people in general, you know, it's their fault, or businessmen, yeah, I never trusted them anyway. 207 00:18:08.140 --> 00:18:13.640 So it becomes easy to just throw the blame somewhere else, but Leggett devoted his pen 208 00:18:13.640 --> 00:18:19.640 to placing the blame where it belonged, which was in this inflationary expansion of credit. 209 00:18:19.640 --> 00:18:24.940 Now much has been said and done in the recent history of Western civilization in terms of 210 00:18:24.940 --> 00:18:27.740 the separation of church and state. 211 00:18:27.740 --> 00:18:34.140 Well, what Leggett called for expressly was the separation of bank and state. 212 00:18:34.140 --> 00:18:38.860 And he said that if you had a genuinely free banking system, 213 00:18:38.860 --> 00:18:42.220 where there were no bailouts of any kind, 214 00:18:42.220 --> 00:18:45.780 where there's no promise that you'll get to suspend your specie payment, 215 00:18:45.780 --> 00:18:49.500 you have to pay your depositors on demand, or you go out of business, 216 00:18:49.500 --> 00:18:55.540 there is no bailout, he said, well, we would have a system in which the banking system 217 00:18:55.540 --> 00:19:00.340 would be hedged around by no special enactments, would be open to universal competition, 218 00:19:00.340 --> 00:19:04.240 and would depend for its success and the continuation of its advantages 219 00:19:04.240 --> 00:19:07.540 on the correctness with which it conducted its affairs. 220 00:19:07.540 --> 00:19:13.240 And he says, moreover, that these banks would be sure that their notes would return upon them 221 00:19:13.240 --> 00:19:17.540 in demand for the precious metals, thus forcing them to part with their profits 222 00:19:17.540 --> 00:19:20.440 in order to purchase silver and gold to answer such demand. 223 00:19:20.440 --> 00:19:25.840 So it would be impossible for them to issue notes over and above the species they had in their vaults 224 00:19:25.840 --> 00:19:32.340 and that this non-monopolistic system of freedom would be a good substitute for the system that existed at that time 225 00:19:32.340 --> 00:19:39.340 and he would hear none of the argument that we need national banks for economic prosperity and to prevent business cycles 226 00:19:39.340 --> 00:19:47.340 and he said, look, to say nothing of constitutional objections and nothing of the political evils to be apprehended by such an institution 227 00:19:47.340 --> 00:19:50.340 Has a federal bank ever prevented commercial revulsion? 228 00:19:50.340 --> 00:19:54.340 And then he goes on and gives examples of panics that were not prevented by national banks. 229 00:19:54.340 --> 00:19:56.340 So he's not going to listen to that. 230 00:19:56.340 --> 00:20:00.340 Now, I spend most of my time on Leggett because he impresses me the most, 231 00:20:00.340 --> 00:20:04.340 because he's not, as I say, he doesn't even do this for a living, and yet he's got these insights. 232 00:20:04.340 --> 00:20:07.340 But just briefly about a couple of other thinkers. 233 00:20:07.340 --> 00:20:12.340 William Gudge wrote a book called A Short History of Money and Banking in the United States in 1833. 234 00:20:12.340 --> 00:20:14.340 It's available for sale here. 235 00:20:14.340 --> 00:20:16.340 Now, he worked in the Department of the Treasury for a long time. 236 00:20:16.340 --> 00:20:20.700 For a long time, he spent two years researching what became this book, and again he believes 237 00:20:20.700 --> 00:20:22.980 in the separation of bank and state. 238 00:20:22.980 --> 00:20:27.620 He says that the financial operations of the U.S. government should be limited to the collecting, 239 00:20:27.620 --> 00:20:31.960 safekeeping and dispersing of the public monies and transferring them from the places where 240 00:20:31.960 --> 00:20:34.900 they're collected to the places where they're dispersed. 241 00:20:34.900 --> 00:20:38.500 Other than that, government should have no more business and concern with banking and 242 00:20:38.500 --> 00:20:40.980 brokerage than it has with baking and tailoring. 243 00:20:40.980 --> 00:20:44.860 Well, even I think that's too much, but all the same. 244 00:20:44.860 --> 00:20:47.460 Now, again, people talk about church and state. 245 00:20:47.460 --> 00:20:49.060 We have to have the separation of church and state. 246 00:20:49.060 --> 00:20:52.960 Otherwise, the state will, you know, promote superstition. 247 00:20:52.960 --> 00:20:58.140 But yet, we have people calling for kind of an incestuous union of bank and state who 248 00:20:58.140 --> 00:21:03.420 say to us, well, you know, if we have this great banking system, you know, with all this 249 00:21:03.420 --> 00:21:07.580 government help and monopoly privileges, then we can print up all the money we need to stop 250 00:21:07.580 --> 00:21:12.380 business cycles, increase wealth, give everybody a 4,000-square-foot house. 251 00:21:12.380 --> 00:21:17.380 Now, I'd be a little careful about whom I'm accusing of superstition if I were these people. 252 00:21:17.380 --> 00:21:23.380 Now, Goudge's view was that when paper money is issued in excess of the hard money on reserve, 253 00:21:23.380 --> 00:21:29.380 the result is, again, this unsustainable rise in prices and confusion. 254 00:21:29.380 --> 00:21:34.380 People start buying more goods from abroad because domestic prices are going up, 255 00:21:34.380 --> 00:21:40.380 and the foreign sellers of these goods typically want to take these paper notes and convert them into specie. 256 00:21:40.380 --> 00:21:45.660 Banks, when they get these demands for specie, have to start calling in loans or not extending, 257 00:21:45.660 --> 00:21:49.620 not granting extensions on loans because they don't, otherwise they're not going to have 258 00:21:49.620 --> 00:21:50.620 the specie. 259 00:21:50.620 --> 00:21:54.220 And so the result is this massive disruption of economic activity. 260 00:21:54.220 --> 00:21:58.700 Once prices fall again, well, the banks start the cycle of expansion and contraction all 261 00:21:58.700 --> 00:21:59.700 over again. 262 00:21:59.700 --> 00:22:05.140 And so Goudge's preferred system was one of 100% reserves against demand deposits. 263 00:22:05.140 --> 00:22:08.880 Banks can lend their own capital plus any time deposits. 264 00:22:08.880 --> 00:22:15.280 He said, No instance is on record of a nation's having arrived at great wealth without the use of gold and silver money, 265 00:22:15.280 --> 00:22:21.680 nor is there, on the other hand, any instance of a nation's endeavoring to supplant this natural money by the use of paper money 266 00:22:21.680 --> 00:22:24.780 without involving itself in distress and embarrassment. 267 00:22:24.780 --> 00:22:26.280 I love that term natural money. 268 00:22:26.280 --> 00:22:33.780 Guido Holtzmann in his new book, The Ethics of Money Production, uses that term to refer to money that is created spontaneously on the market. 269 00:22:33.780 --> 00:22:36.880 That's natural money. 270 00:22:36.880 --> 00:22:40.760 There's one episode from history I want to make brief mention of that Goudge talks about 271 00:22:40.760 --> 00:22:43.280 and that involves the Bank of the United States. 272 00:22:43.280 --> 00:22:48.000 Alexander Hamilton was very much in favor of establishing a national bank which was established 273 00:22:48.000 --> 00:22:50.640 in 1791 with a 20-year charter. 274 00:22:50.640 --> 00:22:55.760 So it was going to expire in 1811 unless it were renewed and it was not renewed and it 275 00:22:55.760 --> 00:23:00.140 was only in 1816 that the second bank of the United States was established. 276 00:23:00.140 --> 00:23:04.360 But one of the benefits of being able to work here in the Institute Library is that a lot 277 00:23:04.360 --> 00:23:07.160 A lot of the books were owned by Murray Rothbard. 278 00:23:07.160 --> 00:23:12.680 So I was reading Murray's copy of Goudge's book and in this book there's a reference 279 00:23:12.680 --> 00:23:17.420 to a Mr. Carey who wrote a pamphlet urging everybody, we need to renew the Bank of the 280 00:23:17.420 --> 00:23:18.420 United States. 281 00:23:18.420 --> 00:23:23.620 So he wrote a pamphlet on the ruinous consequences of a non-renewal of the charter of the Bank 282 00:23:23.620 --> 00:23:34.140 of the United States and next to this in Murray's copy he's written the word, bastard. 283 00:23:34.140 --> 00:23:39.380 So there's a move in 1816 to charter a new national bank, and Goudge knows this isn't 284 00:23:39.380 --> 00:23:41.180 going to help, it's just going to make the problem worse. 285 00:23:41.180 --> 00:23:45.460 Oh gee, one giant bank, well that's a big solution to our problems, instead of just 286 00:23:45.460 --> 00:23:48.720 keeping an eye on the banks that exist and not bailing them out all the time. 287 00:23:48.720 --> 00:23:52.740 And he quotes a U.S. Senator, we'll never get this again, Senator Wells, saying that 288 00:23:52.740 --> 00:23:57.780 this bill came out of the hands of the administration, ostensibly for the purpose of curtailing the 289 00:23:57.780 --> 00:24:03.260 over issue of bank paper, and yet it came prepared to inflict upon us the same evil 290 00:24:03.260 --> 00:24:08.260 Being itself, this new national bank, nothing more than simply a paper-making machine. 291 00:24:08.260 --> 00:24:12.960 He said, this is like hiding in the water for fear of the rain. 292 00:24:12.960 --> 00:24:18.660 Likewise, he says that the disease under which the people labor is the banking fever of the states, 293 00:24:18.660 --> 00:24:22.760 and this is supposed to be cured by giving us the banking fever of the United States. 294 00:24:22.760 --> 00:24:25.060 So this is not the solution to the problem. 295 00:24:25.060 --> 00:24:27.660 Now, I have got an exceedingly small amount of time. 296 00:24:27.660 --> 00:24:29.660 I don't know how this possibly could have happened, 297 00:24:29.660 --> 00:24:33.160 but let's say a little something about my third William, William Graham Sumner, 298 00:24:33.160 --> 00:24:37.360 We have his book, History of American Currency, for sale, 1874. 299 00:24:37.360 --> 00:24:41.760 He was a Yale University sociologist, died in 1910. 300 00:24:41.760 --> 00:24:45.460 And although he was not a 100% reserve man, he was as close as you could be. 301 00:24:45.460 --> 00:24:47.660 And his arguments were sort of contradictory about that. 302 00:24:47.660 --> 00:24:51.460 So we'll just, everyone's allowed one deviation, according to Murray Rothbard. 303 00:24:51.460 --> 00:24:53.160 So we'll grant him this one. 304 00:24:53.160 --> 00:24:59.160 But what I do want to point out is that in Sumner's history of banking in the United States that he wrote in 1896, 305 00:24:59.160 --> 00:25:06.660 He organizes each of the sections in ways that work very well in tandem with the Austrian business cycle theory. 306 00:25:06.660 --> 00:25:15.560 So he'll have a section on some period, let's say around 1819, where the first section of the book would be the inflation, 307 00:25:15.560 --> 00:25:19.460 then the second section would be the crisis, then the liquidation. 308 00:25:19.460 --> 00:25:23.260 So it's all there and that's how he goes through all these various episodes. 309 00:25:23.260 --> 00:25:28.760 And, of course, I had here prepared some quotations from him, I'm usually a much better judge of time, 310 00:25:28.760 --> 00:25:34.360 But all the same, one thing that he points out is that the faster you allow the liquidation to occur, 311 00:25:34.360 --> 00:25:36.560 the faster the economy is restored to health. 312 00:25:36.560 --> 00:25:39.160 And he gives examples of this happening, 313 00:25:39.160 --> 00:25:44.760 and examples in which the government and the banks try to inflate their way out. 314 00:25:44.760 --> 00:25:47.360 You know, it's like you're having a good dream and somebody wakes you up 315 00:25:47.360 --> 00:25:50.760 and then you go back to sleep hoping you can sort of re-dream it. 316 00:25:50.760 --> 00:25:53.960 Well, that's what they're trying to do. They're trying to re-dream these booms, and you can't. 317 00:25:53.960 --> 00:25:57.960 You know, they couldn't re-dream the dot-com boom. It just doesn't work. 318 00:25:57.960 --> 00:26:02.460 And he explains why that is, again, with a very proto-Austrian understanding. 319 00:26:02.460 --> 00:26:06.460 And again, he's saying that the pool of real resources hasn't increased 320 00:26:06.460 --> 00:26:12.460 just because the paper dollars or the checking deposits or whatever in the economy have increased. 321 00:26:12.460 --> 00:26:17.960 All that this can do when people go out to spend it is just to redistribute the existing resources 322 00:26:17.960 --> 00:26:24.960 in ways that we wouldn't have been redistributing them if we'd had a sound money and we'd had sound interest rates. 323 00:26:24.960 --> 00:26:29.960 Well, I'll conclude with this and say that, just quote William Gouge, 324 00:26:29.960 --> 00:26:34.960 he says that, look, you know, the system we have now produces great evil. 325 00:26:34.960 --> 00:26:37.960 But that doesn't necessarily mean that people are going to rise up against it. 326 00:26:37.960 --> 00:26:40.960 He says, to infer that because a system produces great evil, 327 00:26:40.960 --> 00:26:45.960 it must therefore soon give way, would be to argue in opposition to all experience. 328 00:26:45.960 --> 00:26:49.960 If mere suffering could produce reformation, there would be little misery in the world. 329 00:26:49.960 --> 00:26:58.960 Too many individuals have an interest in incorporated paper money banks to suffer the truth in relation to such institutions to have free progress. 330 00:26:58.960 --> 00:27:05.960 Too many prejudices remain in the minds of a multitude who have no such interest to permit the truth to have its proper effect. 331 00:27:05.960 --> 00:27:11.960 Well, that is why it is so important what we're doing here and the ideas that we're putting forth in this room and in this institute. 332 00:27:11.960 --> 00:27:20.960 There are so few in the country, it is amazing to me when the chips are down, how few people actually stand up for capitalism. 333 00:27:20.960 --> 00:27:29.960 It is amazing to me. And here we are about to witness the same thing being done to us that's been done time and again in this country and around the world 334 00:27:29.960 --> 00:27:35.560 around the world where the same bozos who put us into this rotten situation pose as the saviors. 335 00:27:35.560 --> 00:27:39.960 Their solution consists of more of the same that they've done to screw us up in the first place 336 00:27:39.960 --> 00:27:43.760 and we have to sit back and helplessly watch this unfold before our eyes. 337 00:27:43.760 --> 00:27:47.160 Well, I'm just one guy, but at least with my pen and speaking, 338 00:27:47.160 --> 00:27:51.160 I'm going to at least try to do the best I can to wake up the rest of my countrymen 339 00:27:51.160 --> 00:27:53.160 so that this doesn't happen again. 340 00:27:59.960 --> 00:28:01.960 Thank you very much.