WEBVTT NOTE Monetary Freedom and its Opposite 1 00:00:00.000 --> 00:00:07.000 Like everyone else, it's great to be here with you this weekend, this very important conference. 2 00:00:07.000 --> 00:00:12.000 I've been very excited about this conference, known about it for quite a long time. 3 00:00:12.000 --> 00:00:22.000 And as a matter of fact, I'd actually written out two other speeches for this conference that I'm not going to be giving today. 4 00:00:22.000 --> 00:00:27.000 The first speech was, I was going to warn you about a coming crash of the stock market. 5 00:00:27.000 --> 00:00:36.000 And in the second speech I was going to warn you about the dangers of financial bailouts of Wall Street. 6 00:00:36.000 --> 00:00:44.000 So, I'm basically stuck with monetary freedom and its opposite. 7 00:00:44.000 --> 00:00:55.000 Today we stand at a point in time, at the beginning at least, of the end of an economic era that we can call the dollarization of the global economy. 8 00:00:55.000 --> 00:01:06.000 The dollar still dominates world financial markets and many currencies around the world are still linked with the dollar, including China. 9 00:01:06.000 --> 00:01:21.000 The period in which the dollar gained this influence in the world economy is now over and it has two new competitors have entered the scene, the Euro and the Chinese Yuan. 10 00:01:21.000 --> 00:01:42.000 As all of you know, gold has now gone over $1,000 an ounce for the first time, and our trading partners around the globe are growing worried, both about the inflation that we are exporting to them, as well as the value of their central bank holdings of U.S. government securities. 11 00:01:42.000 --> 00:01:53.000 Of course, given all these recent bailouts, it would seem that just about everything, including my home mortgage, is now a U.S. government security. 12 00:01:53.000 --> 00:02:10.000 As we enter the era of the decline of the dollar, all sorts of reform efforts will be used to address this decline and the economic instability that results in order to shore up the value of the dollar and its prestige. 13 00:02:10.000 --> 00:02:23.000 Reforms designed in Wall Street or in Washington, however, will not work and will amount to nothing more than a rear-guard action by the moneyed interests that control our government. 14 00:02:23.000 --> 00:02:28.000 The only true path to reform is monetary freedom. 15 00:02:28.000 --> 00:02:36.000 Now we have gone from a situation in history where money and banking were entirely free. 16 00:02:36.000 --> 00:02:44.000 They were developed and emerged in the market economy and entirely free of government intervention. 17 00:02:44.000 --> 00:02:48.000 And now we have one that is completely dominated by government. 18 00:02:48.000 --> 00:02:57.000 Instead of privately minted coins made from precious metals, we now have a system of government printed fiat currency. 19 00:02:57.000 --> 00:03:14.000 We have gone from a system of private banking that provided bank notes and checks for demand deposits, as well as banks that made loans on the basis of bank capital and time deposits, all regulated by the profit motive and competition in a free market. 20 00:03:14.000 --> 00:03:26.000 Now we have banks that are completely regulated by the central bank and a whole host of other regulators, all types of federal regulators, state regulators. 21 00:03:26.000 --> 00:03:30.000 I was a, I confess, I was a state banking regulator. 22 00:03:30.000 --> 00:03:56.080 So, only for two years, and actually I didn't do a thing, they didn't want me to do anything. 23 00:03:56.080 --> 00:04:01.840 So the whole idea that our current financial mess resulted from a lack of regulation is 24 00:04:01.840 --> 00:04:06.520 absolutely laughable and completely untrue. 25 00:04:06.520 --> 00:04:14.240 Everything done by banks and financial institutions is regulated, re-regulated, over-regulated 26 00:04:14.240 --> 00:04:20.640 by many layers of different regulatory bureaucracies. 27 00:04:20.640 --> 00:04:26.360 Now this transformation from a free market to one that's completely controlled is a 28 00:04:26.360 --> 00:04:31.320 process that has taken place over centuries and the end result that we're living with 29 00:04:31.320 --> 00:04:35.420 right now is clearly not working. 30 00:04:35.420 --> 00:04:41.960 By giving up our monetary freedoms, particularly over the last 100 years, we have given government 31 00:04:41.960 --> 00:04:50.420 the ability to grow in size and scope and to achieve unthinkable levels of power. 32 00:04:50.420 --> 00:04:55.940 So giving up our monetary freedom has also resulted in a tremendous loss of other types 33 00:04:55.940 --> 00:05:04.340 of freedom by big government. Every step forward towards government control of money has resulted 34 00:05:04.340 --> 00:05:10.480 in chaos and destruction. And if you look back in history, in American history, every 35 00:05:10.480 --> 00:05:17.580 time the government took control of money and banking, we ended up with business cycles, 36 00:05:17.580 --> 00:05:24.460 wars with depressions and so forth. We are now at a point in time when the US 37 00:05:24.460 --> 00:05:31.920 government is bankrupt. It cannot pay its bills. It cannot pay off its debt and it 38 00:05:31.920 --> 00:05:38.420 has a future unfunded liabilities of a current value in excess of 60 trillion 39 00:05:38.420 --> 00:05:44.460 dollars and that calculation was made before any of the bailouts, before any of 40 00:05:44.460 --> 00:05:57.460 and the restructurings like increasing FDIC insurance from $100,000 to $250,000 or taking AIG or Fannie Mae and Freddie Mac under the wings of government. 41 00:05:57.460 --> 00:06:04.460 So that $60 trillion is probably much greater as we speak in growing every day. 42 00:06:04.460 --> 00:06:13.460 Given that the political parties have done nothing to solve the financial problems of government or to even reduce its magnitude 43 00:06:13.460 --> 00:06:27.460 And given the fact that everything that they have done, including things like the prescription drug benefit, the war in Iraq and the bailout of Wall Street, only makes this problem worse, I can only conclude one of two things. 44 00:06:27.460 --> 00:06:46.460 Either that Washington, D.C., and the politicians that we send there are evil and plan to resort to a hyperinflation to pay off for this mess, or they are collectively as dumb as a sack of horse manure. 45 00:06:46.460 --> 00:06:52.460 I'm willing to entertain the idea that both apply. 46 00:06:52.460 --> 00:07:07.460 Now, at the first gold conference, the problems that we imagined would result from a fiat fractional reserve banking system seemed remote in work. 47 00:07:07.460 --> 00:07:14.460 We've gone through a number of problems, financial meltdowns around the globe. 48 00:07:14.460 --> 00:07:19.460 We've now gotten to the point where the whole system is really in a meltdown phase. 49 00:07:19.460 --> 00:07:37.460 And that's what we were imagining back then. So when we think about hyperinflation, you know, how far out into the future that's going to take place, we really don't know any more than we did 25 years ago with the gold standard conference. 50 00:07:37.460 --> 00:07:42.460 But it's important to remember that hyperinflation is not just higher prices. 51 00:07:42.460 --> 00:07:46.460 It is social chaos and the breakdown of social order. 52 00:07:46.460 --> 00:07:52.460 You can see that in Zimbabwe. 53 00:07:52.460 --> 00:07:56.460 Dr. Prince was just showing me the currency over there. 54 00:07:56.460 --> 00:08:02.460 It's dated and it goes from like 50 million one month and 50 billion the next month. 55 00:08:02.460 --> 00:08:29.460 And at a basic level we have to realize that our lives are built on a structure of prices, that we of course co-determine, but our lives are built on those prices, what we eat, what we wear, where we live, how we live, all of that is determined by the structure of prices in the economy. 56 00:08:29.460 --> 00:08:36.460 But in a hyperinflation there is no solid basis for prices, and therefore our lives are thrown into chaos. 57 00:08:36.460 --> 00:08:42.460 Society becomes more violent, more criminal in addition to becoming more chaotic, 58 00:08:42.460 --> 00:08:50.460 and government too becomes more violent and criminal, more than normal, towards its own citizens. 59 00:08:50.460 --> 00:08:55.460 Now given all this, monetary reform is of an utmost importance, 60 00:08:55.460 --> 00:09:00.460 and knowing the proper path for reform is more important than ever. 61 00:09:00.460 --> 00:09:03.460 Before I get started with specifics, I will note three things. 62 00:09:03.460 --> 00:09:07.460 First, we should be moving in the direction of monetary freedom 63 00:09:07.460 --> 00:09:11.460 and away from government control and intervention. 64 00:09:11.460 --> 00:09:15.460 Second, we want to get back as quickly as possible to a situation 65 00:09:15.460 --> 00:09:19.460 where government has no control over money or banking. 66 00:09:19.460 --> 00:09:24.460 And three, ultimately we want to get back to a system of privately minted 67 00:09:24.460 --> 00:09:34.460 and purchase metal coins as the basis of money and banking and then let free market competition regulate and innovate from there. 68 00:09:34.460 --> 00:09:40.460 Now there are some reforms that we obviously do not want and that will not work. 69 00:09:40.460 --> 00:09:47.460 For example, we don't want the supply side or solution of the Federal Reserve targeting the price of gold. 70 00:09:47.460 --> 00:09:56.460 That solution is not only unworkable and dangerous, but it leaves government entirely in too much control of money and banking. 71 00:09:56.460 --> 00:10:02.460 We don't want a new Bretton Woods system that they're discussing as we speak here today. 72 00:10:02.460 --> 00:10:12.460 We don't even know what that amounts to, but for sure it's going to leave government with way too much power and control over our money and banking. 73 00:10:12.460 --> 00:10:18.540 The old system of Bretton Woods did not work and was doomed to failure as predicted by 74 00:10:18.540 --> 00:10:23.340 both Ludwig von Mises and Murray Rothbard. 75 00:10:23.340 --> 00:10:28.860 We also don't want to return to a gold exchange standard where governments are in charge of 76 00:10:28.860 --> 00:10:34.220 most of the gold and simply emit paper notes for people to use. 77 00:10:34.220 --> 00:10:40.260 This approach is unnecessary and inevitably harmful when too many notes are issued that 78 00:10:40.260 --> 00:10:45.260 that are not matched by a corresponding amount of gold. 79 00:10:45.260 --> 00:10:50.260 Now, don't get me wrong on this next point. 80 00:10:50.260 --> 00:10:55.260 We actually don't even want to return to a gold standard system, 81 00:10:55.260 --> 00:11:00.260 which leaves government, again, with too much room for manipulation. 82 00:11:00.260 --> 00:11:06.260 In fact, I would argue that in a sense we want no standard at all. 83 00:11:06.260 --> 00:11:22.260 Standards, with respect to money, implies government regulation and controls, and results, for example, in the problems of bimetallism, where government establishes a fixed ratio of gold to silver. 84 00:11:22.260 --> 00:11:34.260 As soon as reality deviates from the plans of government bureaucrats, either gold or silver, money virtually disappears from circulation and throws the economy into chaos. 85 00:11:34.260 --> 00:11:45.260 When Britain overvalued silver versus gold, for example, all but the most worn silver coins left the market, they left the country. 86 00:11:45.260 --> 00:11:52.260 And the British people were left without money for everyday exchanges and payments. 87 00:11:52.260 --> 00:12:03.260 This was the beginning of the gold standard. Pretty good by today's standards, don't get me wrong, but still an unnatural result of government control. 88 00:12:03.260 --> 00:12:20.260 I urge you to read George Selgin's new book, it's available here because of the Mises Institute, which gives the history of how the market came to the rescue at this time and prevented the derailing of the Industrial Revolution in England. 89 00:12:20.260 --> 00:12:29.260 And basically it amounted to private companies producing the much needed small change, coin money, all on a private basis. 90 00:12:29.260 --> 00:12:37.780 Now, the list of things that we do not want in our monetary system is short and simple. 91 00:12:37.780 --> 00:12:42.140 We do not want the Federal Reserve. 92 00:12:42.140 --> 00:12:49.180 In any form, including Federal Reserve notes, any legitimate role the Fed plays, such as 93 00:12:49.180 --> 00:12:55.260 serving as a clearinghouse for checks, can be, and in many cases already is, handled 94 00:12:55.260 --> 00:12:57.260 by the private sector. 95 00:12:57.260 --> 00:13:06.260 We do not want government control in any form over money, banking, the interest rate, or the money supply. 96 00:13:06.260 --> 00:13:12.260 Second, and this is also important, we do not want federal deposit insurance. 97 00:13:12.260 --> 00:13:17.260 Of course, Congress just increased it, but we don't want it at all basically because 98 00:13:17.260 --> 00:13:25.260 federal deposit insurance creates a moral hazard that puts the taxpayer at risk for bad decisions of bankers. 99 00:13:25.260 --> 00:13:50.260 In fact, deposit insurance is a moral hazard and therefore is not truly an insurable risk, okay? It's just not logically possible to say we're going to insure deposits that are based on loans being made by bankers who can make risky loans or sure bet loans. 100 00:13:50.260 --> 00:13:54.260 So you can't have that, it doesn't work in the market economy. 101 00:13:54.260 --> 00:14:03.260 However, banks and depositors can overcome this problem simply by being certified as holding 100% reserves against all of their demand deposits. 102 00:14:03.260 --> 00:14:10.260 So the market has an easy solution to the problem of moral hazard of deposits. 103 00:14:10.260 --> 00:14:16.260 In a market economy, as a matter of fact this was the way it existed when I was a child, 104 00:14:16.260 --> 00:14:24.260 Depositors pay fees to have their money deposited in banks, in fees to write checks on those same deposits. 105 00:14:24.260 --> 00:14:32.260 Remember as a little kid getting Christmas presents or birthday presents from my great-aunts and they would give me a check for $5.05. 106 00:14:32.260 --> 00:14:40.260 And I would take it to the bank and they would give me $5 back and I said, wait a minute, that said $5.05. 107 00:14:40.260 --> 00:14:44.240 and they say well that's the fee for writing the check and no amount of 108 00:14:44.240 --> 00:14:55.620 complaining, logic or crying got that nickel out of that bank. So you know there 109 00:14:55.620 --> 00:15:00.900 is a solution, there is a replacement mechanism for federal deposit insurance 110 00:15:00.900 --> 00:15:06.820 and it's basically being certified as a 100% reserve bank for all demand 111 00:15:06.820 --> 00:15:09.820 and Deposits. 112 00:15:09.820 --> 00:15:14.900 Now the list of things that we do want in our monetary system can also be brief. 113 00:15:14.900 --> 00:15:20.920 We know that money emerged on the market and was produced by the marketplace itself. 114 00:15:20.920 --> 00:15:28.020 After the world had achieved substantial integration, gold, silver and copper emerged as money. 115 00:15:28.020 --> 00:15:34.300 Their most useful form as money was coin and the dominant form of money throughout the 116 00:15:34.300 --> 00:15:45.420 The most obvious thing we want then is a return to coins denominated by weight, and of course 117 00:15:45.420 --> 00:15:52.300 all of the early coins of the world, Europe, the names of them, the British pound was a 118 00:15:52.300 --> 00:15:58.340 designation of weight, the lira was a designation of weight, the franc was a designation of 119 00:15:58.340 --> 00:16:04.100 weight, the thaler and the dollar was a designation by weight. 120 00:16:04.100 --> 00:16:08.600 This is the money the world used as a basis of its economic prosperity and higher standards 121 00:16:08.600 --> 00:16:15.620 of living because it enhanced trade and economic calculation. 122 00:16:15.620 --> 00:16:20.680 And of course, checks, debit cards, credit cards and everything else that has emerged 123 00:16:20.680 --> 00:16:26.080 in the market economy since then can easily be adapted to gold and silver. 124 00:16:26.080 --> 00:16:32.660 We need freedom, however, to hold our money in both gold and silver as we see fit with 125 00:16:32.660 --> 00:16:38.420 with no fixed government ratio between gold and silver. 126 00:16:38.420 --> 00:16:39.620 So what do we need right now? 127 00:16:39.620 --> 00:16:45.300 It seems that we need to proceed apace given the current crisis. 128 00:16:45.300 --> 00:16:49.900 The first thing and the most direct thing is the repeal of legal tender laws. 129 00:16:49.900 --> 00:16:54.020 This would begin to eliminate the monopoly of government and the Federal Reserve on the 130 00:16:54.020 --> 00:16:56.160 money we use. 131 00:16:56.160 --> 00:17:01.260 This would give us back the right to decide the money that we offer in transactions and 132 00:17:01.260 --> 00:17:12.260 These are the money that we would be willing to accept in transactions. We must also allow other monies, such as gold and silver, to compete with Federal Reserve notes. 133 00:17:12.260 --> 00:17:27.260 Without any hindrance on the use of gold and silver, coins, such as the application that currently exists of the capital gains tax against gold and silver. 134 00:17:27.260 --> 00:17:35.260 These two moves would go a long way to reducing the Fed's ability to inflate the money supply and manipulate the economy. 135 00:17:35.260 --> 00:17:46.260 For example, any inflation by the Fed would eventually result in higher dollar prices of goods and lower gold prices of goods. 136 00:17:46.260 --> 00:17:57.260 So what I imagine is you go into Walmart and their prices are maybe set in terms of dollars, but you could use your debit card that's holding gold directly for dollars. 137 00:17:57.260 --> 00:18:14.260 And so if you see the dollar prices rising, but gold prices falling, chances are more people are going to switch from holding their money from dollars and more people holding it in terms of gold. 138 00:18:14.260 --> 00:18:24.260 is an automatic check on the Fed's ability to inflate and it creates the mechanism for a smooth but certain transition from dollars to gold. 139 00:18:24.260 --> 00:18:34.260 Of course, ultimately we need to end and send the Federal Reserve into receivership process whereby the Federal Reserve assets, 140 00:18:34.260 --> 00:18:42.260 including the entire U.S. gold hoard at Fort Knox and all other depositories as well as the Fed's real estate portfolio 141 00:18:42.260 --> 00:18:47.260 should be used to satisfy the holders of Federal Reserve notes. 142 00:18:47.260 --> 00:18:57.260 Now this process of course would be conducted by lawyers and accountants with hopefully some Austrian economists serving as consultants 143 00:18:57.260 --> 00:19:04.260 as to what exactly qualified as dollars to be redeemed. 144 00:19:04.260 --> 00:19:26.260 Murray Rothbard offers a very specific plan in his Mystery of Banking which has just recently been released in a second edition and after this process the dollar would henceforth be just a name of a monetary unit that represented a very small amount of gold. 145 00:19:26.260 --> 00:19:36.260 One immediate advantage of this process is the restoration of monetary freedom would force a sharp reduction in the size and power of government. 146 00:19:36.260 --> 00:19:42.260 The federal government would immediately have a hard time borrowing money and would be forced to cut expenditures. 147 00:19:42.260 --> 00:19:52.260 Just as government control of money allowed government to expand to such a dramatic size, monetary freedom would force government to contract. 148 00:19:52.260 --> 00:19:59.500 New spending would have to be paid for by new taxes, and of course people don't like that, 149 00:19:59.500 --> 00:20:04.980 because borrowing and the inflation tax would no longer be a viable option. 150 00:20:04.980 --> 00:20:09.860 Balanced budgets would force Congress to start making tough decisions rather than just 151 00:20:09.860 --> 00:20:13.420 okaying everything that came across their desk. 152 00:20:13.420 --> 00:20:20.340 For example, the invasion of Iraq would never have been contemplated on a gold standard. 153 00:20:20.340 --> 00:20:23.820 Neither would things like the prescription drug benefit legislation and a whole host 154 00:20:23.820 --> 00:20:28.420 of other spending programs. 155 00:20:28.420 --> 00:20:35.080 Budget cutting would be put on an even keel with spending, or maybe even at an advantage. 156 00:20:35.080 --> 00:20:40.100 And politicians would be more open to shutting down entire programs and selling government 157 00:20:40.100 --> 00:20:46.880 assets, things that are currently basically off the table. 158 00:20:46.880 --> 00:20:52.240 So that's what we need to do as a group, as a society, as a people. What do we need to 159 00:20:52.240 --> 00:20:57.200 do as individuals? Well, Mises wrote that the era of inflation will only come to an 160 00:20:57.200 --> 00:21:04.560 end once people realize that the process of inflation is ongoing and that it will continue 161 00:21:04.560 --> 00:21:12.800 without end and that there is no end in sight to this process of inflation. At some people, 162 00:21:12.800 --> 00:21:29.800 At this point in time, people will stop holding dollars and dollar-denominated assets. Individuals who understand inflation should be in a process of converting dollars and dollar-denominated assets into non-dollar-denominated assets. 163 00:21:29.800 --> 00:21:43.800 For example, you can, in a sense, put yourself on your own personal gold standard simply by holding gold and silver for your savings, rather than dollars and dollar-denominated assets. 164 00:21:43.800 --> 00:21:57.800 So there are ways in which individuals can make a move, can add to this process of the more people who drop dollars and the more people who pick up things like gold, the more pressure it puts on the dollar. 165 00:21:57.800 --> 00:22:11.800 And the more we talk about gold and silver as an alternative to money, the more momentum we can create in terms of an ideological push for all of this legislation. 166 00:22:11.800 --> 00:22:26.800 And whereas in 1983 there was very little hope, very little on the horizon with respect to a positive movement for gold, even though there was a gold commission at work in Washington, there wasn't an ideological movement. 167 00:22:26.800 --> 00:22:56.800 But today, as far as I can tell, there is a growing movement in that direction and I note this because I get a lot of calls and emails, questions about economics, that's one of my jobs here, is to answer people's questions and over the last couple of months I've been getting a group of questions which I haven't gotten in many, many years and they all have to do with objections to the gold standard, people writing in 168 00:22:56.800 --> 00:23:02.480 and Frantically saying there's not enough gold to go back on the gold standard or what if 169 00:23:02.480 --> 00:23:09.760 China redeemed all of its government securities and all of our gold got sucked off over into 170 00:23:09.760 --> 00:23:17.840 China or what about you know that gold is too heavy and too bulky to carry around and 171 00:23:17.840 --> 00:23:25.060 I prefer to use a debit card and I just remember a lecture I gave a number of years ago where 172 00:23:25.060 --> 00:23:48.060 where I put as many paper dollar bills in one pocket and I pulled that out and that was about $200 and then I put all the gold coins I had, it didn't fill up my pocket, but all that I had and the price of gold was much, much lower back then, it was like $300 an ounce and yet I still was able to pull out several thousands of dollars of gold coins. 173 00:23:48.060 --> 00:24:00.160 So all of these objections to gold and silver as a monetary system are in context really not viable. 174 00:24:00.160 --> 00:24:08.960 There is enough gold. China's not going to suck away all our gold. Gold and silver are not too bulky or heavy. 175 00:24:08.960 --> 00:24:14.860 We can still use our debit cards and credit cards. 176 00:24:14.860 --> 00:24:34.860 All the gold that's ever been mined still exists, the supply changes almost imperceptibly, there's no big movements in the supply of gold or even for that matter the demand for gold, it doesn't cause harmful deflation, it doesn't cause the business cycle. 177 00:24:34.860 --> 00:24:49.860 One objection that's raised by Milton Friedman is that the gold is too expensive because gold itself is too expensive and we should therefore use paper and use gold for filling teeth and things of that nature. 178 00:24:49.860 --> 00:24:58.860 But of course that doesn't hold water either because almost all of the gold is held by governments and individuals as a hedge against inflation, so it's still out there being held. 179 00:24:58.860 --> 00:25:24.860 So Friedman's example, counter example to the gold standard is also laughable and so all of these objections are really laughable but it's a really important and I think telling that these objections are being raised in public discussions by journalists, by policymakers in Washington to try to fend off the movement to gold. Thank you very much. 180 00:25:28.860 --> 00:25:30.860 Thank you very much.