WEBVTT NOTE The Case for a 100% Gold Dollar, Part 2 1 00:00:00.000 --> 00:00:08.680 5. The Decline from Weight to Name, Encouraging Bank Inflation 2 00:00:08.680 --> 00:00:15.400 The natural tendency of the state is inflation. This statement will shock those accustomed 3 00:00:15.400 --> 00:00:20.320 to viewing the state as a committee of the whole nation ardently dispensing the general 4 00:00:20.320 --> 00:00:26.600 welfare, but I think it nonetheless true. The reason seems to be obvious. As I have 5 00:00:26.600 --> 00:00:32.300 As mentioned above, money is acquired on the market by producing goods and services, and 6 00:00:32.300 --> 00:00:36.240 then buying money in exchange for these goods. 7 00:00:36.240 --> 00:00:42.340 But there is another way to obtain money, creating money oneself without producing, 8 00:00:42.340 --> 00:00:44.640 by counterfeiting. 9 00:00:44.640 --> 00:00:48.480 Money creation is a much less costly method than producing. 10 00:00:48.480 --> 00:00:54.440 Therefore, the state, with its ever-tightening monopoly of money creation, has a simple route 11 00:00:54.440 --> 00:00:59.800 that it can take to benefit its own members and its favored supporters, and it is a more 12 00:00:59.800 --> 00:01:07.080 enticing and less disturbing route than taxes, which might provoke open opposition. 13 00:01:07.080 --> 00:01:12.720 Creating money, on the contrary, confers open and evident benefits on those who create and 14 00:01:12.720 --> 00:01:14.580 first receive it. 15 00:01:14.580 --> 00:01:20.700 The losses it imposes on the rest of society remain hidden to the lay observer. 16 00:01:20.700 --> 00:01:26.400 This tendency of the state should alone preclude all the schemes of economists and other writers 17 00:01:26.400 --> 00:01:33.080 for government to issue and stabilize the supply of paper money. 18 00:01:33.080 --> 00:01:38.520 While countries were still on a specie standard, banknotes and government paper were issued 19 00:01:38.520 --> 00:01:41.140 as redeemable in specie. 20 00:01:41.140 --> 00:01:47.320 They were money substitutes, essentially warehouse receipts for gold that could be redeemed in 21 00:01:47.320 --> 00:01:50.580 face value on demand. 22 00:01:50.580 --> 00:01:58.500 In however the issue of receipts went beyond 100% reserve to outright money creation. 23 00:01:58.500 --> 00:02:03.260 Governments have persistently tried their best to promote, encourage and expand the 24 00:02:03.260 --> 00:02:10.460 circulation of bank and government paper and to discourage the people's use of gold itself. 25 00:02:10.460 --> 00:02:16.420 Any individual bank has two great checks on its creation of money, a call for redemption 26 00:02:16.420 --> 00:02:22.620 by Non-Clients, that is, by clients of other banks or by those who wish to use standard 27 00:02:22.620 --> 00:02:30.180 money, and a crisis of confidence in the bank by its clients causing a run. Governments 28 00:02:30.180 --> 00:02:35.980 have continually operated to widen these limits, which would be narrow in a system of free 29 00:02:35.980 --> 00:02:41.940 banking, a system where banks are free to do anything they please so long as they promptly 30 00:02:41.940 --> 00:02:48.420 They Redeemed Their Obligations to Pay Specie They have created a central bank to widen 31 00:02:48.420 --> 00:02:54.340 the limits to the whole country by permitting all banks to inflate together under the tutelage 32 00:02:54.340 --> 00:02:55.980 of the government. 33 00:02:55.980 --> 00:03:01.060 And they have tried to assure the banks that the government will not permit them to fail, 34 00:03:01.060 --> 00:03:06.020 either by coining the convenient doctrine that the central bank must be a lender of 35 00:03:06.020 --> 00:03:13.220 of Last Resort, or reserves to the banks, or, as in America, by simply suspending specie 36 00:03:13.220 --> 00:03:19.740 payments, that is, by permitting banks to continue operations while refusing to redeem 37 00:03:19.740 --> 00:03:24.100 their contractual obligations to pay specie. 38 00:03:24.100 --> 00:03:31.060 It is a commonly accepted myth that the excess of wildcat banks in America stemmed from free 39 00:03:31.060 --> 00:03:32.060 banking. 40 00:03:32.060 --> 00:03:47.060 Actually, a much stronger cause was the tradition, beginning in 1814 and continuing in every economic crisis thereafter, of permitting banks to continue in operation without paying in specie. 41 00:03:47.060 --> 00:03:56.060 It is also a widespread myth that central banks are inaugurated in order to check inflation by commercial banks. 42 00:03:56.060 --> 00:04:02.580 The Second Bank of the United States, on the contrary, was inaugurated in 1817 as an inflationist 43 00:04:02.580 --> 00:04:08.080 sop to the state chartered banks, which had been permitted to run riot without paying 44 00:04:08.080 --> 00:04:11.520 in specie since 1814. 45 00:04:11.520 --> 00:04:17.300 It was a weak substitute for compelling a genuine return to specie payments. 46 00:04:17.300 --> 00:04:22.700 This was correctly pointed out at the time by such hard-money stalwarts as Daniel Webster 47 00:04:22.700 --> 00:04:26.040 and John Randolph of Roanoke. 48 00:04:26.040 --> 00:04:31.560 Professor William H. Wells, Federalist of Delaware, said that the bank bill was ostensibly 49 00:04:31.560 --> 00:04:36.840 for the purpose of correcting the diseased state of our paper currency by restraining 50 00:04:36.840 --> 00:04:43.240 and curtailing the over-issue of bank paper, and yet it came prepared to inflict upon us 51 00:04:43.240 --> 00:04:50.560 the same evil, being itself nothing more than simply a paper-making machine. 52 00:04:50.560 --> 00:04:55.260 As for the Federal Reserve system, the major arguments for its adoption were to make the 53 00:04:55.260 --> 00:05:06.260 to make the money supply more elastic and to centralize reserves and thus make them more efficient, that is, to facilitate and promote inflation. 54 00:05:06.260 --> 00:05:15.260 As an additional, Philip, reserve requirements themselves were directly lowered at the inauguration of the Federal Reserve System. 55 00:05:15.260 --> 00:05:23.260 Another device used over the years by governments was to persuade the public not to use gold in their daily transactions. 56 00:05:23.260 --> 00:05:28.260 To do so was scorned as an anachronism, unsuited to the modern world. 57 00:05:28.260 --> 00:05:33.260 The yokel who didn't trust banks became a common object of ridicule. 58 00:05:33.260 --> 00:05:41.260 In this way, gold was more and more confined to the banks and to use for very large transactions. 59 00:05:41.260 --> 00:05:46.260 This made it very much easier to go off the gold standard during the Great Depression. 60 00:05:46.260 --> 00:05:56.260 for then the public could be persuaded that the only ones to suffer were a few selfish anti-social and subtly unpatriotic gold hoarders. 61 00:05:56.260 --> 00:06:05.260 In fact, as early as the panic of 1819 the idea had spread that someone trying to redeem his banknote in specie, 62 00:06:05.260 --> 00:06:13.260 that is, to redeem his own property, was a subversive citizen trying to wreck the banks and the entire economy 63 00:06:13.260 --> 00:06:19.660 And by the 1930s, it was thus easy to denounce gold hoarders as virtual traitors. 64 00:06:19.660 --> 00:06:29.260 During the panic, the economist Condé Ragé, State Senator from Philadelphia, wrote to a puzzled David Ricardo as follows. 65 00:06:29.260 --> 00:06:41.660 You state in your letter that you find it difficult to comprehend why persons who had a right to demand coin from the banks in payment of their notes, so long forebore to exercise it. 66 00:06:41.660 --> 00:06:52.660 This no doubt appears paradoxical to one who resides in a country where an act of parliament was necessary to protect a bank, but the difficulty is easily solved. 67 00:06:52.660 --> 00:06:58.660 The whole of our population are either stockholders of banks or in debt to them. 68 00:06:58.660 --> 00:07:09.660 An independent man who was neither a stockholder or debtor who would have ventured to compel the banks to do justice would have been persecuted as an enemy of society. 69 00:07:09.660 --> 00:07:16.660 In 1931, for example, President Hoover launched a crusade against traitorous hoarding. 70 00:07:16.660 --> 00:07:24.660 The crusade consisted of the Citizens Reconstruction Organization, headed by Colonel Frank Knox of Chicago, 71 00:07:24.660 --> 00:07:29.660 and Jesse Jones reports that during the banking crisis of early 1933, 72 00:07:29.660 --> 00:07:37.660 Hoover was seriously contemplating invoking a forgotten wartime law making hoarding a criminal offense. 73 00:07:37.660 --> 00:07:45.660 It should also be noted here that the Hoover administration's alleged devotion to retaining the gold standard is largely myth. 74 00:07:45.660 --> 00:07:54.660 As Hoover's undersecretary of the Treasury has declared rather proudly, the going off gold cannot be laid to Franklin Roosevelt. 75 00:07:54.660 --> 00:08:05.660 It had been determined to be necessary by Ogden Mills, secretary of the Treasury, and myself as his undersecretary, long before Franklin Roosevelt took office. 76 00:08:05.660 --> 00:08:32.660 And so, by imposing central banking, by suspending species payments, and by encouraging a shift among the public from gold to paper or bank deposits in their everyday transactions, the governments organized inflation, and thus an ever larger proportion of money substitutes to gold, an increasing proportion of liabilities redeemable on demand in gold to gold itself. 77 00:08:32.660 --> 00:08:47.660 By the 1930s, in short, the gold standard, a shaky gold base supporting an ever greater pyramid of monetary claims, was ready to collapse at the first severe depression or wave of bank runs. 78 00:08:47.660 --> 00:08:54.660 Funds. Currently, the worst example of government aid to banks is the highly popular deposit 79 00:08:54.660 --> 00:09:00.220 insurance, for this means that banks have virtually carte blanche from government to 80 00:09:00.220 --> 00:09:07.100 protect them from any redemption crisis. As a result, virtually all natural market checks 81 00:09:07.100 --> 00:09:13.980 on bank inflation have been destroyed. Query, if banks are thus protected from losses by 82 00:09:13.980 --> 00:09:25.980 by Government, To What Extent Are They Still Private Institutions?, 6, 100% Gold Banking, 83 00:09:25.980 --> 00:09:31.280 We have thus come to the cardinal difference between myself and the bulk of those economists 84 00:09:31.280 --> 00:09:35.460 who still advocate a return to the gold standard. 85 00:09:35.460 --> 00:09:40.940 These economists, represented by Dr. Walter E. Sparr and his associates in the Economists 86 00:09:40.940 --> 00:10:05.940 and its National Committee on Monetary Policy, essentially believe that the old pre-1933 gold standard was a fine and viable institution in all its parts, and that going off gold in 1933 was a single wicked act of will that only needs to be repealed in order to re-establish our monetary system on a sound foundation. 87 00:10:05.940 --> 00:10:14.340 I, on the contrary, view 1933 as but the last link in a whole chain of unfortunate actions. 88 00:10:14.340 --> 00:10:20.020 It seems clear to me that the gold standard of the 1920s was so vitiated as to be ready 89 00:10:20.020 --> 00:10:21.980 to collapse. 90 00:10:21.980 --> 00:10:27.440 A return to such a gold standard, while superior to the present system, would only pave the 91 00:10:27.440 --> 00:10:34.500 way for another collapse, and this time, I am afraid, gold would get no further chance. 92 00:10:34.500 --> 00:10:49.500 Although the transition period would be more difficult, it would be kinder to the gold standard as well as better for the long-run economic health of the country to go back to a stronger, more viable gold standard than the one we have lost. 93 00:10:49.500 --> 00:11:00.500 I dare say that my audience has been too much exposed to the teachings of the Chicago School to be shocked at the idea of 100% reserve banking. 94 00:11:00.500 --> 00:11:05.340 This topic, of course, is worthy of far more space than I can give it here. 95 00:11:05.340 --> 00:11:11.820 I can only say that my position on 100% banking differs considerably in emphasis from the 96 00:11:11.820 --> 00:11:13.940 Chicago School. 97 00:11:13.940 --> 00:11:20.660 The Chicago group basically views 100% money as a technique, as a useful, efficient tool 98 00:11:20.660 --> 00:11:26.820 for government manipulation of the money supply, unburdened by lags or friction in the banking 99 00:11:26.820 --> 00:11:28.380 system. 100 00:11:28.380 --> 00:11:34.380 My reasons for advocating 100% banking cut much closer to the heart of our whole system 101 00:11:34.380 --> 00:11:37.820 of the free market and property rights. 102 00:11:37.820 --> 00:11:44.220 The other very important difference, of course, is that I advocate 100% reserves in gold or 103 00:11:44.220 --> 00:11:51.180 silver in contrast to the 100% fiat paper standard of the Chicago School. 104 00:11:51.180 --> 00:11:58.180 100% gold, rather than making the monetary system more readily manageable by government, 105 00:11:58.180 --> 00:12:04.540 should completely expunge government intervention from the monetary system. 106 00:12:04.540 --> 00:12:11.040 In my view, issuing promises to pay on demand in excess of the amount of goods on hand is 107 00:12:11.040 --> 00:12:16.220 simply fraud and should be so considered by the legal system. 108 00:12:16.220 --> 00:12:21.020 For this means that a bank issues fake warehouse receipts. 109 00:12:21.020 --> 00:12:25.980 Warehouse receipts, for example, for ounces of gold that do not actually exist in the 110 00:12:25.980 --> 00:12:27.500 vaults. 111 00:12:27.500 --> 00:12:29.660 This is legalized counterfeiting. 112 00:12:29.660 --> 00:12:35.580 This is the creation of money without the necessity for production, to compete for resources 113 00:12:35.580 --> 00:12:38.660 against those who have produced. 114 00:12:38.660 --> 00:12:44.620 In short, I believe that fractional reserve banking is disastrous both for the morality 115 00:12:44.620 --> 00:12:50.220 and for the fundamental bases and institutions of the market economy. 116 00:12:50.220 --> 00:12:54.740 I am familiar with the many arguments for fractional reserve banking. 117 00:12:54.740 --> 00:13:01.260 There is the view that this is simply economical. The banks began with 100% reserves, but then 118 00:13:01.260 --> 00:13:07.220 they shrewdly and keenly saw that only a certain proportion of these demand liabilities were 119 00:13:07.220 --> 00:13:13.480 likely to be redeemed, so that it seemed safe either to lend out the gold for profit or 120 00:13:13.480 --> 00:13:20.180 to issue pseudo-warehouse receipts, either as banknotes or as bank deposits for the gold, 121 00:13:20.180 --> 00:13:22.580 and to lend out those. 122 00:13:22.580 --> 00:13:29.020 The banks here take on the character of shrewd entrepreneurs, but so is an embezzler shrewd 123 00:13:29.020 --> 00:13:34.440 when he takes money out of the company till to invest in some ventures of his own. 124 00:13:34.440 --> 00:13:41.020 Like the banker, he sees an opportunity to earn a profit on someone else's assets. 125 00:13:41.020 --> 00:13:45.940 The embezzler knows, let us say, that the auditor will come on June 1st to inspect the 126 00:13:45.940 --> 00:13:51.060 Accounts, and he fully intends to repay the loan before then. 127 00:13:51.060 --> 00:13:53.020 Let us assume that he does. 128 00:13:53.020 --> 00:13:58.340 Is it really true that no one has been the loser and everyone has gained? 129 00:13:58.340 --> 00:13:59.940 I dispute this. 130 00:13:59.940 --> 00:14:06.380 A theft has occurred, and that theft should be prosecuted and not condoned. 131 00:14:06.380 --> 00:14:12.260 Let us note that the banking advocate assumes that something has gone wrong only if everyone 132 00:14:12.260 --> 00:14:17.580 One should decide to redeem his property, only to find that it isn't there. 133 00:14:17.580 --> 00:14:23.260 But I maintain that the wrong, the theft, occurs at the time the embezzler takes the 134 00:14:23.260 --> 00:14:29.020 money, not at the later time when his borrowing happens to be discovered. 135 00:14:29.020 --> 00:14:34.540 I want to make it quite clear that I do not accuse present-day bankers of conscious fraud 136 00:14:34.540 --> 00:14:36.220 or embezzlement. 137 00:14:36.220 --> 00:14:41.700 The institution of banking has become so hallowed and venerated that we can only say that it 138 00:14:41.700 --> 00:14:48.820 allows for legalized fraud, probably unknown to almost all bankers. As for the original 139 00:14:48.820 --> 00:14:56.260 goldsmiths that began the practice, I think our opinion should be rather more harsh. 140 00:14:56.260 --> 00:15:01.180 Another argument holds that the fact that notes and deposits are redeemable on demand 141 00:15:01.180 --> 00:15:06.820 is only a kind of accident, that these are merely credit transactions. The depositors 142 00:15:06.820 --> 00:15:11.740 Creditors or noteholders are simply lending money to the banks, which in turn act as 143 00:15:11.740 --> 00:15:15.420 their agents to channel the money to business firms. 144 00:15:15.420 --> 00:15:18.740 And why repress productive credit? 145 00:15:18.740 --> 00:15:26.880 Mises has shown, however, the crucial difference between a credit transaction and a claim transaction. 146 00:15:26.880 --> 00:15:33.060 Credit always involves the purchase of a future good by the creditor in exchange for a present 147 00:15:33.060 --> 00:15:35.300 good, money. 148 00:15:35.300 --> 00:15:41.560 The creditor gives up a present good in exchange for an IOU for a good coming to him in the 149 00:15:41.560 --> 00:15:43.060 future. 150 00:15:43.060 --> 00:15:49.780 But a claim, and banknotes or deposits are claims to money, does not involve the creditor's 151 00:15:49.780 --> 00:15:52.960 relinquishing any of the present good. 152 00:15:52.960 --> 00:15:59.880 On the contrary, the note-holder or deposit-holder still retains his money, the present good, 153 00:15:59.880 --> 00:16:05.320 Because he has a claim to it, a warehouse receipt, which he can redeem at any time he 154 00:16:05.320 --> 00:16:07.120 desires. 155 00:16:07.120 --> 00:16:12.440 This is the nub of the problem, and this is why fractional reserve banking creates new 156 00:16:12.440 --> 00:16:16.160 money while other credit agencies do not. 157 00:16:16.160 --> 00:16:21.840 For warehouse receipts or claims to money function on the market as equivalent to standard 158 00:16:21.840 --> 00:16:24.440 money itself. 159 00:16:24.440 --> 00:16:30.000 To those who persist in believing that the bulk of bank deposits are really saved funds 160 00:16:30.000 --> 00:16:35.940 voluntarily left with the banks to invest for savers and are not just kept as monetary 161 00:16:35.940 --> 00:16:40.360 cash balances, I would like to lay down this challenge. 162 00:16:40.360 --> 00:16:46.280 If what you say is true, why not agree to alter the banking structure to change these 163 00:16:46.280 --> 00:16:50.640 deposits to debentures of varying maturities? 164 00:16:50.640 --> 00:16:56.640 A shift from uncovered deposits to debentures will, of course, mean an enormous drop in 165 00:16:56.640 --> 00:16:58.640 the supply of money. 166 00:16:58.640 --> 00:17:03.720 But if these deposits are simply another form of credit, then the depositors should not 167 00:17:03.720 --> 00:17:08.780 object and we 100% theorists will be satisfied. 168 00:17:08.780 --> 00:17:14.180 The purchase of a debenture will, furthermore, be a genuine saving and investment of existing 169 00:17:14.180 --> 00:17:19.680 money rather than an unsound increase in the money supply. 170 00:17:19.680 --> 00:17:26.200 In sum, I am advocating that the law be changed to treat banknotes and deposits as what they 171 00:17:26.200 --> 00:17:34.160 are in economic and social fact, claims warehouse receipts to standard money, in short, that 172 00:17:34.160 --> 00:17:41.160 the note and the deposit holders be recognized as owners-in-law of the gold, or under a fiat 173 00:17:41.160 --> 00:17:45.100 standard of the paper in the bank's vaults. 174 00:17:45.100 --> 00:17:50.780 Now treated in law as a debt, a deposit or note should be considered as evidence of a 175 00:17:50.780 --> 00:17:57.660 bailment. In relation to general legal principles, this would not be a radical change, since 176 00:17:57.660 --> 00:18:03.740 warehouse receipts are treated as bailments now. Banks would simply be treated as money 177 00:18:03.740 --> 00:18:08.900 warehouses in relation to their notes and deposits. 178 00:18:08.900 --> 00:18:15.420 The builder Sparr often uses the analogy of a bridge to justify fractional reserve money. 179 00:18:15.420 --> 00:18:21.200 The builder of a bridge estimates approximately how many people will be using it daily. 180 00:18:21.200 --> 00:18:26.020 He builds the bridge on that basis and does not attempt to accommodate all the people 181 00:18:26.020 --> 00:18:31.340 in the city should they all decide to cross the bridge simultaneously. 182 00:18:31.340 --> 00:18:36.600 But the most critical fallacy of this analogy is that the inhabitants do not then have a 183 00:18:36.600 --> 00:18:42.600 This would be even more evident if the bridge were owned by a private firm. 184 00:18:42.600 --> 00:18:52.600 On the other hand, the holders of money substitutes most emphatically do have a legal claim to their own property at any time they choose to redeem it. 185 00:18:52.600 --> 00:18:59.600 The claims must then be fraudulent, since the bank could not possibly meet them all. 186 00:18:59.600 --> 00:19:14.600 A bank could not possibly meet them all. A bank that fails is therefore not simply an entrepreneur whose forecasts have gone awry. It is a business whose betrayal of trust has been publicly revealed. 187 00:19:14.600 --> 00:19:27.600 Furthermore, a rule of every business is to adjust the time structure of its assets to the time structure of its liabilities, so that its assets on hand will match its liabilities due. 188 00:19:27.600 --> 00:19:38.600 The only exception to this rule is a bank, which lends at certain terms of maturities while its liabilities are all instantly payable on demand. 189 00:19:38.600 --> 00:19:50.600 If a bank were to match the time structure of its assets and liabilities, all its assets would also have to be instantaneous, that is, would have to be cash. 190 00:19:50.600 --> 00:20:04.600 To those who want the dollar convertible into gold but are content with the pre-1933 standard, we might cite the analysis of Amasa Walker, one of the great American economists a century ago. 191 00:20:04.600 --> 00:20:15.600 So far as specie is held for the payment of these fractional reserve-backed notes, this kind of currency is actually convertible and equivalent to money. 192 00:20:15.600 --> 00:20:24.100 But in so far as the credit element exceeds the specie, it is only a promise to pay money, and is inconvertible. 193 00:20:24.100 --> 00:20:31.600 A mixed fractional reserve currency, therefore, can only be regarded as partially convertible, 194 00:20:31.600 --> 00:20:39.600 the degree of its convertibility depending upon the proportion the specie bears to the notes issued and the deposits. 195 00:20:39.600 --> 00:20:47.640 For a believer in free enterprise, a system of free banking undoubtedly has many attractions. 196 00:20:47.640 --> 00:20:53.120 Not only does it seem most consistent with the general institution of free enterprise, 197 00:20:53.120 --> 00:20:58.280 but Mises and others have shown that free banking would lead not to the infinite supply 198 00:20:58.280 --> 00:21:05.320 of money envisioned by such utopian partisans of free banking as Proudhon, Spooner, Green 199 00:21:05.320 --> 00:21:11.380 and Mulin, but rather to a much harder and sounder money than exists when banks are controlled 200 00:21:11.380 --> 00:21:17.640 by a central bank. In practice, therefore, free banking would come much closer to the 201 00:21:17.640 --> 00:21:25.320 100% ideal than the system we now have. And yet, if free trade in banking is free trade 202 00:21:25.320 --> 00:21:30.920 in swindling, then surely the soundest course would be to take the swindling out of banking 203 00:21:30.920 --> 00:21:38.420 all together. Mises' sole argument against 100% gold banking is that this would admit 204 00:21:38.420 --> 00:21:45.000 the unfortunate precedent of government control of the banking system. But if fractional reserve 205 00:21:45.000 --> 00:21:50.720 banking is fraudulent, then it could be outlawed not as a form of administrative government 206 00:21:50.720 --> 00:21:56.440 intervention in the monetary system, but rather as part of the general legal prohibition of 207 00:21:56.440 --> 00:22:03.600 of Force and Fraud. Within this general prohibition of fraud, my proposed banking reform would 208 00:22:03.600 --> 00:22:07.440 leave the private banks entirely free. 209 00:22:07.440 --> 00:22:15.940 7. Objections to 100% Gold. Certain standard objections have been raised 210 00:22:15.940 --> 00:22:23.920 against 100% banking and against 100% gold currency in particular. One generally accepted 211 00:22:23.920 --> 00:22:31.180 argument against any form of 100% banking I find particularly and strikingly curious. 212 00:22:31.180 --> 00:22:37.880 That under 100% reserves, banks would not be able to continue profitably in business. 213 00:22:37.880 --> 00:22:42.960 I see no reason why banks should not be able to charge their customers for their services, 214 00:22:42.960 --> 00:22:45.980 as do all other useful businesses. 215 00:22:45.980 --> 00:22:50.320 This argument points to the supposedly enormous benefits of banking. 216 00:22:50.320 --> 00:22:54.720 If these benefits were really so powerful, then surely the consumers would be willing 217 00:22:54.720 --> 00:23:00.180 to pay a service charge for them, just as they pay for travelers' checks now. 218 00:23:00.180 --> 00:23:04.460 If they were not willing to pay the costs of the banking business as they pay the costs 219 00:23:04.460 --> 00:23:09.580 of all other industries useful to them, then that would demonstrate the advantages of banking 220 00:23:09.580 --> 00:23:12.540 to have been highly overrated. 221 00:23:12.540 --> 00:23:17.540 At any rate, there is no reason why banking should not take its chance in the free market 222 00:23:17.540 --> 00:23:20.740 with Every Other Industry. 223 00:23:20.740 --> 00:23:26.500 The major objection against 100% gold is that this would allegedly leave the economy with 224 00:23:26.500 --> 00:23:29.540 an inadequate money supply. 225 00:23:29.540 --> 00:23:34.580 Some economists advocate a secular increase of the supply of money in accordance with 226 00:23:34.580 --> 00:23:40.860 some criterion, population growth, growth of volume of trade and the like. 227 00:23:40.860 --> 00:23:46.940 Others wish the money supply to be adjusted to provide a stable and fixed price level. 228 00:23:46.940 --> 00:23:53.380 In both cases, of course, the adjusting and manipulating could only be done by government. 229 00:23:53.380 --> 00:23:59.600 These economists have not fully absorbed the great monetary lesson of classical economics, 230 00:23:59.600 --> 00:24:03.980 that the supply of money essentially does not matter. 231 00:24:03.980 --> 00:24:08.300 Money performs its function by being a medium of exchange. 232 00:24:08.300 --> 00:24:13.260 Any change in its supply, therefore, will simply adjust itself in the purchasing power 233 00:24:13.260 --> 00:24:18.340 Power of the Money Unit, that is, in the amount of other goods that money will be able 234 00:24:18.340 --> 00:24:20.260 to buy. 235 00:24:20.260 --> 00:24:25.860 An increase in the supply of money means merely that more units of money are doing the social 236 00:24:25.860 --> 00:24:32.820 work of exchange and therefore that the purchasing power of each unit will decline. 237 00:24:32.820 --> 00:24:38.440 Because of this adjustment, money, in contrast to all other useful commodities employed in 238 00:24:38.440 --> 00:24:45.640 and Production or Consumption does not confer a social benefit when its supply increases. 239 00:24:45.640 --> 00:24:50.920 The only reason that increased gold mining is useful, in fact, is that the large supply 240 00:24:50.920 --> 00:24:57.880 of gold will satisfy more of the non-monetary uses of the gold commodity. 241 00:24:57.880 --> 00:25:04.000 There is therefore never any need for a larger supply of money, aside from the non-monetary 242 00:25:04.000 --> 00:25:06.600 uses of gold or silver. 243 00:25:06.600 --> 00:25:12.240 An increased supply of money can only benefit one set of people at the expense of another 244 00:25:12.240 --> 00:25:18.040 set, and, as we have seen, that is precisely what happens when government or the banks 245 00:25:18.040 --> 00:25:26.040 inflate the money supply, and that is precisely what my proposed reform is designed to eliminate. 246 00:25:26.040 --> 00:25:32.000 There can, incidentally, never be an actual monetary shortage, since the very fact that 247 00:25:32.000 --> 00:25:38.360 The market has established and continues to use gold or silver as a monetary commodity 248 00:25:38.360 --> 00:25:43.960 shows that enough of it exists to be useful as a medium of exchange. 249 00:25:43.960 --> 00:25:49.400 The number of people, the volume of trade and all other alleged criteria are therefore 250 00:25:49.400 --> 00:25:54.480 merely arbitrary and irrelevant with respect to the supply of money. 251 00:25:54.480 --> 00:26:00.160 And as for the ideal of the stable price level, apart from the grave flaws of deciding on 252 00:26:00.160 --> 00:26:05.080 On a proper index, there are two points that are generally overlooked. 253 00:26:05.080 --> 00:26:10.640 In the first place, the very ideal of a stable price level is open to challenge. 254 00:26:10.640 --> 00:26:14.760 Hoarding, as we have indicated, is always attacked. 255 00:26:14.760 --> 00:26:20.360 And yet, it is the freely expressed and desired action on the market. 256 00:26:20.360 --> 00:26:26.180 People often wish to increase the real value of their cash balances, or to raise the purchasing 257 00:26:26.180 --> 00:26:28.500 power of each dollar. 258 00:26:28.500 --> 00:26:31.620 There are many reasons why they might wish to do so. 259 00:26:31.620 --> 00:26:36.440 Why should they not have this right as they have other rights on the free market? 260 00:26:36.440 --> 00:26:42.060 And yet, only by their hoarding taking effect through lower prices can they bring about 261 00:26:42.060 --> 00:26:44.260 this result. 262 00:26:44.260 --> 00:26:50.180 Only by demanding more cash balances and thus lowering prices can the dollars assume a 263 00:26:50.180 --> 00:26:52.620 higher real value. 264 00:26:52.620 --> 00:26:57.640 I see no reason why government manipulators should be able to deprive the consuming public 265 00:26:57.640 --> 00:27:04.000 of this right. Second, if people really had an overwhelming desire for a stable price 266 00:27:04.000 --> 00:27:10.880 level, they would negotiate all their contracts in some agreed-upon price index. The fact 267 00:27:10.880 --> 00:27:16.820 that such a voluntary tabular standard has rarely been adopted isn't apt enough commentary 268 00:27:16.820 --> 00:27:22.220 on those stable price-level enthusiasts who would impose their ambitions by government 269 00:27:22.220 --> 00:27:28.980 Coercion. Money, it is often said, should function as a yardstick, and therefore its 270 00:27:28.980 --> 00:27:35.320 value should be stabilized and fixed. Not its value, however, but its weight should 271 00:27:35.320 --> 00:27:42.340 be eternally fixed, as are all other weights. Its value, like all other values, should be 272 00:27:42.340 --> 00:27:49.220 left to the judgment, estimation, and ultimate decision of every individual consumer. 273 00:27:49.220 --> 00:27:55.660 8. Professor Yeager and 100% Gold 274 00:27:55.660 --> 00:28:01.180 One of the most important discussions of the 100% gold standard in recent years is by Professor 275 00:28:01.180 --> 00:28:08.060 Leland Yeager. Professor Yeager, while actually at the opposite pole as an advocate of freely 276 00:28:08.060 --> 00:28:17.260 fluctuating fiat monies, recognizes the great superiority of 100% gold over the usual pre-1933 277 00:28:17.260 --> 00:28:19.340 of Gold Standard. 278 00:28:19.340 --> 00:28:25.220 The main objections to the gold standard are its vulnerability to great and sudden deflations 279 00:28:25.220 --> 00:28:30.700 and the difficulties that national authorities face when a specie drain abroad threatens 280 00:28:30.700 --> 00:28:34.780 domestic bank reserves and forces contraction. 281 00:28:34.780 --> 00:28:41.060 With 100% gold, Jaeger recognizes, none of these problems would exist. 282 00:28:41.060 --> 00:28:46.780 Under a 100% hard money international gold standard, the currency of each country would 283 00:28:46.780 --> 00:28:53.260 would consist exclusively of gold, or of gold plus fully backed warehouse receipts for gold 284 00:28:53.260 --> 00:28:59.180 in the form of paper money and token coins. The government and its agencies would not 285 00:28:59.180 --> 00:29:05.340 have to worry about any drain on their reserves. The gold warehouses would never be embarrassed 286 00:29:05.340 --> 00:29:11.540 by requests to redeem paper money in gold, since each dollar of paper money in circulation 287 00:29:11.540 --> 00:29:16.340 would represent a dollar of gold actually in a warehouse. 288 00:29:16.340 --> 00:29:21.020 There would be no such thing as independent national monetary policies. 289 00:29:21.020 --> 00:29:25.860 The volume of money in each country would be determined by market forces. 290 00:29:25.860 --> 00:29:30.300 The world's gold supply would be distributed among the various countries according to the 291 00:29:30.300 --> 00:29:35.380 demands for cash balances of the individuals in the various countries. 292 00:29:35.380 --> 00:29:40.300 There would be no danger of gold deserting some countries and piling up excessively 293 00:29:40.300 --> 00:29:45.960 and others, for each individual would take care not to let his cash balance shrink or 294 00:29:45.960 --> 00:29:52.860 expand to a size which he considered inappropriate in view of his own income and wealth. 295 00:29:52.860 --> 00:29:59.380 Under a 100% gold standard, the various countries would have a common monetary system, just 296 00:29:59.380 --> 00:30:04.720 as the various states of the United States now have a common monetary system. 297 00:30:04.720 --> 00:30:09.220 There would be no more reason to worry about disequilibrium in the balance of payments 298 00:30:09.220 --> 00:30:14.020 If there is a balance of any particular country, then there is now reason to worry about disequilibrium 299 00:30:14.020 --> 00:30:17.120 in the balance of payments of New York City. 300 00:30:17.120 --> 00:30:22.720 If each individual and institution took care to avoid persistent disequilibrium in his 301 00:30:22.720 --> 00:30:26.560 personal balance of payments, that would be enough. 302 00:30:26.560 --> 00:30:31.580 The actions of individuals in maintaining their cash balances at appropriate levels 303 00:30:31.580 --> 00:30:38.440 would automatically take care of the adequacy of each country's money supply. 304 00:30:38.440 --> 00:30:44.200 The problems of national reserves, deflation and so forth, Jaeger points out, are due to 305 00:30:44.200 --> 00:30:50.600 the fractional reserve nature of the gold standard, not to gold itself. 306 00:30:50.600 --> 00:30:55.500 National fractional reserve systems are the real source of most of the difficulties blamed 307 00:30:55.500 --> 00:30:57.920 on the gold standard. 308 00:30:57.920 --> 00:31:03.320 With fractional reserves, individual actions no longer suffice to assure automatically 309 00:31:03.320 --> 00:31:07.320 the proper distribution of the supply of gold. 310 00:31:07.320 --> 00:31:12.960 The difficulties arise because the mixed national currencies, currencies which are largely paper 311 00:31:12.960 --> 00:31:20.640 and only partly gold, are insufficiently international. The main defect of the historical gold standard 312 00:31:20.640 --> 00:31:26.140 is the necessity of protecting national gold reserves. 313 00:31:26.140 --> 00:31:32.120 Central banking and its management only make things worse. In short, whether a central 314 00:31:32.120 --> 00:31:40.120 The Federal Bank amplifies the effects of gold flows, remains passive in the face of gold flows, or offsets gold flows. 315 00:31:40.120 --> 00:31:46.120 Its behavior is incompatible with the principles of the full-fledged gold standard. 316 00:31:46.120 --> 00:31:54.120 Indeed, any kind of monetary management runs counter to the principles of the pure gold standard. 317 00:31:54.120 --> 00:31:59.120 In view of this eloquent depiction of the 100% gold standard, 318 00:31:59.120 --> 00:32:05.120 Why does Yeager flatly reject it and call instead for freely fluctuating fiat money? 319 00:32:05.120 --> 00:32:15.120 Largely because only with fiat money can each governmental unit stabilize the price level in its own area in times of depression. 320 00:32:15.120 --> 00:32:24.120 Now, I cannot pause to discuss further the policy of stabilization, which I believe to be both fallacious and disastrous. 321 00:32:24.120 --> 00:32:34.120 I can only point out that contrary to Professor Yeager, price declines and exchange rate depreciation are not simple alternatives. 322 00:32:34.120 --> 00:32:43.120 To believe this is to succumb to a fatal methodological holism and to abandon the sound path of methodological individualism. 323 00:32:43.120 --> 00:32:53.120 If, for example, a steel union in a certain area is causing unemployment in steel by insisting on keeping its wage rates up though prices have fallen, 324 00:32:53.120 --> 00:32:59.200 have fallen. I consider it at once unjust, a cause of misallocations and distortions 325 00:32:59.200 --> 00:33:06.140 of production, and positively futile to try to remedy the problem by forcing all the consumers 326 00:33:06.140 --> 00:33:12.440 in the area to suffer by paying higher prices for their imports through a fall in the area's 327 00:33:12.440 --> 00:33:20.120 exchange rate. One problem that every monetary statist and nationalist has failed to face 328 00:33:20.120 --> 00:33:23.880 is the geographical boundary of each money. 329 00:33:23.880 --> 00:33:29.120 If there should be national fluctuating fiat money, what should be the boundaries of the 330 00:33:29.120 --> 00:33:30.720 nation? 331 00:33:30.720 --> 00:33:35.560 Surely political frontiers have little or no economic meaning. 332 00:33:35.560 --> 00:33:42.160 Professor Yeager is courageous enough to recognize this and to push fiat money almost to a reductio 333 00:33:42.160 --> 00:33:49.080 by advocating, or at least considering, entirely separate monies for each region or even locality 334 00:33:49.080 --> 00:33:51.760 in a Nation. 335 00:33:51.760 --> 00:33:55.760 Yeager has not pushed the reductio far enough, however. 336 00:33:55.760 --> 00:34:01.200 Logically, the ultimate in freely fluctuating fiat monies is a different money issued by 337 00:34:01.200 --> 00:34:03.860 each and every individual. 338 00:34:03.860 --> 00:34:07.840 We have seen that this could not come about on the free market. 339 00:34:07.840 --> 00:34:12.680 But suppose that this came about by momentum from the present system or through some other 340 00:34:12.680 --> 00:34:13.680 method. 341 00:34:13.680 --> 00:34:15.200 What then? 342 00:34:15.200 --> 00:34:21.280 Then we would have a world chaos indeed, with Rothbards, Yeagers, Joneses and billions of 343 00:34:21.280 --> 00:34:25.880 other individual currencies freely fluctuating on the market. 344 00:34:25.880 --> 00:34:31.400 I think it would be instructive if some economist devoted himself to an intensive analysis of 345 00:34:31.400 --> 00:34:34.000 what such a world would look like. 346 00:34:34.000 --> 00:34:39.760 I think it's safe to say that the world would be back to an enormously complex and chaotic 347 00:34:39.760 --> 00:34:49.760 and the trade would be reduced to a virtual standstill, for there would no longer be any sort of monetary medium for exchanges. 348 00:34:49.760 --> 00:34:53.760 Each separate exchange would require a different money. 349 00:34:53.760 --> 00:35:02.760 In fact, since money means a general medium of exchanges, it is doubtful if the very concept of money would any longer apply. 350 00:35:02.760 --> 00:35:08.960 or apply. Certainly the indispensable economic calculation provided by the money and price 351 00:35:08.960 --> 00:35:15.360 system would have to cease, since there would no longer be a common unit of account. This 352 00:35:15.360 --> 00:35:21.320 is a serious and not far-fetched criticism of fiat money proposals, because all of them 353 00:35:21.320 --> 00:35:28.760 introduce some of this chaotic element into the world economy. In short, fluctuating fiat 354 00:35:28.760 --> 00:35:33.840 Monies are disintegrative of the very function of money itself. 355 00:35:33.840 --> 00:35:39.400 If every individual had his own money, the disintegration of the very existence of money 356 00:35:39.400 --> 00:35:41.360 would be complete. 357 00:35:41.360 --> 00:35:47.840 But national and still more regional and local fiat monies already partially disintegrate 358 00:35:47.840 --> 00:35:49.360 the money medium. 359 00:35:49.360 --> 00:35:53.360 They contradict the essence of the monetary function. 360 00:35:53.360 --> 00:36:00.440 Finally, Professor Yeager wonders why such orthodox liberals as Mises, Hayek and Robbins 361 00:36:00.440 --> 00:36:06.120 should have insisted on the monetary internationalism of the gold standard. 362 00:36:06.120 --> 00:36:10.760 Without presuming to speak for them, I think the answer can be put in two parts. 363 00:36:10.760 --> 00:36:16.520 One, because they favor monetary freedom rather than government management and manipulation 364 00:36:16.520 --> 00:36:23.520 of Money, and two, because they favored the existence of money as compared to barter, 365 00:36:23.520 --> 00:36:27.640 because they believed that money is one of the greatest and most significant features 366 00:36:27.640 --> 00:36:33.400 of the modern market economy and, indeed, of civilization itself. 367 00:36:33.400 --> 00:36:39.000 The more general the money, the greater the scope for division of labor and for the inter-regional 368 00:36:39.000 --> 00:36:44.080 exchange of goods and services that stem from the market economy. 369 00:36:44.080 --> 00:36:49.320 A monetary medium is therefore critical to the free market, and the wider the use of 370 00:36:49.320 --> 00:36:54.420 this money, the more extensive the market and the better it can function. 371 00:36:54.420 --> 00:37:01.320 In short, true freedom of trade does require an international commodity money, as the history 372 00:37:01.320 --> 00:37:07.320 of the market economy of recent centuries has shown, gold and silver. 373 00:37:07.320 --> 00:37:13.160 Any break-up of such an international medium by statist fiat paper inevitably cripples 374 00:37:13.160 --> 00:37:18.120 and disintegrates the free market and robs the world of the fruits of that market. 375 00:37:19.080 --> 00:37:25.400 Ultimately, the issue is a stark one. We can either return to gold or we can pursue the fiat 376 00:37:25.400 --> 00:37:32.600 path and return to barter. It is perhaps not hyperbole to say that civilization itself is 377 00:37:32.600 --> 00:37:40.520 at stake in our decision. Other criticisms by Yeager are really, as he recognizes at one point, 378 00:37:40.520 --> 00:37:46.520 Criticisms of any plan for 100% banking, fiat or gold. 379 00:37:46.520 --> 00:37:55.520 There is, for example, the problem of how to suppress new forms of demand liabilities that might well arise to evade the legal restrictions. 380 00:37:55.520 --> 00:37:58.520 I do not think this an important argument. 381 00:37:58.520 --> 00:38:06.520 Fraud is always difficult to combat, and indeed continues in numerous forms to this day, as does all manner of crime. 382 00:38:06.520 --> 00:38:11.600 Time. Does this mean that we should give up outlawing and punishing fraud and other crimes 383 00:38:11.600 --> 00:38:16.840 against person and property? Second, I am sure that the practical problems 384 00:38:16.840 --> 00:38:22.320 of law enforcement would be greatly reduced if the public were to receive a thorough education 385 00:38:22.320 --> 00:38:29.080 in the fundamentals of banking. If, in short, 100% money advocates were allowed to form 386 00:38:29.080 --> 00:38:35.160 anti-bank vigilante leagues to point out the shakiness and immorality of fractional reserve 387 00:38:35.160 --> 00:38:41.160 of Banking, the public would be much less inclined to evade such restrictions than it is now. 388 00:38:43.160 --> 00:38:47.160 9. The 100% Gold Tradition 389 00:38:48.160 --> 00:38:54.160 I therefore advocate as the soundest monetary system, and the only one fully compatible 390 00:38:54.160 --> 00:39:02.160 with the free market and with the absence of force or fraud from any source, a 100% gold standard. 391 00:39:02.160 --> 00:39:08.160 This is the only system compatible with the fullest preservation of the rights of property. 392 00:39:08.160 --> 00:39:14.160 It is the only system that assures the end of inflation, and with it, of the business cycle. 393 00:39:14.160 --> 00:39:23.160 And it is the only form of gold standard that fully meets the following argument of the Douglas Subcommittee against a return to gold. 394 00:39:23.160 --> 00:39:36.160 An overriding reason against making gold coin freely available is that no government or banks should make promises which it would not be able to keep if the demand should arise. 395 00:39:36.160 --> 00:39:44.160 Monetary systems for over a century have expanded more rapidly than would be permitted by accretions of gold. 396 00:39:44.160 --> 00:40:06.160 While this is undoubtedly a radical program for this day and age, it is important to note briefly that this program is squarely in a great tradition, not only in the economic tradition of the classical economists and the currency school, but also in the American political tradition of the Jeffersonians and the Jacksonians. 397 00:40:06.160 --> 00:40:30.160 In essence, this was their program. In passing, it should be noted that almost all historians, with the notable exceptions of William Graham Sumner and Joseph Dorfman, have misinterpreted the Jeffersonians and Jacksonians as economically ignorant and anti-capitalist agrarians lashing out at a credit system they failed to understand. 398 00:40:30.160 --> 00:40:47.160 Whether one agrees with their position or not, they wrote in full and sophisticated knowledge of classical economics and were fully devoted to capitalism and the free market, which they believed were hampered and not aided by the institution of fractional reserve banking. 399 00:40:48.160 --> 00:40:59.160 The conservative economic historians of the late 19th century saw Jackson as an ignorant agrarian trying to destroy capitalism and calling for inflation against the central bank. 400 00:41:00.160 --> 00:41:10.160 The progressives of the Beard School took much the same approach, except that they applauded the Jacksonians for their alleged anti-capitalist stand. 401 00:41:10.160 --> 00:41:18.160 The most recent Bray Hammond Thomas Govan School have again shifted their praise to the Whigs and the Bank of the United States, 402 00:41:18.160 --> 00:41:27.160 which they view as essential to a modern credit system, as against the absurdly hard-money views of the Jacksonians. 403 00:41:27.160 --> 00:41:40.560 In fact, it might almost be said that these Americans were un-terrified members of the currency school, lacking the almost blind devotion to the Bank of England of their more pragmatic British cousins. 404 00:41:40.560 --> 00:41:57.060 Indeed, the currency principle was enunciated in America several years before it made its appearance in England, and such founders of the currency principle in America as Condi Ragge realized what the more eminent British tragically failed to see. 405 00:41:57.060 --> 00:42:06.060 That bank deposits are just as fully money substitutes as bank notes, and are therefore part of the broad money supply. 406 00:42:06.060 --> 00:42:19.060 After the Civil War, hard money economists were preoccupied with battling the new greenback and free silver problems, and the idea of 100% gold virtually faded from view. 407 00:42:19.060 --> 00:42:26.600 General Amasa Walker, however, wrote into the 1860s, and even he was surpassed in acumen 408 00:42:26.600 --> 00:42:31.920 by the brilliant and neglected writings of the Boston merchant Charles H. Carroll, who 409 00:42:31.920 --> 00:42:38.680 advocated 100% gold reserves against bank deposits as well as notes, and also urged 410 00:42:38.680 --> 00:42:44.560 the replacement of the name dollar by gold ounce or gold gram. 411 00:42:44.560 --> 00:42:49.840 And an official of the United States Assay Office, Isaiah W. Sylvester, who has been 412 00:42:49.840 --> 00:42:57.280 completely neglected by historians, advocated a 100% dollar and parallel standards. In the 413 00:42:57.280 --> 00:43:03.480 present century, the only economist to advocate a 100% gold standard, to my knowledge, has 414 00:43:03.480 --> 00:43:07.200 been Dr. Elgin Grossclose. 415 00:43:07.200 --> 00:43:12.800 10. The Road Ahead 416 00:43:12.800 --> 00:43:18.760 Having decided to return to a 100% gold dollar, we are confronted with the problem of how 417 00:43:18.760 --> 00:43:20.740 to go about it. 418 00:43:20.740 --> 00:43:25.080 There is no question about the difficulty of the transition period required to reach 419 00:43:25.080 --> 00:43:26.700 our goal. 420 00:43:26.700 --> 00:43:31.680 But once the transition period is concluded, we will have the satisfaction of possessing 421 00:43:31.680 --> 00:43:38.140 the best monetary system known to man, and of eliminating inflation, business cycles, 422 00:43:38.140 --> 00:43:45.420 and the uneconomic and immoral practice of people acquiring money at the expense of producers. 423 00:43:45.420 --> 00:43:50.660 Since we have many times the number of dollars as we have gold dollars at the present fixed 424 00:43:50.660 --> 00:43:58.660 weight of the dollar, we have essentially two alternative polar routes toward 100% gold. 425 00:43:58.660 --> 00:44:03.700 Either to force a deflation of the supply of dollars down to the currently valued gold 426 00:44:03.700 --> 00:44:10.360 gold stock, or to raise the price of gold, to lower the definition of the dollar's weight, 427 00:44:10.360 --> 00:44:16.380 to make the total stock of gold dollars 100 percent equal to the total supply of dollars 428 00:44:16.380 --> 00:44:22.820 in the society, or we can choose some combination of the two roots. 429 00:44:22.820 --> 00:44:28.100 Professor Spahr and his associates wish to return to the gold standard, though not to 430 00:44:28.100 --> 00:44:35.180 and 100% gold at the current price of $35 an ounce, stressing the importance of fixity 431 00:44:35.180 --> 00:44:37.780 of the weight of the dollar. 432 00:44:37.780 --> 00:44:44.180 If these were before 1933 and we were still on a gold standard, even if a defective one, 433 00:44:44.180 --> 00:44:46.880 I would unhesitatingly agree. 434 00:44:46.880 --> 00:44:51.700 The principle of a fixed weight for the dollar, and above all the principle of the sanctity 435 00:44:51.700 --> 00:44:57.660 of contract, are essential to our entire system of private property, and therefore would have 436 00:44:57.660 --> 00:45:01.900 have been well worth the difficulties of a severe deflation. 437 00:45:01.900 --> 00:45:07.900 Aside from that, we have built deflation into an absurd ogre and have overlooked the healthy 438 00:45:07.900 --> 00:45:13.460 consequences of a deflationary purgation of the malinvestments of the boom, as well 439 00:45:13.460 --> 00:45:19.980 as the overdue aid that fixed income groups, hit by decades of inflationary erosion, would 440 00:45:19.980 --> 00:45:24.420 at last obtain from a considerable fall in prices. 441 00:45:24.420 --> 00:45:30.620 A sharp deflation would also help to break up the powerful aggregations of monopoly unionism, 442 00:45:30.620 --> 00:45:34.820 which are potentially so destructive of the market economy. 443 00:45:34.820 --> 00:45:39.900 At any rate, while the deflation would be nominally sharp, to the extent that people 444 00:45:39.900 --> 00:45:45.820 would wish to save much of their present cash holdings, they would increase voluntary savings 445 00:45:45.820 --> 00:45:52.380 by purchasing bank debentures in lieu of their deposits, thereby fostering economic growth 446 00:45:52.380 --> 00:45:56.460 and Mitigating the Rigors of the Deflation. 447 00:45:56.460 --> 00:46:01.580 On the other hand, there is no particular reason to be devoted to the $35 figure at 448 00:46:01.580 --> 00:46:06.820 the present time, since the existing gold standard and definition of the dollar are 449 00:46:06.820 --> 00:46:11.460 only applicable to foreign governments and central banks. 450 00:46:11.460 --> 00:46:16.180 As far as the people are concerned, we are now on a virtual fiat standard. 451 00:46:16.180 --> 00:46:21.780 Therefore, we may change the definition of the dollar as a preliminary step to return 452 00:46:21.780 --> 00:46:28.300 to a full gold standard, and we would not really be disturbing the principle of fixity. 453 00:46:28.300 --> 00:46:34.180 As in the case of any definition of weight, the initial definition is purely arbitrary, 454 00:46:34.180 --> 00:46:39.900 and we are so close now to a fiat standard that we may consider any dollar in a new standard 455 00:46:39.900 --> 00:46:43.300 as an initial definition. 456 00:46:43.300 --> 00:46:48.540 Depending on how we define the money supply, and I would define it very broadly as all 457 00:46:48.540 --> 00:46:54.820 Claims to Dollars at Fixed Par Value, a rise in the gold price sufficient to bring the 458 00:46:54.820 --> 00:47:02.860 gold stock to 100% of total dollars would require a 10 to 20 fold increase. 459 00:47:02.860 --> 00:47:07.940 This of course would bring an enormous windfall gain to the gold miners, but this does not 460 00:47:07.940 --> 00:47:09.460 concern us. 461 00:47:09.460 --> 00:47:15.140 I do not believe that we should refuse an offer of a mass entry into heaven simply because 462 00:47:15.140 --> 00:47:20.820 As the manufacturers of harps and angels' wings would enjoy a windfall gain. 463 00:47:20.820 --> 00:47:26.080 But certainly a matter for genuine concern would be the enormous impetus such a change 464 00:47:26.080 --> 00:47:31.300 would give for several years to the mining of gold, as well as the disruption it would 465 00:47:31.300 --> 00:47:35.300 cause in the pattern of international trade. 466 00:47:35.300 --> 00:47:40.620 Which course we take, or which particular blend of the two, is a matter for detailed 467 00:47:40.620 --> 00:47:42.740 study by economists. 468 00:47:42.740 --> 00:47:47.740 Obviously, little or none of this needed study has been undertaken. 469 00:47:47.740 --> 00:47:51.820 I therefore do not propose here a detailed blueprint. 470 00:47:51.820 --> 00:47:57.540 I would like to see all of those who have become convinced of the need for a 100% gold 471 00:47:57.540 --> 00:48:03.540 standard join in such a study of the best path to take toward such a goal under present 472 00:48:03.540 --> 00:48:04.540 conditions. 473 00:48:04.540 --> 00:48:09.740 Broadly, the desired program may be summarized as follows. 474 00:48:09.740 --> 00:48:18.540 1. Arrival of a 100% gold dollar, either by deflation of dollars to a gold stock valued 475 00:48:18.540 --> 00:48:25.820 at $35 per ounce, or by revaluation of the dollar at a gold price high enough to make 476 00:48:25.820 --> 00:48:33.460 the gold stock 100% of the present supply of dollars, or a blend of these two roots. 477 00:48:33.460 --> 00:48:39.260 2. Getting the gold stock out of the hands of the government and into the hands of the 478 00:48:39.260 --> 00:48:44.620 of the Banks and the People, with the concomitant liquidation of the Federal Reserve System 479 00:48:44.620 --> 00:48:49.700 and a legal 100% requirement for all demand claims. 480 00:48:49.700 --> 00:48:56.900 3. The transfer of all note-issue functions from the Treasury and the Federal Reserve 481 00:48:56.900 --> 00:49:03.420 to the private banks. All banks, in short, would be allowed to issue deposits or notes 482 00:49:03.420 --> 00:49:06.260 at the discretion of their clients. 483 00:49:06.260 --> 00:49:13.180 4. Freeing silver bullion and its representative in silver certificates, which would now be 484 00:49:13.180 --> 00:49:20.020 issued by the banks, from any fixed value in gold. In short, silver ounces and their 485 00:49:20.020 --> 00:49:25.680 warehouse receipts would fluctuate, as do all other commodities on the market, in terms 486 00:49:25.680 --> 00:49:32.220 of gold or dollars, thus giving us parallel gold and silver monies, with gold dollars 487 00:49:32.220 --> 00:49:37.220 is presumably remaining the chief money as the unit of account. 488 00:49:37.220 --> 00:49:45.740 5. The eventual elimination of the term dollar using only terms of weight such as gold gram 489 00:49:45.740 --> 00:49:52.860 or gold ounce. The ultimate goal would be the return to gold by every nation at 100% 490 00:49:52.860 --> 00:49:58.300 of its particular currency and the subsequent blending of all these national currencies 491 00:49:58.300 --> 00:50:03.300 into One Unified World Gold Gram Unit. 492 00:50:03.300 --> 00:50:07.980 This was one of the considered goals at the Abortive International Monetary Conferences 493 00:50:07.980 --> 00:50:10.500 of the late 19th century. 494 00:50:10.500 --> 00:50:16.100 In such a world, there would be no exchange rates except between gold and silver, for 495 00:50:16.100 --> 00:50:22.020 the national currency names would be abandoned for simple weights of gold, and all the world's 496 00:50:22.020 --> 00:50:26.700 money would at long last be freed from government intervention. 497 00:50:26.700 --> 00:50:35.780 6. Free, but presumably not gratuitous, private coinage of gold and silver. 498 00:50:35.780 --> 00:50:41.380 I must here differ with Professor Mises and Henry Hazlitt's suggestion for return to the 499 00:50:41.380 --> 00:50:47.340 gold standard by first establishing a free market in gold, by cutting the dollar completely 500 00:50:47.340 --> 00:50:54.900 loose from gold, and then seeing, after several years, what gold price the market would establish. 501 00:50:54.900 --> 00:50:59.760 In the first place, this would cut the last tenuous link that the dollar still has to 502 00:50:59.760 --> 00:51:03.540 gold and yield us a totally fiat money. 503 00:51:03.540 --> 00:51:09.540 Second, the market would hardly be a free one, since almost all the nation's gold would 504 00:51:09.540 --> 00:51:12.380 be sequestered in government hands. 505 00:51:12.380 --> 00:51:16.140 I think it important to move in the reverse direction. 506 00:51:16.140 --> 00:51:21.740 The Federal Government, after all, seized the people's gold in 1933 under the guise 507 00:51:21.740 --> 00:51:24.320 of a temporary emergency. 508 00:51:24.320 --> 00:51:30.200 It is important, for moral and economic reasons, to permit the people to reclaim their gold 509 00:51:30.200 --> 00:51:32.640 as rapidly as possible. 510 00:51:32.640 --> 00:51:37.760 And since the gold is still held as hostage for our dollars, I believe that the official 511 00:51:37.760 --> 00:51:44.100 link and official convertibility between dollars and gold should be re-established as soon as 512 00:51:44.100 --> 00:51:47.240 Congress can be so persuaded. 513 00:51:47.240 --> 00:51:52.560 And finally, since the dollar is merely a weight of gold, properly speaking, it is not 514 00:51:52.560 --> 00:51:57.980 It is not at all appropriate to establish a market between dollars and gold any more 515 00:51:57.980 --> 00:52:03.720 than there should be a market between $1 bills and $5 bills. 516 00:52:03.720 --> 00:52:08.520 There is no gainsaying the fact that this suggested program will strike most people 517 00:52:08.520 --> 00:52:12.320 as impossibly radical and unrealistic. 518 00:52:12.320 --> 00:52:18.020 Any suggestion for changing the status quo, no matter how slight, can always be considered 519 00:52:18.020 --> 00:52:25.000 by someone as too radical, so that the only thoroughgoing escape from the charge of impracticality 520 00:52:25.000 --> 00:52:29.940 is never to advocate any change whatever in existing conditions. 521 00:52:29.940 --> 00:52:35.940 But to take this approach is to abandon human reason and to drift in animal or plant-like 522 00:52:35.940 --> 00:52:38.840 manner with the tide of events. 523 00:52:38.840 --> 00:52:44.040 As Professor Philbrook pointed out in a brilliant article some years ago, we must frame our 524 00:52:44.040 --> 00:52:52.860 are the best course to be, and then try to convince others of this goal, and not include 525 00:52:52.860 --> 00:52:59.300 within our policy conclusions estimates of what other people may find acceptable. 526 00:52:59.300 --> 00:53:06.780 For someone must propagate the truth in society as opposed to what is politically expedient. 527 00:53:06.780 --> 00:53:12.200 If scholars and intellectuals fail to do so, if they fail to expound their convictions 528 00:53:12.200 --> 00:53:17.800 Because of what they believe the correct course to be, they are abandoning truth, and therefore 529 00:53:17.800 --> 00:53:21.640 abandoning their very raison d'etre. 530 00:53:21.640 --> 00:53:27.880 All hope of social progress would then be gone, for no new ideas would ever be advanced, 531 00:53:27.880 --> 00:53:31.320 nor effort expended to convince others of their validity.