Professor George Selgin explodes the myths of economic stability through central banking, races through the history of money, war and death in the 20th century, and flatly refuses to predict the future! :) From Freedomain Radio -- http://www.freedomainradio.com Sources: http://www.fdrurl.com/selgin
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| Hi, everybody. It's Stefan Molyneux from Freedom Aid Radio. | |
| This is an interview with Professor George A. Selgin. | |
| He is a professor of economics at Terry College of Business at the University of Georgia, a senior fellow at the Cato Institute in Washington, D.C., and an associate editor of Econ Journal Watch. | |
| Selgin, formerly taught at George Mason University, the University of Hong Kong, and West Virginia University. | |
| His principal research areas are monetary and banking theory, monetary history, and macroeconomics. | |
| He's one of the founders, along with Kevin Dowd and Lawrence White at the Modern Free Banking School, which draws its inspiration from the writings of Friedrich Hayek on denationalization of money and choice, A central claim of the Free Banking School is that the effects of government intervention in monetary systems cannot be properly appreciated, except with reference to a theory of monetary laissez-faire analogous to the theory of free trade that informs the modern understanding of the effects of tariffs and other trade barriers. | |
| The free bankers argue that, viewed in light of such a theory, financial crises and business cycles are largely attributable to misguided government interference with freely evolved and competitive monetary arrangements including legislation granting central banks exclusive rights to issue paper currency. | |
| Thank you so much for him taking the time particularly on his birthday. | |
| This is George Selgin. | |
| Hi, everybody. It's Stefan Molyneux from Free Domain Radio. | |
| I have on the line George Selgin, and he is an expert on all things, I would say, laissez-faire, voluntarist, libertarian, possibly even anarchic, if that's a fair statement to use. | |
| A volatile one, but I think a fair one. | |
| And thank you so much for taking the time to have a chat today. | |
| Thank you, Stefan. You give me too much credit. | |
| I only know about all things anarchic that have to do with money. | |
| Ah, well, I would say that that's the essence of a free system is defined by its freedom in money, but I also wanted to mention to my listeners that it is George's birthday today, and my only birthday present to you, George, is to not sing you happy birthday, which is an act of no small humanitarian largesse. | |
| I appreciate it. But happy birthday to you. | |
| I appreciate it, Stefan. | |
| I think my mother did that this morning on a voicemail I got, and I don't think anyone can top her performance anyway. | |
| Beautiful, beautiful. Well, I mean, you've done a huge amount of work over the years, and one of the things that I wanted to focus on, at least for the first part of the interview, George, was... | |
| People are frightened of banks. | |
| I think that's particularly after the last crisis. | |
| So when you talk about free banking, free has become one of these words that's become hideously corrupted. | |
| So you sort of, in a sense, the free market means, you know, I don't know, huge corporations should be free to kidnap Romanian orphanages to work in Singaporean sweatshops or something like that. | |
| So maybe we can just refer to it as the peaceful market or the voluntary market or something like that. | |
| But because Government has taken over the money supply. | |
| It's taken over currency. | |
| As a result, it seems inevitable that it has to take over interest rates and highly regulate the banking industry. | |
| What we see now is not what spontaneously develops out of people's desire to overcome the limitations of the barter system. | |
| I was wondering if you could talk a little bit about the history of banking and compare it to – and I've got to tell you what a real pleasure it is to demand that a professor do a compare and contrast essay as opposed to the reverse. | |
| But what's different now as compared to the way that it emerges in an ideal system or how it's emerged in history without government coercion? | |
| Well, Stephan, perhaps the easiest way for me to start answering that is to first explain that the freedom in banking That matters and that I emphasize in my work is the freedom of banks to compete and compete with each other, which is a crucial source of discipline in a banking system. | |
| It is a source of self-regulation among banks that's analogous to the regulation you get in other industries that are properly competitive. | |
| How did banking come to differ dramatically from other industries? | |
| Well, as I'm sure most of your listeners know, there are two important forms of money in the world today that banks have been involved in. | |
| One is paper currency, and the other is deposits that these days are often transferred with a debit card or wire transfer, but traditionally were transferred with checks. | |
| Historically, if you go back certainly to the 19th century, you find that banks originally, all banks or most banks, were in the business of issuing paper currency in the form of their own notes, which were convertible into some basic money, gold or silver back then. | |
| In the same way that today your bank deposit is convertible into basic money but now that consists of central bank money like Federal Reserve notes. | |
| So in the old days banks were competing. | |
| They were competing in supplying paper currency as well as deposits. | |
| So you had competition in paper currency and competition in bank deposits. | |
| And in both cases the competition was an important, a crucial source of regulation. | |
| Because any bank that overissued notes in a competitive system would quickly find that as the notes came back to it for redemption, it would lose reserves. | |
| So every bank put pressure on every other bank that forced it to limit how much paper currency it issued. | |
| Just as today, every bank puts pressure on every other bank to not create too many loans by, in effect, printing up deposit credits for borrowers. | |
| What happened in banking that screwed everything up was that government started to give monopoly privileges in paper currency issue to favorite banks. | |
| For example, in England, the Bank of England was created in 1694 and eventually, not all at once, it obtained monopoly privileges that it enjoys to this day No other English banks any longer can issue their own paper currency. | |
| Well, when you give one bank a monopoly of paper currency, you allow it to escape market discipline. | |
| It no longer has to worry about other banks exhausting its reserves by routinely sending its notes back and demanding conversion into gold or silver when we still had a gold or silver standard. | |
| Because those monopolistically supplied notes are treated by other banks as a reserve asset, as a substitute for gold that they have to hold onto and reissue. | |
| What governments did when they set up monopoly banks is they created banks that escaped market discipline and that besides found that they could, by expanding themselves, Lead the whole monetary system of the country, all the other banks, into a general expansion, Pied Piper fashion. | |
| This created a basis for serious boom-bust cycles. | |
| It's no coincidence that the rise of central banks in the 17th and 18th and 19th century, mostly in the latter, created a new kind of business cycle that was not so common in systems that retained competitive currency issues. | |
| Now, the banks, I think your insight is very keen on this, that the relationship between governments and the banking sector is, at least once it becomes centralized, is fairly unholy in that the banks receive monopoly charters in a typical mercantilist fashion. | |
| They receive monopoly charters from the government in return for giving preferential loans to the government or preferential treatment. | |
| Can you talk a little bit about how that develops? | |
| Absolutely, and that was the next thing I would have mentioned myself if you hadn't asked. | |
| When I say, when I explain to your listeners that by giving certain banks monopoly rights to issue currency, governments destabilized their monetary systems, which they did, the natural question for them to ask is, why would they do something that's destabilizing? | |
| The answer is that governments were motivated by a desire to enhance their fiscal resources. | |
| In the old days, they would have done that by debasing the coinage. | |
| But as banks became more important, people didn't use coins as much. | |
| They used banknotes or deposits. | |
| And consequently, the potential revenue gains from debasing the coinage became smaller and smaller. | |
| Well, the next step, the natural substitute, was for governments to get in the banking business. | |
| And they did this by setting up monopolies, and they said to the monopoly bankers, We'll give you this privilege that allows you to expand your balance sheets to an extent that no other bank could get away with, but you've got to pay for that, | |
| and the way we're going to make you pay for that is by asking you to use a big part of your extra lending power to lend to us, or use your capital to lend to us or some combination of that. | |
| So the central banks were first given their monopoly privileges to aid and abet governments, to allow them to stretch their fiscal resources, to give them a good new fiscal resource that could be especially useful when they needed money in a hurry and didn't want to try to tax people. | |
| And that in turn destabilized the economies in question. | |
| And, and this is the sad part, the destabilization the central banks caused was later Made into a reason for perpetuating these monopolies, basically medieval-style monopolies, by saying to people, ah, look how unstable our economies are. | |
| It's a good thing we have central banks that can stabilize them by scientifically managing the money supply. | |
| And so we have developed a myth of why central banks exist that in a way turns the actual reality of how they came to be on its head. | |
| Well, and of course, that trend continues when you hear all of the endless talk about deregulation as the cause of the current financial crisis. | |
| I wanted to touch on something that I think you mentioned it, and I wanted to expand on it, because this stuff sounds very abstract to a lot of people, and it is in many ways, but I think there's a very tangible aspect of central banking today. | |
| That is really visceral, which is the degree to which, particularly in democracies, the total war of the First and Second World Wars, it seems to me would be pretty impossible, at least to the extent that it happened, without central banking, without a decoupling from the gold standard, without fiat currency or without the preferential loans provided in return for a monopoly, exclusive rights by the state to the banks. | |
| Do you think that this central banking has had an effect on the nature of warfare and the extent of warfare in the 20th century? | |
| Oh, there's no question about it, Stefan. | |
| The First World War, of course, was an immensely costly war, not just in terms of the destruction that it involved and the death, but also because of the vast amounts spent by the warring powers. | |
| And it's notorious that That expenditure was, to a very large extent, financed by the printing presses of the belligerent countries' central banks. | |
| So you had substantial inflation in all of the warring powers, a little less in the United States, which of course didn't get into the war until later. | |
| But notorious inflation in Austria and in Germany, hyperinflations that wreck their currencies, or almost wreck the currency in Austria's case. | |
| Now, this would not have been possible if the countries in question hadn't already established central banks. | |
| Not because central banking by itself allowed that kind of exorbitant paper money, finance and inflation, But because central banks were a crucial stepping stone to the next step in the fiscal evolutionary process, which was suspending convertibility of paper money into gold, and that in turn allowed the central banks to really go hog wild. | |
| So what's the connection? | |
| Think of a banking system with a bunch of banks that have equal privileges to issue currency. | |
| Suppose the government said to one of them, oh, we'll let you stop converting your notes into gold, and then you can print a lot of money to help us pay for the war. | |
| Even given the privilege of suspending with impunity, a competitive bank might say, well, if I do that, my reputation is sunk. | |
| People will take their business to the other banks that issue notes. | |
| And that's that. It's not going to do me much good to take advantage of your offer. | |
| But once you set up a monopoly in currency, then you can let it suspend with impunity, and it can do so and still profit, because there's nowhere else to go. | |
| The public has to use its currency, whether it's suspended or not, because there's no other currency around. | |
| It has a monopoly. | |
| So central banking created an essential stepping stone I wouldn't be in a position with my expertise to tell you that World War I wouldn't have happened without central banks and fiat money. | |
| I can say that it wouldn't have involved the tremendous expenses that it involved, and I assume that a lot of the money that was spent went towards destructive activity. | |
| So I think that without central banks involved in the financing of World War I, we would have had less death and destruction and perhaps have had a shorter war. | |
| Yeah, I think it seems hard to me to imagine how it could have lasted much beyond a year without fiat currency because the destruction was just so savage. | |
| And of course, if the First World War had ended before America had come in, then it would have been, you know, everybody go back to your corners. | |
| There wouldn't have been this Treaty of Versailles imposition on the German economy, which caused so many other dislocations. | |
| I mean, one of the things that I really began focusing on in my graduate studies of history was really, to me, the first lens you need to look at the history of the world is through the lens of money. | |
| And it's something that's hard for people to see because it's so ubiquitous. | |
| You just kind of take it for granted. | |
| But I was wondering if you could talk a little bit about what some people call, particularly with the U.S. Federal Reserve, the decade or decade and a half of getting things wrong of experimentation, the time period between the First World War and the Second World War, which was characterized by some pretty extreme financial situations, of course, as people which was characterized by some pretty extreme financial situations, of course, | |
| the hyperinflation in Weimar, the massive debts that were required to be paid off through the war, the messing up of free trade by pillaging all of the stuff from the German and Austrian powers— What do you think was going on between the wars that was associated with central banking, and did it have much contribution to the development towards the Second World War? | |
| Well, Stephan, as your brief summary suggests, there's a lot going on between the two wars, so it's hard to really summarize it, but let me take my best stab at it. | |
| I think the best way to characterize the interwar period was one in which two ultimately irreconcilable Institutional arrangements, monetary arrangements coexisted, but coexisted in a way that was bound to lead to trouble. | |
| And these incompatible institutions were the old gold standard on one hand and central bank monopolies on the other. | |
| This was the era when you really had both of these institutions existing And in a way that was not sustainable. | |
| Now, it's important to go back to World War I and remember the vast increase in money supplies and price levels that took place during that episode as central bank after central bank suspended convertibility of gold. | |
| Well, after the war, in order to go back to the old gold values of their currencies, these countries faced a very stark choice. | |
| If they wanted to do that and have the system operating the way it did before World War I, where basically every central bank held its own reserves of gold and basically asked for routine settlement with other world central banks, they would have had to undo all of the excess money growth and price inflation that had taken place during the war. | |
| They would have had to go, in other words, through massive deflations until they had enough gold once again to support, until the price level was low enough so that the gold they had was adequate to support it. | |
| Well, most countries didn't want to do that. | |
| Some went part way, like Britain. | |
| They did have deflation, but not nearly enough to wipe out the expansions, all of them, of the First World War. | |
| Instead, the central bankers got together and figured out a way to jury-rig the old gold standard, basically, in this case, by creating something called the gold exchange standard, which would involve banks, basically central banks practicing forbearance with each other, holding on to IOUs from other central banks. | |
| So instead, when England owed gold to France because of the balance of payments, France was supposed to just say, oh, you don't need to pay us. | |
| We'll hold on to credits at the Bank of England. | |
| And in this way, they were supposed to be able to create something like the old gold standard, but that didn't need as much gold. | |
| And so with the existing gold, you could sustain high price levels and money stocks and avoid all that terrible deflation. | |
| Right. The problem is, Stephan, that this system was like a house of cards. | |
| It only worked as long as the central banks cooperated. | |
| So when France, at some point in the 1920s, said, no, we don't want to do this anymore, and started cashing in all its credits on the Bank of England, the whole thing came tumbling down. | |
| And this was the beginning of the Great Depression, a world depression, really fundamentally are caused by the collapse of the gold exchange standard. | |
| And then sustained, at least in my opinion, not just my opinion, but sustained through terribly expansionary status policies interfering with internal external free trade. | |
| Because, I mean, the crash was even worse in 1920, but it only lasted, what, 12 to 16 months? | |
| And then this one lasted for 13 years, only ended up interrupted by another war. | |
| So, I just want to point that out for people... | |
| Oh, absolutely. Of course, the depression lasted longer in some places, I agree entirely. | |
| The reason the depression lasted as long as it did in the U.S. is because the government's reaction to the depression consisted of A number of numerous policy interventions, many of which actually interfered with the normal process of recovery and made the depression that much worse and that much longer lasting. | |
| Absolutely. Now, I just wanted to, again, I know we're sprinting at madcap speed through the 20th century, but just to bring people a little bit more up to the present, the decline of the gold standard, with its final abolishment, it would seem, in the 70s. | |
| I wonder if you could just take us a little bit through that, and then we could talk a little bit more about the current crisis and where you see that as being generated, what you see as generating that. | |
| Well, after the great interwar crisis, Yet another monetary system that was not all that different from the old gold exchange system was established, the Bretton Woods system. | |
| In this system, it was U.S. dollars that other central banks were supposed to just hold on to instead of cashing in for gold. | |
| The Fed became the only central bank that was actually obligated to come up with gold, if anyone asked. | |
| They hoped that other countries wouldn't ask, and they especially hoped so when the Vietnam War was escalating in the 60s and the Fed started to print more and more dollars. | |
| Well, just as France started cashing in pounds in the 20s, they were the spoilers again in the 60s. | |
| They started cashing in US dollars for gold, and this ultimately led to the closing of the gold window in 1971, which was the Final step in the complete abandonment of the gold standard. | |
| I just wanted to mention to people that this is one of these bone grating moral contradictions that you see in statism all the time, which is that private citizens were especially forbidden from redeeming notes for gold, but foreign governments were allowed to. | |
| So it was a complete double standard, not even a gold standard. | |
| I just want to point that out, that the old gold standard was functioning intergovernmentally, but not between governments and citizens. | |
| It was functioning, though only one step removed. | |
| The public in the US and elsewhere was deprived of the right to own gold during the Great Depression, following the collapse of the old gold exchange standard. | |
| Central banks, though, did continue to have a right to convert dollars into gold at a now readjusted price of $35 per ounce of gold. | |
| But, of course, as soon as one of them tried to do so with any vigor, They ended its privilege and the privilege of others as well. | |
| It's a strange fact in the middle of the depression that one year it was illegal to have a bottle of gin in your pocket but it was legal to have an ounce of gold in your pocket. | |
| The next year it was legal to have a gin in your pocket and illegal to have an ounce of gold in your pocket. | |
| That's very true. | |
| And of course after 71 it's no coincidence That inflation became a much more serious and persistent problem than it had ever been in the past. | |
| And was combined with, and I remember even hearing about this as a kid, that the course according to Keynesianism, you should never have what is called stagflation, which was occurring in the mid to late 70s. | |
| I wonder if you could sort of break that apart for people who may be old enough like us to remember the situation. | |
| Right. Well, the Keynesian theory that... | |
| What was dominating policy discussions in the 60s and right through the 70s, although by then the problems with it were becoming more and more apparent, was that as long as you created enough money, you should be able to keep unemployment arbitrarily low. | |
| This might mean having to endure higher inflation, but the point was that that could well be a price worth paying. | |
| In summary, the theory was if you're willing to pay the price of a higher inflation rate, you can get, in exchange for that, a low level of unemployment. | |
| That seemed to be borne out by the facts in the early part of the 60s, starting from the late 50s actually, As the inflation rate rose, as it did steadily in this time period, the unemployment rate seemed to go down. | |
| So the Keynesians were pointing this and saying, see, if we want to lower inflation even more, we just have to inflate more. | |
| What this theory overlooked was the fact that the reason the increasing rate of inflation was stimulating employment and reducing unemployment was because it was unanticipated. | |
| And so labor markets were, as it were, caught by surprise. | |
| They'd never experienced accelerating inflation before, and consequently, the increase in dollar earnings acted as if it was an increase in real earnings, that is, in the real purchasing power that workers were getting per hour. | |
| Of course, it wasn't. | |
| It wasn't because prices were rising faster and faster, and that translated into a more rapidly rising cost of living. | |
| As soon as agents and labor markets started to get a grasp of the accelerating process of inflation, they anticipated it by asking for corresponding increases in their wage compensation geared to keep up with the rise in cost of living. | |
| At that point, the whole relationship that seemed to be present for some time fell apart. | |
| And that's when we ended up with very, very high inflation, but also Increasing unemployment, the undoing of the employment stimulus of the 60s as workers started to catch up with reality. | |
| And so by the late 70s, we were indeed in a very bad stagflation situation where the inflation rate sure enough had been allowed to go into double-digit territory, but the unemployment rate which had for a while gone down had also come way up. | |
| Indeed, when inflation gets really bad, the long-run consequence, because of distortion of the price system, is less efficiency and more unemployment, and that's what we ended up with. | |
| And it would seem that, I mean, it's hard to say because it's so much has accumulated into the national debt, but it would seem that the political classes averted a kind of disaster in the 70s and 80s and steered at least somewhat successfully, at least in the moment, in that we still have a functioning economy, though it wasn't looking very good at the time. | |
| What do you think has happened in the interim and has led up to now what seems to be a pretty permanent recession slash depression in the U.S.? Well, there are There are a lot of reasons why the current recession is lasting especially long and they are analogous to the reasons why the Great Depression lasted so long. | |
| The real problem is the response of the government to the recession itself. | |
| We've had many recessions in U.S. history. | |
| In some, the government's response to the recessions was Such that the natural process of recovery was able to play out relatively quickly. | |
| You mentioned the 19-20-21 crisis. | |
| That was a very sharp downturn, one of the sharpest in U.S. history, but the government at the time basically let market forces play out and recovery was extremely fast. | |
| In the Volcker recession, which It came about as a result of the sudden attempt to put a stop to the inflation of the 70s. | |
| We also had a very, very sharp recession, but there was no massive government intervention, no stimulus program. | |
| Obviously, since the whole idea was to stop inflation, there couldn't have been a big monetary stimulus or it would have undone what Volcker accomplished, which was to end the inflation. | |
| There was no major radical overhaul in the financial system. | |
| There was no uncertainty. | |
| There was no overall climate of uncertainty regarding what the heck the government was going to try next. | |
| I'm sorry. Just before we get to the present, this is just for my listeners who may not be as – and correct me where I'm wrong. | |
| You're certainly the expert. But the very brief, at least Austrian, explanation of a recession is that because of basically statist actions like control of interest rates and printing of money or over-underprinting of money – Entrepreneurs get the wrong signals, particularly in capital markets and in business-to-business markets. | |
| And so allocations, misallocation of resources based on expected consumer demand, which doesn't materialize because the signals being produced by the government are incorrect. | |
| And so when the consumer demand fails to materialize, you need to move your productive resources to other areas. | |
| And that is the recession. | |
| If you don't interfere with that, the reallocation of resources can be pretty quick. | |
| A year, maybe 18 months, maybe even less. | |
| But if you attempt to prevent or control this reallocation of resources, then the misalignment just continues and continues and can go on pretty much indefinitely. | |
| Right. Now, not every downturn is of the sort described by The Austrian theory and there can be other factors involved. | |
| I'm something of a heretic here because I believe that the collapse of the money supply is something that can contribute to or even just cause a downturn independent of prior malinvestment due to excess money creation. | |
| So one way governments can screw up is by letting the money supply collapse which does a different kind of harm but can do serious harm akin to the harm done by creating asset bubbles with excess money. | |
| In any event, the way the government responds to a crisis can have a big bearing on this rapidity with which prices return to their appropriate long-run equilibrium levels and resources start being used efficiently again. | |
| And in the 1930s and again today, The government has interfered with the normal process of adjustment in many ways and the result is that unemployment and failures are prolonged. | |
| The government interferes in different ways today than it did in the 30s. | |
| I'll give you just one example. | |
| After the subprime collapse, the regulator started to be very heavy-handed with the banks and forcing them to adopt new lending standards Essentially, committing the opposite error committed in the earlier part of the decade before the government was, in many ways, encouraging banks to lend on standards that were not at all conservative, particularly when low-income borrowers were involved. | |
| After the crisis, it reversed course and made it extremely hard for banks to lend, even when they had good customers who, according to conservative The old-time pre-boom standards would certainly have been able to get loans. | |
| So the government exacerbated the credit crunch and has continued to do so ever since the crisis. | |
| And this exacerbation of the credit shortage is one reason why the economy is not recovering as fast as it might. | |
| Do you think that it's fair? I know here we put on the most dangerous economic hat of all, which is the prognosticator hat. | |
| Where do you see things going from here? | |
| It seems to me hard to imagine that the US, barring some massive technological advancement that comes out of nowhere like teleportation or jetpacks or something, still crossing my fingers for those. | |
| But it seems hard to imagine, given the level of debt and given the continuing distortions in the economy and continuing this, you know, I guess they've relabeled it quantitative easing, this just overprinting of money. | |
| Do you think that the US is going to recover any kind of robustness in the future? | |
| Oh, yeah, not to mention the fact that, you know, the boomers are retiring and the unfunded liabilities are going to have to get hit pretty hard and the young are underemployed and are going to have to contribute a lot into the tax base to pay for the old. | |
| Do you think that the US is going to recover in any robust way or do you think there may be somewhat of a continual decline until there's a more significant change in the structure? | |
| Well, you know, that prognosticator hat is one I'm especially unhappy wearing and the I'll put disclaimers on the bottom. | |
| None of this should be taken. | |
| It's financial advice. I believe it's inherently hard to answer a question like that, and that's why I shy away, because there are two things that seem inevitable, but they point in different directions. | |
| One is that government policies seem to get worse and worse, And government becomes a greater and greater hindering factor in economic progress. | |
| That's one fact. | |
| And we are certainly seeing a big growth of government intervention as well as other developments that are making long-established government arrangements less and less sustainable or more and more problematic. | |
| So that's all really bad. | |
| And you've mentioned some of the The other thing that we know is true is that the market has an extraordinary resilience and ability to surprise us with ever-new innovations. | |
| Perhaps not jetpacks, but let's face it, whatever these new innovations are going to be, you and I probably are not anticipating them or anxious. | |
| No, we don't have them in mind. | |
| We're not saying, when is that going to happen? | |
| Because that is something we never even contemplated. | |
| Well, if we knew, we'd be investing and we'd retire billionaires or whatever. | |
| That's right. And so, here you have the two facts that experience has shown us to both be very persistent aspects of reality. | |
| One is the government's tendency to blot out or frustrate economic progress. | |
| The other is the market's tendency To overcome the government and deliver progress despite all of the machinations it has engaged in that tend to work the other way. | |
| So how bad is the future going to be when you take into account both of these things? | |
| I don't know. | |
| I hope that somehow the market is able to pull Yet another round of hat tricks. | |
| It's never let us down before. | |
| Well, I mean, my argument, again, from an idiot amateur side of the fence, my argument would be something like when it comes to specific regulations on specific industries or even specific tax policies or monopolies, the market can find a way to work around those because those are like throwing rocks into a river. | |
| You know, the river will just find some other path down the mountain, will reorient. | |
| But there's something different about money. | |
| Money is the everything in the economy because there's nothing that occurs in the economy other than simple barter with your neighbors. | |
| There's nothing that occurs in the economy that isn't tainted by money. | |
| And I sort of look at this 20-year malaise in Japan where you've had a pretty stagnant economy and a near collapse of its debt levels at the moment. | |
| That is a place where the market hasn't seen – and those, I think, were specifically currency-related in Japan and particularly regulatory around the banks. | |
| And that would sort of be my argument that when you have – the market can survive specific hits, but it can't survive for very long a corruption of the money supply. | |
| At least that was Lenin's original statement, right? | |
| The best way to destroy capitalism is to taint the money. | |
| Does that make any sense to you or is that just completely – It makes plenty of sense to me. | |
| By the way, no one's been able to trace that quote from Lenin. | |
| Oh, is that right? That's right. | |
| It's too bad, because it's really something he should have said, so I hope somebody finds it. | |
| But in any event, the problem is, you know, a hundred years ago, if you had described to somebody then the state of monetary affairs, not even today, but let's say 20 years ago, I'm sure they would have regarded this as a complete... | |
| As a description of a monetary regime that was utterly debauched. | |
| Indeed, a hundred years ago, perhaps we should say 110 years ago, the very idea of dispensing entirely with gold would have struck somebody as a recipe for utter disaster and for an economy that just couldn't function. | |
| And yet, despite the real damage that has been done to the monetary system prior to the crisis, The economy has continued to progress all these years. | |
| It has managed to overcome infirmities that many people would have thought fatal. | |
| So there you have it. | |
| There is still a battle out there between the government forces undermining market institutions And the market somehow surprising us with its resilience, | |
| including resilience to overcome, that capable of overcoming very serious interventions in the monetary system itself that do weaken that system, that do make it worse, but what can I say? | |
| So I'm an optimist about the market's resilience and its capacity to surprise us with new innovations that make up for government interference. | |
| I'm a pessimist when I look at the march of government interference itself and I don't know how to make a safe prediction about the balance of those two factors. | |
| I do know that we should do everything possible to try to roll back the government, to try to make it not hinder progress because the world could see so much more wealth and so much more progress If it wasn't for the way the government is continuously botching things up. | |
| Yeah, and I guess the optimist's case would be something along the lines of if The free market, such as the remains, was able to survive two world wars, recessions, depressions, catastrophes, not to mention all of the explosive innovation of the 20th century. | |
| There is reason to believe that it will survive what is coming, which is far less serious than, say, the First or Second World War. | |
| I mean, the First World War, you had 10 million dead, Second World War, 40 million dead. | |
| The First World War wiped out most of the capital that had been accumulated in the 19th century. | |
| So we are able to survive, but it really comes down to, and this is, you know, perhaps you'll join me in this and just exhorting people to, you know, educate yourselves about coercion versus voluntarism. | |
| Do not confuse state-controlled institutions with their free market equivalents. | |
| The two are almost complete opposites. | |
| And so to remember that it's not so much the crisis as what we do with the crisis and, you know, what steps we take, because the way that the... | |
| Predations and violence of the 20th century survived through a diminishment of government after each of these wars or after each of these catastrophes. | |
| So I hope that that's what people will take out of this conversation. | |
| Just as a last point, is there any particular resources? | |
| I've certainly watched your lectures on Mises.org, which I'll put links to below and highly recommend. | |
| Are there any other resources that you would suggest for people who want to learn more about? | |
| I think there's a very essential, seemingly dry, but absolutely fascinating. | |
| It's one of the few areas of economics where we can get really, really involved because we all use money. | |
| I mean, macroeconomics is a bit more theoretical for most people, but we all use money. | |
| What are the resources that you think, other than your books, of course, which I would highly recommend as well, that people should pursue if they want to learn about this stuff more? | |
| Well, that's a good question, Stephan. | |
| You know, I think that people today... | |
| Perhaps too inclined to limit their exposure to economics and to monetary economics to what they can find on the blogs or online. | |
| And these are the people who are trying to learn about these things, which is very commendable. | |
| But to really get a solid grasp of the subject of monetary economics, there's no substitute for reading. | |
| There's no substitute for the The printed word or the electronic version of the printed word. | |
| There are classics well worth reading. | |
| I would just mention a few off the top of my head. | |
| Everybody should read the chapters on money in Adam Smith's Wealth of Nations if they don't read the whole thing. | |
| Those chapters contain some very wonderful insights on the benefits of monetary exchange and of bank money in particular. | |
| William Stanley Jevons, the great Victorian economist, I wrote a book called Money and the Mechanism of Exchange in the 1870s. | |
| It's online. It's available online, as is The Wealth of Nations. | |
| Not all of it is good, but most of it is very good. | |
| It's so clear and it explains so much. | |
| Turning to more modern works, my former colleague and present associate Lawrence White It has, for those students who want to get into some more advanced theory, a fantastic book called The Theory of Monetary Institutions. | |
| You're going to need some econ background for that, but it is a wonderful, wonderful book. | |
| Finally, a little history. | |
| Well, two more classics. | |
| Walter Badgett's Lombard Street, also available online, written around the same period as Jevin's work. | |
| This is where the idea of a lender of last resort is developed, but if you read Badgett himself, instead of getting this second hand, you'll see that he thought central banks were a bad idea and very destabilizing, and he had very good insights on the way money markets work. | |
| Last book, a book that goes into the history of central banking and the history of the debates That were fought over whether or not to have central bank monopolies. | |
| Vera Smith, The Rationale of Central Banking, she was one of Friedrich Hayek's students. | |
| She wrote this book as her dissertation in the 30s, and I'm not sure if it's available online free, but it is available in a wonderful, inexpensive edition, paper edition from Liberty Press. | |
| Those are great books to start with. | |
| Right. And I'll put a link below the video and in the description of the audio for people to get these resources if they're available online or at least links to purchase them. | |
| I really want to thank you for your time. | |
| I also want to thank you for the time and the care that you put into both your writing and your presentations, which are elegant and witty and a real pleasure to consume. | |
| And I really do appreciate that. | |
| You take a dry subject like ancient coins and you really, really bring it to life in a very engaging way. | |
| So thank you so much for all of the work that you're doing to bring that stuff to light. | |
| Not at all, Stefan. | |
| It's been a real pleasure for me, and thank you for the good work you're doing with your website and your related activities. | |
| Well, take care. Have a wonderful afternoon, and happy birthday again. |