 Mark alluded to something there at the end of this talk about private money sounds a little strange almost You know government money not supplied by government, but that's actually something I'd like all of you to consider this morning The topic I'm going to present today is a free market in money With with a question mark at the end because it sounds strange doesn't it sounds more like a question than a declarative statement We don't think about money the same way we think about it other commodities, right? We why why is that we tend to assume? Of course it has to be supplied by government We want we all want more of it But we don't think too much about its quality. We don't think too much about its origins We don't really think too much about why or how it came to have value at all in other words You have one of these right? This is the one I borrowed this But why does this have value? Why can you take this to McDonald's and maybe I don't can you get a small diet coke? Why does it have any value at all? Well mostly because the government says it does We just go along with it Now of course lots of other goods and services are supplied by the market But why not money? Why not the medium of exchange that we used to obtain these other goods and services? And maybe a broader question is why do so many otherwise? free market Advocates believe we need monetary policy that we need the government to have a policy for money And most people don't really spend their day thinking what we need a housing policy or an energy policy or most or an Automobile policy most of you probably came here today in an automobile I mean there are laws and rules and regulations, but we none of us really wake up thinking gosh the government ought to have an over arching Automobile policy So these are just some of the ideas. I'd like you to consider today perhaps change the way you think about or view money So to start why don't we think about something where there where there is a free market the aforementioned automobile? I just take a simple Honda Accord Really an accord represents a miraculous coordination of Individuals tens of thousands of people around the world came together most of them complete strangers to produce the Honda Accord That's sitting on the lot here at Honda of Auburn. It's actually a miracle if you think about it, but it mostly came about in Free market ways right there's capital was supplied Honda's a gigantic multinational public company you can go buy a share of stock and Honda so you can give them some money So they have some capital and you'll you'll be an owner for I think about 48 bucks You can be an owner of Honda Motors company limited big Japanese company. So They design these cars mostly in Japan Japanese engineers Parts come from all around the world. They're assembled Various locations a lot of accords are made in the US, but some are made in Japan Belgium Canada etc. They're shipped of course on huge cargo container ships around the world They're sold worldwide Honda Accords you ubiquitous worldwide Now they're not sold in a completely free market with no government involvement whatsoever Of course every jurisdiction that an accord that involves a Honda Accord the making of one has taxes and labor laws and environmental laws and regulations and You know there's import tariffs when it went a country when a Honda enters a country from from another country etc But we generally think of a of an automobile as being the product of a free market, right? I mean Honda has to compete Against other brands You buy a Toyota if you wanted to Honda's again privately capitalized in each year each each year it encouraged loss or profit Based on its worldwide operations in theory at least Honda could go out of business and declare bankruptcy After the the crisis of 2008 we saw our own government prop up some us auto manufacturers But in theory of course Honda could go out of business and cease to exist There's no central government in Japan or the US or otherwise it that sits around the planning committee that decides well How many Honda Accord should be built in 2015 and what should the what should the MSRP of a Honda Accord be? And how much should the workers in the factory get paid and where should these cars be sold? How many should be sent to the US? You know, there's no central planning committee. We leave that to Honda the smart people at Honda So therefore I think it's okay to think of a Honda Accord is basically a product of a relatively free market And so when you when you imagine all the human coordination human effort that goes into bringing that That humble Honda Accord to your driveway, you know, is it really unthinkable that the marketplace could also supply The money that you used to buy on the Accord Let's think about that, you know, we think a lot about the quality of a Honda Accord, right? We think about the quality of any good or service we're gonna buy before we buy it But what about the quality of the money we exchange for it? In other words, that's half the transaction, right? You give money they give you a Honda Accord So when you think about buying an accord you or your family you might do a lot of internet research You might go test drive one you might talk to your friends and family Maybe you have some knowledge because you've owned Hondas in the past and you thought the quality was good Might think about Honda's reputation So a lot of goes into your your search for a car and you decide that it's a quality item And you make a decision to exchange probably depending on the model probably about twenty nine thousand dollars So significant sum of money to go buy a brand new Accord today, but what about the quality of the money you exchange for it, right? I mean there is there are laws called you legal tender laws So Honda at least operating in the US But both as a practical and legal matter more or less has to accept US dollars for it So what can Honda do to say well, what about the quality of the money you're giving us for our quality product? I mean, what if they're worried that the Federal Reserve is going to do things that make the dollars you're giving him worth less soon You know, what if they're worried about just sort of the future of monetary policy that caught makeup of Congress or the new Fed chair Janet Yellen How does Honda protect itself against these uncertainties now Honda can't shop around for a different form of payment from you Right, there's no competition Honda's getting a dollar 29,000 of them So that's one thing they do is they price that uncertainty into the price of a car I mean some of that 29,000 you pay at they have to sort of hedge against the future And of course, you know the price goes up at first accords were came out in 1976 and they were about the size, you know about here to here But they cost about $3900 a little less than $4,000 in 1976. So even adjusted for inflation today. That's maybe $17,000 so it's apples and oranges today's accord is a much bigger nicer vehicle last longer, etc But but so the price does go up and that's one way that Honda protects itself against the diminishing or what they see is the diminishing quality of the money They can they can always sell it for more, right? They could say well, we don't know what the Fed's going to do We're going to sell it for $35,000 not $29,000 but But it you know, you raise the price the demand is going to go down They're going to sell fewer of them. That's what we call it downward sloping demand curve, right? The price of anything goes up demand for a fall. So even though they're getting more per car They might sell fewer and they might end up making less profit And also the price might not the price might be what we call fairly elastic, right? We're just a small increase in price may cause a drop in demand. That's bigger So they may not have that much choice to just say well instead of charging you 29,000 for it We're going to charge you 35,000 So it seems that Honda is a little bit of a bind, right? You can shop around but they can't So, you know in reality there really is no free market competition on the money side that half of the transaction Now as I mentioned, there's legal tender laws and they which basically says US coins and US currency Federal Reserve notes what we call a dollar our legal tender for debts in the US and also for paying your taxes Now like like a lot of bad laws Legal tender laws came out of wartime They they came out of the Civil War era during the Civil War the federal government began issuing greenback notes called their US government notes and these were not redeemable in gold or silver They were just a piece of paper So after the wars over people still had these things But they were worth much less and they wanted to pay they wanted to pay for things with them And of course Congress itself had a lot of debts that incurred during the Civil War strapped for money So instead of having come up with gold or silver They started issuing these notes that they could use to pay for troops and supplies and And all the things all the costs that come along with the Civil War So in the in the late 1800s the Supreme Court comes along some people were disgruntled because these notes They had were no longer worth their face value Supreme Court basically held that in a series of cases the paper money Even if it's not redeemable in gold or silver you can't go exchange it with the government for gold or silver can be legal tender for payment so You know because of both the history of these laws these legal tender laws and also as a practical matter operating in the US Where the US dollar has used you know Honda has to accept the dollar You know, what's the other option that you know in theory barter that Mark alluded to barters Allowed in the US. It's legal But it's taxed, you know in theory you could go to your Honda dealer and try to come up with something and say hey local dealer You know, I'll give you some some services for your business or I'll give you Some some product that I sell or whatever it might be in exchange for a Honda Accord Seems tough, but it might work might work But but the Accord dealer is still supposed to pay tax on the value the fair market value of what you give them Just the same as they have to pay tax when you give them that twenty nine thousand dollars. So so barter seems kind of Archaic and his mark pointed out it makes us poor because you got to have something that each side wants kind of tough. We need money Now this isn't just an abstraction Okay, this isn't just a practical matter. I mean the federal government can really come and put you in jail If you try to compete with its dollar Okay, there's a gentleman named Bernard von Notthaus. He created something called the Liberty dollar Liberty dollar is basically a gold or silver coin Later copper as well, and he also issued some notes that came along with it and It didn't say US government or anything like that on it, but it was you know It kind of looked like a Tratable coin and it did have the word dollar on it which turned out to be his downfall Now it's perfectly okay for any of us to go make new Mismatic coins right commemorative coins out of gold or silver We're allowed to do that We're just not allowed to call them money and and use them as money now mr. Von Notthaus And he never called him us dollars or you never even really called them coins Again, he did call them dollars and they did say on them in God we trust So while he never encouraged or advocated that these could be used as legal tender He did say hey, you know, you might be able to part of these because they had value. They were made of actual physical precious metals and he created some associates and merchants who would accept this Liberty dollar And they got commissions, you know So so he was doing this out of both an interest and money, but also he had a self-interest in it Well, mr. Von Notthaus received a visit From federal government agents and in March of 2011. He was pronounced guilty in court of Making possessing and selling his own currency That's basically a fancy word for counterfeiting and the prosecutor the Justice Department called this a form of domestic terrorism He was trying to undermine the legitimate currency of the country But what's so funny about this is, you know, his currency actually had value and Like that dollar bill which just has value because the federal government says it does You know his his actually had gold or silver or copper Federal government fortunately just this last December sentenced him to about six months of house arrest So it wasn't a terrible story where he had years and years in prison and he's an older gentleman But they did see seven million dollars worth of numismatic value and coins from him. No joke seven million bucks And I know what you some of you are thinking, you know, why doesn't the government go after Bitcoin? Right. They're basically saying this is currency. Why don't they go after him like mr. Von Notthaus? Well, they might but for the moment they've decided and that the IRS has actually said that Bitcoin represents a capital asset and That you just trade it like you have a value in it and you just trade it like you would a share of Apple stocks So you have gain or loss when you get rid of Bitcoin. In other words, it's like an investment So for the moment it appears the federal government's not going after Bitcoin, but it could so When we talk about what a free market and money might look like really all we have to start with is is getting rid of these laws these legal tender laws and Perhaps pass a law that's that legalizes competing currencies And this is this is happening Bitcoin is example of how this is happening Technologically whether that with or without legislation. You know, just don't put people in jail For using something other than those green dollars for doing business now certain states have even attempted to enact this Legislatively there was a movement in the state of Virginia movement in the state of Utah to say hey, we're worried about what the feds do it We're worried about what might be happening in the dollar So we want to make sure our citizens can use other things like gold and silver perhaps as as currency and Pretty fun Hayek who's a very famous Austrian economist, you know He argued that state monopolies and money are just as bad as state monopolies and anything else and the competition works better Now we ought to let private issuers of currency compete to maintain the quality and the value and the reputation the money They issue just like Honda competes to maintain their quality in reputation And like I said all this can occur without even eliminating the US dollar Or the Fed if you just if you just pass laws or repeal laws that prohibit people from issuing private currency Then the US dollar can can duke it out it can compete and We can test whether this endless monetary expansion that allows the federal government to run deficits To pay for entitlements, etc. Whether this this really can go on forever Or whether people might choose another way to Protect themselves and and to make payments for goods and services so You know we can talk about free market and money, but You know we ought to go back a little bit to some of the principles that mark talked about the origins of money and the value of money Really that the father of the Austrian school a man named Karl Manger way back in 1892 said well Money is just the most saleable commodity In other words, it's whatever commodity in society exists with the biggest Saleableness i.e. the it's the most universally accepted and it arises naturally to make society richer Than the barter scenario that mark outlined it makes us richer because I don't have to have something you want to trade So then Not too much later the man for whom this building is named Ludwig von Mises another Austrian in 1912 He explains how money gets its value not by government edict But by having pre-existing value as a commodity in and of itself on its own, right? so real money At least in the opinion of Austrian economists has value independent of its use of money like gold and silver Can make jewelry out of them can have industrial uses etc. So historically Gold and silver have been the commodities with the most non monetary uses and They're in the greatest degree of sale ableness if we want to use that as a word or money this and They hold their value as commodities independently of their value is as money. They're durable You know gold and silver can survive being submerged in water or a fire They're portable. They're small you can carry them in your car on your person. They're divisible You can melt down coin into into whatever denomination you want So to use gold and silver as money and to begin to move toward more of a free market in money By eliminating legal tender laws for example, we wouldn't have to impose a gold or silver standard on anybody, right? You've heard this term probably a gold standard, but really all that means gold standard means that you can exchange money for gold it's redeemable in gold and Having money backed by gold or silver or anything else Just as Mises explained just helps to make the purchasing power of money more independent from the state Now in other words the state can't just produce a bunch of gold tomorrow like it can Through the Fed and the Treasury produce a bunch of physical or electronic dollars tomorrow So thinking about some of these principles and thinking about gold and silver and their place in history and you know What would a free market in money today look like well? Just to say we wouldn't have to impose a gold standard on anyone legislatively We didn't have to impose anything on anyone legislatively in other words What would a free market and money look like we don't know and we don't have to know that's the beauty of the market You and I don't have to know any more than we have to know what the future of automobiles looks like leave that to Honda Leave that to smart engineers leave that to marketing people and sales people But what we do know is that the market wants money that holds its value and the market wants money That's not subject to political and central bank manipulation. We know that Now undoubtedly I think that a free market money would blend some of the old wisdom of gold and silver with some of the new technology Perhaps some of the blockchain technology that mark alluded to But history does show that gold and silver backing meaning money That's redeemable in gold or silver is almost certain to be preferred by the market There's also the issue of universality, you know, it's nice to have a form of money that's accepted wherever you go and Gold gold has been accepted throughout cultures throughout time throughout history and it's still accepted today go to Dubai By gold from a vending machine. I encourage you to do that actually And then I encourage you if you can do that I also encourage you to donate to the Mises Institute because you're If you're flying to Dubai buying gold out of a vending machine in a big brick, then you probably Don't drive a Honda Accord So, you know mark talked about what money to new money might involve Blockchain technology and cryptocurrencies, you know, these do raise some anonymity questions I mean what you do online even through encrypted Technology can still possibly be traceable There's also the possibility of electronic gold or silver these concepts have existed where you have sort of a debit card and It's backed and represented by actual gold in the account somewhere But you just use the debit card just like you use your debit card now it And at the grocery store and the great thing about electronic Technology today is that it solves this problem of divisibility, right? Let's say let's say just a one ounce gold coin is worth What is it worth today? $1,100 it's pretty hard to buy a loaf of bread loaf of bread does not yet cost $1,100 But with electronic technology we don't we can divide things up you you know electronically You can just say well, it's it's one one-hundredth of not so gold or whatever it is. It's very simple to do So the the kind the problem of divisibility from 500 years ago when we actually had to use coins among each other I think it's easily solvable today You know we've heard and we've actually seen example of regional currencies that have arisen on their own Like from local banks. There's currently a form of currency operating called Berkshires It's in the Berkshire region of Massachusetts where a bunch of local banks got together it you know money might look like something that's produced by a Vendor retailer that already has a lot of expertise in other areas Rand Paul brought this up the other day Perhaps Amazon or Walmart or somebody like that could issue money better than the federal government could But as a final note here on this, you know, it doesn't really matter how much money exists Murray Rothbard talks about that in one of the readings that were recommended for today What has government done to our money see prices will adjust There's no need for a planned increase in the supply of money Which is basically the modus operandi of the Federal Reserve more money doesn't mean that any more capital exists It doesn't mean that we're more prosperous if more money is created tomorrow That doesn't in and of itself mean there's more food to eat or more Honda Accord to drive or anything else so You know we talk about what money might look like what banks might look like in a free market. I Think they might look very different than banks do today You know Mark mentioned the peer-to-peer aspect of Bitcoin imagine if you didn't even need a bank Imagine if you had a an electronic wallet that was safe enough and secure enough and you could Conduct business peer-to-peer with someone else using a money created By a third-party vendor, maybe you wouldn't need banks anymore. Who knows? So there's a lot of things to be considered here and it really could be quite a fascinating Experiment couldn't it if we just allowed competing currency if we allowed people other than the state to provide money And the state could continue to provide the dollar. We don't need to create a scenario where there's panic or risk You can still use dollars if you want to Let me just say in closing. We won't solve the world's money problems today And I don't expect you to take anything that any of us say today matter of opinion at face value But if you're interested I really encourage you to study more about money the nature of money to learn more about central banks You can spend a lifetime studying central banks and monetary policy So in conclusion, I'll just offer you two questions to consider before you go home today first is that if what Government says and a lot of central bankers say and Frankly a lot of politicians have said over the years Dick Cheney, Ben Bernanke, Janet Yellen, Paul Krugman If what they say is true namely that the Federal Reserve and the Treasury Department in tandem can create all the money needed To operate the economy and operate the US federal government in other words to make sure everyone gets paid and Social Security is paid etc If the government can just create this money Why do we need taxes at all? Why do we all have to pay taxes every April 15th? I'm sure some of you are going through this exercise in TurboTax I'm mired in it myself tonight In other words if the government can just create money, why do we need taxes think about it second If the government can just create money and improve the general prosperity and that's something the Fed Claims pretty openly. Why isn't every country with a central bank? Doing the same thing and just creating prosperity across the board. Why didn't Zimbabwe become rich? When it started printing money worth, you know in denominations in hundreds of thousands or even in millions in other words Why doesn't that every central bank just create general widespread prosperity throughout the society? Well the muddled answers to these two questions that we get I in my opinion only demonstrate What everyone really knows which is that money and prosperity are two very different things and both are best left to free markets Rather than to government so with that. Thank you for your attention. We'll take a short break