 I'd like to welcome you, Thorsten Polight, to our humble studio, and it's a pleasure to have you here from Frankfurt, right? Thank you very much, Mr. Tucker. That's right. I come from Frankfurt. It's a great opportunity to be here and enjoying myself greatly. I should be clarify, you're here at the Austrian Scholars Conference, so you get to be around all your friends, your fans, your colleagues. Yeah, it's good to come together with like-minded people, you know, once in a while, to exchange ideas and having a good time. I think the Mises Institute is doing a fantastic job. You know, I really enjoy being here, and I think it's very much shaped by others. So in Frankfurt, you're not surrounded by colleagues? Oh, well, I think this is a completely different platform over here. I mean, this is the epicenter of Austrian economics, people coming from all over the world, and so it makes it really special to be here. In Frankfurt, a libertarian-minded economist is pretty rare, so there's still a lot of things to do to win people over. Now, you both teach at the university, but also work in private consulting with a bank, as I recall. That's right, yeah. I work as a bank economist, you know, doing- Fractional Reserve Bank, no doubt. Absolutely. You see, the problem with our monetary system you're referring to is that it's not only with banks, it's all over the place, because even the vendor next door is dealing with fiat money and exchanging goods and services against this paper currency, and so the problem that comes with fiat money is not only with banks or bankers, and indeed I try as best as I can looking at data, trying to make sense of what's unfolding and coming forward with hopefully good advice for institutional investors like pension funds, insurance companies, et cetera. Well, your articles on Mises or do have this nice combination, and this is why I'm always drawn to them. I mean, you're a star in any case, but I like the way you integrate high theory, you know, drawn from all times with current events, and it's a nice integration. It's seamless, really, in the way you write and in your work. Oh, that's very generous. I think, indeed, it's a good way of basically conveying the message of the Austrian School of Economics, if you can tie it in in day-to-day events, if you can make sense out of what's happening in globalized financial markets, and, you know, putting in a chart can be quite helpful for getting across the message, you know? And you do more than just put in a few charts. I mean, you're really analyzing very closely what's happening. You follow markets very carefully. In fact, you arrived here yesterday with a bit of news, actually, and you announced this bit of news to me as if I knew it, but I didn't. What was that again? Was something about a bond failing or something? Oh, yeah. There was a news saying that one of the largest American bond portfolio managers would no longer buy U.S. treasuries. Yeah, that's right. And there's a business page there. I don't even need to read the business page. I should just, you know, get you on Skype, and you can tell me. But later, I learned, I mean, that wasn't, you know, was made public, but they have already started dumping the treasure bonds since February, I learned. But I think it's important, you know, to analyze and follow what's really unfolding in the financial sector, in the real economy these days, because it helps to put to work the splendid ideas of the awesome school of economics. So you see people leaving the dollar, leaving the U.S. government debt, but where to go? I mean, what's left? And you've got, you know, as well as anybody about the problems in Europe. Well, I would say at the moment we haven't reached a situation where people are really fleeing out of fiat currencies, be that the dollar, be that the euro, or the Japanese yen. But what can be observed is that they're growing signs of people becoming increasingly concerned about the value of their lifetime savings, of their currencies. And so what, from my point of view, it's really what Hayek and Ludwig von Mises told us about the fiat currency system, namely that it is not a sustainable economic monetary order, so to speak. And I think we are at an early stage where the first signs of its... Well, the fiat currencies, as we know them, have only existed since about 1973. So it's fairly... Yeah. They're fairly new. And it's really a great experiment for many mainstream economists, like Milton Friedman, you know, told us that this is an unheard of monetary experiment, as he put it. And the Austrians, of course, have a much stronger message to say about fiat currency, namely that it is really an unsustainable monetary arrangement. How closely do you follow Fed policy? Very closely. I mean, central bank policies, be that, of course, the Fed is the most important... Well, on the most important central bank on the world. And central banks still have a great impact on the price action in the financial markets, be that in the money market, be that at the long term, at the long end of the yield curve, the actions affect stock pricing and derivative pricing. Well, I try to follow very closely what they do. What is your sense of... I think Bernanke recently announced that he was going to keep rates at practically zero, because he fears that raising rates would somehow harm the supposed recovery. So what's your analysis of that? Well, I think it's, first of all, based on a kind of Keynesian thinking, where the interest rate is basically a policy instrument variable, which has to be lower to the lowest level possible in order to stimulate consumption and investment. So I would say in this context, his assessment is basically shared by most central bankers around the world. Of course, from the viewpoint of the Austrian School of Economics, you would clearly see that this is really the wrong policy. Because it's a policy against the corrective forces of the free market. The economy cannot really get rid of all the mile investment under a policy which keeps the interest rates at artificially lower interest levels. Artificially, but I mean, is it your sense that if central bankers suddenly began to treat the interest rate as just a pure free market price, that we would see rates skyrocket or does more have to be done? For example, the moral hazard built into the system lowers rates lower than they would otherwise be, right? In a fiat money system where money is produced through bank circulation credit, as Mises put it, the market interest rate is necessarily below the level that would prevail under a commodity money system. So by definition, our system suffers from a distorted interest rate level and that causes all this mile investment. I must say in terms of the correct monetary policy, it is really hard to come up with a recommendation in the current system. The fiat money system is basically unnecessarily so related with causing mile investment and disequilibrium. Right. So often, the idea of, I think Mises writes this, he said everybody wants interest rates to be very low and somehow higher interest rates, high interest rates have this bad reputation and Austrians in particular seem to be going around going, well, we should have higher interest rates and nobody wants to hear this. And yet, low rates have punished savers. Absolutely. Absolutely. I mean, you're absolutely right. The interest rate is a free market phenomenon, theoretically speaking. It's expressive of societal time preference, you know, it's actually a guide which tells us how to save and how to consume out of current income in order to accumulate capital in order to improve the future consumption possibilities. And we have a monetary system which basically distorts this important guide stick, you know, and that causes all this boom and bust cycles, the mile investment and it's, I think, yeah, the economist Eugen von Birnbarwerk, you know, he back at the early 20th century basically he expressed concern that the interest rate wouldn't get rid of its, as we call it, moral shade, you know. People would prefer a low interest rate over a higher interest rate and that is, of course, conducive for policy makers, implementing policies for pushing down the interest rate, you know. But it's a problem for investors, isn't it? I mean, risk aversive investors once were able to know exactly what to do with the money. You deposit it and let it earn a nice rate of return now. Yeah. What do you do? Is it a problem for you as an advisor to money funds? I mean, what do you do with your money under these policies? On the one hand, of course, low interest rates, artificially low interest rates harm savers. And I may add, we have reached a situation where the short-term interest rates are not only low, but they have become negative in real terms. So people lose money, but holding time and saving deposits, they're getting punished for saving. Yes. And of course, that is benefiting borrowers, you know, because that real debt burden is getting diminished by this low interest rate effect. But borrowers benefit from low interest rates, but lenders don't, right? I mean, it's a problem because the low rates have discouraged lending, so you've got a kind of a stalemate. Yeah. I mean, monetary policy, as it is structured today with the government-sponsored central bank, leads, of course, to a situation in which some benefit and some have to basically shoulder the cost burden. We are indeed in a situation at the moment where funding costs are getting lowered through central bank policies to a very low level. And that makes, of course, it more difficult for, let's say, lenders to provide adequate credit to many businesses. So you have basically created two problems. On the one hand, for savers and on the other hand, for the lending industry. Yeah. They can't make any money at this racket. I mean, it's crazy. What is, now you've explained in many of your articles that we have a kind of that fiat money inflation and credit addiction is like a global disease, right? Do you expect a conventional response to QE1 and QE2 and all the efforts of quantitative easing? Do you expect inflation pressures to continue to rise over the next few years? Or what do you think about, I mean, apparently central banks only have so much power to unleash a torrent of paper, right? That requires the cooperation of the banking industry. The banking industry isn't cooperating entirely. You know, I come from a country where we learned our lesson very well in terms of increasing the paper money supply, as you know, in the 1920s, 1923, the Reichsmark was destroyed through hyperinflation. And maybe that is because Germans are still traumatized by inflation and hyperinflation. Whereas the Americans, I think, got traumatized by the Great Depression. You guys are afraid of deflation. That's a good way to look at it, yeah. But having said that, our monetary system is such that the central bank can increase the money supply at any point in time in any quantity desired. You wouldn't need the cooperation of the commercial banking industry for doing that. And what I'm trying to say is, if there's a political willingness to increase the money supply and increase inflation, you get more money and more inflation. The central bank can, for instance, start buying bonds against issuing new money. Bonds can buy bonds from banks, from insurance companies, or even from private individuals that could even buy other assets against issuing new money. So the system is really one in which the money supply can be increased and inflation can be orchestrated if there's a political willingness to do it. And also, I mean, that I think is the greatest danger if there is false economic theory which promises that increasing the money supply is going to improve jobs and output. The risk is clearly greatly increased that policy makers would reduce to such a policy. But Bernanke thinks that he can just turn it off if it gets to be a problem. I mean, technically speaking, of course, the central bank has a monopoly in this fiat money regime to increase the money supply, to determine the money supply. And of course, they could rein in any kind of money issued. But of course, as you know, once the money has been expanded, has been provided to the economy, it will hurt people once it is redeemed. And for political reasons, and when you look at monetary history, it becomes obvious that mostly once the money supply has been increased, it's never getting reduced. It's worked out through higher prices, so to speak. Right. I can't think of a single case where a central bank has ever deliberately deflated, maybe in some... Certainly not because they were created for increasing the money supply. You studied Weimar and hyperinflation at length, right? In fact, you have some family stories about this. So you have a family memory even. But wasn't it rather sudden? I mean, there was a whole lot of warning going into that hyperinflation. Was there? Well, I think, you know, that was the period of great revolution, you know, after the end of World War One. Basically, America brought democracy to continental Europe, the monarchy, you know. I expect it. Thank you, I love you. Let's leave it open at this juncture. So there were many problems, you know, with the larger consequences of the war period. And Germany had to pay reparations, you know, through the Allied... made Germany to hand over, you know, industries and gold and other stuff. And in late 1922, early 1923, there was the occupation of the rural gebeats, the industrial area of Germany through French and Belgian troops. And the former Chancellor, the German Chancellor Wilhelm Kuhnow, called for passive resistance. He basically called upon all civil servants and industrial workers to go home to prevent the Belgian and French troops to obtain any goods and, you know, any real stuff. And he promised to pay the wages with newly created money. And there the problem started. People, I mean, it was a politically orchestrated inflationary process, which then got out of hand, because prices started rising. And so people were talking, economists were talking, there were too few money around. So they increased the money production. It's a shortage of money. It's very strange, isn't it? And these days, I think they call it Havenstein momentum, because Rudolf Havenstein, that was the Reichsbrank president. And it led to this catastrophic collapse and complete destruction of the Reichsmark. Yeah. What percent inflation? I mean, do we have figures on this? It's astronomical. I mean, it became scrap money. And I think Mises was really referring to this episode when he wrote about the Krakapu, because at the end of that period, as from late summer 1923 until November, things spanned out of control. Right. And that's precisely the point that is out of control, right? And so you can have every intention of trying to prevent such a calamity. But at some point, inflation expectations kick in. Exactly. Then the money demand breaks down. Yeah. People try to exchange their paper notes or their money against real assets. And that is what Mises called the Krakapu. So it's a very interesting thing to read about because, well, one can't entirely rule out such a future for the dollar. I mean, in a sense, the German hyperinflation was special. First of all, it led to a complete destruction of the Reichsmark. The money was really dead and had to be replaced by new currency. Whereas when you look at, for instance, Latin America, they had hyperinflations in the early 1990s. The currencies were greatly debased, but they were still used as money. So in a way, the German hyperinflation was special. It was a perfect destruction, basically, of the currency. Yeah. You are a little bit unusual as a monetary thinker and economist in the sense that I get the sense that your true heart is with Mises' gold standard. I mean, you like Mises' gold standard, the idea of the gold standard. Let me start by saying there are certain physical properties. A medium has to fulfill, has to, you know, certain requirements have to be met by a certain medium for serving as money. And gold and silver, and obviously... Okay, they lend themselves very, very... Yeah, well, it's homogeneous, you know, it's homogeneous, it scares, it can be minted, transported. So, and having said that, I think precious metals can do a great job as far as the money function is concerned. When it comes to the gold standard, personally, I would think a privatization of money production would be the way forward. And I could imagine that this is something Mises, which is in the Misesian tradition. Going for a gold standard would actually imply that you impose a certain medium, namely gold as money. Or just convert the currency and define it in some way. Yeah, well, and... But you wouldn't allow the free market forces to decide which kind of medium should serve them as money, should serve people as money. So I think the way forward would really be the privatization of money production and let the free market forces to decide which money they would like to use or which monies they would like to use. But there's also the sheer implausibility of having enlightened rulers that would suddenly go, oh, the problem is we've got this paper money, we need to change the dollar to being gold. I mean, that's not going to happen. I mean, the prominent role of the gold standard can maybe explain by the fact that at least until the early 1970s of the last century, the U.S. dollar was still defined in gold and that was considered as a kind of natural monetary order. And therefore, many writers, including Ludwig van Mises and Marie Rothbard, always kept referring to the gold standard. But I would say complete privatization of money production would do the trick. And I could imagine once there's this kind of freedom in the choice of currency, people would decide, well, let's go for gold or silver or copper, whatever, as the ultimate means of payment. With digital communication and the globalization of commerce, it seems like it's a much easier undertaking to have private currencies than it might have been even in the 19th century or 10 years ago, you know? Yeah, I mean, the technological progress really would argue in that direction. And you can see all over the world, I mean, the holdings of gold and silver are increasing, you know, be that in physical terms or be that through exchange-traded funds or other investment vehicles. So people, I think, are increasingly getting hold of money in the form of gold and silver. In the United States, the government is quite frequently clamping down on digital currencies, for example. New business will start while we're holding your gold or whatever, and it starts to flourish. And as soon as it starts to flourish, the place gets raided by the Justice Department. I think that maybe there's a half a dozen cases of this just in the last few years. Yeah, I mean, at the end of the day, it's governments want to have control of the money supply, you know? And it's not easy to basically forecast a situation in which you would have, on the one hand, government-controlled fiat money competing against let's say, hip-free market-chosen currencies. The government will always try to dominate, you know, in the field of money. As long as people ascribe to that kind of monetary order, once people, and that is something which me has always pointed out, at the end of the day, it's all about public opinion, you know? Once people want something different, that is basically the leverage for change. Yes. In fact, just last week, I think, we saw the news that a particular state, Utah, United States, is legalizing the production of gold and silver as legal tender. And I'm not sure what it all means, but it's very interesting. I mean, yeah, I mean, when you look at monetary history again, I mean, there were so many experiments with money. And, but the, let's say, the underlying trend development was, or from my point of view, is that sooner or later, people come back to the ultimate means of payment, and that is called in silver. Well, you have a book out in German, right? Yeah, it's called Geldreform. It's in English, it would be kind of currency or monetary reform. Okay, well, that's a very start of a good translation. We've got the title so far. Well, I must say, I said to work already, you know? So let's see what comes out of it. Is it a big book? It's just 200 pages in German, and we try to keep it as short as possible because it should reach many people, also laymen and not only economists. Well, as you translate, you remember to turn every one sentence into three, just for Americans. Yes, yes. Okay, that's the way we are. Just a little tip there. If it becomes a blockbuster, I certainly make use of your advice. First and polite. Thank you so much for visiting with me today, and thank you for coming all the way to Auburn. Thank you very much, Mr. Tak, for the invitation. It was my pleasure.