 My topic is the gold standard versus fiat money And I'll try not to make it as dry as it sounds There'll be some pictures and some jokes Let me just start off with a Chart that I came up with a number of years ago. I was unhappy with the way international trade was taught Or international economics which includes the monetary component because often what you would see is when they discuss the gold standard They would put the gold standard under fixed exchange rates so the gold standard would be one example of fixed exchange rates and That would be right alongside things like Fiat currencies created by a world bank Okay, where there would be a fiat currency In in in the view of Keynes and some of the the later Keynesians Which would be issued by a world bank and then individual currencies will be tied to that world currency by fixed exchange rates So the gold standard was there and then on the other side was fluctuating exchange rates And those were rates or a system in which Different national currencies fluctuated in value against one another Of course, this is not satisfactory The key difference is that between a market supplied money or commodity money whose supply and demand is anchored in the market and a money whose supply is monopolized by The political authority be it through its central bank or directly through the the government So the best systems from the from the point of view of of of Austrians if we're Using as our standard satisfaction of consumer wants and the ability of entrepreneurs to calculate is The market supply commodity monies, okay, and then things get progressively worse until we get to a world central bank so having said that we know as professor Engelhardt has has told us that All money originated and must have originated logically as commodity money So all money in some sense was 100% Reserve or or pure gold standard copper standard silver or In ancient days cattle and so on all money came on to the market all general media of exchange as Some sort of a commodity, okay But we have the most information about the classical gold standard Now how do we know whether whether something is really a genuine gold standard or not because I've written on this a genuine gold standard Such as the classical gold standard and unlike the Bretton Woods false false or phony gold standard The mark of the genuine gold standard is that gold coins are actually in circulation, okay? They're used in everyday circulation It's not necessary that that there there Be 100% reserves though that is better, but but but almost from the start when money originated Governments began to interfere So it's very hard to find a pure commodity money Operating in history so we'll stick with what we know best We'll stick with sort of slightly watered-down version of a pure commodity money the classical gold standard And we'll compare it or actually rather not really compare we will compare a little bit at the end We'll show the step-by-step process by which the gold standard was Deliberately really destroyed by by governments. I mean that's me is this big point that the gold standard did not fail It was deliberately destroyed by governments So what were the main characteristics of the gold standard? The monetary unit was defined as a weight of gold I'll talk I'll give you an example of that a little bit later on so that really gold and nothing else was money Gold was the base money Okay, that it was a bank reserves, and it was the currency in circulation Nothing else was was was considered money proper as means would use the term Anything else that circulated as as a medium of exchange was a money substitute so banknotes and deposits To the extent that they existed were instantaneously redeemable into gold at par or at face value And they were the money substitutes Okay So gold coin circulated alongside money substitutes for real which were really as we'll see just Claims to gold held by banks finally It was not necessary under the classical gold standard for A central bank to exist the US During most of the period of the classical gold standard did not have a central bank. We were the last Industrial economy to set up a central bank Great Britain set had a central bank in 16 or Established a central bank in 1694 or so. Okay, mainly so the king could build palaces and fight wars. Okay, so so central banks Were initially creatures of government as they have remained Okay, so the monetary unit was as I said simply a weight unit of gold, okay, so for example from 1834 1933 US dollar was Legally defined as about 127 ounce of gold, which is 23.22 grains of gold The British pound on the other hand from 1821 when Great Britain went back on the standard after the Napoleonic Wars was From 1821 to 1931 was legally defined as approximately one quarter of an ounce of gold Okay, or 113 grains of gold and then the French Frank was about a hundredth of an ounce of gold. Okay, so notice something here the Frank The pound the dollar are homogeneous money or monies. Okay, they're not separate monies. They are all gold Okay, they're all gold money Their names just denote a different weight of gold a different unit in which the people in that nation Calculated But but the money itself was gold Okay, and just here the coins that were in circulation. I mean there's a $20 bill from 1921 and A $5 $20 coin from 1921 and then a $5 coin from 1906 and Since the British pound was worth about five dollars four dollars and eighty-six cents as we'll see We have the the British sovereign the pound okay one from 1894 and one from the last year that Great Britain was on the gold standard 1931 so it's it this was called sound money Because it made a certain sound when you dropped it on the counter when you were paying for something And then that's that's where it comes from or that's what Mark Thornton told me He could be lying to me to sort of embarrass me He's mentioned a few times. He's a slippery character. So A lot talk of opioids Yeah Okay. All right, so the so-called exchange rate Between the dollar and gold. I'm sorry between the dollar and the pound was four dollars and eighty-six cents per pound Okay, plus or minus one percent So the way that that was gotten out was through arithmetic one hurt 113 grains of gold, which was the legal definition of the pound divided by twenty three point twenty two grains of gold Which is the legal definition of the dollar yields you four point eight six This is no more a fixed exchange rate than is the fact that or or then is trading five nickels for one quarter or Five five dimes for a fifty cent piece So really it's a law of arithmetic Okay, the US dollar contains 120th one fifth the amount of gold as does the the British Pound And that's why a pound was worth about or exchange for about five dollars And so for example, I said plus or minus one percent if Course the transportation between the Great Britain US were about one percent So that if you wanted to buy pounds to pay for something in Great Britain and you an American importer And you wanted to buy pounds the price of of of a pound could rise about five cents Okay, if it rose as high as five four dollars and ninety one cents four dollars and ninety two cents You'd suddenly say you know what it's cheaper just to put take American coins or American bullion Put it in the ship and ship it over there. Okay, I'd save money that way, okay So so there was this little that they're called the export and import points at which gold was moved gold wasn't moved that frequently Okay, you operated through the the Foreign exchange market when when you sent when you purchase goods from abroad Okay, so the lessons that the gold exchange the gold standard is not a fixed exchange rate system Okay, because all nations on the gold standard use the same currency Okay, they use the same commodity as money. What about paper currency? Okay, so bank notes and government issued notes under the gold standard We're not money proper, but as I said they were money money substitutes. Okay, and they substituted for gold In exchange as warehouse receipts. Okay, so you were trading claims to gold. You didn't need to trade the physical gold It gave you greater security It was more convenient to carry around claims to gold and As I give you examples that you can think of claim checks for the dry cleaners or a Co-check when you check your code at a fancy restaurant and so on It was just simply a title that that expressed the fact that you you were the owner of the underlying asset or thing That was referred to so let's look at some of these money substitutes prior to 1920 Banks could not only issue checking deposits, but but private commercial banks could also issue their own notes So let's take one from the Farmers and Merchants National Bank of Los Angeles Okay, that name doesn't inspire confidence, but anyway Notice know what it says it will pay to the bearer on demand twenty dollars That's not twenty dollars. The piece of paper is in twenty dollars The twenty dollars is that gold ounce that will be paid to you if you bring in for redemption that piece of paper So people recognized it as what it was and it was clear what it was Okay, just by what was written on on on the face of the note that it was a claim to gold Here's one other the First National Bank of Fort Myers will pay to the bearer on demand five dollars Five dollars was legally defined as One fourth of an ounce of gold So gold was was underlying money and then even when the US Treasury issued gold certificates They put similar things on there the United States $100 in gold coin Repayable to the bearer on demand in other words, they would repay you your gold that you left with with the Treasury So let's talk about the connection between the gold standard and money and prices So when in redeeming twenty dollars For a gold ounce when the Central Bank gave you your gold ounce when you in exchange for the twenty dollars, okay? They were not as a monetarist claim selling gold Okay, they weren't selling gold to you arrived. They were just fulfilling their contractual obligation of redeeming that claim to gold There was no sale involved here Because you can't you can't sell a claim against what it's Claiming okay, that that's just that that that's just a legal Interaction in which the warehouse owner returns to you the property So in the long run then under a genuine gold standard the money supply is strictly limited by gold mining Okay, or or as we'll see by by the more more strictly by the Balance of payments for countries that that don't mind gold So you can only increase bank note bank notes and bank deposits to the extent that gold flows into the banks Okay, there is some wiggle room there. They can change their reason their reserve ratio But for the most part the money supply Increases and contracts with flows of gold and this is rational This is embedded in Subjective decisions that drive The trade of goods and services and of end of assets So the result was that since we had a tremendous Economic growth, let's say in the US after the Civil War we went from basically an agrarian nation before the Civil War to the mightiest industrial nation In the world by World War one There's tremendous amount of technological improvement of saving an investment And the accumulation of new capital and so on and that caused the supplies of goods and services to increase year after year The gold standard of the money supply under the gold standard increased extremely slowly Okay, much slower than was the increase in the supply of goods and services So therefore the natural effect was for prices to fall and I call I call this on Growth deflation. This is of even Mainstream economists today recognize a good some some of them and some of them actually connected with the St. Louis Fed and some other Fed Fed district banks Talk about good deflation or benign deflation deflation that results from from growth Okay, you know, we were told Back in the in the 1960s and 70s when Keynesian economics was riding high and the 50s of course that Inflation was always always a company growth growth was inflationary in some sense. Okay, that's ridiculous Economists are your students have always recognized that that economic growth is All other things equal deflationary. Okay, but mainstream economists macroeconomists are beginning to recognize that today And that that's not a bad thing So just to give you the example We had a very gentle price inflation in the u.s. Between 1880 and 1896 prices fell by about 30 percent or Almost 2 percent per year prices were going down because of the tremendous Progress and material prosperity in the u.s. Economy On the other hand real GDP grew by by about 85 percent or 5 percent per year So we we naturally had this this fall in prices so if you just look at this Chart for a moment you can see that the spikes in prices occurred during wartime Because governments abandoned the gold standard in this case the u.s. Government and resorted to paper money inflation So if you see the first spike there prices shot up began to shoot up during the war of 1812 They were helped along by the first bank of the u.s. Which acted as a quasi central bank, and then we had the panic of 1819 Which as someone pointed out Murray Rothbard is the greatest expert in the world on because he wrote the only book on the panic of 1819 And then as as as the bank was was not renewed We went back to a harder gold standard and prices began to fall naturally. Okay, but notice that that initial deflation okay from The top of the spike back down to around 150 or so that initial deflation That's not a natural market driven deflation. Okay, that's a bank credit contraction That's a destruction of fractional reserve bank notes as we that that comes out of a recession in which you have business failures and and inability to repay banks their loans and so on and and therefore you have bank failures, okay It's necessary, but it is it's caused by by by government by the initial inflation And then we see until the Civil War we see prices falling and then they shoot up right before 1840 That's when the second second central bank created of the u.s. Created an inflation or encouraged in inflation and we had the the panic of 1837 And we had a quick quick recession was very deep prices fell very quickly Banks failed and businesses failed, but yet once we liquidated or once In the economy all of these bad mal investments were liquidated and banned bad loans were written off and so on the economy went back to a pretty stable price level until the Civil War and then we had in this case credit money inflation It wasn't quite fiat money people did trust that after the war was over. They would begin to Pay off the the green backs in gold So and then then we got the great industrial boom that we had after the Civil War Okay, and you see prices falling One thing I want to point out is that there's a natural market mechanism to keep prices from falling Too much in some sense Even under growth deflation So under growth deflation, and you don't see it here, but prices began to rise right around the late 1890s And they rose all the way up until 1913, but that was a natural phenomenon because it resulted from the gold new discoveries in sources of gold okay, and also new discoveries in How to extract gold from ore? Okay, so we had an increase in in in gold production from year to year over those years and that Drove prices up again But that wasn't all simply a technological an accident where we found new sources of gold and so on When you have a fall in prices all prices fall including the capital goods that are used in mining Extracting and exploring for gold So gold becomes more valuable as as as general prices fall the value of gold goes up obviously because it's the other side of the coin And as a result that's that that lowers the cost of producing gold exploring for gold increases the profitability of gold mining and in that way increases the production of gold So there's a natural market mechanism that that keeps Gold and or whatever commodity money in use it keeps it from fluctuating to wildly in value Now that's not to say that it stabilizes Prices we don't want stable prices. We want prices changing Okay, we have continual change in the economy So the purchasing power of money, which is simply the other side of the whole structure of prices It's the reverse of it or the reciprocal that that's also changing radically Okay, we want to allow that to change but but sometimes Roger Garrison has used a good a good analogy and that is From the perspective of we people on earth the Sun is stationary when we're moving around the Sun But yet the Sun is obviously moving through the galaxy and And so so gold is like the Sun in some sense. It's much relatively much more stable then prices of other goods and services of some single goods and services Okay, so let's talk a little about the a boom and bust okay, there could be temporary Recessions and inflationary booms on under the classical gold standard. It was possible because there was fractional reserves for private commercial banks to reduce their reserve ratios or or to multiply an inflow of gold by Creating fiduciary media and to cause an inflation and to cause malinvestments distortion of the interest rate Bad loans and so on which then would have to be liquidated. Okay, so There was some room for that to happen and that did happen under the gold standard But it would eventually end and pretty quickly in a recession or a bust Okay, and you'd have all the phenomena connected with with booms and busts But what would happen under a gold standard is that you would have a rapid decline in prices and wages the government never tried to maintain Prices and wages up. Okay, until the great depression So so they felt their equilibrium levels But they were these were minor compared to what occurred after the gold standard was destroyed by by governments Let me say a few words about the balance of payments adjustment mechanism Which is more or less ensured that number one Inflations that did take place under the classical gold standard could not be too great And number two that as people increase the demand for money in one nation because they became more prosperous Money would automatically be redistributed away from nations that weren't growing as fast to nations that were growing faster Okay, so it had a natural distribution mechanism built into it so let's talk about a An increase in the money supply brought about by fraction reserve banks Okay, so they they drive the domestic money supply up and of course then the price level rises the US price Oh rises above world prices Okay, because of the the canteon effects the money tended back then to be injected Into the domestic economy with the new money that that the banks created and then the second Effect was look if the US price levels above the world price level people aren't going to buy as many exports from us or exports Gonna fall There would be an increase in imports from abroad because it's now relatively cheaper to buy things from England in France and so on if they weren't inflating to the same extent as US banks were I Should have put this animation in here then you would have a balance of payments deficit You're your your imports would suddenly exceed your exports. You'd have to ship gold abroad The the price of the pound for example would rise to the to the export point and and so pounds would be very expensive And it'd be cheaper to ship some of the gold from the US to Great Britain to Germany to your other apart trade partners. So you'd have a deficit And once you had a deficit The gold will begin to flow out in payment of that deficit to the foreign countries Gold banks gold reserves would then fall now at that point under the gold standard Gold reserves weren't centralized at the central bank So they couldn't use reserves to to move them around and bail out banks There was no central bank that acted as a so-called lender of last resort or as I like to call a bail or outer of last resort, okay? So the bank so what this external drain of gold the external drain was a drain of gold out of bank reserves To as people came in turn their dollars in because they wanted to ship the gold abroad To foreign countries there would also be the threat of an internal drain as people saw a gold flowing out of the Out of their banks and they they had the the the the money substitutes which they knew were just money substitutes And and would give them the ability to redeem for their gold. They rushed to the banks and There'd be an internal drain. Okay, there'd be a Domestic bank run and so to prevent that I mean that that didn't really have to happen Just the fear that that would happen would cause banks then to reduce their Contractor the their deposit their deposits the money supply would be reduced and and the whole thing would be Reversed you'd get a bus then of course because the money supply would be reduced and interest rates would would rise and many Projects would be rendered unprofitable long long-term projects that that length in the structure of production Okay, so the money supply would go back down again And you would have recession unemployment, but they'd be very quick and and prices would fall. Okay, let's talk a little bit about the the structure of what money looked like under the classical gold standard let's take the Let's assume when we have a central bank now for a moment At that base you would have the total amount of gold in the country Let's say central bank held the gold reserves You'd have let's say two billion dollars if the central bank kept the reserve ratio of 40 percent Then that meant that it could issue its own notes Up to a total of five billion dollars because two billion dollars in good gold represents 40 percent of those notes Now the commercial banks the private banks Who issued bank notes and deposits would also want to back up their their notes and deposits and let's assume they Kept the reserve ratio of 20 percent Okay, and the US was 20 to 25 percent something like that that mean it could ignore the Numbers in red font. Okay So that means that with five billion dollars of central bank notes which acted as their reserves Okay, they could in turn Create 25 billion dollars worth of deposits Okay, but notice now things were kind of shaky here because you had 25 billion dollars of claims on two billion dollars of gold So if the central bank encouraged bank credit expansion by reducing its own reserve ratio and adding another one billion dollars To the banks reserves by creating their own notes The banks would then multiply that one billion five times the money supply would increase by 25 percent Prices would shoot up and that whole balance of payments adjustment mechanism Would come into play gold would start to flow out of the country as people as exports became more expensive and imports relatively cheaper So the US would then have a balance of payments deficit and to make a long story short Banks would pretty quickly realize that they had to reverse course and they would have to contract Their lending and their deposits, okay? So this inverted pyramid as we call it never really tipped over but notice it gets more unstable the more that the central bank Encourages bank credit expansion. Okay gets wider and wider at the top on the same narrow base So now let's talk about the step-by-step destruction Intentional of the gold standard So the first the first step actually there were steps before this we had something called the national banking system Which tended to centralize control over banking in the large Wall Street banks? Okay, so we were moving towards centralization even before this and and and we were moving towards undermining the gold standard but there we have it right before Christmas in 1913 President Wilson Signed the Federal Reserve Act Okay, and notice what what the subtitle there The sub headline Wilson declares it the first of a series of constructive acts to aid business Yeah, they left out the word big to aid big business. Okay, and big banks This is this is really the agenda of the progressive era of the progressive movement was to aid big business And that was the one of the most important steps in that direction Um So let's move on to the next few steps So the classical gold standard as I said existed from 1834 to 1933 in the US More or less it got watered down during after the the enactment of the Federal Reserve Act So the Fed immediately started mucking things up Okay, it's mucking with an M during World War one Gold reserves were centralized in the Fed. So now you suddenly had the Fed able to operate as a lender of last resort Which of course introduces systemic moral hazard into the whole financial system They placed a heavy tax on private issue of notes. They wanted to drive private notes out of existence And they they stopped gold or prohibited gold from being exported in 1917 on the 1920s. They finally Outlawed the private issue of bank notes because they wanted people to think of Not gold but a government issued paper Okay as money So they wanted people to become familiar with government paper There was a big propaganda campaign by the way to part of the banks and the government against using gold in the 1920s Your old fashion, you know, who does this your grandfather did this but you know, that's ridiculous You're safer and and and your money's more secure and it's more convenient if you carry The Federal Reserve notes So people began to attach the name dollar Not to the weight of gold but to the piece of paper that was acclaimed to gold So that change Murray Rothbard stresses that change from weight to name Even it began to occur under the gold standard itself When gold what gold reserves were were centralized And you were even discouraged from I mean you could withdraw gold during the 1920s But you were discouraged from doing so they'd be slow in in doing it They'll tell you to come back in a few days or whatever Or they they berate you out loud in front of other customers at the bank and so on for being sold fashion Um, and then they of course they cut reserve requirements in half fell to from around 20 to 10 percent And that doubled the money supply during world war two and we had a big boom Which was followed by the last Austrian style recession Of 1920 1921 In which prices and wages fell tremendous fell very rapidly fell very deeply sharply, but The economy adjusted and and moved out of the Recession pretty quickly So the Fed Also expanded bank reserves during the 1920s now was beginning It discovered open market operations in which if it just bought government bonds from the public It realized it could increase the money supply Okay, so it did that to help out Great britain Okay to get back on the gold standard um We then had the great depression When when when the fed hiked interest rates and stopped expanding the money supply as quickly in in 1928 1929 And we had um the beginning of of the great depression and we had of course the stock market collapse, okay and um, then we had a Bank runs from 1920 31 through 1933 There were periods of bank runs and bank collapses So f dr declared a bank holiday in march And then when the banks reopened we opened with the promise that I think that it was about five days later It was reopened with the promise that they would um Ensure all deposits that were in banks And then in 1930 in may a few months later, they outlawed the um The ownership of gold, okay, and then devalued it, okay They legally defined the dollar as one thirty-fifth of an ounce of gold. Okay, they they reduced the amount of gold in the dollar So there it is This is the f dr's executive order notice it says under executive order of the president blah blah It says all persons are required to deliver honor before may 1st 1933 all gold coin Gold bill bullion and gold certificates now owned by them So you had to deliver them to a federal reserve bank branch or agency or to any member bank Okay, so you had to turn everything in and at the very bottom It tells you the penalties for not doing so criminal penalties for violation of executive order $10,000 fine or 10 years imprisonment or both As provided four in section nine of the order, okay, so they weren't kidding around Okay, they want they want to smash gold And in politics nothing happens by accident This is the words of f dr. It had if it happened you can bet it was planned that way So if you were to say that to someone Oh, you know world war two no, that wasn't an accident of in fact There were forces there were people who wanted world war two on both sides People say oh you're a conspiracy theorist. Well out of the mouth of Conspirators comes the truth Okay All right, so let me quickly talk about the breton wood system. That was sort of the final nail in the coffin of the gold standard Suffice it to say that that the system that followed After the 1930s um france in 1936 And and and all other countries the latin union belgium and so on They all went off the gold standard by 1936 the us went off the gulf turn 33 great britain 31 So we had a system a chaotic system of fluctuating national fiat currencies And people each tried to make their currencies cheaper so that their goods would be cheaper and they they could sort of Offload their unemployment by selling more exports onto their neighbor. It was called beggar thy neighbor bigger thy neighbor policy The allies got together when it was clear that they thought they were going to win the war world war two And they wanted to get rid of these currency wars, which we have today by Putting in a system of fixed exchange rates by and calling it a gold standard Okay, the main architects of the breton wood system as it was called and i'll explain why were both the us and british governments Okay, um and they're leading financial experts harry dexter white and and john maynard canes White had his own he wanted both and wanted a world currency Ultimately, they both wanted a world currency white named his In a grandiose way the united to unite the whole world and and canes trying to be clever called his bank core Which is bank gold core is the root for for gold um I think in greece in greek, but in any case they wanted to replace gold Uh, that's the kind of creepy and menacing place in new hampshire. I visited it. It's renovated. It's great um, that is the breton woods resort Very plush beautiful On the interior But they must have been there that day and so that must be the clouds gathering and It's kind of diabolical. All right Uh, there's white and canes As we all know by now and I mean no one disputes it harry dexter white was a soviet spy So after the soviet union collapsed they opened up the archives and all the evidence was there So he was called to testify before the house on american activities committee And historians now agree that he did pass secret state information to the soviet union during world war two Um, and there's a great book on breton woods by ben style and when she who's who's no libertarian or Even a conservative, but he talks about a white um He says well white wasn't really uh, he kind of wants a white washer, but he knows he can't given the evidence He says well white was not really a member of the communist party um He acted not simply because he believed that the soviet union was a vital ally So he admits that but because he also believed passionately in the success of the bold soviet experiment with socialism Imagine saying it's about someone. Well, you know, he wasn't really a member of the nazi party But he also believed passionately in the success of the bold So, uh, nazi or german experiment with with with nazism. It's ridiculous Whenever they talk about bold, let's just talk about bold. They mean bloody murderous and so on Okay Okay, so you can look at his book. I recommend his book for anyone who's interested in this area. Okay Um, he's got all the facts in there. He's a good writer, but he's got a lot of the good gossip in there, too So david Okay, um, what about the breton wood system? Um, the key characteristics was that the us dollar was now going to be the only currency Um convertible into gold all other Currencies were going to be Fixed to the us at a fixed exchange rate though could be adjustable. Okay, if there were some sort of disequilibrium occurring Um, so the us currency was considered to be as good as gold at least in the early 1950s. Okay Okay, we can just jump ahead here So the other other nations currencies though were backed not by gold directly but by us dollars that they were holding Okay, mainly us short-term us treasury bills um So now you had the foreign currencies being permitted on top of Of us deposits In other words, we had a situation in which the us could automatically export Uh inflation to the rest of the world So let me just show you that so there's a gold us held more than half of the gold in the world at the At the end of world war two Um, so fed notes and deposits deposits were bank reserves as one of the fed notes Um were were then permitted on top of the gold and then you had The commercial bank deposits because they held the fed notes as backing as well as the reserves Um at the fed that is deposits at the fed and then The foreign currency and commercial bank deposits were in a sense permitted on top of commercial bank deposits here in the us Okay, but they exchange those deposits for interest bearing government bonds But but as us deposits increased more money flowed abroad because us prices began to go up Okay, we continually Increased the money supply during the 1960s both to fight the vietnam war and have guns and butter to fight the vietnam war But at the same time to implement president johnson's great society programs So the whole point was well, we can have consumers can have we can have consumers goods produced and we can have more military equipment and and and Military machines and weapons and so on How did well, how do we do that? I mean the economies of a given size. How do we Get both How how did consumers not suffer? us consumers Why why because tax rates didn't go up? While on the other hand the military industries were expanding very simply we forced the Or or or fraudulently caused the europeans to pay for it Okay, because well, what did we do we sent them? We had balance of payments surpluses from 1958 onward. So what we did is we sent them paper, which they then took They took the u.s. Dollars The exported to the u.s sold them to their central banks who then bought them by creating their own Other euros their own marks and francs and pounds And so we exported To the rest of the world Paper money inflation in exchange for real goods and services. So in a real sense the europeans paid for a large part of the vietnam war and us Johnson's great society programs, okay Okay, and the so so the french economist jacqueroff was a friend of von mesas He called this a deficit without tears the u.s could run deficits every year But since none of the foreign central banks demanded gold in exchange for the dollars no gold flowed out of the u.s At least until later on which we'll talk about in a moment But what happens simple paper paper money flowed out from the u.s And then the foreign governments bought up that paper money to back their own money. They created new paper money Okay, and so we exported this inflation um okay, so We had what i've already talked about We had cheap imports the paper paper money went to to europe um France and germany began to get a little nervous about the fact that there was so much um paper money us Liabilities piling up. Okay And backing their own money That they they began to demand their own money back So so or rather their gold back in exchange for the reserves the u.s reserves that they were holding So, uh, germany was more or less blackmailed into not exercising its claims to get the gold money back To get their gold reserves back. We told them look, you know We can no longer afford to provide you with a nuclear umbrella You know if you if you continue in this course of trying to get your gold back Okay, and we also had troops. I mean it was an occupied country. So they would do what we told them France under shawl de gall Dropped out of nato Um and started its own nuclear force because the u.s tried to use the same sort of blackmail technique on them And so here's the um u.s gold stock Variations there and the variations of foreign liabilities. Initially. We had 25 billion dollars worth of gold at the rate of 35 dollars per ounce In 1950 and foreigners only held 12 billion dollars worth of of liabilities. So since americans could not Exchange their dollars for gold only foreign central banks and treasuries. They weren't really worried about that mismatch But however, notice what happened by 1967 after many years of inflation the u.s had lost some of its gold And foreigners had built up all of these excess dollars. They were holding, okay So that's when germany and france began to get nervous about the whole thing The u.s 64 abolished the the reserve ratio for fed deposit liabilities Uh and then they abolished the backing the gold backing for for um fed notes Which was again 25 in 1968 Okay, we're trying to free up more gold to show show foreigners that we had sufficient gold For for their to cover their uh their claims Germany left the the breton wood system for in 1971 it was no longer willing to inflate its currency to buy depreciating dollars uh switzerland redeemed 50 billion dollars of gold And in early august of 71 france sent a naval warship to the to new york harbor to pick up 131 million dollars Worth of gold all by the u.s Okay, they didn't send a commercial ship a regular merchant ship And they don't want you didn't want any accidents where maybe a u.s military vessel gets too close and and sinks the ship by accident So there's a french Hey, I think that's louis there I know he sails there. So the this isn't the french warship. It's more likely the one that that went there And then nix and then finally to end to end this on august 15th President nixon slammed the gold window shut he reneged on the solemn us promise an obligation To convert dollars for gold according to the terms of breton wood system So he he wrote and find this on youtube. It's great. I mean he looks ridiculous making this the statement I've directed secretary connelly to suspend temporarily. Yeah The convertibility of the dollar into gold or other reserve assets Except in amounts of conditions determined to be in the interest of monetary stability and the best interest of the united states It's just a bunch of garbage okay, and so we we see the the um Price level after 1971 after we went off the last vestige of the gold standard. Okay, the price level shot up Okay Okay, and i'll let you look at these we're over time. So i'll let you you can look at these online I have some interesting statistics about how badly the fed performed Okay, thank you