 Our next speaker is Dr. Philip Bagus. Dr. Bagus is actually a former Mises fellow here at the Ludwig von Mises Institute. He received his PhD at the University, Ray Juan Carlos in Madrid, Spain. He is the author, co-author of Deep Freeze Iceland's Economic Collapse and he's the author of The Tragedy of the Euro. Dr. Bagus won the 2011 OP Alfred Prize for Libertarian Scholarship and he's going to be lecturing to us today, this afternoon, on the topic of money. Dr. Bagus. Well, hello to everyone. Thank you, Marc, for the nice introduction. It's a great pleasure for me today to speak to you because, especially because it's in some way it all started here. Like 11 years ago, I was sitting where you are sitting now. That was my first Mises University and if you look around, there must be a group photo picture still where a very young guy that's me looks on you very impressed by, I was very impressed by the Mises University. So I hope you will also be and maybe some of you will also, in some years, change sides. Well, my topic is money. And in order to understand money, it's very useful to look at its origin. How did money evolve? The first one who explains the evolution of money from a genuine entrepreneurial perspective was Kyle Manger in 1871. For him, this process was just an example of the evolution of all institutions. So he takes money just as an illustration of this process. And the origin of money based on individual actions is also very important because it shows us that the typical divide between micro and macro economics that the mainstream defense is totally superficial. There's only one individual science of economics. So money is a totally normal good. It is a common and generally accepted medium of exchange. So what is money's origin according to Kyle Manger? To forward the conclusion to you, money evolves in a market process of human interaction over an extended period of time. So money has not been deliberately designed or invented by anyone. So money is like language or morality or law. It's an institution that evolves over a long period of time thanks to human interaction. No one invented German or no one invented English. Shakespeare didn't invent English. No one invented morality and no one invented money. And Manger was the first one to explain in theoretical terms how institutions evolve as a result of human action. And he illustrates this with money. So how is this process precise? In order to understand it, it's useful to make a thought experiment. Let's imagine that money would not exist. How would the world be without money? Everything else is the same. So the buildings, the streets, the factories, the machines, they are there. Of course it's a very difficult experiment. It's similar to imagine how the world would be without language. How would the world be without morality, without law, without religion? So without money, if I leave the Mises Institute, let's say I'm thirsty and I want to buy a Coke, I have to find someone who has a Coke and sells it. So when I cross the street and I look around, I finally will see McDonald's. So great, they probably sell Coke there. But that is not enough. Because I have to find someone who not only sells the Coke, but also wants something that I have and which is not money, because money doesn't exist. So perhaps I could offer the guy at McDonald's in exchange for the Coke lecture on Austrian business cycle theory. But he may not be interested in that, especially because it's not very useful in a world without money, because there's no Austrian business cycle. Or let's take another example. A simple example. Let's imagine a baker wants to go home and he wants to take a taxi to go home. So he asks the taxi driver, can you take me to my hotel? The taxi driver responds, yes, sure, but what do you offer me in return? The baker says, well, here I have a very delicious loaf of bread. The taxi driver says, well, but we still have bread left over from yesterday. I don't really need bread. Okay, says the baker, what do you need? And the taxi driver says, well, I have a daughter who has failed twice the economics exam at the university. And I really want her to pass it. So the taxi driver, as the baker says, well, okay, but I don't know anything about economics, but I have heard good things about this young economist, Philip Begos, and maybe he can help your daughter. You must imagine it's the same time, the door of the taxi is still open, the motor running, the engine running, environmentalists going crazy. So the baker calls me, hey, Professor Begos, can you give a lesson to the daughter, the taxi driver, because he wants her to pass the exam? Okay, I said, sure, but what will you give me in return? Well, a loaf of bread, that's what I'm a baker. He said, well, I don't need bread, but, you know, I'm a German, so if you give me a barrel of beer, we are fine, it's a deal. So the baker has another problem in thinking, but he has an old friend that, by coincidence, is a brewer. So he calls him with his cell phone, hey, do you remember me? I'm the baker, could you send me a barrel of beer against bread? And we could expand the example more, but let's say, okay, the brewer says, well, okay, I need bread, sure, it's a deal. So then the problem of the double coincidence of wants is resolved. The exchange can be made. The baker sends the bread to the brewer, the brewer sends the beer, the beer is sent to me, I give the lesson to the daughter of the taxi driver and the taxi driver drives the baker home. Done. So you see, in Bata, there are actually two, three kinds of problems. One is the coordination of space, because you need to find an exchange partner. Well, it's easy if you have the phone number, you just call the people. So there's a location, then there's a temporal problem, because the taxi driver wants to drive home now, but maybe the daughter needs the lesson in one month. The baker needs to sell the bread now and wants services later. And then there's also a quantity problem, when goods of different value are exchanged. Because here, one loaf of bread is exchanged against one of my lectures. I'm not sure what Geoffrey have, and I told you about subjective value theory, but this can't be true, that one of my lectures worth a loaf of bread. So there's also different quantities exchanged there, which is a problem in Bata. So think about it, a very easy exchange, taking a taxi, is very complicated. We make dozens of those every day. So without money, the world would be very complex, very complicated. The cost of exchanging what mainstream economists call transaction costs would be so high that the majority of exchanges would not be made. We would live in a world of subsistence economy, producing most of the stuff for our own. Because the problem of the double coincidence of wants requires that we find someone who exactly needs what we have and vice versa. And at the same time and the same quantity. Without money, it's very difficult. Indeed, there are some things in our world that cannot be bought and sold against money, and Latin is rest extra commercial, like laugh, you cannot buy laugh, you can buy sex but not laugh. With money, it is easy. I go to the supermarket and say, well, this is a very beautiful tomato. I buy this, give the money, end of story. But there's no supermarket for girlfriends, where I say, well, I want her and I pay end of story. They're the problem of the double coincidence of wants is more pressing. You need to find a girl that has what you want, and at the same time values what you can offer in return. It's extremely complex and a trial and error process. Imagine that buying a tomato would be as difficult as to find a girlfriend or wife. And we are so used to money that we assume that it has always been there and always will be there. But that is not the case. It has not always been there, and there's no guarantee that it will be there in the future. It basically disappeared actually in the early Middle Ages. So without money, the other person has to have what we want and need what we have. And with love marriage, this is very difficult. You have to look for another and another one, another one, much energy, uncertainty. It's a very difficult process. So imagine a world where buying anything would be as difficult as getting a girlfriend or boyfriend for that matter. So we would live in a subsistence economy with a small amount of barter. But there was not always money. But human beings are very inventive, they're very creative, they're looking to improve their future as Jesus would say. They say they try to remove their felt uneasiness. So human beings discovered that in a world of different goods, different talents through specialization in the production of goods where you have a comparative advantage, you just heard it by Professor Hutzmann, both parties or all parties gain in well-being. So through specialization and exchanges, we all gain. However, the division of labor or knowledge is based on money. So how do you solve this problem of the double coincidence of ones without money? You have to think that any coordination problem itself is a profit opportunity to be there exploited by profit-seeking entrepreneurs. So human genius is able to solve the problem of the double coincidence of ones. And in human history there have been some unknown anonymous heroes who started to tackle this problem of the double coincidence of ones. And we are indebted to them forever. Actually these heroes should get the monuments that are reserved nowadays to mass murderers like Abraham Lincoln, Napoleon or Stalin. So in the beginning there are only a few entrepreneurs in a certain location of time and place that tackle this problem of the double coincidence of ones. And they discover that they can attain their ends more effectively if they, in exchange for what they sell, they are willing to accept something that they do not need directly but rather a good that is more marketable, a good that is more easy to sell at their time and place. So they demand in exchange for something that they have, not the good that they want, but a good that they have observed that is exchanged more easily in society, which is easy to sell. And this concrete good in the beginning can be of very different kind. So when these people get this concrete good, then they use it to sell it with more ease against what they need, when they need it. So this is the essential idea. And this good can be anything. This can be grains of wheat, tobacco, cattle, slaves, metals, whatever. So I say in my production, let's say I'm a tomato producer and I will not demand what I need directly. Let's say I need a tie, I need a tie, but I sell the tomato against wheat because I have observed that wheat is exchanged more frequently and can be sold more easily in the market. So once I get the wheat, I will take the wheat and try to buy the tie with it and other goods and services. Of course, this is a process of entrepreneurial process of trial and error. It must not be successful. I may not find someone willing to sell me the tie against the wheat that I just got at the original price. But let's say it's successful and I improve my situation. Then transaction costs are lower. I don't lose my time finding someone who wants tomatoes and offers ties. And as the action is successful, I will tend to repeat it. And other human beings might learn from it and copy me. Indeed, we often look what friends do, what family does, what the rich and famous, the successful, the stars do. That's a human characteristic that in its ejaculation converts into envy. But it has also its good side, namely to be up-to-date to look what the others are doing. So there will be a second wave of entrepreneurs, of actors that learn, copy and adopt their behavior of the first innovators. And when they sell their stuff, they don't ask for something they need directly, but a good that is more marketable, like wheat. And when they have success with this strategy, they repeat the actions and others copy. And then a third wave of entrepreneurs comes and adopts this strategy. And slowly and gradually more and more actors use a certain good as a medium of exchange. So this good gets an additional demand. It's not only demanded as a consumer good or as a factor of production, but also as a medium of exchange. So the wheat, for example, is not only demanded to eat it or to use it to produce bread with it, but also to safeguard it in order to use it in the future as a medium of exchange. Of course, this process of the evolution of money is not a linear process. There may be actually several medium of exchange at the same time, because there may be several goods that are quite marketable, easy to sell. So there's a competition. When I sell my tomatoes, what do I ask for in return? Maybe there are four goods that are quite often exchanged. Let's say there's wheat, there are cows, there are slaves, and there's matter. So when I sell my tomatoes, what do I demand? It's a process of trial and error, a competitive process. But there's a tendency of one commodity to prevail, or one good to prevail. Why? Well, simply because if there are still four of them, wheat, cows, slaves, and matter, the problem of the double coincidence of ones is still very pressing. As imagine, I sell my tomatoes against wheat and I need the tie. Then I need to find someone who sells ties against wheat. However, there may be some people who produce ties and sell them, but only against cows, metals, or slaves. So maybe there's someone who sells a tie against slaves, and now I have the wheat, so at first I have to find someone who sells slaves against the wheat I got. So there's a tendency, as Rosbeth says, of one commodity to prevail as money, as a common and generally accepted medium of exchange. And what was the world currency before the nationalization of money? Gold. Gold was a common and generally accepted medium of exchange. In a largely competitive process, it had become money. Of course, if you would now return to gold, there's no guarantee that gold would be money in the future because the competitive process would continue. But gold was the money. So we sum up with three characteristics of this competitive process in which money evolves. First, money is the result of a spontaneous process, spontaneous in the sense that it's not a deliberate creation of human beings. No one was able or wanted to invent money. No one wanted to create it. When this person in history exchanged his tomatoes against wheat, because wheat was more marketable, he did not want to create money. He just wanted to improve his life. He wanted to maintain his personal ends more effectively. So this is a wonderful thing, think about it. What makes our life and society possible today, institutions like money, morality, language, have not been the deliberate creations of human beings, as Menga points out. These actors just wanted to attain their personal ends, support their families and so on. And they contributed to a very long process in which money, language and morality evolved. Money neither is the result of a social contract. So that people come together and say, well, this barters a total chaos. Let's use gold as money. Never happened. Money is neither a creation of the state. The state had nothing to do with the creation of money. The state has only intervened very recently, rather recently, and met it with money when it was nationalized. The second characteristic is that money is a social institution, probably the most important social institution, because it's a very basis of society. Without money, we would exchange only very few things. We would produce most of the stuff for ourselves. There would be almost no division of labor. We would be very poor. 90% of mankind would die. With money, exchanges increase exponentially, as does the division of labor and productivity. People go to market, start to trade, don't live in their valleys anymore, separated, have to communicate. Languages evolve, contracts evolve, law evolves, and all this why, because of money. So many people say that money is the root of all evil. No, it's the opposite. Money is the root of all good. It makes life and society and civilization possible. Third characteristic, which good money is, in a certain period of time, is a historical question. So in ancient Egypt, it was grains of wheat. North America, it was shells. In the times of Abraham and of the Bible, it was cattle. The Bible says he has so many cattle. It was a millionaire, the Bill Gates of his time. In Colombia, it was cacao. But slowly, metals emerged, copper, silver, and finally gold prevailed. So why gold? Is it just a coincidence, as some people believe? No, there are some objective characteristics that make gold the most suitable medium of exchange. A good money, a good money must fulfill the services of money very well. The services of money are to act as a medium of exchange, as a unit of account, and as a store of value. And for this, a good money must be more or less stable in value. Because imagine I sell my tomatoes to buy wheat, and tomorrow I go shopping for my tie. But in the meantime, the price of wheat has collapsed. So there should be no big changes in supply and demand. And if there are changes in supply and demand, the price should not be affected very much. So in this sense, what are the characteristics of gold? Well, first of all, gold is a very good store of value. It's extremely scarce. You have to move tons and tons of earth to get very little gold, very little amount, small amount. So the supply and demand do not affect the price of gold very much. For wheat, for example, there are big changes in supply. As a supply of wheat is consumed. Every year the wheat is consumed and there's a new harvest. For gold, no, not. The old harvest is still there. The old harvest of gold is still there. All gold produced in human history is still there. So the stock of gold is huge in comparison to the annual production, which is only 1.5% of the totally existing gold stock. And the good money must also be resistant to changes in demand. Gold has a very strong and stable demand, as it is used for jewelry, but also for industrial production. It's a very good electric conductor. Only copper and silver are better conductors. It has been used in medicines since ancient times. In optics, it's a very good reflector. In food, in commercial chemistry, electronics. So when the demand for gold changes, the price of gold is affected. Not very much affected. And this is not so with other goods. Let's take an extreme example. Books written in a language that has already been died out. Ancient Greek, maybe. So here, if there the demand changes, the price will change violently. For gold, no. Gold is highly liquid. That is, the bid-asked bread is very, very low. That is, the spread between the price you buy it and you sell it is very low and it increases very slowly with increasing quantities. This is high marketability. Other goods do not have it. So if I buy, for example, a book written in ancient Greek, I pay $100 and if I want to sell it, the next moment, might be that I have to accept $50 as a price. So it's a huge spread between the bid and the ask price. And when the quantity increases, it goes up even more. Let's say I want to buy 100 books written in ancient Greek. I might have to sell $500 for any one of these. Of course, it's difficult to get them. And if I want to sell 100 books, Greek books at once, I might get only $10 for any one of them. For gold, it's very different. The bid-asked spread is very low and with increasing quantities, it increases very slowly. And as gold is a good store value and it's extremely scarce, the transportation costs are very low. Imagine you want to buy a car. If you pay with grains of wheat, maybe you have to come with a truck or several trucks of wheat to pay if you pay with gold, probably 30 gold coins, or less enough. This implies not only that the transportation costs are very low, but also the storage costs are very reduced because there's much value in a small amount. Second characteristic of gold is it is homogeneous. That is all its parts are the same. Cattle slaves are different. They are ugly, beautiful slaves, old ones, young ones. You have to look in the teeth if they're okay, if they're healthy or unhealthy. Diamonds, they are good store value, but they're not homogeneous. Every diamond is different. The third characteristic of gold is its high divisibility, formability and malleability. So the possibility to change its form. Gold is very easily divisible. It does not lose in value when it's divided. If you divide cattle or chop up slaves, they lose in value. And it is also easy to form by pressing. That is, ductibility is very high. It can be stretched into a wire. So gold leaf is possible. It can form a very thin sheet with it by hammering without breaking it. And even though it's quite resistant to wear and tear, you can melt it, change its form. With 1064 degrees Celsius, you can melt it. I don't know how much this is in Fahrenheit, but it's pretty high. For platinum, it's even higher. So platinum is also resistant, but it costs more to melt it. It's 1768 degrees Celsius. So while it's quite resistant, you can change the form relatively easily. It's like the perfect mixture. Fourth characteristic is its recognizability. The quality of gold is easily recognizably. You can buy it or you have your weight to see its quality. For diamonds, you have to be an expert or for cattle to see their quality. And the fifth characteristic is its indus destructibility. Even though it is divisible at a rather low cost, it is indestructible. It's a chemical element. And this is important because you store it in order to buy something in the future. Almost no other gold is as resistant. Imagine a Spanish galleon sunk into the Atlantic 500 years ago, and now you take it back up. So what has happened? The cattle has died, the slaves have died, the weeds, you cannot eat it anymore. Even the silver oxide and the gold, you brush away the sand, and it's as brilliant as 500 years ago. So this is why gold is the perfect money. If it would not exist, you would have to invent it. It seems almost as good had been created for this purpose to be money. So now the second part of my lecture. I will analyze the characteristics of money following Ludwig von Mises in chapter 17 of Human Action, where he makes several points. The first one he makes is that money has to be studied in the same way as all other economic goods. There is all economic laws applied to money, especially the law of marginal utility. And this is a difference to neoclassical economics who thinks that money is a different good which requires a different method. Therefore money has to be studied in macroeconomics. Money would be like a reel on the real economy and would have a neutral character, at least in the long term. It would have no effect on the structure of relative prices. So the neoclassical economists studies the aggregate demand and aggregate supply of money. They study the aggregate supply of money and it changes its size on the general price level. So they do not take into account that the value of money is determined by subjective valuations. Second point, the motives to demand money. Money is a medium of exchange, that is, it's not demanded for consumption. Neither is it demanded for production, but they use it in exchange for a good that, yes, is consumed or used as a factor of production. So what are the motives to demand money? Well, the first one is have you have already seen it in the origin of money to solve the problem of the double coincidence of wants, to use it as a medium of exchange. Another reason motive to demand money is to tackle the uncertain future. The future is uncertain because of us, because we are creative beings. We can learn, we create new ends, new means, and therefore the future is uncertain. We may know what nature does tomorrow, the weather forecast, it's not perfect, but one day it may be perfect. But we cannot know what human beings will do tomorrow. But the stock market will do tomorrow, for example, because human beings are creative. Therefore, the future will always be uncertain when human beings exist. To tackle this uncertainty, we have human action itself and institutions that reduce uncertainty, like law reduces uncertainty, morality. But most importantly, also money, because when I'm liquid, I can react to opportunities or problems. And actually, when there is more uncertainty, we demand more money. So for example, when you travel abroad, normally you take more money with you because it's a more uncertain environment, so you take more money with you. And the third reason that Mrs. Names is perishable goods. When I produce tomatoes, I don't want to store them for a long time because they will perish. I want to exchange them against money. The third comment Mrs. Names is, he says that the medium of exchange of money must be scarce. Any economic good is scarce, so is money. But their scarcity is very important. For other economic goods, human beings fight against scarcity, like scarce or computers. And it would be actually good if the scarcity would end. Not so for money, because once money stops to be scarce, it ends to be a good medium of exchange. And so its condition is that it is scarce, and the scars are the better. Next comment Mrs. Names makes is that any quantity of money fulfills perfectly its function as a medium of exchange. Only the price level will be different. So any quantity of money is optimal to serve as a medium of exchange. Of course, when we have private money that is also used for other purposes as a consumption factor of production, then increasing the quantity increases the general wealth of mankind. So if the quantity of gold doubles, for example, humanity is better off, since gold can be used for other reasons, industrial reasons. But today we have only paper money. So if today we double the amount of dollars that we have now, do you think we would be any richer? No, we would have the same car amount of cars, computers, close as before. The only thing that would happen is that the purchasing power of money would fall. If in contrast, the quantity of cars doubles overnight, humanity clearly is better off. Maybe some environmentalist would be worse off. Next comment that Mrs. Names makes is that the price of money is called its purchasing power. And the purchasing power of money can be expressed in terms of any good or service that is exchanged against money. So what is the price of one dollar, for example, in terms of coke? How much coke do you have to sell in order to buy one dollar? Maybe half a liter? Or what is the price of one dollar in terms of gasoline? The owner of the gas station is buying dollars with gasoline. Maybe also half a liter. Or what is the price of one dollar in terms of a car? You can express the price of one dollar in terms of any goods or services that are exchanged against money. And the price of money, of course, is determined as the price of any other goods in a competitive process where there are multiple buyers of money, the sellers, of course, of services and multiple sellers of money. For example, when you buy a drink, a coke, or a ticket to the cinema, you're actually selling money. One point that Mises also makes is that all money is always a property of someone. So it makes no sense to distinguish between idle and circulating money. Have you ever seen a dollar bill running around? No, no, there's no circulating money, obviously. It's a property of anyone always. So idle money is always a value statement. It's made by those people who say, well, you have idle money, you have too high cash balance, reduce your cash balance and give the money to me. That's basically what they say. Then Mises also says, don't confuse the demand for money with the demand for wealth. I mean, I can say I want to win the lottery, ten million dollars jackpot. But what I really want there is I'm not demanding money. I don't want to have a higher cash balance of ten million dollars. What I'm demanding is wealth. I want to use the money to buy cars, to make vacations, buy a house. So don't confuse the demand for money with the demand for wealth. Then Mises says, the term money market is a terminological error because what is called money market in the press, etc., is a market for short-term debt, for short-term credits. The true money market is all the market where goods and services are exchanged against money and where the price of money is determined. And how is the price of money determined? By supply and demand. The price of supply of tomatoes increases. The price of tomatoes falls. And when the supply of money increases, Tiddler's Barrier was the price of money. The purchasing power of money tends to fall, which means that the price of goods and services expressed in money tends to increase. And then he makes a comment on the equation of exchange, which is MV equals PT. The equation of exchange was developed by Irving Fischer. M is the money supply. V is the velocity of circulation. It's how many times a monetary unit on average exchanges hands in a given period. P is the general price level. And T are the transactions. So what is generally assumed that V and T are constant in the short run? In the short run, they are constant. So what happens if you double the money supply? Well, the price level obviously doubles. This idea of David Hume that overnights the money balances increase, double, or the Freedmanian helicopter that spreads some money to everyone is the same. So the only thing that happens there is that the prices increase proportionally. Not even that is true because subjective evaluations will change and marginal purchases will also be different. However, there are some truths in this equation of exchange, namely that when the money supply increases, prices tend to rise. However, never, never, ever prices are affected equally. So when the money supply increases, there's always a massive and hidden redistributional effect. And that is why we hear people hearing, defending increases in the money supply. If the increase in the money supply only had the effect of increasing prices proportionally, no one would be in favor of that. Those who want the money supply to increase want it because they don't want that everyone gets proportionally the same amount of money. They want to introduce the money unequally. So now let's talk about the purchasing power of money, the price of money. But the price of money is determined by its supply and demand. Let's look first on the demand side of money. Mises names three factors influencing money demand. First, the industrial demand to use the good as a commodity, a factor of production or consumer good, now with paper minus zero. Second, the demand to use it as a medium of exchange today or in the future and speculative demand if you expect that the value of money will rise or fall in the future. Of course, the main factor is the demand to use it as a medium of exchange. So the price of money is determined by its supply and demand and mainly by its exchange demand, the demand to use it as a medium of exchange. And this demand is not in function of the intention to use it as a consumer good or as a factor of production, but to make exchanges in the future. That is the exchange demand depends on the purchasing power of money. If the purchasing power of money is high, we demand less money. Imagine that the prices would be half. You probably would have lower cash balance, less money with you. Or if the purchasing power of money is low, let's imagine the prices would be double, you probably would have more money with you, higher demand for money. So the exchange demand for money depends on money's purchasing power. And the purchasing power of money is the price of money. So now you would say, well, there's obviously a problem with your argument. Let me repeat what I just said. We want to explain the price of money. It's determined by its supply and demand. And the demand is mainly determined by its demand to use it as a medium of exchange. And this demand to use it as a medium of exchange is determined by the purchasing power of money, which is the price of money. So what did I start? I started to explain the price of money and I ended with the price of money. So I'm saying that the price of money determines the price of money. It's circular reasoning. I'm not explaining anything. Well, I'm arguing yes, I am, because the first price of money is not the same as the last price of money. This is the famous regression theorem that Ludwig van Mises explained first in 1912 in his theory of money and credit. So the price of money today, the purchasing power of money today is determined by the supply and demand of money today. And the demand for money today is in function of the idea of the purchasing power we have of money tomorrow. And this expectation of the purchasing power of money tomorrow is based on our past experience of the purchasing power of money. And the purchasing power of yesterday and the purchasing power of money yesterday is determined by the supply and demand for money yesterday. And the demand for money yesterday is based on the purchasing power of money the day before yesterday. And the purchasing power of money the day before yesterday is determined by the supply and the demand for money the day before yesterday. And the demand for money the day before yesterday is determined by the purchasing power of money the day before the day before yesterday and so on. So isn't this an infinite regress? No, because we go backwards in time until the moment when a certain commodity started to have a demand as a medium of exchange. So there's neither a circular reasoning nor an infinite regress. So Mises is just doing what Karl Manger is doing with the evolution of money. Manger is doing it towards the future and Mises is using it backwards to explain the purchasing power of money based on its demand which is based on our experience of what the purchasing power of money has been. So this is the demand for money. Now the supply. Let's first talk about commodity money. How does the supply of commodity money increase? Let's say gold is money and gold is found in Alaska. So all many people go there to mine it. Miners are going there. And then they produce money. They produce gold and the money is not spread to everyone in the same proportion. As this equation suggests, but in equally. And it extends itself only very slowly through the economy. First the miners get the money and they spend it. Maybe there's the bar in the mining town in Alaska. So do you think that the price of whiskey will be the same in Alaska as in New York, for example? The price of whiskey there will be much higher. And then the bartender will get the new money and will buy his suppliers. Then probably because it's very cold there and they are very lonely. Then some ladies will come and offer their services there also. So do you think the price of these services will be the same as New York? No, they will be much higher. And then when they get the new money, they will send it to their relatives and the money will spread slowly through the economy. Today the same happens but on a much larger scale. Because shared money is produced by the banking system and the central banks in a much larger scale. And today there are basically three ways to inject money. First is the monetization of public debt. That is the government spends more than it receives in Texas. And for the difference it just prints money. Or the central bank or prints debt that the central bank buys with new money. The second method to introduce new money is that the central bank produces new money and buys stocks or bonds or buys new buildings or pays their staff. And the third way is credit expansion. In the central banking system the central bank gives instructions to the prior banks to grant more loans. More on this tomorrow. So no one of these three ways coincides to inject money corresponds with the equation of exchange. Because never ever the money is injected equally to all people. Let's say that the government gives subsidies to a green energy company. Or let's say that the central bank allows fraction reserve banks to expand credits to build new houses. So maybe 10 billion dollars are introduced in the economy. But not to everyone the same. So the green energy company gets the subsidies. And the home builders the constructors get the new money. They now have a higher cash balance. But the other people in the economy don't have. And the people who got the new money they can buy at the old prices. The green energy company the home constructors they have higher cash balances and they buy at the old prices. And they can enrich themselves. So the new money gets always to a few. And the rest loses. That is why no one is interested in spreading the money to everyone in the same proportion. Then there's a second level the money keeps on spreading. So the green energy company may buy solar panels or land or highest engineers construction workers. The home builders highest architects or construction workers. So the new money then flows to them. They have the producers of solar panels, architects, engineers, construction workers. They have a higher cash balance. They profit but less. Then we have a third level. The construction workers maybe buy beer. So the price of beer is pushed up. The architect buys a Mercedes. So then the Mercedes dealer has higher profits. Maybe he buys and so on. He buys a code for his wife. So the seller of the code of his wife has a higher cash balance. So the money slowly spreads through the whole economy bidding up prices. And the privileged people who get the new money first gain because they buy at the old low prices. But the rest of the economy they see that prices are rising. The price of cars, Mercedes, of beers, they go up while the income is not rising or not rising as fast. So the privileged gain on cost of the rest. There's a redistribution. And that is why people are in favor of increases in the money supply. And it becomes more profitable to study architecture or to build solar panels or to build Mercedes. So there's also an effect on the real structure of the economy. Why? Because there will be 100,000 solar panels be built that would not have been built otherwise. Or there will be one million houses built that would not have been built otherwise. And once the inflow of the new money stops because the government for example stops the subsidies to the green energy companies. And then the money finally extends through the whole economy. There may be no demand for solar panels or the houses that have been built. And then the structure of production has to be realigned again with consumer wishes. So you see that you're already at the point of understanding Austrian business cycle theory here. Because new money has always a real impact on the economy. This is even the case for, this is also the case of course for commodity money. So when gold is found in Alaska, there's also redistribution, minus gain. Then the bartender gains, ladies gain and so on. Relative prices change, whiskey rises more than other prices for example. There's a change in the real structure of the economy. For example, there will be a mining town that not would have been there otherwise. And once the mine is exhausted, the gold flow stops. Most likely people will leave the place, will be converted in a ghost town. And then there are resources invested there that do not serve for anything anymore. The same, the same and on a much larger scale happens today with fiat money production. There's a massive redistribution from the late receivers of the new money to the privileged first receivers. The privileged first receivers in our example are the green energy companies that get the subsidies, the home builders, their relative price changes and the restructure of the economy changes. Because the restructure of the economy after the injection of money will be different to the structure of the economy that would have occurred without the injection of the money. So money is never neutral. So as you see, money is a complex subject and not many people understand it. And that is why governments can manipulate the supply of money to their and their body's advantage. But now you understand money, so please spread the truth. It's very important. Thank you very much.