 Our next speaker is Dan Sanchez, who is the Director of the Mises Academy, and his topic this morning is going to be on war and the government control of money. Real quick, I just wanted to announce that all the books in the back are free, thanks to our generous donors, and I also wanted to thank the Tatum family for making this seminar possible. You've been hearing a lot about sound money. Now I'm going to talk about unsound money, especially how it promotes war, and how governments love unsound money largely because they love war. A great thinker named Randolph Born once wrote, war is the health of the state. Now what do you mean by that? Well in times of peace people are more likely to ignore the government, even stand up to it. Rather than follow orders, they're more interested in leading their own lives and doing the peaceful productive things that humans do in civilization. Trading with people, working together, enjoying their free time, getting to know each other, falling in love, etc. But when people believe that there's a great foreign enemy threatening them or holding on to stuff that they want, they become obsessed with fighting that enemy and in a way they start acting less like humans and more like beasts. They act the way frightened herd animals do at the side of a predator or the way hungry pack animals do at the side of prey. They want to join together in unity for a single life-and-death purpose, like hyenas mobbing a wildebeest or a wildebeest stampeding away from hyenas. In order to have that kind of unity, they look to a single decision-making organization to direct the war, they look to the government. And the more terrifying the threat is, or the more tempting the prize, the more the whole life of the country becomes about the war and comes under the direction of government. So the more war there is, the greater the power and the glory of the government. People in government know this very well. That is why so many of them love war so much and work so hard to start wars and to make them bigger. But wars are extremely expensive. All those troops and guns and fighter planes and drones and bombs have to be paid for. So how to raise the money to pay for them? One way the government does this is through taxes. The government just takes the money from the people. But there's a major limitation with that. People don't like being taxed. They'll tolerate a certain degree of it and they'll tolerate more than usual if they're in that wartime beast mode. But at a certain point, even the most pigheaded rah-rah war lover will snap out of beast mode when he realizes that not only are his sons and friends' sons getting hurt and dying, but the government is taxing him and his family into poverty to fund the war. When things reach that point, the people will turn against the war and if the government doesn't stop the war and he's up on the taxes, they'll turn against the government itself. So the government has a challenge. Is there a way for it to take the wealth of the people without them knowing it? And so without them resisting it. There is. If the government has control over the money. It's called inflation. The government just creates more money for itself that didn't exist before and uses that money to pay for the war. But how is that taking from anybody? It's easy to see how the government gains by doing that, but does anybody lose anything? Well, let's see. Let's say I'm the government. I have different departments. They're all part of me. They're all part of the same gang. But they each have their different roles. My right hand is the Treasury. It has my main bank account, which is on this notepad here. So I can just write the balance of my bank account, the Treasury's bank account on this notepad for my right hand. The Treasury includes the IRS, which is this finger. Now I use this finger to poke you and demand money. You guys are the taxpayers, the American public. You each have your own bank account, which is listed, the balance is listed on your own notepads. When you pay taxes, that money gets crossed off of your notepad and mine increases by the same amount. Now, my right foot is the Defense Department, the Pentagon, which controls the military. It's what I use to go around stomping on townspeople and goat herders around the world. It has a bank account too, but all its money comes from the Treasury. Again, as a government, I really like war because it turns you all into my obedient little beasties. But to have my war, I need my Pentagon right foot to have weapons for it. And that costs money. For example, let's say my Pentagon right foot really wants this fancy new fighter jet called the F-35. It's a real plane being developed and it's a piece of junk. It can't see where it's shooting and it can't fly in the rain. But it's a fancy piece of junk and I want it. But to get just one F-35, my Pentagon foot needs to pay $200 million to the company that makes it. Lockheed Martin. Who's good at making paper airplanes and wants to be Lockheed Martin? Anyone? Any Lockheed Martins? You can be Lockheed Martin? JP, we're even. So go ahead and make a paper airplane and come on up. Now, my problem is that Treasury doesn't have $200 million to give to the Pentagon to buy it. Now, I could try poking you all with my IRS finger to get you to cough up the $200 million, but you're already sick of being poked and sick of being taxed. I'm afraid if I poke you anymore, you'll bum rush me, drag me off the stage and throw me out that window. So let's say instead I use my inflation power. Come on up. My Treasury right hand just adds... just writes it in. Just adds $200 million. There. Now, I have $200 million and I know this isn't how it works in real life, but we'll get to that. I have $200 million just because I say so. And I can transfer that to my right foot Pentagon, which I can use to buy an F-35. So I transfer that to you, and then here is your big account. And now you can just add $200 million to your account, and I have my fancy new plane. Okay? Voila. Now, I didn't have to tax you all. So it's no skin off your back, right? Or is it? Remember, that's the question. Does anybody lose when I the government gain in this magical way? Now, when you think about it, somebody must lose because it's not really magical. Now, the true material wealth of society, what actually sustains human life and makes it more comfortable and delightful is the stuff we buy with money, not money itself. It's the food, clothing, housing, smartphones, mountain bikes, consumers goods plus the farmland factories, robots, raw materials and labor, and other producers goods used to make those consumer goods stuff. I covered this point in detail in my inflation talk last year, which is on YouTube and is linked onto the event page for this event. Creating new money doesn't create any additional stuff to go around. So if I the government am getting more stuff, it's necessary that someone has to be getting less stuff. Someone has to lose. It's a zero-sum game. So who loses? One definite loser is whoever would have acquired the F-35 otherwise. Now, flying death machines generally don't have a lot of buyers outside of government. So if the Treasury hadn't been able to buy it, the highest bidder for the F-35 might have been a scrapyard, just as it should be. The scrapyard would have bought it, dismantled it, and sold it for parts and materials for peaceful purposes. So the scrapyard lost while the government gained, but the government isn't the only one who gained from the inflation. Who else gained? Who else gained from me creating $200 million? Yes. Yes, Lockheed Martin exactly. Very good. Lockheed Martin gained because he's getting paid a lot more than he would have been paid by the scrapyard because I inflated. So he gains. Now, who else gains by Lockheed Martin having a whole bunch of money all of a sudden? What's that? Oh, stockholders, which is Lockheed Martin basically. They're the actual owners of Lockheed Martin. Who else? Parts manufacturers who supply Lockheed Martin because he pays them more. He has more. He bids their prices up. Their prices get bid up. So does that mean that as the new money filters throughout society that all the prices get bid up? Well, yes, that's the definition of inflation that talks about price rise. But does that mean that everyone is getting wealthier because of that? Am I benefiting just all of society because of that? Remember, that's impossible because by inflating, I didn't create actually more stuff. So somebody has to lose. Now, the way it works is that the new money, there are early receivers and there are late receivers. Now, by the time the new money gets to the late receivers, all the things that they buy, those prices have already been bid up more than the prices of the things they sell. So they actually get poorer while the early receivers get richer. And the earliest receivers always include the government and its contractors, including especially the governments in what President Eisenhower called the military industrial complex. While the late receivers are usually honest working people who don't have lofty government connections. So these honest working stiffs are effectively taxed for the sake of the war and for the benefit of the government and its buddies. But the people don't realize that. They know they're poor, but they don't know why. They never saw a tax bill. They never had to cut a check. They just see their wages and revenue not really keeping pace with the rising costs of living and costs of doing business. And as a result, they see their ability to get actual stuff get smaller. But they don't see the government's role in making that happen or how the government and its cronies benefit from all that freed up stuff going to its wars instead. But that's what's happening. As Eisenhower said in a speech, every gun that is made, every warship launched, every rocket fired signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed. The world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hope of its children. The cost of one modern heavy bomber is this, a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some 50 miles of concrete pavement. We pay for a single fighter with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. This is not a way of life at all in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron. Imagine Obama saying that. And this is true no matter how government wars are financed. So instead of obnoxiously demanding that the public hand over its wealth in the form of taxes, the government just quietly siphons it away through inflation. This way it avoids public outrage and resistance so it is able to take far more wealth from the people for its wars. Pretty sneaky, right? Well, it's not quite sneaky enough, actually, because even with this roundabout way of taking people's wealth, some people would catch on if the government simply kept just adding new money to its account, and even if people don't realize how they are losing, they can see that the government is obviously gaining, and that can look pretty suspicious. But the government has a way of even making that unclear, and it does so with the help of three new factors, private bankers, government debt, and the Fed. Now, let's say instead of the Treasury creating the $200 million for the fighter plane, it borrows it from a banker. Now, who wants to be a corrupt banker? Come on up. This is your bank account. Okay. Now, my Treasury right hand, can I borrow your pen? My Treasury right hand, instead of printing new money, it writes on this post-it, IOU $200 million. This is a bond, or it's a lot of bonds. And you buy that from me, basically. So that's me borrowing money from you. So now, I'll add $200 million to mine, and you can write $200 million on yours, but then cross it off, because that's you paying me $200 million. And that IOU bond that I just gave you gives you the right to collect $200 million from me later, plus interest. Now I transfer the $200 million to the Pentagon, which pays it to Lockheed Martin for the F-35, and I have my shiny new plane, but I also owe $200 million plus interest. But that's when my left hand finally comes into play. What's my left hand? Can you guess? The Fed, the Federal Reserve. In real life, it's the left hand that has the power to create money. And the Fed says, well, I just so happen to be shopping for government bonds. I'm shopping for, does anybody have any? Oh, you. You happen to have $200 million in government bonds. I'll pay you $205 million for that government bond. Sound like a deal? That'll be a nice little profit for you, young man. So I'll take that. And actually, since I'm the Fed, since I have the power to create money, I can just do this. I can just reach in to your account, and I can just write to, with my left hand, $205 and 6 zeros. I just created this out of thin air. I just added it to your account, because I can do that. I'm the Fed. All right. Now, let's review what are our benefits. Goldman Sachs, which is who you are, by the way, Goldman Sachs has $5 million more, and my Pentagon has a shiny new plane. And what are our costs? The Fed has $200 million in Treasury IOUs, and that means that the Treasury now owes the Fed $200 million plus interest. That's my cost. That my right hand owes my left hand some money. There's no cost for me or for my buddy. It's all just me. It's the government. I didn't give up anything. There are no costs for me or my buddy. It's inflation simply made us richer at the expense of the public, just like it did in the simpler example. But to the average observer, it's not clear that it did, because of the little shell game that I just played. People think, oh, the Treasury's really just not really getting something out of nothing. It's borrowing, and it'll have to pay it back, and Goldman Sachs is getting new money, but that's not for nothing either, because it's selling a bond, and the Fed is not doing the money creation, but that's not going directly to government spending. It's just compensating Goldman Sachs for its investment, and it's also stabilizing the price level and keeping unemployment low, and it's all very complicated and technical, but they're the experts, and they're just looking out for us. You see how tricky they are. It's even worse than that. Government debt helps the government secretly enrich itself to finance war in another way. Inflation also involves a transfer of wealth from savers and borrowers. When prices go up, the money your grandma has saved for retirement doesn't buy as much stuff. At the same time, the government's debt burden is lightened because as the prices rise, so does nominal tax revenue, while the amount of debt doesn't change. This is another quiet transfer of wealth to the government. There's yet another way. Inflation masks the cost of war. Inflation causes the boom-bust cycle. Since governments inflate when they go to war, there's often an economic boom at the beginning of the war, so not only do the people not know who's making them poorer, they don't even think they're poorer in the first place because of the boom. In fact, they think they're richer. This causes them to squander resources, as Jonathan Newman will explain, which only adds to the waste of sending men and resources off to be blown up. Eventually, the inevitable bust comes, but often this doesn't come until after the war, as the familiar post-war depression sets in. This correlation promotes the myth that wars are actually good for the economy, which makes it even easier for the governments to wage them. Thanks to inflation, the U.S. government can take wealth to its heart's content in endless huge wars and globe-spanning empire. And that's exactly what's happened since the creation of the Federal Reserve in 1913. Governments meddled with money to support their wars long before central banks like the Fed. The Roman emperors did it, the medieval kings, but to the extent that people had sound money, gold and silver, there was always a check on that. Sure, you can clip and debase coins, but you can't conjure them out of thin air. It was with the rise of central banking that the government's ability to finance war with inflation really took off. In his book and the Fed, Ron Paul wrote, It is no coincidence that the century of total war coincided with the century of central banking. By total war, he meant the near-complete mobilization of an entire country's labor and resources into an engine of industrial scale, murder, and destruction. As Lou Rockwell wrote, the story of central banking is one step removed from the story of atom bombs and death camps. Without central banking, World War I, as we knew it would have been impossible. And World War I was one of the worst disasters in history. It ended a century of relative peace, freedom, and rapid economic progress. It introduced to the world total war on a scale never seen before. And it led to the rise of Nazism, communism, and the establishment of progressive statism in America. In particular, the creation of the Fed in 1913 made U.S. entry into World War I possible, which made the disaster even worse by making the peace totally one-sided and giving the Western powers a globe-spanning empire. Central banking caused the German hyperinflation, which helped lead to Hitler. It caused the boom that went bust in 1929 crash, which led to the breakdown of international trade relations, which helped to lead to World War II. It funded U.S. entry into World War II, which established Washington as the imperial capital of the whole world. Along with that went monetary imperialism, which means that after World War II, America used its military dominance to export its inflation and to extend its inflation tax to the whole world. So inflation promotes war and empire, which returns the favor by promoting inflation. Now, America's money machine imports over 700 foreign bases around the world and a global network of mass surveillance, CIA and NGO destabilization missions, drone campaigns and special forces deployments. It holds nearly every country in the free world in its thrall. It props up and arms brutal military dictators, royal despots and occupying armies in the Middle East, which along with our wars helps promote terrorism. Since the end of World War II, it has enabled the U.S. to launch 201 out of the 248 armed conflicts in the world and to bomb, sabotage or attempt to overthrow governments in China in 1945, Syria in 49, Korea in 1950, China in 1950, Iran in 53, Guatemala in 54, Tibet in 55, Indonesia in 58, Cuba in 59, Congo in 1960, Iraq in 60, Dominican Republic in 61, Vietnam in 61, Brazil in 64, Congo in 64, Guatemala in 64, Laos in 64, Dominican Republic in 65, Peru in 65, Greece in 67, Guatemala in 67, Cambodia in 69, Chile in 1970, Argentina in 76, Turkey in 1980, Poland in 80, El Salvador in 81, Nicaragua in 81, Cambodia in 80, Angola in 80, Lebanon in 82, Granada in 83, the Philippines in 86, Libya in 86, Iran in 87, Libya in 89, Panama in 89, Iraq in 91, Kuwait in 91, Somalia in 92, Iraq in 92, Bosnia in 95, Iran in 98, Sudan in 98, Afghanistan in 98, Yugoslavia, Serbia in 99, Afghanistan in 2001, Iraq in 2003, Somalia in 2006, Iran in 2005, Libya in 2011, Syria in 2011, Ukraine in 2014 and Yemen in 2015. It was looking back at World War I that Randolph-born concluded that war is the health of the state and around the same time, it was also looking back at World War I that Ludwig von Mises wrote, quote, inflation is an indispensable means of militarism. In other words, war is the health of the state and unsound money is the health of war. Thank you.