 Next speaker, Dr. Tom Woods. Tom's the author of 11 books, many of them New York Times bestsellers, most recently Roll Back. Take a look at his wonderful website if you haven't, tomwoods.com. He has his Liberty classroom teaching people the things in economics and politics they didn't learn in school and he's going to talk to us today about the state and some of its competitors. I should also mention a senior fellow of the Mises Institute, Dr. Tom Woods. Okay, thanks. All right, I hate when people do this, but unfortunately I'm one of those people this one time, so I changed the topic at the last minute. So I want to talk about something that's I think closer to the theme of the event and with hard money more and more in the news as something people are at least talking about or entertaining, even if only for purposes of ridicule, nevertheless it means that you read a lot more editorials these days about, for example, the gold standard and whether it's a good idea or not and I don't think you'll be terribly surprised to learn that most opinion molders are not of the opinion that it's a terribly good idea, but the arguments they make against it are really bad. I mean there are only a handful of them that you see repeated over and over again and they're terrible. It goes to show they're out of practice so they haven't had to talk about the gold standard in 30 years or something. Most of the people writing about it to condemn it are only 28. So this is something altogether new to them. So I don't blame them entirely. We've forced them into this position by being so insistent on getting this issue out to the public square and now they feel like they have to respond, but the responses are terrible. And so what I want to do today is to go through some of the arguments, not all, but some of them and answer them. I've done something like this in the past so I'm going to try to come up with new bad arguments that they make. I have a YouTube called Smashing Myths and Restoring Sound Money from another Mises circle in Greenville, South Carolina a couple years ago. So if there's a favorite myth of yours that wasn't addressed here today, good old YouTube will come to the rescue and you can have a look at that. So I want to start off with an easy one. In fact, it's so easy you'll think I'm stacking the deck, but I want to warm myself up, right? I haven't done any public speaking in about three weeks, so I'm going to warm up with an easy one. And this one you might not actually have heard, but if you travel in some of the circles I do, it comes up once in a while because there are some people in the Ron Paul movement who aren't fully on board on the sound money issue. They're on board with getting rid of the Fed, but for all the wrong reasons, we need the government directly through the treasury to issue the money. So in other words, the problem with the Fed is a private institution and all that. So apparently the problem with the Fed is that it isn't socialist enough from this point of view. That's to me not the main problem. So this group, it's sort of like the LaRouche group. They will say that, for example, the first thing is that Austrian economics in general, quite apart from its views on hard money, is really a tool of the elite. The elite want to encourage and spread Austrian economics because this gives a kind of an intellectual veneer to its enslavement of all of us. Now my response to this first is, well, it seems to me the elites went to an awful lot of trouble to establish the central banks of the world. Why would they want to encourage a school of thought that strongly implies we ought to dismantle those? It seems like after all the effort they put in, why would they do that? But more than that, think of what's really being said here. The elites of the world, the financial elites, the shadowy political elites and people in the shadows, we hardly even know who they are pulling the strings around the world. These are super influential people. All world events are ultimately controlled by them in one way or another and they are promoting Austrian economics. Then why are they doing such a lousy job of it? If the most powerful people in the world are promoting Austrian economics, how come your average undergraduate never even hears about it? How come your average graduate student never even hears about it? So could it be that these elites are really not that powerful after all? Probably not. More likely is, of course, the last thing in the world they want to do is promote Austrian economics. We have to do that. We, those of us in this room, have to do that. And it's a laborious process, but an enjoyable one at the same time. Now, the flip side of this argument or an additional argument that these folks make is that the monetary system we have right now is already a private free market system. I've had it said to me that what we have now is already the Austrian monetary utopia. I told you this was an easy one, all right? So I'm just going to go through, so I listed just for the heck of it. I just listed like a half a dozen things about the current system that are not private. And again, you may think this is like shooting fish in a barrel, but I don't know, there's a really, really huge barrel out there. And I don't know if I like the shooting metaphor all that much. But the point is we have to address these fish because they just keep coming to the surface. Not because they're dead, by the way, but because they want to ask questions. So first of all, right away, the most obvious aspect about our system is that we have a coercively imposed monopoly on the production of money. This is entirely opposed to the free market. Secondly, we have legal tender laws, which are also foreign to market exchange because they're monopolistic. They artificially privilege the money that is issued by the government or by its privileged central bank. Then speaking of the central bank, we have a central bank that was created by the Congress with monopoly power to create legal tender money out of thin air. So for all the talk about this being a private institution, if it didn't have this government-granted monopoly, it wouldn't be much of anything. It has a mandate to manipulate the money supply in the purported service of maximizing output and minimizing unemployment and price inflation. You can clear your throat at this point. Thanks for actually doing that. We have interest rates that are influenced by a monopoly monetary authority instead of by normal market exchange. We have implicit and explicit bailout guarantees for large financial institutions. We have artificially low borrowing costs for large institutions. Since the public knows there's a good chance they'll be bailed out, then the risk premium is connected to them is lower. We have artificial protection of the banks. This is actually number seven. It's more than half a dozen. In the form of government deposit insurance and the various Federal Reserve mechanisms that thereby keep afloat the fractional reserve system, a system which would be very different under a free market, as Joe just said. And so under the existing system, the banks will create more money out of thin air than they otherwise would. So a real free market banking system wouldn't have anything like this. It would have no central bank. It would have no monetary policy. It would not rely on politicians. It would rely entirely on the normal laws of commerce and contract. So we don't, in fact, have a private system. This is not, we don't have to take the blame for what's going on with it. So that's the first one. Now the second one is much more common. Second claim is one that you hear formulated in various ways. And you see it in numerous articles that the gold standard was, I just read in a big newspaper, someone saying the gold standard was mostly a disaster. Basically a disaster. And there was no elaboration on this. It was just, this doesn't even require proof. We all know it was a disaster. Now the thing about this is that it did exist and there are history books that talk about it. So this one is pretty easy to answer. I mean, the greatest burst of economic progress in the history of the world occurred under the gold standard. So to me, I think they're being a little bit nitpicky when they call this a disaster. I mean, we're talking about, this is a period that includes the great inventions of the Industrial Revolution. The steam engine, trains, ships, mechanized roads, the powered looms, sewing machines, modern printing, electricity, the automobile. I think that's a pretty good record as a matter of fact. I don't consider that to be disastrous. And you can look at prices, which you didn't see people losing the purchasing power of their money. On pretty much any standard you'd wanna measure it by, the record is actually pretty good. There was recently an article, I don't know where, I think it was, I don't know, it could have been market watch or business insider. I can't keep up with it. And it was some chart showing how unstable things were under gold. But it was a chart showing like 20 years of gold when it wasn't even a real gold standard anymore. It was a gold exchange standard. But if you look at the 19th century, you see totally stable prices during peacetime and people were able to hold on to the purchasing power of their money if not increase the purchasing power of that money. So I don't think the gold standard was a disaster. But the argument would be, but, but, but we had a lot of instability. So maybe that's what they mean. The gold standard was a disaster. I mean, sure it gave us the greatest burst of economic progress in the history of mankind, but we had these panics once in a while. And that's a problem. And that was solved by the creation of a central bank. All right, there are a lot of problems with this argument. I mean, Canada didn't suffer these panics, the sort of panics that you would see in the post civil war era in the US, Canada didn't have this. They also didn't have a central bank. They didn't have a central bank till 1934. So how would they respond to that? Answer blank out, there is no answer to that. I actually made up a page of resources on this because I think this needs to be looked into more. We need more work done on these pre-Federal Reserve panics because people will say to you when you talk about the Fed and we want to end the Fed, they'll say, well, Mr. Wiseguide, didn't we used to have all these panics and ups and downs and booms and busts before the Fed? I mean, you can't blame that on the Fed. Well, I made up a page on my site, tomwoods.com slash panics where I've got a video that I gave at the Mises University last year and some links to some resources on this, some stuff I've written and other people have written. But to make a long story short for our purposes, actually the panics in the US were not caused by the gold standard. The mechanism, the causal mechanism is hardly ever described. What is it about gold? What is it about a money that is spontaneously adopted by society that suddenly leads to booms and busts such that we need to introduce violence and force people at the point of a gun to accept pieces of paper instead? Like what would be wrong with this system that would cause this? We hardly ever get the causal mechanism. It's just explained to us that there is a correlation. Before we had the Fed, we had these panics. But when you look at them, there's a panic of 1819. Well, most contemporaries basically said this was a problem of artificial paper money creation that was spearheaded in large part by the Bank of the United States, especially privileged by the US government. And so after the panic of 1819, as Murray Rothbard showed in his study of this, published by Columbia University Press in 1962, in fact, after this, there was a huge hard money movement that swept the United States. People began to say this paper money creation just yields us boom and bust and we want real money. So they all perceived it that way. Now, a lot of times when you get these banks in US history, it's claimed that we need these banks in order to restrain the local banks so that when these local banks or state banks issue their own notes, if these notes get to the national bank, the national bank will return those notes and demand specie from the local or state banks and this will keep them honest. But there was a US senator, I don't normally look to the US Senate for wisdom, even though Senex, old man, the root of Senate implies they're supposed to be wise, but there was a US senator from Delaware, William Wells, who predicted right around 1816, he said this whole idea that you're going to protect Americans against the unsound principles of the banks by creating one giant unsound bank seems unsound to me as a strategy. And he basically said it's like saying, I don't want to be out in the rain, I hate being out in the rain, so I'm going to hide in the ocean. Like this is not, it's not going to work ultimately. And that is exactly the outcome that we had. 1837, likewise, you look at contemporary accounts, they're all saying the second bank has given us all these fluctuations and look at the problems that we have. In 1857, which is a fairly mild downturn, this was the period of the independent treasury, where there was the closest thing ever in American history to the complete separation of bank and state. You had the least severe of these panics, it lasted about six months and then everything was okay, but James Buchanan, President Buchanan actually said that the problem with this, we're going to keep having this problem is this system of artificial bank credits. He did not say, well, there's that stupid old gold standard causing this problem again, but people at the time understood the connection. In fact, Buchanan proposed a special bankruptcy law for banks because he was, he did not agree with the principle that if banks get in trouble and they can't return your money on demand that they ought to be given a couple of years to come up with the money. They ought to be allowed to suspend species payment. He was not a supporter of that system. He favored a special law whereby it would be clear that banks would go under, they would suffer what he called their quote civil death if they cannot pay depositors on demand. He thought that would be a salutary reform. Well, it would have been a salutary reform in 1857 and continues to be a pretty good idea. 1873, you hear this one a lot. Oh my goodness, we had such a terrible recession in 1873 it just didn't stop. It just went on and on and on for years and years and years and years. Well, it turns out that basically economic historians no longer believed there was such a long depression after 1873. And to the contrary, this was one of the most prosperous periods in all of American history. There was a recession in 1873, but there was no six year depression or in some of the more outlandish forms of the argument, 23 year depression. Nobody believes this anymore. This is a misconception. A professor at Berkeley, that bastion of hard money, Andrew Jaleel says, contrary to the conventional wisdom, there is no evidence of a decline in the frequency of panics during the first 15 years of the existence of the Federal Reserve. Hmm, panics go away by the way because of the FDIC. It's nothing to do with the central bank. And then the FDIC in turn leads to its own problems. A 2000, a book published in the year 2000 called Banking Panics in the Gilded Age, says as follows, says that in fact the record is still even not that bad. It says there were no more than three major banking panics between 1873 and 1907 and two incipient banking panics in 1884 and 1890. 12 years elapsed between the panic of 1861 and the panic of 1873. 20 years between the panics of 1873 and 1893 and 14 years between 1893 and 1907. Three banking panics in half a century. And in only one of the three, 1893, did the number of bank suspensions match those of the Great Depression. Whereas by contrast, in the first three years of the Great Depression, which is the Fed era, there were five separate bank panics. Now I've got sources for this again, but I have that at tomwoods.com slash panics. So that's another source for that you can click on that and find this stuff. Now also if we define a banking crisis as a wave of bank failures that are associated with substantial losses, then between 1874 and the eve of World War I, we can count on one hand the number of such crises there were around the world. There were four such crises, Argentina, Australia, Italy and Norway. By contrast from 1978 to 2008, there were 140 banking crises, 20 of which were worse than the two worst from this earlier period I just mentioned. And even during the pre-fed panics, there is still in terms of depositor losses. We're not talking about people losing everything. Depositor losses in the worst of the pre-fed panics, 1893 amounted to 0.1% of GDP. But in just the past 30 years of the central bank era alone, the world has seen 20 banking crises that led to depositor losses in excess of 10% of GDP. And half of those saw losses in excess of 20% of GDP. Then of course an aggravating factor were the unit banking regulations in many of the states which prohibited the banks from opening branches. You can have one office period. It's not that there's no interstate banking, there's no branch banking whatsoever. So obviously the banks are fragile and undiversified. But then simultaneously with this in the post-Civil War period, we have basically a quasi-central banking system as Rothbard explains in his history of money and banking. Basically the National Banking Acts toward the end of the Civil War established a system that more or less centralized the gold holdings of the US money supply in the vaults of seven privileged New York banks that then could create their own notes and then these notes were then used as a base from which to pyramid additional inflation by other more local banks. And a number of scholars have pointed this out that this is the source of the turbulence that you're having. It's not gold, it's the evasion, evasions of gold. All right, but you can't talk about this stuff without having the objection of what about deflation? Deflation is the worst outcome imaginable. If we have prices falling, this is a bad thing because this leads to, well a series of problems that I'll get into now. One of the difficulties with this is that we had falling prices all through US history up through the early 20th century. So who are you gonna believe? These critics are your own eyes. Like we had falling prices and apparently not everyone died instantly. Like it still went on. So I mean I can't just for that reason alone. I mean two of the periods of the most robust economic growth in US history were the periods from 1820 to 1850 and 1865 to 1900. And in those two cases, in each case prices fell about in half and yet robust growth. Well now we're not supposed to talk about this. Now there will be some who will say who will concede that it's okay in some circumstances for prices to fall. If they're falling because of greater productivity and greater abundance of goods, pushing prices down, that's okay. Others still don't even like this particular type of deflation. I'll get to those in a minute. First I just wanna see is there empirically any link between deflation episodes and episodes of depression. And here I referred to an article that I referred to in 2009, my book Meltdown. I learned about this article from Joe Salerno in the American Economic Review by economists Atkinson and Kehoe. They evaluated the evidence from 17 countries over a period of 100 years. Here's what they concluded. Quote, a broad historical look defines more periods of deflation with reasonable growth than with depression. And many more periods of depression with inflation than with deflation. Overall the data show virtually no link between deflation and depression. So they bothered to look unlike the people in The Guardian or The New York Times or whatever. Even in the Great Depression, the countries that were studied all experienced deflation but only eight of them suffered a depression. And these researchers further found that the relationship between deflation and depression was not statistically significant. For the rest of the period that they studied which went as far back as 1820, they found that 65 out of 73 deflation episodes had no depression. And that 21 of 29 depressions had no deflation. But thirdly, does the argument even hold? I mean, what's the logic behind the argument? Well, first of all, let's realize there's a prima facie reason not to be alarmed by the phenomenon of falling prices. Because think of it this way, what are we doing in the free market when entrepreneurs invest in capital equipment and they increase the physical capacity of their production process? And we get a greater and greater abundance of goods. What are we doing? We are fighting against scarcity. That's what we're doing. We can't ultimately conquer scarcity but we are fighting against scarcity. Now real, if we conquered scarcity it would be like Rothbard's example that you would just wish for a Coke and instantly it would be going down your throat. Like that would be a true zero price costless world. We're never gonna get there. But a world where scarcity had been abolished would be a world of zero price. So when prices fall systemically in a hard money system in the market this is simply in effect capitalism working out its destiny if I may speak that way of moving us away from scarcity and toward a world of abundance, toward that world of zero price. So there's a prima facie reason to think this is a glorious thing that we are seeing unfold before us. But you may think that but the sophisticates in the financial press will tell you otherwise. Here's Duncan Weldon from The Guardian who writes falling prices might sound like a good thing and in individual cases they often are. Ah, he throws us a bone there. But a falling general price level is a falling general price level is usually associated with severe economic strains. Okay, we've already seen that's not true. Usually, what's that? Where's your evidence? Show me, prove it. Usually, what are you talking about? The evidence has already been looked at. There is no connection. Where did it usually come from? I'm sure he'll retract this article when this video comes out. And then he says, and this is the logic of at least some of the popular renditions of the argument of what's wrong with deflation. Why buy anything today if it's gonna be cheaper next week? That's the argument. That if prices are falling, no one will buy. Because you'll say, look, I'm not gonna have a cup of coffee this morning because I bet tomorrow it'll be five cents cheaper. And then tomorrow will come and you say, coffee people think I must be some kind of a sucker. It's gonna be five cents cheaper tomorrow. Like eventually you're gonna break down and say, on the other hand, time preference exists and I prefer goods in the present to goods to the same good in the future. I'm gonna break down and buy that cup of coffee in the same way that you buy a laptop, even though you know that a year from now you're gonna feel like a sucker because they're cheaper and they're better and whatever. But at some point, you need the laptop. But in this version of the argument, none of us are gonna buy anything until we're on our deathbeds and then we'll finally grab an iPod just as we're expiring. It's not how people act. All right, so there's that. But then the other argument would be, well, it's hard for business to make a profit if prices are falling. Well, that's of course not true because what matters, it doesn't matter where prices are. It matters the price spread between the thing you're selling and the cost of the inputs to make those things that you're selling. That's what matters. And that price spread can still exist even with prices are falling. It doesn't matter where prices are as long as there's a difference between the price and the cost. Then you're fine, that's not an issue. But also businesses, see this is what entrepreneurs are supposed to do. The role of the entrepreneur, or one of his important tasks of the entrepreneur is to adjust. Is to adjust, is to take resources and allocate them in ways that he anticipates will please consumers. So that goods are produced in the economy in such a way that the least cost is borne by society. And so it's up to the entrepreneur to anticipate output prices and to anticipate all the factors, all the factors that go into making output prices what they are. And so knowing, or I suppose not knowing but making his best entrepreneurial appraisal of the situation, he bids for the factors of production. If he thinks, gosh, the things that I'm selling, I'm selling widgets, they're going for $5 of a widget now but I think next year they're gonna be down to $3 of a widget. He's not gonna spend as much to buy the widget banking machine or the widget laborers as he would before. He's gonna lower his bids for those goods. And so then the cost of his inputs will commensurately come down. And so the price spread between output and cost is preserved. If the cost of his inputs don't come down, then that indicates that elsewhere in the economy there's greater demand for those inputs in some other line of production producing some other type of consumer good. This is what entrepreneurs do. There's no reason they can't cope with this. But even if they can't, even if one day it turns out that they all fail to anticipate that they're selling prices, we're going to crash. And this leads them into such financial straits, they gotta sell all their products at these hopelessly low prices and it ruins them. Well, what does this do? I mean, Guido Hulsman points this out. Well, all this does is it means that they go into bankruptcy proceedings and their resources are just shifted around to other owners now. So the resources don't just vanish, the resources of these firms don't just vanish into thin air, they're still there. Now they're just owned by different owners. And from the aggregate point of view in the economy, nobody cares who the individual owners are. It's a tragedy for those owners. They should have been better forecasters of prices. But overall production is not compromised by this. There is a sticky prices argument. Not sure, I've only got six minutes. So I'm not gonna jump into this. I'll just say that I do wanna do a little something on this at some point, but there's the argument that prices don't adjust necessarily quickly enough. So for example, there could be a decrease in demand for some product, but the wages of the workers who work and produce that product don't fall commensurately. And so the market doesn't clear, labor market doesn't clear. You can't employ all the workers in that field at that going wage if the price is going down to here. And so you have a surplus of labor that's unemployed. And this is a problem, this is because markets can't adjust. And there are reasons for this alleged, partly it's that there are long-term contracts that you enter into people and you say, we'll pay you X dollars over three years, that's already locked in in the contract. So that wage, that salary is sticky and you can't adjust and you're stuck with it. And this leads to discoordination. There are labor unions that aren't gonna let wage go down any lower. There are all these problems that lead to sticky wages. But first of all, if the government is causing the sticky wages by encouraging the labor unions, there's your problem. But number two, and let's bear in mind that the stickiness, I know I said I wasn't gonna do this and yet here I am, doing it. The stickiness, I can't help it. The stickiness is chosen. The stickiness is chosen by the market. It's chosen by consumers. It's chosen by entrepreneurs. It's chosen by workers. Maybe workers don't want perfectly flexible wages. Maybe they don't want a wage that would change every 10 seconds. Like they're gonna do a productivity study in 10 seconds and it's out, well, right now your wage is only $2 an hour. And then five seconds later, oh, back up to 10. Like no one would wanna work under those conditions. And in fact, Bob Murphy has a good point. He says, suppose we did have perfectly flexible, adjusting wages that adjusted constantly, changing conditions constantly like that. Well, workers would be so insecure for one moment to the next, not knowing what their wage is gonna be, they wouldn't be willing to, for example, buy houses because they don't know if they're gonna be able to make the mortgage payment next month because who knows where their wage will be. And if we had really super flexible wages like that, then the same people complaining that wages are too sticky would be saying wages are too flexible. The free market doesn't work. Well, these workers can't buy houses. Like there's no satisfying these people. There is obviously desired A level of stickiness. Even consumers want some prices to be sticky. They don't wanna go to the movies and find that well, today the price of the movie is $18. Tomorrow it'll be down to nine. The next day, if businesses want to deal with a slackening demand, they can have coupons, they can have special offers, they can have discounts in the concessions as Joe puts it. But people want stability. So in other words, there is no non-arbitrary place from which you can judge what would be the optimal level of stickiness apart from what people actually choose. According to their own preferences. Now there's much more that can be said and I'm not trying to claim that's the only argument, but trying to fight price stickiness or wage stickiness by increasing the money supply. The argument would be you can't employ all these people because they're stuck at this nominal wage. But if we create all this inflation, then what are we really doing to that wage? We're pushing it down. It can't buy as much anymore. Then that'll solve the problem. But money creation through the banking system leads to the Austrian business cycle. It would lead to more entrepreneurial error because it's yet another thing that entrepreneurs have to try to figure out when the central bank does something like that. So in any case, there's a lot that can be said on this sticky price thing, but in sticky wages. But this is not by any means a difficulty for us. The final thing I'll do is the gold standard costs resources. Okay, it costs us something because you have to go. Ben Bernanke used this argument when he was lecturing to those students at that university in Washington. And he said, well, it's kind of silly because you got to go dig up the gold and then we just sit there with it and that's a lot of wasted resources. But Agito points out in his book, The Ethics of Money Production. If you look at the number of employees at the central banks of the world, France employs 12,000 people. Germany employs 12,000 people. The Fed employs 23,000 people. That's a waste of resources too. But also consider what the gold standard or hard money does. It restrains the government when it tries to embark on some crazy scheme by means of inflation, people can take their claims to money and go to the banks and demand their gold for it and shut the whole thing down. So I would say given that the gold standard makes that possible, whatever trivial costs are involved in gold mining, this is the greatest bargain in the history of mankind. All right, well, I have got about one minute. So I will leave you with this. The premise behind all these arguments against sound money are that basically the Federal Reserve Board can make better decisions than can millions of people pursuing their own interests. I mean, it is the classic argument of central planning against the voluntary sector. And so what I did at TomWoods.com slash money is I'm linking you there to the testimony of Professor Jeff Herban or a senior fellow of the Mises Institute before Congress at the same session where Peter Klein testified and he outlines exactly what the argument is theoretically and practically for a money that is separated from the state, how it would work, why it would be superior, why the current system is utterly irrational because unlike every other good in the economy, fiat money cannot be regulated by profit. It can't be regulated through the normal entrepreneurial process of economic calculation because it's always profitable to produce more fiat money. Always profitable to produce more. So its production is always arbitrary. It's always at some arbitrary level unlike the production of every other good in society. There's no reason we should want this. We should instead want a real money produced on the market given that money emerged on the market in the first place according to Manger and Mises. Well, this is where it ought to come from in the future. And yes, it's true that this is a hard stance and uncompromising because we're actually saying that we don't like the gold standard either because it's too woozy. We want to be harder core. Yeah, that's a tough position to take. But the cause of monetary reform is so critical that we can't afford to be milk toast about it or middle of the road about it. We got to take the logical outcome of the Austrian view and present it to the public and argue for it and not back down and you can be absolutely sure that the Mises Institute will never back down. And I thank you very much for your attention.