 I want to re-iterate my thanks to my sponsors, Wilford and Barbara Pusher, for the generous sponsoring of this lecture, and I hope it lives up to expectations. Today, all governments and central banks operate under the ideology of inflationism. The underlying principle of inflationism is that the quantity and purchasing power of money determined by the free market inevitably leads to deflation, recession, and unemployment. The inflationist ideology is therefore embedded in the very concept of monetary policy, which can be defined as an increase in the supply of money aimed at lowering the purchasing power of money, that is, raising prices, below what would be determined by market forces. For the past 50 years, there's been a debate about monetary policy that continues today. Some economists argue that monetary policy should be left to the discretion of expert central bankers who are free to adjust their decisions and actions to actual and anticipated changes in the economic situation. Their opponents argue that monetary policy should be dictated by a legislated rule, which strictly binds the action of the money printers. Lately, many free market economists, including some Austrians, have adopted the position that under a fiat money system, legislated monetary policy rules are far superior to bureaucratic discretion in providing the proper timing and expansion of the money supply. They argue that the policy rules resolve the problems of a lack of knowledge, distorted incentives, and inconsistency in the policymaker's own preferences, which prevent expert central bankers from correctly deciding when and how much to expand the money supply. But their arguments miss the point that is the arguments of the free market economists. It is not the method or procedure for creating money, but the very fact of doing so that inevitably drives up prices and distorts market outcomes. Furthermore, all monetary policy rules are arbitrary and inefficient because they do not take account of market prices. Under the gold standard, the quantity, purchasing power, and distribution of money is determined not by the discretion of bureaucrats or by artificial rules, but by what means is called inexorable economic law. On the free market, money production is carried out by entrepreneurs risking their own capital based on economic calculation using market prices. Unlike central bankers, their decisions in producing money are disciplined by the profit and loss mechanism, which tends to ensure the supply of money is optimal at any point in time. The debate over rules versus discretion is therefore meaningless. Both approaches aim at establishing a purchasing power of money that is lower than what would be established by the supply of and demand for money on the market. In fact, and I'm going to be a heretic here, I believe that rules-based monetary policy is inferior to discretionary monetary policy because not only does it not constrain inflation, it normalizes and institutionalizes it. This is precisely what the inflation targeting rule followed by the Fed does and is intended to do. The same is true of other popular rules such as the Taylor Rule, the nominal GDP targeting rule, and Milton Friedman's old rule for fixed annual percentage increase in the money supply. Assuming that we are stuck with the existing fiat money system and will be for the foreseeable future, is there any way to curb the inflationary propensity of governments and their central banks? The answer is yes. However, it does not lie in the technical jargon of monetary policy rules that offer competing procedures for inflating the money supply. The answer lies in radically changing the ideology of bureaucratic decision makers and their political masters. As I will argue, the real and meaningful debate about money is not technical but ideological, inflationism versus anti-inflationism. As Mises pointed out, any monetary system in which politics plays a decisive role will be operating according to the ideology of government officials subject to the pressure of public opinion. Take for example the old gold exchange standard in which gold coins did not circulate, but the domestic paper currency was convertible at a fixed exchange rate into a foreign currency that was redeemable in gold. This system first came into being in the late 19th century in the European colonies such as Dutch East Indies and India, and then around the turn of the century in the Philippines, Japan, and Mexico. Despite the enormous power to inflate that this system placed in the hands of the colonial administrators and central bankers, the system worked reasonably well because governments and the public were still imbued with the liberal ideology underlying the classical gold standard. However, pro-inflationist ideas began to take hold among economists and intellectuals and spread to policymakers and the public in the 1920s and 1930s. This enabled politicians to use the gold exchange standard as an engine of inflation to destroy the classical gold standard. As Mises wrote in 1949, quote, one must not exaggerate the role that the gold exchange standard played in the inflationary ventures of the last decades. The main factor was pro-inflationary ideology. The gold exchange standard was merely a convenient vehicle for the realization of inflationary plans, unquote. As a result of the Great Depression, the pro-inflationist ideology grew so powerful and irresistible that it also swept away the classical gold standard, the gold coin standard, in the United States in one fell swoop. On April 5, 1933, the Roosevelt administration violated the rule of the U.S. Constitution. I mean, this is not just a piddling monetary policy rule. It violated the U.S. Constitution and the laws of property by confiscating all gold, corn, gold, bullion, and gold certificates owned by the American public under criminal penalty of a $10,000 fine, 10 years in prison, or both. Ironically, there is a reason for optimism in the sudden destruction of the gold standard. Because in the same way, the development of a radical anti-inflationist ideology among economists, policymakers, media commentators, and ordinary citizens can force the abandonment of inflationary monetary policy, even under a fiat money regime. If this ideological movement is strong enough, it may even prepare the way for a return to market-based money like the gold standard. This is not just idle speculation or wishful thinking. It has a precedent in recent history. The reversal of the inflationist ideology of the Roosevelt and Truman administrations occurred shortly after World War II and was one of the factors that caused Dwight D. Eisenhower to win the presidential election in 1952. With removal of wartime price controls, the inflation rate spiked during the immediate post-war years, reaching 14.4% in 1947, falling back during a mild recession, and then shooting back up again in 1951. The American public for the first time was suddenly anxious about peacetime inflation. Never had happened before. Eisenhower adopted a strong anti-inflation stance, despite the fact that he ran on a platform of what was called modern republicanism, in which he pledged not to roll back the New Deal welfare state programs and to actively intervene to prevent another catastrophic depression. Once he took office, however, Eisenhower proved that his anti-inflationism was not empty campaign rhetoric. As the mainstream economic historian Kenneth Weyer vividly described, the consensus within the Eisenhower White House and the Congress listed inflation as economic public enemy number one. Indeed, the decade of the 1950s was marked by a veritable obsession with inflation, despite that the inflation rate never reached more than 3.6% after the Korean War. Suffice it to say that Eisenhower's inflation fears were pandemic. That's their word, unquote. Eisenhower's aversion to inflation ran deep. Two revisionist historians and experts in the Eisenhower administration, MacLennan and Becker, point out that as early as the late 1940s, Eisenhower, quote, had come to see inflation as one of the most serious problems of the time and was concerned about the potential destructiveness of increasing prices on government programs, ordinary citizens, and business. Eisenhower's pandemic fear of inflation was reflected in two aspects of his administration. First, his choice of economic advisors and policy makers, and second, the policy of his administration toward the two recessions that occurred during his second term in office. Let me say a few words, excuse me, about Eisenhower's economic advisors. In his first term, Eisenhower appointed Arthur F. Burns, the chairman of the council of economic advisors. Eisenhower developed a close relationship with Burns, who has been called the economic schoolmaster for President Eisenhower and his administration, quote, unquote. This is the same Arthur Burns was later to become the most notoriously inflationist chairman of the Federal Reserve in the 20th century. However, at this point in his career, Burns was an outspoken anti-Keynesian and staunch anti-inflationist. Burns's views on inflation during this period are contained in a small book of lectures published in 1957 entitled, Prosperity Without Inflation. Burns argued in this book that, quote, the vast expansion of aggregate demand or total spending in the post-4 years, especially on capital goods, was facilitated by an unprecedented expansion of credit, unquote. At the time, many economists were arguing that increases in wages achieved by labor unions and pent up consumer demand unleashed by the end of wartime price controls or responsible for increasing labor costs and consumer incomes, thus driving up prices and generating inflationary expectations and a vicious wage price spiral. But Burns would have none of that. Burns blamed inflationist policies for the situation, writing, quote, this cumulative and interacting process of rising wages, rising prices, and rising economic activity has gone on since the end of the war under the sheltering umbrella of the monetary and fiscal policies of government, unquote. Now, I wish you remembered that in the 1960s and 70s. While Burns was very concerned about the threat of gradual or what was called then creeping inflation, which some economists, mainly the Keynesian new economists, were then promoting as a means for stabilizing the economy and increasing economic growth, Burns was determined to, quote, stop the updrift of the price level, unquote. He calculated that even inflation rate of 1% per year could cut the purchasing power of a dollar by over 20% in 25 years, while an annual inflation rate of only 2% would diminish the purchasing power of the dollar by nearly 40% over the same 25 years. Burns concluded that, quote, creeping inflation has become a chronic feature of recent history and growing threat to the economic welfare of millions of people, unquote. This was due mainly to the fact that political authorities treated the problems of inflation and recession asymmetrically as they do today. In other words, episodes of inflation were considered a much more serious problem than, episodes of recession were considered a much more serious problem than chronic inflation. Quoting Burns, it is difficult to avoid the conclusion that government is not yet prepared to act as decisively to check inflation as it is to check recession. The attitude is apt to be that while everything that is at all reasonable must be done to curb inflation, restrictive policies must not be applied on so vigorous a scale as to make any appreciable chance of bringing on or hastening a recession. Accordingly, Burns suggested that a law be passed by Congress comparable to the Employment Act of 1946 that mandates the federal government do everything within its authority to achieve a zero inflation rate. Burns left his post as chairman of the CEA with the election of 1956 to return to academia and Eisenhower replaced him with Raymond Sonnier, an existing member of the council. Sonnier had regular in-depth meetings with the president, was very close to him and saw himself as a part of a small team of advisors to the president. Sonnier was a well-regarded monetary and fiscal theorist who had published a probing work on the thought of leading business cycle theorists of the 1930s, including especially Hayek and Keynes. In a series of lectures collected in a book entitled The Strategy of Economic Policy, Sonnier expressed attitudes towards inflation very close to those of Burns. Sonnier argued economic policy should be conditioned by, quote, our paramount national purpose, unquote, which he called responsible individualism and defined broadly as providing, quote, the greatest possible opportunity for self-directed personal development and fulfillment consistent with the rights of others. According to Sonnier, this national purpose is best achieved, quote, in a society in which economic activities carried out through the institutions of competitive market-oriented enterprise based on the institutional private property. The proper strategy is to devise economic policies that are consistent with and do not undermine the individualist private property-free market institutional framework. Sonnier listed a few imperatives, what he called imperatives of economic policy. Anti-inflationism, he wrote, is the first imperative of economic policy. No other policy will work. It is not possible for government policy to favor inflation. The reaction to an explicitly inflationary strategy of policy can spell nothing but disruption and a setback to the economy's growth. Government must show through visible evidences of policy that it will take all reasonable steps in its power to prevent inflation. Okay, so like Burns, he was a staunch rabid anti-inflationist. The necessity for government to demonstrate to the public a credible commitment to anti-inflationism gives rise to Sonnier's second imperative of economic policy, which is a very conservative budget policy featuring regular surpluses, not just balanced budgets, but regular surpluses. As Sonnier argued, quote, if there is firm intent in government to resist inflationary tendencies, it will be evident in the budget, as will the absence of such intent, unquote. Sonnier's strategy of economic policy was based on its complete rejection of the Keynesian Foundation of the pro-inflationist position. That is that full employment is incompatible with price stability. It is precisely because sustainable growth and price stability are what Sonnier says are essentially complementary rather than competitive that a pro-inflationist position in economic policy matters is simply untenable. Okay, so I think I've proved that Eisenhower hired very, very good anti-inflationist advisors. I won't go into the chair of the Fed, but he was also an anti-inflationist, William Chesney Martin, and he was reappointed by Eisenhower twice. Okay, let me move on to the recession and Eisenhower's reaction to the recession. The economy suffered three recessions during Eisenhower's term in office. The ideology of anti-inflationism that pervaded the Eisenhower administration was clearly demonstrated in the administration's pronouncements and policies during the last two recessions in his administration. Both sympathetic and critical commentators on the economic policies of the Eisenhower administration recognized that the president's anti-inflationist attitudes substantially hardened during his second term. Eisenhower set the tone for economic policy of his second term in a statement he made in the State of the Union address of 1957, quote, the principal threat to the functioning of a free enterprise system is inflation, unquote. I mean, that's the president saying that. I mean, it's unbelievable from today's perspective. McLenahan and Becker, who were two economic historians who took a revisionist view, a refreshing view of Eisenhower's economic policy, pointed out that early in his second term, the president worried that, quote, worried that his efforts to restrain spending were insufficient and concluded that his energy would have to be even more concentrated on preventing inflation than before. To tame inflation, reduce federal debt, and balance the budget, Eisenhower concluded that he had to harden his position on military and domestic spending. This is right in the middle of the heating up of the Cold War and Sputnik. This growing fear of inflation even caused Eisenhower to abandon his cherished goal of developing modern republicanism, which aimed at moderate increases in domestic spending for education, public works, and welfare state programs inherited from the New Deal. It also motivated him to rein in the Pentagon's bloated and ever-increasing defense budget. He demanded that the Navy cut in half its program for building nuclear aircraft carriers, and he wanted to limit the acquisition of new missiles by the military. Most important, Eisenhower flatly rejected the notion of deficit spending that was being urged upon him by friend and foe alike during the two recessions that occurred during his second term. It's especially noteworthy that Ludwig von Mises recognized the transition from the inflationary policies of Roosevelt and Truman to the anti-inflationism of the Eisenhower administration, not merely as a change in policy, but as a radical change in ideology. In an article published in 1950, Mises wrote, The Truman administration is firmly committed to a policy which is bound to lower, more and more, the purchasing power of the dollar. It has proclaimed unbalanced budgets and deficit spending as the first principle of public finance, as a new way of life. While hypocritically pretending to fight inflation, it has elevated boundless credit expansion and recklessly increasing the amount of money and circulation to the dignity of a central postulate of popular government and economic democracy. Unquote. But in 1958, Mises was seeing a different tune. He wrote, It is never too early for a nation to realize that inflation cannot be considered as a way of life, and that is imperative, a word used by Sonier, to return to sound monetary policies. In recognition of these facts, the administration, and it's 58 is referring to the Eisenhower administration, the administration and the Federal Reserve authorities, some time ago, discontinued the policy of progressive credit expansion. As Eisenhower revisionists MacLennan and Becker confirmed, worry about inflation, I'm quoting them, worry about inflation, guided Eisenhower's response to the two recessions in 1957-58 and 1960-61 during the Second Administration. Concerned about increasing levels of spending and budget deficits, shaped the White House's cautious approach to combating downturns. Now the economy slipped into recession in mid-1957, causing the unemployment rate to spike upward from 4.3% to a high of 7.5%. In April 1958, which drove the new economists, the Keynesians, crazy. And this is where the myth that Eisenhower was a do-nothing president and didn't know anything began. While many economists call for tax cut in 1958, the administration resisted out of fear of creating a deficit. Eisenhower also rejected two proposals for public works projects drawn up by his own CEA staff. Eisenhower trusted that the operation of market processes would cure the recession faster than initiating new public works projects. At a presidential news conference during the depth of the recession, Eisenhower flatly stated, I don't believe that for one second, with minor exceptions, that any additional public works will do anything for this present recession. In sum, a rigidly held ideology led the Eisenhower administration to use its discretion to resist the various nostrums of the Keynesian new economists and to fight a successful battle against inflation. Mainstream revisionists and left-wing economists all appear to agree in retrospect that the economy under Eisenhower, the Eisenhower administration, performed comparatively well in terms of price inflation, recessions, and long-term growth. According to the mainstream economic historian Kenneth Ware, quote, it is hard to find much fault with the economy's performance in the 1950s, especially when we view it from the perspective of the 1990s. By virtually every current standard, the economy's performance was satisfactory to outstanding. The economy did not stray far from a full employment, stable price state. The private economy was fundamentally sound and required little intervention. Finally, going back to the two revisionist economic historians, the Clinton and Hennem Becker, they conclude, quote, During his two terms, Eisenhower's policy led to dramatic declines in defense spending, increased fiscal restraint, and generally low inflation. Eisenhower appears much more informed, determined, and indeed visionary than he was given credit for in the 1950s and immediately thereafter. His record in economic policy compares favorably to that of those who occupied the White House since 1961. This was written in 2011. As Eisenhower prepared to leave office, the country enjoyed a period of economic growth and price stability. The president had made a strong case for the dangers of persistent inflation. A new problem that many professional economists, politicians, businessmen, and the public had paid little attention to before. By the end of the decade, inflationary expectations in the American economy, which had, as I said, for the first time in peacetime, heated up, had been largely subdued. So he had subdued these inflationary expectations. The inflation rate between 1959 and 1964 was the lowest in the post-war era. So I will stop there and leave you with my conclusion. Thank you.