 Okay, now we now arrive at the vexed and troubled question of money. Money is, first of all, money is the most controversial aspect of economics inside the Austrian movement, outside the Austrian movement and in general public at large. There's an enormous number of people, for example, most of the general public do not take particular stands on interest rates or whatever, the banana industry and things like that. And I guess the money and all sorts of, how should we put it, self-taught monetary theorists all over the place. And most of us, I think, at least I do, I get about several missives a year from unknown people, big packet and inside the packet there's a letter, a scroll, often in red crayon, which is a sort of a cultural tip-off. And in close, I have my treatise on money which I hereby enclose for your benefit, I like, you know, 80 pages of comments within 24 hours. And it's a treatise on money with graphs and arrows and all sorts of stuff. If I wanted to take time off, I could spend my entire life doing critiques of this stuff, usually of course I don't. But basically the bottom line of all this is the way to success, happiness, prosperity, world peace is an unlimited amount of money. That's the upshot. So we have these used to be known as monetary cranks in the 19th century and considered a little baffy and so forth and so on. Unfortunately, what's happened since the Keynesian era is that the monetary cranks have taken over the asylum and are now controlled. So well, there are subdivisions, of course. The self-taught monetary cranks are not doing that, except the jargon. They've created their own jargon, which is always difficult to get across very quickly. At any rate, one of the difficulties about money is that it contains, by the way, money is another issue within the libertarian movement, which Walter clarified about the differences of the Austrian movement. Within the libertarian movement, Leonard Reed, for example, who was the president of the Foundation for Economic Education, which for many years was the only libertarian organization in the country, never published anything on money because he said he couldn't understand any, there were eight or ten different theories, he couldn't understand any of them, therefore he didn't publish anything on money. So money is a controversial question within the libertarian movement, that's a controversial question in the Austrian movement, even more controversial on monopoly theory. Okay, one of the problems in money is it's the only part of production I can think of, the only commodity where historical history becomes extremely important. In other words, if we're dealing with a banana industry or the coal industry, we don't have to deal with history, it's important, it's interesting, it's important, but we can analyze the economics of coal without going through how coal originated. We can't do that with money, money has an historical component in it, in the value of it, and so it's impossible to understand the nature of money without going to the origin of it. It's also impossible to understand, to evaluate public policy and have a way to go from here without understanding the essence and therefore the origin of it. So I'm going to start with the origin. Actually, some of the scholastics, John Buridam is the first great monetary theorist, and more or less at the Austrian theory of the origin of money, and it was sort of a tradition, scholastic tradition, and Karl Manger, in his famous article, The Origin of Money, which is included in the principles text, goes through the magnificently praxeological pattern of how money originated. It starts in Barter, where you start with direct exchange with two goods, let's say, which are both beneficial, you have to have a Friday Cusso model, let's say, where one person is hunting fish, the other one is hunting meat, and exchange fish for meat at a certain read-up on bargaining price, and you get direct commodities being used, you wind up with a teeny village, with somebody as a shoemaker, somebody else as an egg producer, etc., etc., and you get to the point where Barter, very early to the point where Barter becomes not only inefficient, but almost impossible to get out of. In other words, you come up against an iron wall. One example I like to use in classes is, if I take a break, you know, from my morning class, the afternoon class, and go out and get a sandwich, it'd be very difficult to find a restaurant owner who would accept 10 minutes of economics lecture for the rest of the day for the sandwich. Very difficult, matter of fact, I think I'm probably starved. So they want something which is, they're not interested in learning about economics, at least from me, and so there's the problem with what is known technically as the double coincidence of wants, and these issues, by the way, were the formal chapter one of every money and banking text until about 1933. It's now dropped out of, it's a loss of knowledge. Now we start off with the, I remember the first, one of the first examples of this, the Chamber of Commerce had a text book on economics, and they had a money chapter, and started off sentence number one, I remember it burned with crystal clarity in my head, was money is whatever the government says it is, that's it, and then they continue on. So we have a loss, definitely a loss of knowledge here. And then you're right, so we start off with the border, we start off with the problem double coincidence of wants. Another example I use in class is somebody produces eggs and he wants to buy shoes, you know, exchange for the eggs, but he finds out that the shoemaker, the only one of the town is allergic to eggs. The doctor told him he breaks out of migraines every time he eats eggs, so what's he going to do? He wants to get shoes, he's only one shoemaker. So they have all these problems of coincidence of wants, and you have a problem of indivisibilities. So if you own a house and bought our system, you want to sell it, what do you do? You want to exchange the house for a whole bunch of things, a car, a bale of wheat or whatever. What do you do? You chop up a house in 50 different parts and sell 150th, 150th for a car, another 50th for food, for frozen food or whatever, you obviously can't do that. When you chop up a house, you lose the entire value, can't get 150th, exchange it. So that's, that's the problem of indivisibility and the problem of double coincidence of wants, between the two of them, you're stuck. You can't, of course, you can't calculate any kind of complex manner either. But even before you get to the calculation problem, you get to the problem, how do you get this stuff? How do you find that a shoemaker is not allergic? So, so very, very quickly, the market begins to solve it, and it's not solved by social contract or by the government, like expert commissions being established, bipartisan commission being established to figure out what to do about this. Individuals begin to find out, for example, the, the egg producer faces the problem of the shoemaker is allergic to eggs. He finds, what, what, what does he want? What would he like instead of eggs? Well, he likes cheese, let's say. So the egg guy goes to a cheese person, exchanges his eggs for the other guy's cheese, then takes the cheese and re exchanges it the shoes, or takes water or something like that. And as he finds another commodity after all, the shoemaker, even though he's allergic to eggs, would like to buy something he's engaged in some kind of barter arrangement. He finds out what the shoemaker wants and he gets it and then re exchanges it. In this first, this is the beginning of indirect exchange, in other words, he finds out the best way to settle his wants in those cases of bumbo-verkin roundabout process. You've got to find something else. You can't get the guy to accept eggs or find something else about cheese or a cord of wood or something like that and exchange that for shoes. As this begins to happen, we begin to surmount the problem of double-quench the wants. I find out what the new step, what does the restaurant owner want if he doesn't want economic lectures? Well, he maybe likes, I don't know, cords of wood. So I get logs of wood and exchange it. So you begin to surmount the problem by finding commodities which can be used, not just for direct use, but also for indirect exchange purposes, for medium of exchange purposes. And very quickly, when this begins to be done, it starts to be a spiral upward because when something is known, if you go through, I think Walter used the term Ducburg, Ducburg Ohio or something, you find out that Ducburg cords of wood are being used for exchange purposes and then you start using them. The cord of wood can buy anything you want in Ducburg, Ohio. So different regions, different societies begin to develop common media of exchange. And very quickly, one or two commodities went out in the race of which should be the medium exchange. And the ones that went out, went out and over history, literally hundreds of commodities have been selected by the market for this purpose. They all have certain characteristics. We can't say and definitely one will be chosen, but there are certain characteristics which mark a monetary, of course, this is money, general use of medium exchange is money, which make a commodity a money-ish, good bet for a money-ish commodity. In case the case arises. It has to be easily recognizable in general since somebody knows what it is. If you have a black box, which nobody knows what's in it, it's not going to be used as money because nobody will accept it. What the hell is that? So that's not a good candidate. Easily recognizable in general demand as a useful commodity for one reason or another. General demand, therefore highly marketable. Everybody knows it and they like it. And a commodity of high value per unit weight, if you can carry it on a thing around, it's difficult to have, say, a stone pillar as money because what do you do with it? So you have these qualities which are then pinpointed, recognizable, portable, high value per unit weight. The high value per unit weight really accomplishes a lot of this because as a high value, it's the high value per unit weight that means you can carry it around. Divisible, something which can be divided quickly and not lose its value. And butter, for example, is highly divisible. It's great. You can slice butter into it, right? But butter has other problems. It sort of melts. And durable. It should last, you know, more than 10 minutes. So fish before refrigeration is a toughie. Although they did, the fish was used, codfish was used in the New England colonies as money, but had difficulties. So you have, these begin to be used as money. Once they use as money, once they use as a general medium exchanged in a society, enormous further benefits flow. Economic calculation takes place. For example, if you're a business firm under barter, it's going to be difficult to conceive of it. If you're a firm under barter, you're trying to figure out the end of the month, the year, whether you made quote unquote money or lost it. Well, let's say we took in last month, 2000 yards of string, 30 baseball cards, two hats, four pounds of rice. It's happening. We've paid out 20 pounds of rope or whatever. You know, totally heterogeneous. Couldn't figure out what's going on with you losing, gaining. Nobody knows nothing, right? And similarly on prices, under barter, the price is almost an infinite number of prices. In other words, what's the price of that hat? Well, the price of the hat, it's two thirds of a string. It's three, three baseball cards. It's one 18th of a cow and that sort of thing. Go on and on. There's no common denominator prices. There's no calculation. It's all chaotic. So with the, with the arrival of some commodities, money, suddenly magically solve these problems. You find out not only you don't have to worry about, I don't have to worry anymore about finding a restaurant owner, but once that's 10 minute economics lecture, I can just get money from my college and buy stuff and money. And the same way with everything, everybody else, a price doesn't, I can figure out the price very easily. The price of this, whatever this picture is, three dollars. It's not one fifth of a hat. So everything has a money price and price in terms of money and everything is reckoned in terms of money. So the business firm now, the business firm looks over the past month. They don't have to worry about how many bowls of string they've got and what value to put on it. You say, well, I took in 100 gold ounces last month, we paid out 98 gold ounces, we're in fairly good shape. Profit of two gold ounces. So economic calculation becomes possible and reckoning becomes possible and price, price is in terms of one unit. During a marvelous article, which I'm sure you've read, but it's been in every, every anthology of economic readings for the last 40 years. It's still a great article by Ray Rathford called Economic Organization of a POW camp. And Rathford was a British officer, went to, got arrested by the Germans early in World War II, about 1939. He was in the camp for about five years. Of course, it was a very large camp and he observed the economics of it. And one of the things that happened was very quickly in the camp, first he had exchanges. Everybody, production is simply rationing from outside, care packages or whatever. Production comes out of the first of each month or whatever. And then people started exchanging it because I got a can of anchovies. I don't like anchovies, I exchange it with somebody else's peaches, it doesn't like peaches. Very quickly, you can begin to get a market. And very quickly after that money developed. A commodity was used, which is in great demand, easily recognizable, beloved by people, have a high value per unit weight, portable, not durable, unfortunately, but there was no gold available. Namely cigarettes, cigarettes became money, everything became record in terms of cigarettes. So what's the price of that can of peaches, three cigarettes? What's the price of this, whatever, under bread, half a cigarette, separate, separate. So everything I'd reckon is cigarettes. And the British officer was assigned the task of every day putting on a bulletin board or a blackboard, what the prices of each item was for that day. Anyway, the story is that the, first of all, illustrates how money develops out of a useful, non-monet monetary commodity. And one of the interesting aspects of this is toward the end of the war, more cigarettes came flooding in because the people overseas were sending, altruistically, sending more cigarettes to the camp. And this screwed up the economy of the camp because price inflation then developed. They saw a bellyache about inflation. I said, the just price of peaches is two cans, it's two cigarettes and now it's four cigarettes, it's evil. And they call upon the British officer, I kid you not, this is really what happened. The British officers call on the camp directors to enforce price control because there's evil inflation, inflation is caused by speculators and aliens whoever, unions and monopolies whatever, gougers and all the rest of it. So the British officers impose price control. And of course, the same thing usually happens with any price control. It was a shortage developed, they couldn't find the peaches, couldn't find the anchovies. Like Marcus developed secret dealings, underhanded dealings and all sorts of stuff. Weakening of quality, poisoning of the peach. So they finally said it doesn't work and they repealed the price control over the end of it. There's a marvelous microcosm of the economy. All right. So we have what this was, so this is the origin, this is not money originated and what this is how it's always originated. And by the way, when the commodity is exchanged, the unit, the currency unit becomes the unit of weight of the commodity, whatever the commodity is exchanging at. Usually it's in the case of cigarettes, it was numbered because of the certain, you know, definite lengths. In the case of most commodities, weight is the basic unit. Sugar was used to be with the money in Louisiana and later became Louisiana. That was pounds of sugar. Tobacco was money in Maryland and Virginia. And that became the unit of money was hogsheads of tobacco or pounds of tobacco. So this people reckon they said, what was your income last year's Zeke? My income was 12 hogsheads of tobacco. That's pretty good. Okay. So what happens, of course, whenever it so happens that there are two commodities which always have always outcompeted everything else if they have a chance. That's the society knows about it. Two commodities which always are better monies, the point of view of the market and exchange and cigarettes even and sugar and salt and tobacco all which have been used. Those are gold and silver, both gold and silver divisible and highly recognizable or high unit, high value of unit weight, there's, you can't find much of them. It's very costly to dig them out of the ground. You can't produce them on mass. They're durable. They last forever. It was a little bit of alloy in it. So they have all the they have all the qualities and much better than any other commodities. Usually, I don't want to get into the silver question now because that could take a whole lecture. It's really not worth it. But the silver question messed everything up for hundreds of years when they're trying to figure out the correct money position. Basically, gold is much less abundant than silver now, but it's generally better. It's less it's less apt to get to find big gold gold hordes anymore or silver hordes. But anyway, both gold and silver, usually the silver was much more abundant. That was used for smaller exchanges and gold we use was used for larger exchanges. So what happens is that the units of the currency units, the reckoning, a set of hogs as a tobacco or whatever, where it became units of weight of gold or silver, all the current only coins we know about from ancient Persia on were units of weight in their particular language of gold and silver. The shekel was a certain weight of silver or gold or whatever. Sometimes copper in very minor cases. So this is how money gets developed. And what Mises contributed, Mises' magnificent book Theory of Money and Credit, which is still the best single work written on money. And in 1912, what he did was the set of, well, one of the things, he integrated money, monetary theory into micro theory, which had never really been done before. I'll get to that in a minute. But basically what he did is he showed that the manger analysis of the history of money was the only way of money could have developed. It was not only this, the way every money has always been developed out of useful commodities and barter. It's the only way it could have developed. In other words, he showed that the history was necessary to use the honest term. Why is that? You have to get a little bit technical, but I think it's worth it. Basically, Mises ran, the whole Austrian movement, Austrian school, ran up against a developed margin utility, and one of the things we've heard about. And when manger and Bumbovac, Mises was a member of the Bumbovac seminar, graduate seminar, postgraduate seminar, I should say. And they ran up, I guess, the problem in the field of money. You can understand how people can arrive in the direct utilities of computers or wonder, bread, or whatever. You know what they are, and you evaluate them. The consumer evaluates them. You don't have to know the history of wonder, bread, or the history of computers to evaluate the current product. In the case of money, after money, after gold, let's say, became used as a money, there was an extra dimension of value to it. In other words, first it was a demand for gold for its own sake. And then added to it was a demand for gold for money, which is the largest part quantitatively of the demand. So if you have a money commodity, the demand for money is based not on the money itself, not on the fact that it's gold with separate, it's based on the fact that previously you had a purchasing power and exchange value because it's based on the fact that other people have used it. You know, darn well, if you get gold, you'll be able to exchange for anything you want. So in other words, whereas you use houses and computers and all the rest of it for its own sake, you only use money because you know it has an exchange value. You know, everybody else has previously bought it and held on to it. So you have a temporal historical element embedded in the value itself. So the the position that the Wall Street took was we can't explain the demand for money and basis of margin utility because it's a preexisting we can't say we can't say that the man for money is caused by its utility because utility is based on its previous existence as money. So we're stuck. It was called the problem of the Austrian circle. And the way the current neoclassical economists solve, quote, solve the problem, they say they say it's a phony problem. This is the way Stiegelman and Samuel sent a separate Patinkian approach it. It's phony, phony problem. You don't have to worry about those things because those things cause the Austrian say the utility, subjective utility of consumers cause value. But we know there's no such thing as cause. There's only mutual mathematical functions. And since everything determines everything else, you don't have to worry about causes. There's everything as a circle. What are you worried about the circle of money for? The whole world is a circle, so to speak. So this, of course, the Austrian believes is a phony solution to the problem. In mathematics, I would say in natural sciences, although I'm making a slight amendment to that in a minute. In mathematics, if x is a function of y, by definition, y is another kind of function of x. So everything is a function of everything else. And this is not what Austrians are interested in. I'm interested in causal relations, real causal relations. Now, Colin Menger Jr., who's a famous mathematician, wrote an excellent article. I think it's in the Weber-Hicks book on marginal. It's either the, it's one of the two books on marginal economics now. I'm forgetting which. It's either the Weber-Hicks one of the good one. And you're right. He wrote on mathematical, mathematics and Austrian economics. And being a mathematician, of course, his words carried even more weight than mine would, or anybody else's around here, at least not like non-matheticians. One of the things he said was that even in physics, it's not really true that everything is causelessly functional. And in many cases, when physicists explain phenomena, honestly, thunder, it's not a mutual mathematical function. It's real causes of work. So even in physical sciences, this is kind of weak, sort of like a popper explanation of the philosophy of science. Menger, by the way, I mean, Paul Menger Jr., said another interesting thing. He said about literature versus mathematics. I'll slip this in as a tangential point. He said most people think, what he did first is explains the demand curve in words. I'm going to price full as the quantity of purchase will increase and so forth. And he puts it into a mathematical formula, the Euclid, F of X, or F of P, or whatever. And he says most people think that the latter, the mathematical concept, is more precise. It's more precise and elegant, more general explanation of demand than literary way. He said on the contrary, it's less precise and less elegant because it leaves out all the prices which are not, all the man curves which are not integrable and not smoothly arching and the rest of it. And so leaves out all those classes of stuff, which the literary explanation includes. But you have only, so Mises then worried about the problem of the Austrian circle and figured out how to solve it. And through this analysis, that he could write this so-called regression theorem, which does not mean correlation coefficients. What it means is regressing logically back in time. It's nice to introduce time into the picture. So what he basically said, I'm going to put this, my own little diagram here. This is today, this is DN. And, okay. This is the supply, this is the demand for money. And this is supply of money down here. Supply M, which is usually called capital M, of course. And then these two impinge on and determine today's purchasing power of money. I'll get to that a little bit later, what exactly this means. It's essentially the value of the purchasing power of money. Okay, so this is, okay, this is for today, then the supply of money today and the demand for money today, the term of the purchasing power of money today on the value of the price. This is true of every product, the demand for peaches, interacting with supply of peaches will cause the term of the price of peaches today. However, the demand for money today as a historical element in it, namely the fact that money existed, just gold or whatever, existed as money yesterday. Day is a logical term now. That's just a time period. It's a logical time period. Could be last month. Okay, so day N minus one. So the fact that there was a purchasing power yesterday influences is the necessary condition for the existence of BM today. We have, so the purchasing power of money yesterday, of course, was determined by demand for money yesterday and the supply of money yesterday. So in other words, part of the breaking out of the Austrian circle, so to speak, is to say, look, there's a temporal element here and it's true that demand for the existence of demand for money today is dependent on a pre-existing price, but the pre-existing price of money was yesterday's price. So you're pushing it back. Well, then the critics will say, well, okay, that's all right, but it's an infinite regress. It still doesn't, you don't conclude the explanation of determining today's money supply. You're just pushing back the time infinitely. But Mises' answer to that was, you're not pushing it back infinitely. You're pushing it back to the time when barter, when the gold or whatever was a useful commodity in barter. You're pushing it back before indirect exchange took place. In other words, as you keep going back here, you get back to say B1, the first day of when the commodity was used as a medium of exchange. Same thing applies to have these arrows coming back. And this is dot, dot, dot from Dn minus one to hundreds of years back. And finally again, this is D0, the last day of barter, so to speak. The last day when gold or silver or whatever was used purely as a non-monetary commodity. And after that, I'm gonna push this one step rightward here. The last day of barter was the last time that it was influenced. And with here we have a situation, gold had been used until zero as just pure barter, not as money at all. At that point, so it had a pre-existing barter price like all the other barter commodities. And then they start using it, people start using it as a medium of exchange. And then the arrows start before this point D0 minus one, so to speak. There's no arrow at all, just the individual commodities as we usually think of it. And it was supply of gold, demand for gold, the term and purchasing power of gold, the price of gold. And then when we start being used as money, the historical influence begins. So in other words, we logically regressed the explanation today's price of money, demand for money back to the first day of barter. Back to the last day of barter, to the last day when money begins to be, gold is saving us to be used as money. This completes the explanation. So Brennan, a magnificent tour de force, which has never really been absorbed by the profession. The way it hasn't been dealt with by too many people, their arguments was infinite, regress was wrong, Patinkin gets it wrong when he tries to criticize it. Basically, it just hasn't been talked about. I will deal with that a little bit more when I get to Keynesianism. Some theories get talked about a lot, others don't get talked about at all. That's very little to do with a merit or de-merit, many cases of theory. And the tragedy of this thing is that the regression theorem has not really been fully absorbed, not just by the mainstream of the profession, but by the Austrian economic movement itself. That's the one area where most Austrian monetary theorists, there are not many of them, but they're there, don't consider it, but it's blank out timing yet. So some of the implications of this, as Mises points out, is that if money has to originate as a useful commodity in barter, it can't originate in any other way, it can't originate by social contract, it can't originate by the government saying, okay, from now on you guys use whatever, sand as money. It has to originate on the market out of a non-useful commodity. This, of course, eliminates a lot of what's called, a Hayek calls constructivist plans and schemes. A lot of people out there, it's really pretty amazing. There's a lot of hesitated to call them crackpot schemes, but if the word keeps popping, coming to mind, there are a lot of schemes of what should be money? And people who are against the Hayek himself as a perfect example, somebody who spends most of the time attacking constructivism and rationalism and all that, I guess the money he's got, he's the most constructivist of us all, or at least one of the most. He's got a scheme of introducing a new currency unit called the Ducat. Why the Ducat? Because there used to be a currency unit back in ancient old Austria or something. I'm not a numismatist, we filled in on that. And the Ducat will be issued by the Ducat Bank or whatever, the Hayek Bank, which will issue a Ducat and Ducat will be kept stable in terms of some price level or other, and therefore people flock to the Ducat, they'll leave the mark on the Frank and they'll have the people's money, we'll have what he calls a denationalized money, private money being issued. My response to this, I'm favorable allowing private money. The difference between something that should be legal and boosting it as being sort of a solution of the currency or the money problem. I'm in favor of issuing Rothbard tickets. Why not? I'll issue 10 Rothbard, five Rothbard, one Rothbard and try to spend it. The heck with lending it out, I'll just spend it. I'll issue a ticket, I'll write tickets. And if I wanna get a sandwich, I go to the restaurant and I say, I have 100 Rothbards here, pay for it. If they don't take me away in a looney bin, I might try it in a friendly area like this. We'll never try this in New York, of course, be worth my life. So usually the response I get from a friendly audience is I'll accept your ticket, Murray. Oh, it's very sweet, but it's not quite enough to establish it as money. So issuing, in other words, you have a situation, you issue a new currency unit, whether it's a Ducat or a Hayek or a Rothbard or whatever, nobody's gonna take it. I mean, you should have the freedom to issue it. Why not? The point is who's gonna accept this thing and use it as money? It has to be rooted, I don't wanna use the word organic, it has to be rooted in a market phenomenon and a market process which arrives in a currency unit in some sense. Well, it has to be rooted in the market. How do the government get its phony money across? Well, it got it by, first of all, a long process, long historical, again, history is important here. A long historical process. The government started with the linguistic term for unit of weight of gold or silver, but dollar was originally, dollar wasn't invented then come out of the sky. It was originally the word for an ounce coin of silver issued with a kind of schlick and bohemian. And the beautiful coins and they looked pretty nice, they held, they were state, they were, they didn't erode and that sort of stuff. They were kind of, it was known as a, you gotta have good brand names throughout Central Europe. So the dollar was then, was called the schlick and taller and then was abbreviated to dollar. So the dollar was had a long proud name and so forth, a general acceptance and also acceptance of the unit of weight in this case of silver. Later on it became a unit of weight of gold. The point is these currency units began as a unit of weight of gold or silver. Then of course, after the public gets accustomed to hundreds of years of this and they're reckoning as, yes, my income is $20 or whatever, then the government of course, manipulates and nationalizes the word dollar, gets rid of gold by one way or the other, then it becomes a fiat unit. But the government doesn't start out with a fiat unit. It starts out with a history of accepting this kind of process. And once the arrows are in place, unfortunately then the public wants dollars. They don't care so much about the gold aspect anymore. They want the, they're used to the word dollar and dollar becomes a currency and the government takes advantage of this and nationalize it. There was one monetary theorist, J. Lawrence Lachlan who had a kind of a sweet theory. I wish it were right. Theory was that once the becomes fiat money, the dollar will lose monetary value and nobody will accept it. Unfortunately it didn't work that way. It'd be nice if it couldn't work but it didn't. So once the thing, once it goes on by its own momentum, once you have the gold established, once you have the name established after hundreds of years, the government, the people that are used to it. The Mongolian empire, for example, tried to, and they conquered much of Europe and Asia. They tried to force their own paper money on the public. They wouldn't accept it. They never heard of the whatever the money was, the Mungo or something. They just wouldn't accept it. Even with the death penalty, they're not accepting it. Even the death penalty does not work in the money area. So, but after habituation, hundreds of years it didn't work. So the Hayek is not gonna work as charming as it is. I'm not even buying a Hayek duck at myself but it's not gonna be generally acceptable. And the Rothbard is not gonna be generally acceptable. And the rest of it, we have to have the dollar back of the Frank, of the Mark because that's what the public is used to for hundreds of years. It's their monetary unit. So all these schemes are denational, allegedly denationalizing money, never try to denationalize the dollar. We can say everybody should have the right to print dollars, like a ticket saying dollars on it. That's kind of weird. Because then of course we'd have hyperinflation immediately overnight. I guess it'd be one way to rid the public of their love of dollars kind of a peculiar way to do it. So people's revolutionary way of doing it. So the dollar is now defined, it used to be defined as 1 20th of Gold Lounge. It's now defined as whatever the Federal Reserve board prints of the dollar. This is it. The ticket with the insignia on it, a C or whatever. So another problem, a sort of ancillary problem, and I sense more lovable in the Hayek deviation is the people I know are trying to mint private gold coins and have an ounce basis, one ounce coins, and say this should be the money. Everybody should use this as money instead of the evil dollar. Well it's a charming position. The public, the point is again for hundreds of years now the public is not used to gold coins, they're used to dollars, they're not gonna use it as money, even though it'd be great if they would, it just ain't gonna fly. So what has to be done if one wants a gold currency, then what we have to do is to denash, get the dollar out of the hands of the government, and get the gold out of the hands of the government, tie them together, and then you can have a people's free market money, and I'll get to that a little later either today or tomorrow. So the, okay we have money established, we have this commodity established as money, and it's kind of an interesting thing because the analysis of money is very, in a way it's like every other commodity. It's a beautiful way of illuminating it. It's no different from any other commodity, except there's one big difference, and I'll get to that in a minute. The value of money is determined the same way the value of anything else is determined by interaction of demand and supply. There's another familiar diagram. You have the, this is one of the, almost the only diagram I count in that's, Walter was talking about evil, ranking a hated diagram, this is a fairly lovable one. Price on the y-axis, demand flowing demand curve, whatever the good is, and this is my amendment to the usual one, a vertical supply curve. Vertical because this is the stock available at any given time. The orthodox supply curve incorporates within an element of time which makes it a non diagram. You have, this is an instantaneous, the demand curve is instantaneous and subjective, and the supply curve, the usual sloping, upward sloping supply curve has a time dimension in it, so it makes it illegitimate for diagrammatic purpose, diagrammatic theory. So we have at any given time a certain stock of the commodity available for sale, and the intersection of course of these two will give you the day-to-day market price. The value of money is determined exactly the same way. You have a stock, in the case of money of course, say gold or even paper dollars, the vertical supply line is even better because you don't have a regular market supply curve going on even on the long run. So you have a basically exogenous, exogenously determined supply or stock, and people are demanding it. The man for money is what? The man for money is falling in the same way as any other man for any other good is falling because if one of, I think the best way to explain this is, this is the man most people think, if you ask them just also cuff, mind the man for money is infinite, accept any money that you give me. The anchor is not basically how much you're willing to accept. It's basically how much you're willing to shell out and what are you willing to sacrifice to pay for getting more money. In this case, what are you, how much you're willing to hold on to the money and say instead of spending it. Now that's not obviously not infinite, it's a balance between spending it on consumer goods, spending it on investment goods and keeping it, holding onto it and expectation of future spending. So, you have, if for example, supposing we had a very high price of money, purchasing power money is the same thing as the price of money. By the way, that's a very simple way to explain this is if the price of Wonder Bread is a dollar, it means that the Wonder Bread sell, it means the purchasing power of Wonder Bread on the market is a buck. The seller of Wonder Bread can get a dollar for it. So the price of something is the same thing as it's purchasing power. Purchasing power of dollars is the same thing as how much you can buy for it. It's one Wonder Bread loaf or two candy bars or one-tenth of a hat, et cetera, et cetera, et cetera, ready of alternative goods that you could buy for it. If you had a very high demand for money, if for example, we're back on the good old days of 1910, price level, where you could buy an eight course meal for 25 cents and all the rest of them are magnificent things, then you only have, you only need, you only want a small amount of money to carry around in your purse or wallet for day-to-day expenses or for emergency expenses or whatever because you're getting, you know, you get a taxi ride for 30 cents and that sort of stuff. You only need a couple of dollars. So in other words, if the purchasing power of money is very high, your demand for money to hold is very low. If on the other hand, you had a very inflationary price situation and the lunch would cost 20 bucks and the Wonder Bread would cost $15, that sort of stuff. You'd have to carry around a lot of money if you had it, but you'd want to carry around a lot of money to get you through the day. And so if you had a low purchasing power of the dollar, you'd have a very high demand for money to hold. So you have a falling demand for money in relationship to its purchasing power because you have for anything else. The interaction of the demand, falling the market for money and the vertical supply line gives you at any given time, the price of the purchasing power of money at a so-called price level in the usual way that you have any supply and demand. Okay, that's the basic similarity. And by the way, Roger was talking yesterday about different theories of interest. He didn't talk about the Keynesian theory of interest, which is the other aspect, namely it's determined by the demand for money, liquidity preference. I'll simply say here, that's a total falsehood. The demand for money is related to the purchasing power of the dollar. Man for the dollar is related to the purchasing power. Interest is determined by time preference. You've got two things going on, so to speak, and people with noodles and people's value scales. One is deciding how much to spend on present goods versus how much to spend on future goods, and with consumption versus saving, dash and investment. And the other is how much to hold your cash balance, which is the first is determined by time preference. The second is determined by the margin of utility of money in relation to other goods. It's related to the purchasing power and the expected purchasing power, future purchasing power of the dollar. So, of course, you have the problem of the business cycle and the banks issuing credit, et cetera, and messing up the interest rate, but basically these are the causal relationships. Of course, the Keynesian leave out time preference and then we bring in the monetary theory of interest. By the way, the monetary theory of interest, the pre Keynesian theory is essentially what's wrong with the economics, if anybody's interested in this visitary topic, the economics of 19th century individuals anarchists like Spooner and Tucker, who believed, who were Ricardian, Ricardian Marxists, and they believed that only labor was worth, labor was the total sole producer and only labor should, it's for an income. And the profits, rent and interest were evil, but they believed if you had free issue of money, if everybody could print their own money tickets, their own dollars, high-ex, duckets, or whatever, this would drive the rate of interest to zero, to be an unlimited supply of money. The rate of interest in profits would go down to zero, since they didn't have any entrepreneurial theory of profits. And rent would be, you wouldn't protect landlords at the end of it. So it's sort of like free competitive Marxism. At any rate, the, so you have the, this is the, so in this sense, money acts like any other commodity, but there's one other sense, very important sense which I promise to deal with, when money is not like every other commodity, mainly, well, let's put it this way. And every other commodity, the more the better, other things being equal. In other words, if we have a higher supply of consumer goods, just general total supply of consumer goods, general productivity, we're better off. If you want to use the word society, it's better off, I realize there are problems with that. If you find a new oil strike, or oil supply, it's a good thing. You're increasing the number of natural resources. If you have more capital that's good, but you're increasing the supply of future consumer goods. In other words, you have every other commodity, every other useful commodity, increases production and increases the transformation of nature into consumer goods, is therefore, quote, good unquote, increases the standard of living. So the more the better. There's no such thing as the optimal supply of resources, the more the better. We have a problem with population theory, I don't want to get into that. But in general, you can understand what I mean. Those are things that optimal supply of consumer goods, the more the better. In the case of money, however, it isn't true. If the only function money has is to exchange for present and future exchanges, you don't need more. Once there's enough to make it on the market as a money. Once there's enough, whatever it is, gold or cigarettes or whatever to make it as a money, you don't need any more of it. It doesn't increase any social benefit. Because if you have more of something of exchangeable good, all that happens is that the power of purchasing is diluted. The best what happens is that you have a 50% dilution of the purchasing power of each dollar. Even before prices go up. See the evil is not the prices go up, the evil is the initial increase of the resources, the counterfeiting, I'm going to call it that. Which means that the counterfeiters can then grab some of the resources, which were previously received by producers. So there's no social benefit increase in money supply. Once there's enough to function as money, period. And that's the difference. That's the thing which is distinguished. In other words, every supply of money is optimal. There's no need to increase it. And of course, there's all sorts of statements in literature, no, no, you have to increase the money supply with a number of people. What's going to do with a number of people? Why shouldn't the money supply per capita remain frozen? No need for it. What happens is if you have more exchanges, more production, prices go down. It's magnificent. The idea of, we're not familiar with the idea of prices falling is a great ideal. All through the 19th century, late 18th and 19th century, prices fell. Except during wartime, of course, the government poured on the money supply and prices went up. All the rest of the time, prices fell. Plus, when you magnificently wake up in the morning and realize that 10 years from now, five years from now, next year, prices of the cost of living will fall. You know it in your heart and your gut. Everybody had these magnificent deflation expectations that were always right, except in wartime. So when you didn't have mass bankruptcies because even though selling prices fell, costs also fell. What usually happens is the money wage rates remained about the same. Of course, the living of fell, real wages went up and the real increase in real income was diffused throughout the society. It wasn't only gained by entrepreneurs and unions. It was also gained by, say, people on fixed incomes who were pensioners would also get the benefits of this increased living standard. So of course, all this is now talking about the antediluvian period because the idea of prices falling as a regular course of events seems to be absurd. But that's the way it was until, really, that's the way it was until the World War II, when the whole military system was changed. So this means that any infusion of new money is a redistributing device, a counterfeiting device, instead of a social benefit. Now, you might ask the question, how about gold? Should gold be frozen? Is gold inferior to frozen fiat money? Somebody asked me this last night. It's a very common question. Isn't it better to have the government, so benign government, freezing the money supply forever instead of having gold standard where you have the mercy of market forces and the gold supply can increase? And several answers to that. One is that, of course, who can trust the government? The whole point is that the government is an inherently inflationary institution. I'll get back to that in a second. The second answer, which I want to stress right now, is that it's true that gold as money is no social benefit. But gold as gold is social benefit. In other words, if you increase the supply of gold, at least you've got more gold for jewelry, for filling teeth, and all the rest of it. So you have an increase in non-monetary benefits and a formal price, and this is generally beneficial. But, of course, an increase in fiat money and federal reserve notes is no benefit whatsoever, no social benefit. It's pure counterfeiting. And, of course, to get back to the second point, to trust the government to keep the money supply stable is like proverbial sitting of the fox the guard of the hen house, chicken house. I mean, it's absurd. What happens is that the government has a legal monopoly on the counterfeiting function. You put it this given an error of pretension. If you look at punishment and libertarian movement, for example, it doesn't have any solid punishment theory. But it's interesting that the state invariably, the highest punishments are levied, not on private victims or private crimes like mugging, rape, et cetera, et cetera, murder. But the state really gets a person. When they really zero in on it, it was two things. One, income tax evasion, and two, counterfeiting, where the entire mass might of the state, they don't worry about what your conditions were as a kid. You would apply the playgrounds and all the rest of it. They don't care about any of the stuff. They throw the key away. Because the income tax evader and the counterfeiter are hurting directly the two major revenue sources of the state apparatus. That means theft and counterfeiting. So taxation being theft and counterfeiting and money being counterfeiting. So what you do in counterfeiting is you're creating paper tickets. In other words, how does it, in a free market, how do people arrive? How do they get money? Most people get money by selling goods and services and exchange for it. A small number of people are gold miners, let's say. They'll mine the gold out of the ground. And it's costly and they didn't scarce and all that. And they supply it to the market. These are all producers. They exchange products. They produce something and exchange products. The government, however, prints tickets and force drafts, spends money. They buy extracting resources from the producers into its own pocket. So counterfeiting is equivalent to theft. It's another form of government revenue. And so, of course, when the counterfeiters are private, when they're unorganized and in fear of the state, they're cracked down very sharply. I'm not sure I go as far as Walter claims a counterfeiter as a hero, a private counterfeiter, but still I'm also an interesting concept that's competing with the state. So what you have, then, is a problem of social policy of a counterfeiting process, one, causing inflation, two, causing theft through extracting resources from increasing money supply, and also by inflating distorting economic calculation and all sorts of other things which are the result of inflation. One of the things about inflation is since it's hidden, I mean, people see the prices going up, which they usually don't like. They don't see the government printing more money or creating more money for the banking system. But they see as the actual price. They don't like it, usually. Damn it, the retailer just increased the price by 30% today. So the retailer is blamed, or wholesale, or unions, or monopolists, or speculators, or aliens, or whatever. And the government, of course, is leading in the pack saying it's a terrible thing. People are doing bad things. They're inflating. They're raising prices. It's due to consumers, excessive greed, unions, speculators, businessmen. Doesn't make any difference, whoever is disliked, except the government itself. Of course, the government itself is pristine. They're running ramparts against inflation. And of course, the answer is to give them more power to stabilize the system. But they are the inflators. As they're saying this, is that charging everybody else with inflation down there in the basement in the Federal Reserve building, they're printing more money. They're creating more money all the time. They're buying us in technical terms. They're buying more assets. And they're creating more money. So what happens is we have, unfortunately, the hangover through this momentum of dollars now being accepted as money, or Franks, or Marx. And in order to de-privatize, the visitor autumn, that is the privatizing money systems. How do we do it? How do we go about it? And one of the things that has to be done, as I said before, is to rescue the dollar, denationalize the dollar. And another thing is to rescue gold. Most of the gold was swallowed away in Fort Knox, was confiscated in 1933 by the federal government, and still there. So we have a question of how to denationalize gold and denationalize the dollar. And also tie the two together. And you might ask the question, why gold? One reason the pro-gold Austrian has been accused of being constructive of not letting the market rip, not letting it work, of imposing gold on the rest of the system. Actually, first of all, gold has always went out of the free competition against everything else, sand, bricks, ducats, wealth bar tickets, whatever. And second of all, it was gold. I mean, the dollar was gold until 1933. It's not sort of pulling it out of thin air. And so what I advocate is redefining gold as part of the weight of gold, and then getting it out of the Fed. In other words, abolishing the Fed, and making it this gorgeous of its assets, and exchanging the gold for federal reserve notes, and or possibly a demand deposit we'll get to later. But that would be, I think, it can be done. But not only have I not been able to convince the world of this, with economics, profession, or whatever, but I haven't been able to convince the Austrian movement yet. So it's a long road of hope on this particular position. The problem of letting the market rip is that the government's got the dollar. The government's already nationalized the dollar. The government's already nationalized gold. So you can't say let the market work from 0.0, because they've got the stuff there. In other words, this is part by way of a whole general problem, which Walter will deal with later, privatization. The problem of privatization is not just should we have private garbage contracts instead of the government. It's much deeper than that. We have the government owning a lot of stuff. In Russia it owns almost everything. Here it owns a lot. How do we get rid of, how do we denationalize government assets? It's not that simple. You can't say let the market rip. How do we make it rip? What do we do? Do we homestead it? It's kind of a charming idea. But I mean, some people say sell the property for auction, but by what right does the government have to have the money from auction? Why do they get the right to the receipts? If government property is illegitimate, as I contended is, why should they keep the money from the auction? Why not just homestead it? Now, I have no particular basics all over solution to this. My gripe is, they've been for the last 40 years, dozens, literally dozens of free market institutes, free market foundations, and lots of other stuff. And finally, I know nobody's dealt with this question. Maybe one or two small articles somewhere. Nobody's dealt with a systematic question. How do we de-state eyes? How do we de-communize? Supposing Gorbachev's successor gives up. He reads Mises and he says, I quit. And he turns over the keys to communism to the United States. What do we do with it? How do we de-communize? None of these anti-communist theoreticians have ever mentioned it, have ever talked about this topic. Stop talking for at least one minute about the evils of Stalin, et cetera. Start talking about, how do we de-communize if we have the chance? What do we do? And one of the things on the gold question to do, it seems to me, is to get the dollar and the government, gold out of the government's mitts. Because if we start a free market and money, allowing the government to retain the dollar, we're already the dice are loaded against us. We can print as many hyaxes as we want. It doesn't make any difference. Because they've got the gold, they've got the dollar, which is the major money in the country. I guess I've ranted on until it's five o'clock. So I guess I'll deal with banking tomorrow. I'll deal with both fractional reserve and central banking tomorrow. Thank you. Thank you.