 And I want to talk about the historical gold standard. So what I want to do here is not give you so much the history. I want to walk you through the logic of how it worked, because I rarely see people get into this level of specificity. And I know I personally didn't really resonate deeply with me as to how the gold standard actually worked until I personally thought through an example of what I'm going to go through with you here. That's the reason I'm doing this. Just to give you the big picture for the United States, up until 1933, there was what we'd call the classical gold standard, where anybody who had US currency could exchange it for a definite weight of gold. When Franklin Delano Roosevelt came in, one of the first things he did in office in early 1933 was he suspended that option. And then going forward, as codified at what was called the Bretton Woods Agreement, the US government agreed that it would redeem dollars. It would give gold to people in exchange for dollars, but not just anybody. It would only do it with other governments or central banks. And then finally in 1971, the US government just threw in the towel and said, we're not even going to give other governments or central banks any gold in exchange for dollars. So at that point, the dollar became a true what's called fiat currency. And that word is spelled F-I-A-T. So a fiat currency means it's not backed up by anything. Where the word comes from is to say that if you have two rectangular green pieces of paper that both have a $5.0 and a dollar sign on it, what makes one of them a genuine $50 bill and the other one just a worthless green piece of paper that has some numbers on it symbols? Well, the US government comes up with a bunch of somewhat arbitrary rules to say, no, this really is a $50 bill. But this thing is not. I don't know if this happened to you guys, but if you've seen the new $100 bill, they literally look like Monopoly money. I guess they came out six months ago or something. But I just for whatever reason, I guess because I'm not a high roller at the casino or something, I hadn't seen it for a while. And somebody at the bank tried to give it to me about a month ago, and I was sort of taking it back. So what is this? And they're just looking like, I was nuts. Yeah, it's a $100 bill. So yeah, that's real. And I didn't get into a philosophical discussion with the lady, but it struck me about the only reason she was saying that thing was real, whereas if I tried to pull out $100 bill from a Monopoly game, she would say, no, that's obviously not money, is that the US government told her, trust us, that's $100 bill. So anyway, that's what this word fiat means. The government is declaring by fiat that these things are money and these things are not. Now incidentally, let me just take 15 seconds on this, and then I'll get back to the bold standard discussion. Don't read too much into that phrase or that term. The government does not have the power to just make something money. There's a whole history to get us to the point where the government is in a position to say, that's $100 bill, but this thing over here is not. So I don't want you to read too much into what I just said. The government does not have the power. Like, they couldn't just all of a sudden make seashells money. That probably wouldn't work. And for sure, a government just from scratch that didn't have any history with its people about what money was could not just start declaring things money for some of the reasons we've talked about in this class already. But anyway, I don't want to get into that right now. Let's come back to the gold standard discussion. I just don't want you to take what I just said about fiat money too literally and think that we just said the government can do whatever it wants and declare something money. It's more subtle than that. But OK, back to the historical gold standard. How did that work? Well, governments would declare redemption rates of their currencies in terms of weights of gold. So the British government, its money was the pound. The US government, it was the dollar. The French government, it was the franc, the German mark, and so on. So each government, during this period of the what's called the classical gold standard, so before World War I, each of these major governments, they would have their own national currency. And that was the unit of measurement that people would use in their contracts. And then you'd go to a store in Germany, stuff would be priced in marks. And you'd go to a store in the United States, it would be priced in dollars, and so on. But all of those respective currencies were ultimately, it wasn't merely that they were pegged to, but they were defined as weights of either gold or silver. So it's really hard nowadays that we're used to when we've all grown up with fiat money. It's hard to get back in that mindset. There are certain documents in US legislation, for example, that literally define a dollar as a certain amount of grams of silver and things like that. So it's not just that they were setting something like in terms of monetary policy. It was more of a definition. Just like for purposes of law, it's a facilitate contracts, the governments might all say, hey, one foot equals 12 inches. So that was a definition to just help people understand what those terms meant so that if somebody had a dispute in a contract and went through a judge, there would be some standard. So by the same token, when the government said that this many dollars equal this much weight and gold, there wasn't monetary policy to try to achieve full employment. No, that was a definition of this is what we mean by the term dollar. And so if you're in a contract, you agree to pay someone $20 for something and somebody brings that to a judge, what do they actually mean by that phrase? Well, I mean, this much gold. So you see how that's different from how people nowadays think in terms of what the government does with money? OK, but back to the discussion. So just to give you a concrete example, before 1933 in the United States, the way the definitions worked out when it was defined what a dollar was, if you had $20.67, that would get you one ounce of gold. So the US government stood prepared to anybody who brought in $20.67 worth of currency, green pieces of paper issued by the Treasury, could hand those into the proper authority. And then the US government was legally obligated or pledged to the world. We will give you one ounce of gold. So the government had to keep stockpiles of gold to be able to do that. And like I said, anybody could do that. It wasn't like you had to be a representative from the Bank of France. Just anybody who happened to have US currency had the right to do that. OK. And so then whereas in Great Britain, what their pledge was is they said if you had 4.25 British pounds, then the Bank of England would give you an ounce of gold. So those were what the two governments set in terms of the redemption ratios of their respective currencies. So now if you think through it, what does that mean? If you do the division, $20.67 divided by 4.25 British pounds, that meant that the anchor point, if you will, in the foreign exchange markets was that $4.86 US dollars you would think should trade for one British pound. Now, that wasn't a law of nature. It wasn't like that with a price control. It was just saying given that the US government legally was obligated to give one ounce of gold for $20.67 and that the British authorities were legally obligated to give one ounce of gold for 4.25 British pounds, that this ratio right here that you would expect the natural equilibrium point from the currency markets would be $4.86 of US money would trade for one British pound. Now, in practice, the actual exchange rate would deviate. Maybe it'd be $487, $488, maybe it'd be $485, $484 trading for a British pound. But what we're going to see here, this is the last point that I'll make in the next few minutes we have, because the US government stood ready to redeem gold at this ratio and the British government at this ratio, there wasn't much scope for the exchange rate to deviate too much from this anchor point. So let me just show you what happened. Suppose this last point is here. Suppose for the sake of argument that the US government starts printing money like crazy. But this is still, like let's say, in the year 1912, OK? So they're still on the hook to redeem gold $20.67 for an ounce of gold, and the British government's still on the hook to give 4.25 pounds. All right, so the US government for whatever reason starts printing dollars like crazy. So now Americans have more dollars, and they want to buy stuff from, you know, and prices in the US start rising. So now British goods look relatively more attractive. The British tea or sweaters or something are look cheaper now, because tea in the United States and sweaters in the United States, their dollar price is getting pushed up because now there's more dollars floating around. And so now more Americans start trying to buy British stuff, but the people in Britain now don't want to buy as much stuff from the United States because the dollar prices are going to get pushed up. So now that means more Americans want to buy British stuff, so how do you do that? Well, people in Britain don't accept dollar bills. What happens is the Americans take their dollars and go to the foreign exchange market and have to buy pounds with it, before they can then go to the British merchants and buy the tea. So instead of being 486 a pound, now it goes to 487, 488, 489, 490. And so the dollar starts getting undervalued relative to the pound. So the point is, eventually, if that process continues too much, and I'll wrap this up in my two minutes here. If that process continues too much, at some point, it allows for an arbitrage opportunity. If that discrepancy gets too big, if the exchange rate strays too much from this 486 anchor point, then eventually it makes sense for people in Great Britain to take an ounce of gold, let's say, or 100 ounces of gold. And then they go to the Bank of England and they get, let's say, 425 pounds, or the 100 ounces of gold. Then they take the 425 pounds and they go into the foreign exchange markets and they get more than 486 dollars for it. And so, or times 4.25, see what I'm saying? For every pound, they get more than $4.86. And so then, they take those dollars and then they go to the US government and they say, give us all this gold. And so they end up with more than 100 ounces of gold if you just do the numbers, right? Because if it were one pound for 486 exactly in the foreign exchange markets, they would just break even. They would start with 100 ounces of gold in Great Britain, exchange it for pounds, take the pounds of the foreign exchange market, get dollars, take the dollars to the US government, get gold, and they would end up just with 100 ounces of gold. But since now, the dollar is trading for more than 486, that's going to give them a slight edge. And they're going to take their original 100 ounces of gold in Great Britain and end up with, I'm making this number up, let's say 110 ounces of gold in the United States. And then, they say, ship the gold over here. And so, the gold gets put on a boat and goes across the ocean. Because they got rid of their 100 ounces of gold when they gave it to the Bank of England to get the pounds, and now they want to get the gold back. And so now they get the 110 that's come on the boat from the United States. So if you think of it in terms of the authorities, the British government now has 100 ounces more gold than it did before. And the American authorities have 110 fewer ounces of gold. And so what happens is, is if the United States authorities are printing dollars faster than the British authorities are printing pounds, that causes the dollar to fall against the pound of the foreign exchange market. And that causes an outflow of gold from US government's vaults effectively into British vaults. And so the US government realizes, oh man, we got to stop printing so much or else we're gonna run out of gold. Or technically, the British government could say, wow, we're accumulating all the gold, we can go ahead and buy the printing press as well. So that little story I just told you just shows you the logic of it. If one country under the classical gold standard isn't plating its paper stockpile, paper monies, faster than the others, it will tend to experience an outflow of gold from its vaults to the other countries. And so since you have a bunch of competing countries, constituent members, it sort of was a check upon everybody. That yeah, they could inflate, but only if they could all agree to inflate together. If any one of them inflated more rapidly than the other, that one country would lose its gold to the others. Okay, so all it took to maintain order was if this one country had to be conservative and then nobody else could inflate more than the slowest country. Otherwise that slow inflating country would get everybody's gold. Okay, so that was how the classical gold standard worked. So it wasn't totally free market, obviously. So government had a lot of intervention, but the point was when they all respected that pledge that they would redeem their national currencies for gold of a specified weight, it placed a major constraint on what they could do. And so knocking down the classical gold standard that happened in World War I, every country except the US went off the gold standard because they didn't want that discipline. They wanted to be able to print money so they could buy missions for the war. And nowadays with absolute fiat money on everybody's part, there are no constraints. So this is why Mises in particular, and then a lot of people associated with libertarianism, especially in the Austrian tradition, have such a fondness for the days of the classical gold standard. Because that was historically a strong check on government's ability to debate the currency. Okay, well, we're out of time. Let me stop there. Thank you, everyone, for tuning in. And if you can, try to get caught up for the reading for next week. And I will blast out an email.