 But let's start with a quote from Mises. Why gold? Why do we support the gold standard? And you could substitute for gold commodity money, okay? People who are in favor of the gold standard tend to be in favor of anything that the market chooses and the market did choose gold with some help from government in pushing out silver in the 19th century. But this was one of the two metals that were chosen as money. Through centuries of evolution. So Mises basically says the reason why gold is because it makes the purchasing power of money immune to the attempts of politicians to manipulate its value for their own benefit and for the benefit of their cronies and constituencies. So here's the gold standard makes the determination of money's purchasing power independent of the changing ambitions and doctrines of political parties and pressure groups, which we would call today special interests. And there's a number of, Mises continually goes back to this theme throughout his works, that takes the power of determining the purchasing power of money out of the hands of politicians. Now here's a spectrum of international monetary systems going from what I consider to be the best, a 100% gold standard, all the way through to the worst. We're gonna focus on two today, the classical gold standard because that existed in history. Of course, all monies came into existence in some sense as pure commodity monies, as a 100% commodity backed or commodity monies. So the world has had experience with commodity monies for centuries, for millennia. Now, usually if you've taken an international economics class, you'll note that what they do is they mix the best, sort of the classical gold standard and 100% gold standard with fixed exchange rates. So instead of having commodity money, a division here between a sharp division between market supply commodity money and government monopolized fiat money, they go from fixed exchange rates to fluctuating exchange rates. So they'll mix these gold standards, so whether they're fixed exchange rates and they'll include in here the Keynesian ideal of fiat reserves created by a world central bank. In some sense, that's the ultimate fixed exchange rate system. Austrians don't focus on fixed versus fluctuating. We don't like that spectrum, okay? We like the spectrum that puts on one side commodity money and on the other side fiat money. Okay, and there is a sharp division between the two. Now, without going into too much detail because I don't have that much time, if we were to, if we have a fiat money, we would choose for the most part, at least for large countries, fluctuating exchange rates with the government completely refrains from interfering with the value of money established on foreign exchange markets. We don't like pegged exchange rates. There are things that are wrong about them. In other words, they fact, though, if you have fiat monies issued by different national central banks, then you have different commodities and they should fluctuate in value. So this is not on the other end, for example, of desirable monetary systems from the point of view of Austrian economics, okay? Once you get into a fiat money system, well then we would want exchange rates to tell the truth about the values of different monies. Okay, so what I am gonna focus on today is a classical gold standard, which operated in history and we have records of, and a fixed exchange rate system, which were false gold standards, the Bretton Woods system, and then today there's a, as we'll see, a bill in Congress for the, what's called the dollar bill system, which would mandate the Federal Reserve system to target the price of gold, and this is called the gold standard, and there's been a number of books written on this by people like Steve Forbes, Nathan Lewis, and others whose names are connected with the gold standard. Well, in fact, they're proponents of fiat money. What's the main characteristics? Now we're talking about the classical gold standard in which there were elements of government intervention. If you sat in on Guido Hulsman's class yesterday, he talked about all the elements of intervention, even in the 19th century, at the height of the classical gold standard. So, these things are true of the gold standard. The monetary unit is defined as a weight of gold. Gold and nothing else is money. And I'll get to that in a moment. Banknotes and deposits are instantaneously redeemable at par for gold, and gold coin is in circulation. Mises stressed this, that for a genuine gold standard, you have to have gold coins in circulation among the population. Therefore, the banks and the notes, the bank deposits and notes are merely money substitutes, what Mises calls money substitutes. They're claims to gold, whether they're fully backed or not, that are acceptable in exchange in lieu of the gold coin, okay? They're just more convenient. They're a more convenient way of transferring the ownership of gold from one person to another. Just as the pink slipped from a normal bill in New Jersey, there's a lot of drag racing, and you bet your cars and so on, at least when I was growing up, and people would, they would run for the pink slip, the pink slip being the title to the car, and they would put up the pink slips, and then the guy lost, he would get the other guy's pink slip, that is the title of ownership. Wherever the car was, he now owned it, didn't matter. And the central bank may or may not exist. The first central bank, or quasi central bank came into existence in the 1690s. Central banks were initially, the Bank of England, they were basically set up to fund governments, okay? To print money for governments to spend on palaces and wars and so on. So they were the financiers of the king. Monetary unit under the gold standard, there are some examples from 1834 to 1933, the US dollar was legally defined as 23.22 grains of gold, which works out to be about 1.20 of an ounce of gold. So for about 100 years, that was its legal definition. And in Great Britain, it was from 1821, after the Napoleonic Wars, until 1931, the pound was defined as equivalent to about one quarter of an ounce of gold, and the French franc to about 100th ounce of a gold. So that was the monetary unit. In other words, the dollar was just simply a name for a different weight of gold than the pound was and the franc was than the Deutschmark was. Exchange rates and the gold standard, this harks back to the first slide I showed you, or second slide. The gold standard is not a fixed exchange rate system, okay? The only reason why $4.86 plus or minus 1% exchanged for one pound was because of the arithmetic relationship between 113 grains of gold and 23.22 grains of gold. In other words, the British pound contained about five times the amount of gold as a gold dollar, therefore it took $5 to purchase, approximately $5 to purchase an ounce of gold. And so it's a law of arithmetic, okay? So today the US nickel is defined as one 20th of a dollar, US quarter is defined as one fourth of a dollar. There's no fixed exchange rate, okay? It takes five nickels to get one quarter because of arithmetic, okay? They represent different denominations of the same monetary unit. Here are some example of gold coins, 1921 and in 1906, US gold coins. These were actually in circulation. People walked around with them and purchased things with them. They were only a very small percentage of the transactions that were carried out of the money that people held. Here's British sovereigns, 1894, 1931. So this was the money proper, as Bezos would say. So gold was money proper. Banknotes and government issued notes under the gold standard were not money proper, okay? As I said, they were just simply money substitutes. They were not money themselves. They were simply titles that were evidence of the ownership of a certain quantity of gold. Or in another way to put it, there were claims to gold. So for example, in 1903, now there were a number of national banks that were set up in the 1860s. There's a national banking system in which Wall Street banks were dominant. And banks, certain banks were allowed to issue their own notes as well as their own deposits. That, they were eventually taxed out of existence and they were completely abolished in the 1920s. Private banks could no longer issue notes. But in any case, here is a title to money. This is not money itself. The title to money issued by the farmer, the farmers and merchants national bank of Los Angeles. Notice what it says here, will pay to the bear on demand $20. That isn't $20, okay? It's the weight of gold that represents $20. That is the $20, okay? That's a claim to $20, it's a title. And just one other. Here's the first national bank of Fort Myers who's a claim to $5. Will pay to the bearer on demand $5. Doesn't say that this is $5. It doesn't just have $5 on there. Simply a claim to the gold, okay? So under the gold standard, there was no paper money in the strict sense of the word. There were money substitutes, okay? And they functioned under fractional reserve bankings. They did function as part of the money supply, okay? To the extent that people had confidence that the banks would indeed redeem those claims to money on demand, they were part of the money supply. And increases in these paper titles would affect the value of money, okay? As Mises points out, and he had a different approach to this than Rothbard does, Mises doesn't think this is fraudulent, but he think it all depends on goodwill because to get technical for a moment, the liquidation value of the assets of the bank, okay? Are always less than the liabilities. So in other words, if the bank has $1,000 in demand deposits that it owes to people and maybe has $100 worth of gold in the bank and then has lent out the other $900 or invested it. If everyone came in, if they lost confidence and everyone attempted to redeem their titles to gold at one time, the banks couldn't pay off. And Mises says at that point, the goodwill evaporates. So let's say those loans and investments were only worth $500 at their liquidation value, right then. Then the bank can only pay $600 worth of gold. It will sell those things. So the goodwill is worth $400 in that case, okay? I haven't seen anything honest. There's a few pages in Mises, a few paragraphs in Mises that suggests this and I've written it up. So there's the accounting. We're not talking about fraud or anything here. The accounting for fractional reserve banks is wrong, okay? The assets should always be accounted for at their, what would I call their liquidation value. So whether the classical gold standard had principles of operation that the central banks followed. Now they followed them not because they were following the rules of the game. That's often the phrase that's used that central banks have to follow the rules of the game or play by the rules of the game. They were following them because they understood and the people understood that this was their property. At a point in history, more and more gold began to be centralized in the central banks. And by 1917 in the US, all gold had to be held if it were to be counted as reserves in the central bank. So when one skull was centralized in the central bank, it was often said, well, the central bank has these assets and they have to take these reserves and be careful not to lose them by inflating too much. Mises says, no, no, no, that's all wrong. The point is that's the money that people own. So the central bank doesn't have to play by any special rules, it just has to obey the rule of contract. That is it has to, when it issues its own notes which all central banks do, then it has to pay them off in gold because they themselves are only claims to gold. So let me just put these up here. So they didn't involve any fixed exchange rate or price fixing of gold, as I mentioned. In redeeming $20 for one gold ounce, the central bank or government is not selling gold. It's not selling gold to keep the price stable or something. It's fulfilling its contract to redeem a property title to money. In the long run, the money supply is strictly limited by gold mining, if you're a gold mining nation. Banknotes and deposits can only increase as new gold flows into banks. So if you don't have gold mines in your nation then the other way that gold could flow into your banks is through a surplus in the balance of payments where you sell more abroad than you buy from abroad. And so then the balance is paid in gold. This was known as the golden handcuffs on government. They could not expand the money supply, at least in the long run, to a greater extent than the inflows of gold. So the result was that prices tended to fall over time and saving and investment improved and more goods flowed onto the market from this cornucopia of capitalism. And there was improvement in technology. And we've seen this with high-deficient television sets that in the old days were $3,000, $4,000, $6,000 when they first came out, and today you can get for $500. Or computers that were $3 million, the mainframes that filled the whole room in 1979, they were $3 million. And now you can get a laptop with more computing power that is faster for a couple of hundred dollars. Okay. So as the increase in goods under the gold standard tended to outstrip the increase in the money supply and therefore prices tended to fall, okay? Supplies of goods increased more than the monetary demands for goods. And I call this in an article I wrote growth deflation. And there was a very gentle price deflation during the 19th century. In the U.S. you can see prices falling from an inflation that had occurred in the after the war of 1812, banks were permitted to suspend payment and they increased the money supply. And in other words, they were permitted to suspend payment of gold for their notes. But as that abated, you see that prices tended to fall and they fell 53% between the Civil War and their height in 1819 or so, 1818. And then again, we had the Civil War in which the government inflated through the issue of greenbacks that they promised to eventually pay in gold, okay? And then again, when we went back to the gold standard, prices began to fall. Part of that fall in prices has to do with the fact that the greenbacks were retired, there was an actual deflation of the money supply. But a lot of it was also due by 1870 or so then, by 1879, you began to get a fall in prices because the U.S. was rapidly industrializing and there was a tremendous flow of additional goods and services onto the market, okay? So when the gold standard is allowed to operate unfettered, without a lot of government intervention, you will tend to see a fall in prices. An ink or to put it another way, some people say it's a deflation. Mises likes to use the term appreciation of the value of money. That is the value of money increases over time because each unit of gold can purchase more and more. Let me talk a little bit about the price species flow mechanism, which was a mechanism that operated as the golden handcuffs on government. A species is another term for precious metals, gold and silver. And this mechanism as we'll see was really the balance of payments mechanism. BOP always stands in economics for balance of payments. So this mechanism as we'll see maintained, at least in the longer run, maintained equilibrium in the balance of payments that ensured that what was imported was paid for by real exports, okay? In other words, a country couldn't continually run deficits when you run to the gold standard. Otherwise, all its reserves would leave the system and long before it lost all its reserves, it would be internal runs on the bank and people would attempt to get their gold and the banks would collapse. This mechanism also distributed gold throughout the gold standard area according to the relative demands for money. So if gold was mined in the US and in Australia and other parts of the world, prices would rise in those parts of the world, goods would become more expensive, people wouldn't want to buy exports from California and other parts of the world where new gold was flowing in and pushing up prices because of the gold mining. And eventually what would happen is that imports would increase into that nation in exchange for the gold. So deficits in the balance of payments did serve a purpose. They served the purpose of distributing new supplies of gold from the gold mining areas to other countries throughout the world. They also served the purpose of giving additional money, having an increase in the money supply in those parts of the world that were prosperous. So for example, in the US, there's balance of payments between the various states. We don't know them, which is good because there are no statistics. We don't calculate balance of payment statistics. Otherwise that would be something else you would hear politicians and journalists, media people complaining about. But some place like California in which you have great growth in Silicon Valley and California wines are sold all over the country, so let's say Napa Valley. As those areas grow, they require additional amounts of money. People's income increase, they want to buy more goods, they need more money to buy goods. So as their goods increase, prices fall in those areas and money dollars flow in. Whereas in areas that are declining like the Rust Belt, like let's say Detroit and Michigan, they lose money, but this is a natural loss in money. We wouldn't call this a deflation. This is a redistribution from areas where there are not many goods and people have very low incomes to areas where people have higher incomes and there are additional goods being brought to market. So it's very important distributing goods and as I said, it operates inter-regionally between the states. Between any currency area, any area using the same currency, you're going to have these balance of payments flows that are very, they're healthy for the system, keep the system in balance. Okay, overall though, it limits the increase of the money supply in a given country and it limits, therefore limits inflation by the central bank and the banking system and let's see how that actually happens. Okay, so there's a lot of symbols here but they're very simple. If the US increases its money supply, MS, that will drive up prices in the US, okay? Above world prices, so sub-W's world prices. When US prices exceed world prices, you'll see exports from the US which are now more expensive falling. You have fewer tourists coming to the US, you have the US selling less aerospace equipment, fewer engineering services abroad and on the other hand, you'll see Americans turning away from higher priced domestic goods and increasing their imports of foreign goods, okay? So exports go down, imports go up. As a result, you have a balance of payments deficit. Balance of payments becomes less than zero, comes negative, okay? So more money is leaving the country than is coming in but foreigners under the classical gold standard didn't want the US pieces of paper that are titles to gold, they want gold itself, okay? So that they can turn it in and use their own money substitutes. So the US gold stock falls as we pay the balance in the form of gold that drives US money supply down, lowers US prices, either back to world prices or below world prices and you get a reversal of this movement and the exports go up in the US, imports go down and then we have a surplus, okay? So that there's a balance and the US gold stock goes up. Okay, if you don't follow that, that's okay. Basically, we're gonna come back to that. The important point to realize is that when the government's inflate, it drives prices up in the domestic economy above world prices, makes the domestic economy a worse place to buy and a better place to sell in. So people buy more goods from abroad than they sell to foreigners and that results in a balance of payments deficit. So banks could temporarily increase the money supply and they could cause an inflationary boom and a recession. They could cause the Austrian business cycle to occur but these were minor fluctuations compared to what we had after the classical gold standard was killed off by government. It didn't collapse on its own as we'll see, okay? We'll come back to that. Now if you look at this figure and ignore all the red and blue font, just look at the black font. This is what a typical structure of money would look like under the classical gold standard and this is what Hayek called the inverted money triangle. So what happens is that the very base support on the very basis is the gold stock through which all the deposits and notes are claimed. So let's say this country has $2 billion in gold or the central bank does. The central bank then will issue its own notes and let's say it issues $5 million on top of that so it's fractional reserve. So it'll keep a ratio of 40%, let's say. Then those $5 billion of central bank notes are used because the gold is centralized in central banks. Those are used as reserves for the commercial bank notes and deposits. We saw that the commercial banks were permitted to issue notes under the classical gold standard. So let's assume they keep a 55% ratio. So now you have $25 billion in bank notes and deposits circulating and they are claimed to $2 billion. As Hayek pointed out, this national reserve system where the reserves of all banks are held by the central bank is extremely unstable. Now what would happen if the central bank wanted to issue a billion dollars of additional notes? So it would reduce its reserve ratio to 33 and a third percent, one third. So now it would increase its notes to six billion. This would cause inflation because when the extra $1 billion got into circulation it would wind up as reserves in the commercial bank vaults and the banks would then expand that $1 billion by five because they're holding 20% of all the deposits. So they could create or pyramid on top of the additional $1 billion, $5 billion of new checking accounts and notes. So notice that this starts to become unbalanced. And so that becomes wider. Now what happens though becomes even more unbalanced because US prices rise as a result of this. And as US prices rise, residents begin to buy more foreign goods and you have more imports and foreigners buy fewer exports from the US. You have balance of payments deficits which have to be paid in gold. So suddenly the central bank starts to lose gold reserves. As people come in, the importers who want to pay their foreign suppliers, they come in and they turn in their local currency, is how I pointed out, their less acceptable currency for more acceptable bank notes and eventually for gold that is sent abroad. That's where the price-species flow mechanism comes into being. According to some economists or most economists, oh well, the bank has to raise interest rates or defend their gold reserves. They have to cause a deflation in the economy. That's not true at all. All they have to do is to pay out the gold that they owe people who have claims on that gold by contract. They shouldn't have inflated in the first place. Now they're simply fulfilling their contracts and that's what binds their hands. They can't keep increasing their own notes to central bank under the gold standard without making this dangerously unbalanced as I'll show you it became in the 1960s. Becoming very, very narrow at the bottom as gold leaves the country and very wide at the top which implies higher and higher prices. So the US classical gold standard existed from the 1834 to 1933 sort of. It really began to die in 1914. The government intervened more and more by inflating, a central bank did, by inflating and other measures. During World War I, as I mentioned, the US was the last to really centralize gold reserves. They were centralizing the Fed. A heavy tax was placed on the private issue of bank notes. This is when private bank notes began to disappear and we began to use Fed notes. In the 1920s it completely prohibited the issue of bank notes by private banks. And then the Fed cut reserve requirements in half meaning it basically doubled the money supply during World War I. Now let's talk about the destruction of the gold standard. The Fed expanded reserves during the 1920s to help Great Britain to return to the gold standard, Great Britain and all the other belligerents. Within two weeks of the beginning of World War I, every single belligerent had gone off the gold standard because they knew it would tie their hands in paying for the war. None of the belligerents wanted to raise prices. They wanted to raise taxes. That's very unpopular. The war would have stopped very quickly. Instead they wanted to pay through just creating printing money and that's exactly what they did. Most of World War I was paid for by printed currency. So that was the first blow against the gold standard. The US inflated or the Fed inflated during the 1920s. And as I said, part of the reason was to push US prices up so that Great Britain did not lose exports, did not lose their export markets and lose their gold. There was a Great Depression struck. There was a run on the banks between 1931 and 1933. There was a bank holiday that was ordered by President Roosevelt. I think it was March, no, it was May 1st, 1933. The banks were all closed. If you held the mortgage, you still had to pay your mortgage to the bank, but you couldn't withdraw any money you had deposited in the banks. Or if you had any other kinds of loans from banks, you still had to pay those. Ownership of gold was prohibited when the banks reopened a few days later and the dollar was devalued from $20 per ounce to $35 per ounce. In other words, it was now equal to 1.35 of an ounce of gold, but that didn't matter because you couldn't get gold for your dollars any longer. It was illegal for anyone to own gold. Here's the executive order. It says, from the president, honor before May 1st, 1933, all gold, coin, gold, bullion, and gold certificates now owned by them must be returned. All persons are required to deliver honor before May 1st, 1933, all gold, coin, gold, bullion, et cetera, owned by them to a Federal Reserve Bank, branch, or agency, or to any member bank of the Federal Reserve system. And then criminal penalties for violation of executive order, whatever that number is, is $10,000 fine or 10 years imprisonment or both as provided in section nine of the order. The only people that could retain their gold were licensed dentists and licensed jewelers. It was even illegal for US citizens to hold gold outside the country. You couldn't hold gold in Canada. And there's the destroy of US gold standard. In politics, nothing happens by accident. If it happens, you can bet it was planned that way. That refers to the destruction of the gold standard as well as World War I, World War II, okay? These things were all planned. It doesn't mean there's conspiracy necessarily, but it means it's in the interest of the politicians and their cronies that certain things happen and they'll work to bring those things about. Okay, let's talk a little bit about the gold standard, the false gold standard. Bretton Woods was established in 1946, okay? There was a meeting of the Allies in 1944 at the very plush resort in New Hampshire known as Bretton Woods. And the Allies wanted to reconstruct them World Monetary System without tying their hands. But they knew 1930s, by the way, were terrible. Every country tried to make its currency cheaper so it could sell more exports to foreign countries, but of course there was retaliation. And so what you had was world trade almost coming to a halt and world investment almost coming to a halt. They wanted to avoid that. They wanted free trade to some extent after World War II. So the Allies got together and concocted a monetary system in which gold was a sort of a cover, okay? It was a phony, false, counterfeit gold standard. So it was an attempt to bring water to the chaotic fiat monies. Everybody had their own fiat monies and they were all inflating at different rates and devaluing and so on and trying to get the advantage to make their goods cheaper during the 30s, okay? The main architects of this were the US and the British governments and their leading financial experts. Harry Dexter White was the US Treasury expert that was the main representative of the US and John Maynard Keynes was the Treasury expert from Great Britain. And there it is, there's Bretton Woods. I visited there two years ago. It's still very beautiful, set in a very nice area. These are the two architects, so to speak, of Bretton Woods. Keynes is on the right, White's on the left. White, as it turns out, was a Soviet spy. No, it's, I mean, there's more than enough evidence now there's a book that by Ben Stiles just came out a year ago called Bretton Woods, okay? And this is from his book. In August, 1948, White testified and defended his record to the House on American Activities Committee. Historians agree, almost every historian now, left to right, agrees he passed secret and state information to the Soviet Union during World War II. He did do that. It's a very interesting book, you should read it. It's not just about White, but it's about Bretton Woods. It's written for the popular audience. Now, Ben Stiles says, White acted out of idealism, not as a member of the Communist Party. He didn't, he had not joined the Communist Party. Well, he worked for the US government, so he couldn't. Not simply because he believed, this is according to Stiles, not simply because he believed that the Soviet Union was a vital US ally, but because he also believed passionately in the success of the bold Soviet experiment with socialism. So, I guess Hitler wasn't bold, so that's why he didn't like him, but the Soviet experiment under Stalin was bold. White was not a Communist Party member because according to Stiles, he would not take orders from Moscow. Well, if you read what Stiles says in the book, he gives a lot of things to Moscow. He gives a lot of secret papers and so on. He worked on his own terms, okay? It really comes across as a real pathetic man if you read it. In any case, what were the key characteristics? The US was the key currency. It was the only currency that was convertible into gold, but not for our grandparents or great-grandparents, in your case. Regular Americans could not convert dollars into gold. The fact they were still prohibited from owning gold and that continued until 1976, I believe, the prohibition on Americans owning gold. So, it was gonna be convertible into gold for foreign official institutions including central banks and foreign governments. So, all other currencies, the British pound, the French franc, the German mark, were convertible into dollars, but at fixed exchange rates, okay? But they could adjust them. In other words, they inflated too much. You sort of rewarded them and allowed them to devalue their currency and increase their exports. It was a crazy system from the start. The dollar was only convertible into gold for foreign official institutions, as I mentioned. All other currencies were backed by dollars. So, this is the key. All other central banks held dollars, not gold, to back their currencies. And this gave the US a monetary spigot. In other words, the US could print money, as we'll see, and did so without any negative effects, without any effects on the balance of payments. Basically, this provision neutralized the balance of payments adjustment mechanism or what we call the price-species flow mechanism. So, foreign currencies were expanded and pyramided on top of the dollar. So, now you had this international inverted, as I'll show you, monetary pyramid. The balance of payments adjusted mechanism, mechanism that limits inflation under the classical gold standard was neutralized. I won't go into that. Basically, because everybody accepted gold, okay? So, it was world inflation. So, in words, what happened was that the US could inflate the money supply, as we did in the 1960s, to pay both for the Vietnam War and for the various welfare programs, social welfare programs, implemented by the Johnson administration. So, Johnson and his economists said, you know what, we're gonna give the American people both guns and butter. We don't want them turning against the Vietnam War because we have to raise taxes. So, taxes weren't raised that much during the Vietnam War. It was a very expensive war. What they did was they printed dollars. That pushed the prices of US goods above world prices. People didn't want to buy as many US goods. We bought a lot of goods from Europe and other parts of the world. And guess what? We didn't lose one ounce of gold. Well, over time we did, but mainly, especially in the beginning, up until the mid-60s, foreign governments were willing to take our dollars. And when they took our dollars, they pyramided their own currencies. So, if an exporter from a foreign country had dollars that he earned from an American importer, he just went to the Bank of England and or its branches or his own bank and in exchange, got currency. That currency was printed up by the Bank of England and then it accepted the dollars as backing for that currency. So, that's what it looked like. So, now you had almost all the gold hoarded by the Fed, though France had quite a bit of gold, also, on top of that were the Federal Reserve notes and deposits, the Central Bank notes and deposits. On top of that were US commercial bank deposits and then they were held as backing for foreign currency and commercial bank deposits. They would take those commercial bank deposits and they would buy US short-term securities with them. So, they basically, securities that could be easily turned into dollars. So, they basically backed their, the foreign currencies, foreign countries backed their currency and commercial bank deposits with US dollars. So, it got wider and compared to the base, the base was very narrow. Therefore, we had what a French economist, Jacques Rouef, pulled deficits without tears. We continued to inflate the money supply to pay for the welfare programs and so on and the Vietnam War and we flooded the world with dollars. We had continual deficits year after year from 1958 or 59 onward. But as long as the governments, foreign governments and central banks were willing to accept and hold the excess dollars and did not demand gold for them, they didn't have to worry about the balance of payments. We didn't have to worry about balance of payments deficits. Eventually, the French advisor to French economist Jacques Rouef, who was advisor to President Charles de Gaulle, French president, convinced him to demand French gold from the US in exchange for dollars. The US was very resistant. Germany also made demands. However, Germany was an occupied country. We threatened to withdraw our nuclear umbrella, protecting Europe from the Soviet threats so called. We threatened to withdraw that if they persisted in demanding their gold. Germany back down, France didn't back down, France dropped out of NATO instead of knuckling under to the blackmail and they set up their own nuclear force. They also sent a warship to get their gold. Okay, they didn't want to send a merchant ship and risk any accidents on the way back or on the way there. They sent the warship, which took the gold and brought it back to France. But in the meantime, the US was losing gold because there were free gold markets. In London and in Zurich, people could buy gold with dollars. So what they did was they realized that the dollar was overvalued. That if you bought, if you took $35 and bought gold and then bought another currency, you could actually get more goods and services by just getting dollars, buying gold, and then buying dollars at the official exchange rate, it's overvalued the dollar, made it more expensive, made it seem to be more expensive than it really was. So you get hold of dollars, buy the gold and then buy foreign currencies and you would be able to buy more goods and services. So what happened was eventually the demand for gold in terms of dollars went up and the gold price began to break above $35. It was $38. So the US had to sell gold into these markets to push the price back to $35. So we began to lose gold, not directly to the foreign governments, but to the public that was able to buy and hold gold in these foreign countries. So it paid to use gold to buy foreign currencies and then use them to buy goods, export to the US for even more than $35. And that's gold arbitrage, okay? So you have $35, you buy an ounce of gold, you get 70, a Deutschmark was two to one, but the Deutschmark could buy more goods than $35 could, so you could export them to the US for $40 and you would make a $5 profit. So there's pressure to get the gold. So the US had to sell gold and here's what happened. Oh well, I'll get to the statistics in a moment, but very quickly, so I mentioned this before. Okay, we don't need to look at that. Okay, I went through all of that. There, so we had $25 billion of gold and we only had $12 billion outstanding. Foreign countries only owned about $12 billion of deposits in the US that they could exchange for gold. So knowing that the US citizens weren't able to turn their dollars in for gold, there was more than 100% coverage of these foreign liabilities, which I believe also included short-term securities. By 1967, gold had leaked out of the US. Our gold stock had shrunk to $12 billion, but yet now foreigners had $50 billion of dollars that were claims on the gold stock. And this is when France and Germany, even before this began to get nervous and began to demand gold. And this is when foreigners began to demand gold in the free gold markets and so on. By 1968, we had a further loss in gold. There was a run on gold and so we lost more gold and we have more liabilities piling up. Finally in 1971, there was a run on gold again. There were two or three weeks left of gold reserves in other words that the rate at which gold was leaking out of the US into these markets and into the foreign governments. Actually governments agreed not to sell gold in foreign markets anymore in 1968, but the foreigners were demanding gold and so we lost more gold and now we had $80 billion that we had flooded the world with and paying for the Vietnam War and so on. So as I said, the two-tier system was implemented that is central bank could only sell gold to one another and never to the free market again. And then Nixon closed the gold window. He said, I have directed Senator Connolly to suspend temporarily the convertibility of the dollar into gold or other reserve assets except in amounts and conditions determined to be in the interest of monetary stability and the best interest of the United States. Basically the US reneged on a solemn pledge made in 1944 that it would always stand ready to convert dollars into gold at the rate of $35 per ounce. And then by the end of the 1970s, we had great inflation. Gold had risen to something like $800 an ounce. Now, just to finish this up, a few economists made the claim that in the late 60s, early 70s, Milton Friedman was among them, Fritz Makla, big names. They claim that the dollar was supporting the price of gold and that if the dollars cut loose from gold, if it could no longer turn dollars in for gold, the price of gold would drop to around $10, which was about its industrial, their estimated industrial value of gold and the exact reverse happened. This is one example, I'm gonna end here, in which the Austrian school showed that their theory could predict, we call it a pattern prediction, the pattern of events that would unfold from certain economic policies. It's something that should be written up. It would make a great dissertation because all during the 60s, mainstream economists were claiming that the dollar supported the value of gold. And so here you see that that certainly wasn't the case. And well, we didn't get the dollar bill standard, but that you can ask during the panels. We have, as I said, a bill in Congress to more or less reestablish the Bretton Woods hype system. Thank you very much.