 Ladies and gentlemen, gold is one of the most important means to preserve personal liberty. Government is the most important threat to personal liberty. It is therefore not surprising that gold and the state had a very strenuous relationship from times immemorial. In my talk I will try to highlight certain aspects of the and walk you first through some considerations, basic considerations relating to the relationship between gold and liberty and then we'll talk about the relationship between gold and money and finally I will zoom into the main subject which is the state and the gold market. As far as the relationship between gold and liberty is concerned I can be brief. Liberty certainly includes the notion of independence. Independence as concerned relative to the forces of nature but also as relative to other human beings. Man can never be completely independent. There is no such thing as absolute independence. There is no such thing as absolute liberty. Certainly easy if you're a believer, if you're a Christian I guess for Muslims is probably the same thing and you always realize how much we are dependent on God's work and God that was maintaining all laws of nature and laws of society which without us would not exist. So we certainly cannot do without that sort of dependence. But we can be relatively independent of other human beings especially we have to distinguish in social relationships between voluntary interdependence or voluntary dependence and coerced dependence. The problem with the government is that it brings us many forms of coerced dependence. Relative independence especially from other human beings comes with wealth. This is one of the greatest benefits of accumulating wealth is that it makes us relatively independent both of the forces of nature, the caprices of mother nature and also the caprices of our fellow human beings. And among wealth one of the most important forms is money. Money is important because it is the most liquid form of wealth and money being by definition a generally accepted medium of exchange. So one benefit of money is that we can use it immediately. If we have a piece of land you can use its value but only by first selling it. You can use the piece of land to gaze our cows and to set up a swimming pool I don't know what or have nice walks but in order to transform its value into other things we first have to sell it and this might take a while as we all know. So the advantage of money is that we can immediately use it to acquire all other goods that are for sale. And from a political point of view of course the greatest benefit of this very liquid asset is that it is transportable. We cannot pack our piece of land into our suitcase and just walk away. It's also very difficult to do this with a factory that we have set up for a nice family home and so on. We cannot do this. And precisely for this reason there is this strenuous relationship between the owners of money and the government because the owners of money can just, when it gets really hard to hard they can just walk away. Among all types of money, the so-called natural monies, silver, gold to some extent also, copper but essentially silver and gold also stand out. Silver and gold are natural monies, that is they would be used as media of exchange and have been used as media of exchange, generally accepted media of exchange even without any government support. And they have been so used because of their natural qualities, their natural physical qualities. It's not something that has been created by some act of legislation, it's simply their natural physical qualities, such as homogeneity, divisibility, malleability, a very high purchasing power per unit of weight and unit of volume. And in our days, most importantly, gold and silver are nobody's liability. You can own gold and silver without being indebted to anybody else. That is not the case of course if we own for example a stock in a company that is itself heavily indebted, so today we imagine ourselves being the owner of that much wealth and tomorrow we find that the company has gone bankrupt and our value, our wealth has evaporated. Not so in the case of gold and silver. Of course their market price varies as well, but the asset itself, the economic good itself, is not affected by the gapresses of business fortune. It's nobody's liability. And lastly, but not least, gold and silver are costly to produce and therefore they have an inbuilt natural scarcity. They have an inbuilt insurance against very fast, very strong depreciation of their purchasing power, something that no fiat money can offer. Fiat money too is technically nobody's liability. If we take a bank note, this is a Turkish bank note, and this is technically, this is a liability of the central bank, of the Turkish central bank, so it is debt. But it's of course a very special type of liability, from a juridical point of view it's a liability. Practically, economically, it is an independent good. If we appeared with this in hand at the counter of the Turkish central bank or we take a euro note and we go to the banque de France or wherever else, we smash this on the table and say, give me my money, this is debt. I want you to pay back your debt. Then the poor guy at the counter will not know what we're talking about. So in desperation he might give us two five euro notes. Give him some money. So it is nobody's liability. In that respect, fiat money shares the advantage with natural money, with gold and silver. But gold and silver on top of this have the advantage of being costly to produce. It's impossible to just out of the sleight of hand create more gold and more silver from one day to the other. It's impossible to do what for example the European central bank has done last year, that is in 2011, when they increased the money supply by more than one third. Impossible. Now let us turn to the relationship between the state and money. The state's business is coercion and innovation is of course to acquire revenues and wealth for some people who would not have acquired such revenue and such wealth on the basis of purely voluntary social relations. And they want to enrich themselves at the expense of others. And as we all know, the forms of government have been changing very much in the course of history and democracy is also very innovative creative way of including the support of a great many people into this scheme of exploitation because at least you hold out the promise to everybody that he could be potentially the beneficiary of coercion, right? Of the rule of man over man. We are supporting the government because we might ourselves be one of the beneficiaries. This is what Pasteur called the great illusion. The government is the great illusion that gives to everybody the idea the notion that he could win at the expense of all others. So the business of government is coercion in the service of the acquisition of revenue, excessive wealth. And this concerns of course most notably taxation but it also concerns bullying people into lending money to the government. In modern parlance this is called financial repression. If through government intervention through some form of coercion I pressure people, I threaten people into lending me more money than I would otherwise have obtained through them. We talk of financial repression. So this is the core business of government until the 16th, 17th century approximately taxation was relatively low because taxation is a very costly business. You need to hire people, arm them, send them out of troops all over the country. And so it's a costly business especially if taxation becomes too high then people tend to resist. Financial repression is also a costly business. Most people in former times have not been very wealthy. So the government naturally focused on those very wealthy merchant families such as the Fuggers in Augsburg and Germany and coerced them, Charles, the 5th was coercing them to handing over money, lending the crown more and more money until eventually the war was unsuccessful that the emperor was leading so he couldn't make his loans because he would have paid out of the loot. It didn't work and Fugga went bankrupt. So that is what you get when you do business with a mugger, the fugga and the mugger. So all of this was limited simply also because the general economic development was not very advanced. But then governments from time immemorial also did something else. They tried to have a control over the creation of money. And this came by and large in two forms. One was a form that in principle would have been open to every private citizen as well. Maybe the idea of creating money out of nothing. And that was the idea that you could create gold and silver out of something of lesser value at low cost. So this was the idea one of the projects, not the only one, one of the famous projects was medieval alchemists. The main quarter of alchemy you want to create gold out of some unknown yet fifth element etc. So I won't go into this. The alchemists were actually employed by wealthy people but also by princes of course until roughly the 17th and early 18th century. As soon as governments experienced the benefits of paper money and a fiat money, they started firing the alchemists. So this gets us to the second way our governments tried to get a hold of money because taxation, confiscation is expensive. Why not choose the less costly way of getting additional revenue additional wealth through the manipulation of the very medium of exchange through which we acquire all other things. And here governments in the course of history essentially three things. The first of all debased the currency. Secondly they have promoted fractional reserve banking other fraudulent business schemes. And thirdly they have imposed fiat money. Now as I explained in some of my research there is actually a logical sequence between all these events most notably right there is a transition roughly in the 17th 18th century between the traditional way of inflating the money supply which has been debasement right so you you transform the coins right you have whatever traditional denarius right a traditional silver coin which typically contained about four grams of silver. So what the governments then did they continued minting those coins but only put just three grams and then two grams and one gram and so on silver in and substituted the rest by base metal. But still called it by the same name and insisted that these new coins be treated on equal footing with the old coins. That's debasement. And debasement in the short run it fills up the treasury of the government but in the medium and long run it has very substantial disadvantages even for the government itself because it as soon as the population realizes well there are these new coins and well those guys have been doing this for a couple of times already in the past so now we know the trick right the first thing they do is to start hoarding the good old coins that have a higher metallic content right so as soon as this trick becomes known people react and by reacting they offset the the intended consequences from the point of view of the government especially they create negative consequence because they created deflationary shock so tax revenue diminishes government enterprises work less well and so on. Government itself is hurt by this. Therefore comes the transition approximately in the 17th 18th century toward banking and the use of bank notes and bank deposits as money substitutes and eventually with the first experience again in the 17th century but then especially the 19th and 20th century the imposition of fiat money. Fiat money is largely dematerialized money so we would include here paper money this as well but especially electronic money so largely dematerialized money that is imposed so everybody is supposed to use this because of monopoly laws and legal tender laws in particular one early example was the American Greenback imposed during the war of secession the civil war in the 1860s now clearly these techniques promoting fractional reserve banks and imposing fiat money are possible only because the government is already in the business if the government had to compete with other providers of security services it could not just impose a bad type of money on the market because people would be free to choose another type of money and there would be competition between the traditional natural monies gold and silver and the new bad monies that the government wants the population to use so this wouldn't get very far wouldn't get off the ground because the government is already the monopoly coercer is the monopoly on violence in a given territory that it can impose these fraudulent and coercive schemes now the interesting thing is this brings us to our present situation the interesting thing is that it creates thereby two other consequences that have hitherto been neglected by Austrian scholars the first consequence is that by through fiat money comes the tendency for financial markets to grow this is a very well known empirical fact you can easily derive from the statistics of the 20th century financial markets including banking but not only banking have grown relative to GDP in all countries especially of course in developed countries and the reason ladies and gentlemen is that under a fiat money regime in which the money supply is constantly increased and significantly increased in which therefore there is a constant price inflation it is suicidal to hoard money and money hoarding was the traditional way of using one savings traditionally what people did with their savings were two things either they invested them in their own company or they hoarded them few people were also buying government bonds and so on especially if the government asked them there is an offer that you cannot refuse but usually what people do is either to spend the money on their own business or to hoard it now that is suicidal in a fiat money regime if you hoard your even if you have a relatively stable monetary zone which the inflation rate is just 2% after 20 years the money that you've hoarded in the first year is just 50% of its purchasing power left so this is not a wise way of using your savings especially if you want to hand it over to your children grandchildren and so on so what do people need to do well they need to use their savings to buy things that will increase in price with the general pricing inflation that is why today all people, all young people as soon as they have a job get into debt in order to buy a real estate something that is unthought of in previous centuries simply because people were living under different conditions they do this today, it's perfectly rational from an individual point of view one of the other things that people do is to buy financial assets they buy stocks, they buy bonds and so on because here they are the prices of these assets tend to grow with the general progression of the price level so the investment that you make in year one if everything goes well will by and large be the same in year 20 and if you have wisely invested you might even have earned some return so this is a wise way of investing savings so therefore as a consequence of fiat money we have an artificial growth of financial markets banking but also insurance investment funds and so on now the second consequence and it's related to this is that it's easier now for governments to tap personal wealth again in former times how could they have tapped personal wealth go into the company and say well if you fire people you hand the money over to me they get a social revolution or go and say now you get your money out of your gold hordes and everybody say gold horde what are you talking about I don't have a gold horde so it wasn't possible but once the essence of savings is invested on financial markets all the government needs to do is to threaten the intermediaries because for most people it's impossible to do all of this themselves so they go through banks they go through insurance companies they go through investment firms and now what the government does is to tell those guys how best to use their funds and guess what is the best use of those funds secure investment in government bonds and of course they they don't appear like in the 16th century the moogers of the fuggers they now appear as financial regulators concerned about preserving wealth in the economy so we would regulate insurance companies we would regulate investment trusts and so on in a way that well you have to have a certain minimum of your investment insecure government bonds such as greek government bonds for example so in 2010 so the present situation today is that in 2010 of the major countries industrialized and financial countries where we have the least fair in financial savings was the UK out of all financial savings in the UK so they also write real savings in the form of real estate the other main form but out of financial savings 26% have been invested in government bonds or have been lent to the government in Germany it was 35% in France more in the US 27% and in Japan 46% this is enormous especially by historical standards this is an enormous sum of money the government is not just tapping income taxing current income it's tapping wealth on a massive scale now in this context the gold market is of particular interest we have 3 more minutes but I started 5 minutes late so I'll go on for another 5 minutes the state and gold state and gold as I said is a strenuous history and we can distinguish four main phases four typical phases and sometimes they repeat themselves but I'll just name them the first phase is for the government to impose gold this may come as a surprise gold seems to be the alternative of free market money but actually gold itself is impractical for most daily transactions gold's purchasing power is too high and if we take a very small gold coins you take a 20 franc gold coins and Europe contains about 6 grams of gold that has a purchasing power of 200 euros 250 I'll just copy with this unless you have a very big family you cannot even do your groceries so the silver was there for in fact the natural money for most economies for most times so what the government did in imposing gold was to create the following problem for the population they couldn't pay most of the things with gold so you need to use something else you need to use money substitutes some form a substitute so by imposing this law the government made the people dependent on the intermediaries banks came to play a bigger role the government itself sometimes produced token coins and so on came to play a bigger role in the production of money and of course it's much easier to inflate the money supply once you control the token coin production and once you control fractional reserve banking the second phase consisted in the government in diluting the gold standard that it had initially created the gold standard after all it allowed initially for the expansion of the money supply but after all because you are under the obligation to redeem all money substitutes into gold you are still constrained so the government tried to dilute those constraints more and more and this gave us in the 20th century the transition from the classical gold standard that prevailed until World War I through the gold exchange standard of the 1920s to the breaking wood system that we had in the post war immediate post war period if you are interested in the historical progression find these things in my book on the ethics of money production the third phase consisted in the government then in banning gold this comes always with a suspension so called suspension of payments they finally declare well we will no longer redeem all money substitutes into gold ok so at that point then we have the creation of fiat money the dollars that were before redeemable into gold they become an independent economic gold become money of its own they become fiat money and now it seems that everything is fine for the government fiat money they can create as much money as they wish ok they have to deal with the central banks but central banks are loyal servants by and large so everything seems to be fine but still the amazing thing is that in the past 30 40 years we observed governments fighting gold central banks in particular fighting gold that is especially trying to prevent a rise of the gold price on the gold market why is this the basic reason sometimes you find the standard argument that you would find if you ask them the progression of the gold price indicates how much inflation the government creates it's a bad pupil certificate to say that comes from the gold market the gold price rises so it means that you guys are inflating the money supply this is very bad but in fact they don't care they don't care how much prices rises you don't have to look at the gold price in order to know that the prices rise the main reason why governments and therefore central banks are interested in the gold price is because gold is the natural alternative to the foreign fiat monies it is after all a money it is not the official money but it is a money it is a natural means of exchange and more than that gold is an alternative store of value it is still possible in an inflationary period it is even recommendable to own gold and use this as a way to invest your savings so you can expect that the monetary value of your savings will rise with the general progression of prices and in particular in the current situation in which we have a very large fragility of financial markets which virtually all financial intermediaries are highly leveraged that is they are excessively in debt governments are excessively in debt so a very fragile financial situation in which it is possible to lose one's wealth if it's just invested in financial assets from one day to the other there is an additional incentive to investing gold which is as we have seen nobody's liability so you don't run this risk and therefore governments and central banks in particular have tried to prevent a steady and significant rise of the gold price from various techniques and this is not just a hypothesis this is something that we can derive from various statements made over the 20 30 years of the past years by central banks official starting from Paul Falker in the early 1980s and Falker said well one of my biggest errors was to let the gold price rise gold is the enemy he also said this, gold is the enemy so what does this mean to let the gold price that means well he could have prevented it apparently some people told him to prevent it and he did not didn't pay sufficient attention to this so how do central banks today try to prevent increases of the gold price well they are just to give you a few examples I will not make a complete statement because I am running out of time one thing is of course the threat of confiscation gold has been confiscated already in the early 1930s the gold administration so this is something that is supposed to dampen your enthusiasm for gold could happen again then financial regulation tries to the effect of steering financial intermediaries away from investing in gold rather keep them invested in government bonds government bills and finally there are also there has been much speculation in the past 15 years on rigging of the gold price through central banks for example central banks might have lend out gold that they themselves owned to commercial banks with whom they cooperate and have the commercial banks sell this gold on the gold market and in particular on the derivatives markets where you can do with less investment you can have multiple in fact or the same effect and so there has been much speculation about this in the past but I would say today the issue is pretty much settled because we have statements to this effect coming from former employees of the Federal Reserve and also former employees of European central banks that conclusively demonstrate that this is going on is indeed going on and as one economist for those of you interested in the subject matter I recommend that you read an article written by Chris Martenson is an economist who put some of his research on the internet M-A-R-T-E-N-S-O-N and he starts off with a very commonsensical observation that well central banks actually they try to manage all kinds of markets from the oil market over the bond market to the stock exchange market why should they not try to manage the gold market and in fact as we know from historical experience that's what they have been doing all the time so it would be rather surprising if it were not the case so we know it has been the case for the reasons that I've mentioned so in conclusion then let me say that only gold and using gold are among the most efficient ways of sidestepping and even counteracting the state dominance not only over money but also over our financial savings and financial markets in general and human liberty even more generally thank you for your attention