The Gold Standard: An Austrian Perspective

0:00The issue to be debated is gold versus discretion, meaning Federal Reserve discretion, and meaning a gold standard that is not discretionable. Our first participant will be Congressman Ron Paul, who is a graduate of Gettysburg College in Pennsylvania and the Duke University Medical School. He has been a member of Congress since 1976, and he is a senior member of the House Banking Committee, where he has long advocated a gold standard. He is a member of the Mises Institute's Distinguished Board of Advisors, and is the author of Gold, Peace and Prosperity, and co-authored with Lewis Lehrman of the Case for Gold, which is a minority report of the U.S. Gold Commission.

0:57Mr. Partee has been a member of the Board of Governors of the Federal Reserve System since 1976, the same time that Mr. Paul came to Washington. Before that, he was a managing director for research and economic policy on the board staff. He has also been a vice president and economist for the Northern Trust Company of Chicago. He received his bachelor's and master's degrees in economics from Indiana University and did graduate work at the University of Chicago. He was also a member of the U.S. Gold Commission like Congressman Paul. Our first speaker will be Congressman Paul.

1:51Thank you very much. It's a real delight to be here with you today. I'm delighted with the nice turnout. I would like to thank Governor Partee for coming over and participating. It's a delight. We've done this in the past and we always have a good time. And I'm always reminded to say that some of my best friends are members of the Federal Reserve Board. So it is real nice that Governor Partee has come over. And it is true, we both served on the Gold Commission. And this is where I came to know Governor Partee. And we have developed a friendship over this period of time. The Commission, as you know, the results showed that the American government were certainly not quite ready to go on to a gold standard, but I, for one, did not see the gold commission as a failure, because I thought that it was historically significant because an official body at least discussed the issue, something they haven't been doing for a long time, and the fact that we have systematically

3:00rejected the notion of commodity money over a period of time of 70-some years. I would say that laying the groundwork for meetings like this and a discussion in the Gold Commission certainly is a sign that some positive things are happening in a philosophic sense. So I, for one, was never naive as to believe something would happen. I happen to think that the recommendation from the Gold Commission that the American American government sell their gold out of the treasury and mint gold coins and let you hold gold coins might not be a pretty good idea. I think that would be a good idea and I think it would be just as easy for us to purchase an American type ounce coin as anybody else.

3:47It certainly is a much better idea than passing a law that makes it illegal for you to buy a Krugerrand. I think that if you had the opportunity to buy an American Eagle coin most likely there would be less Krugerrands bought anyway but it would certainly be done in a very voluntary way. But the subject today is whether or not we should have a gold standard or whether we should follow the standard that we are using today and that is the discretionary paper standard. And obviously I support the idea that it would be wiser to have a gold standard rather than a paper standard. And I think that unfortunately for those who believe in the paper standard have one little problem. They have to defend what we have today. And they have to defend the soundness of the economy, the soundness of the dollars, and they have to explain why the interest rates are high and why the housing market is not doing so well.

4:40So I think they have a terrible job. And I'm in a much better position to say, well, we have another system, and the terrible thing that happened when we even had a little taste of a gold standard, We had that terrible situation where you had interest rates between 3 and 5 percent. So I would suggest that there are many, many advantages for the gold standard, and the specific things that are advantageous to us with the gold standard, I'm not going to talk about in my opening remarks. I'm not going to explain why that you have low interest rates with the gold standard. I'm not going to explain to you why if you had a free market and a gold standard, that you would have full employment, except for a few who just physically were incapable of working. I happen to believe, and will not explain now, why a gold standard would secure an economy that would have sustained economic growth, and we would never have to worry whether it's 4 percent economic growth or 10.

5:39If the economy decided to grow with a healthy currency and a healthy economy at a rapid rate, We would never be concerned about cutting off the gold supply in order to thwart a business recovery. And also I don't think I will mention anything in my opening remarks about why a gold standard would enhance free trade, trade around the world, which is one of the most significant problems that we're facing today because we have paper currency fluctuating not on a monthly basis or a yearly basis, but on an hourly basis and sometimes on a minute basis, and it is positively impossible for anybody to set up long-term trade agreements. And for this reason, we are seeing some serious problems. So I would not even suggest to mention that it has anything to do with the unsoundness of our currencies that has delivered to us in Texas on the Mexican border a disastrous problem, mainly because one country destroyed their money slightly faster than another country, and now on both sides the unemployment rate is 50 percent.

6:40And I would not want to mention at the beginning also whether or not a gold standard would have anything to do with savings with the belief that the purchasing power of the dollar would be maintained over a period of time because it just happens that it would have a lot to do with savings especially if you combine that with eliminating all taxes on interest earned on savings. But what I would like to mention are four points about the gold standard in very General Terms. Why I have come to accept the idea that a gold standard is the only standard that can be used if you want a free market and you want a sound, healthy economy. First off, it's the issue of central planning. So often there are many conservatives who believe that central planning and farming and agriculture and producing steel and doing anything in the economy outside of money is a disaster.

7:39They say, well, look at the results of central planning in Russia. Look at the central planning in any socialist nation, and they reject it outright, and I believe, correctly. But in the same sense, they reject central planning in every other area, but wholeheartedly endorse the same concept with central planning in money. And I have come to the conclusion that central planning of money is just as disastrous as central planning in farming. And therefore, just the general idea, the notion that man is capable of planning the economy by controlling the money. But the one thing is different about planning centrally the money supply as compared to planning farming.

8:27Farming only feeds us, but the money sustains every single transaction. It is a participant in everything that we do. It is the unit of account that we have to measure every transaction. All our services and all our goods are measures in terms of the unit of account. And if we believe that we can plan centrally and determine that unit of account without the market participating, I think we get, and get what we have now, and very chaotic conditions which are bound to get more chaotic after a period of time. So I don't believe that central planning in money can be successful. I happen to believe and accept the ideas of the Austrian School of Economics as Mises in particular explained that the business cycle is precisely caused by central planning of and that the booms and busts are inevitable, that as we drive the economy this year and for next year's election, you will see conditions improve, but sure enough, you will see the consequence of the inflation that we have today, in a couple years you will see the recession, if not the depression of 86 or 87.

9:40So it is for this reason, out of humanitarian concern for our people, that we must reject the notion of central planning in money, just as we reject the ideas of central planning in agriculture or steel manufacturing. So central planning of money I reject outright. The second major reason why I reject the notion of paper money is the issue of power. I believe we must address this, because even though those who wield the power and control of the money, I sincerely believe they're well motivated to do what is good and right for the people. Just as the liberal interventionist is assuming he's doing good by building houses for the poor people, but they never take into account that they tear down more houses than they build up, and that so much of the HUD money goes to building country club communities.

10:35So I would say the same thing happens because the power is abused and misdirected, but it's an ominous power. There is no other power greater than the power over money, the power to create and contract the money supply, the power to control the purchasing power of your money. Throughout history, this has proven to be the most sought after monopolistic power of man. It has become more sophisticated over the decades and over the centuries, more sophisticated now and more international in scope than ever before. So I see the issue of power and the control over money as being something that we cannot ignore, we must address. I believe closely associated with this is the issue of morality as well.

11:21By what moral right do we have to create purchasing power out of thin air? Whether it's done by the creation of credit or Federal Reserve notes or whether it's the creation of SDRs in an international scope, By what right do they do this? Is it any more moral to dilute the value of your purchasing power with the money you hold in your wallet than it is for the farmer to dilute the milk supply with water? I would say there's an issue of morality here just as strong as the issue of power. I also happen to believe also because it's a moral issue more than an economic issue. It is for this reason that the people have lost trust in their government, trust in the banks, trust in business, trust in themselves, and that we are a nation of distrust. And it's for this reason I believe that until we restore trust in government, trust in the system and trust in the money, there will be no resolution of this problem.

12:14It is the issue of trust in people and trust in money that must come before you can start talking about nickel and diamond and trying to get back to a balanced budget because that certainly hasn't worked. So I think it's important to address the issue of central planning. The issue of power, and third, I think that we must address in general terms the issue of the origin of money. I know that's been talked about, and we recognize those of us who believe in commodity money, clearly understand that money, paper money and credit creation didn't come out of the marketplace. That came out of the heads and the fantasies of the intellectuals and the government officials of those who want paper to be money, but never out of the marketplace.

13:02So I would say the paper standard is bucking history, and it's bucking economic law and economic truth, and they only can do it with force and more power to make people accept it. Because economically and historically, paper is not money. It can't be money. It's only money because we're forced to use it and because there's a residual thrust in the pieces of paper that we carried around Because at one time, it did have real value. Just think for a moment. If all of us were stranded on a small island, and we had absolutely nothing else, no trade, but we were all put on the island, and we were expected to survive, we would have to do what to create capital to survive?

13:49We would have to get our food, and build our houses, and make our tools. And everything that we had in excess of what we consumed How many of you would accept the idea that if we were all working busily and making trades and somebody gives a bushel of wheat for a bushel of corn, how many of you would accept the notion if we had the one individual to arrive on the beach and he said, I'll solve all your problems. I'm going to create wealth for you. I have this little thing called a printing press and I'm going to print up Federal Reserve notes and you'll all be wealthy. How many would trust the individual? He would probably be thrown off the island for coming up with a scandalous idea. It wouldn't work. You have to have something that people seek after and they hold as something important and something that they will hold as money.

14:43History shows that people have chosen gold first and probably silver second. But most So we have three major issues, central planning, the issue of power, and the issue of the origin of the money, where I do not believe in the long run, if you live in a free society, you can buck the tide, the trend, the issues of economic life, and so on.

15:20Law and the issue of common sense. Now fourth, and this is a major issue with me as well, the reason, one of the fundamental reasons why I believe we must have restraint on the creation of credit, and that is if you truly believe in freedom, if you truly believe in a free society, if you do that means you believe that government should be limited to the protection of your liberty, Not to the transfer of wealth, the paper money system is there to enhance those who believe in the transfer of wealth. You can transfer just so much wealth with taxation and the people rebel. But we're at the point now where you can't tax them anymore. We transferred over $220 billion worth of wealth last year that we could even tax the people for.

16:09Can you imagine if we would have proposed at the beginning of last year that we were going to raise taxes by $220 billion? Never. It wouldn't have been acceptable. But we did run up the deficit, so we delivered this to the Fed, and the Fed accommodates us, the Fed accommodates the politician, and the politician gets re-elected. So what does he do? Not only does he destroy the economy by manipulating the whole business cycle by the creation of new money, what he does is we lose twice because he takes the money and he spends it on programs that don't work. Instead of doing the things they were supposed to do, the programs do exactly the opposite. If you don't get more houses by the government building houses, you get less. And I also have come to the conclusion that in the last few years that you don't even get more defense when you spend more money in the military budget.

16:58You get less defense for that. So I would say that so often when you can get the money so cheaply by just sending a little Federal Reserve or sending over a Treasury bill and get whatever you need, I would say this enhances and gives the ability of the politician and government to be all-powerful. And that to me is our great threat. Because the programs are a threat to our freedom. The money, as it's being destroyed and as it's being inflated, causes the crises that we see around the world. And the best example, of course, is at our border in the South. Those crises threaten the political freedoms. I believe that if we could have a free society and sound money and gave up all our material assets, I believe that if we had our freedoms, we could survive without any difficulty whatsoever.

17:49But the problem today is, is what we're doing is we're destroying the money and at the same time destroying our freedoms. It was not by accident that the currency had to change over a period of time, the government size grew. So from 1913 to 1971, systematically they eroded and destroyed the commodity standard. As weak as it was, there was still some residual relationship of the paper to a gold standard up until 1971, but since then there has been nothing. And it's for this reason you see the escalation of spending, government programs, and no restraint whatsoever. So it is this participation between the politicians and the central bank, which not only threatens our economic security, which is secondary to the threat to our individual freedom.

18:39That's the four reasons in general, I believe, we ought to have a gold standard. Since this is a debate, the rules will be that each participant express a statement, then we'll have rebuttals by the two participants and then questions thereafter. It is my pleasure now to introduce Mr. Partee.

19:27Ron Paul and I have debated this issue informally, and sometimes more formally, and we were not only both members of the Gold Commission, but since my name is Partee and his name is As Paul, we sat next to each other at all of the meetings and exchanged notes and that kind of thing, and even agreed on some issues. For example, the recommendation for printing of a gold eagle, he and I agreed on. Now the difference is, you see, that what I wanted it for was to have it as an indicia of public attitudes towards financial conditions in the country, and therefore I wanted its price to be able to vary, that is, it would be a fixed weight, but its price would vary, and the variation in the price would be an indicator of developing attitudes in the public toward financial conditions.

20:36You destroy that indicia value when you have a gold standard, of course, but for this purpose why it would have been not quite worthwhile. I might also say that it's always a hard act to follow Congressman Paul, because he's a powerful speaker and he has a certain religious fervor that even was recognized back here in the audience that I don't have. I can't afford religious fervor. I simply try to look objectively at what might make the system work better or worse, and what is doable and what does not appear to be doable.

21:22And on the basis of that, I have decided that it's quite out of the question to have a gold gold standard in the world or gold standard in the United States, and of a great many preconditions have been set having to do with discipline and behavior, which I don't see any sign, certainly not in the daily press, certainly not in world events, that we're moving toward establishing. I have also four points, and they are directly on the question of a gold standard. What we need, my first point, is that what time has shown that the world or the United States or any individual economy needs for its monetary standard is one that will expand gradually, over time, in line with population growth and with increased production in the society.

22:25If you have something that expands too rapidly, and that, of course, is a very, very grave threat with paper money, well, you'll have inflation. But if you have something that expands too slowly, you'll have persistently downward The bias on the price level of the country and history has shown that that stultifies production and new thinking and private entrepreneurship rather than reviving it. So that what we want is something that will expand gradually over time as the population and the production of the society expands with that time.

23:13All in my view only very roughly approximates this particular test. It is true that there is a gradual increase in the gold stock, that is, as we are able to identify it, over time because it is not destroyed by and large and because new production is a small proportion of the Stock of Gold, but the rate at which the gold stock expands is subject to a great many variables, the discovery of new gold, the development of alternative non-monetary uses of gold that make, in fact, the correspondence between this need for gradually growing monetary Standard, and the supply available for monetary purposes of gold to meet.

24:18That's why, for example, over the years the concept of gold as part of the money supply was supplemented with silver as a part of the money supply in order to get more money. That's why, over time, despite the definition of this fellow who goes to the desert island who is so poorly received, who by the way sounds like a banker to me, Ron, that's why banking developed. And the bankers took gold and issued promissory notes backed by gold in return.

25:03And that was, of course, where paper money started. It started in the private sector, not in the government sector. And it was the abuse of the use of paper money in the private sector by private sector participants that resulted in this becoming a government monopoly, I think, in every major country in the world today, and for a good many years past. In any event, it seems to me that what we want to have, rather than this imperfect relationship between the growing supply of gold and the growing need for money, what we need to have is something that will show some flexibility, some elasticity that is subject to some management.

25:49And so, when it comes down to a blind confidence, choosing between a blind confidence in technology of gold production and the efficacy of management, I come out for management. And therefore, that's my first point. My second point is that we often talk, and Congressman Paul did, about the benefits of going back to stable exchange rates. Stable exchange rates would result if we reestablished an international gold standard because, of course, the relationships, the relative values among the currencies of the various countries of the world would be fixed by that gold relationship, and they would presumably remain that way.

26:40I might point out that the fixing would be quite a problem. would have to decide what a proper fixing is that was done, except for the dollar. By the Bretton Woods Agreement in 1944, we've had increasing difficulty with the question of fixing relative values of countries' currencies, increasing difficulty in the years since then, and chaotic difficulty with it in the last few years, with differing rates of inflation,

27:40and I think that that would be probably as difficult a conference if not more difficult because there would be so many more parties involved than we're having with the Russians today on the question of nuclear proliferation. Even more important, though, than that, which is a technical matter, one of those little More important than that, the relationship once established in an international gold standard between the currencies of these various countries could not remain constant over time unless Thus the countries were content to take what came from that new international relationship that was set, inflation if there is a large inflow of the gold standard monetary base into the country, or a depression if the gold happens to run out of the country as people lose confidence in the country.

28:56Now it seems to me highly unlikely that the countries of the world as we know them today would be content to take what would come in the way of either inflation, which might be our experience, or deflation, which might be the experience of a good many other countries in the World. Therefore, it seems to me that sooner or later, as it has in the past, the international gold standard would break down. I'm inclined to think it would be much sooner rather than much later in today's environment. My third point is to say, well, and I think it has been proposed, and one of the points of view of discussion in the gold commission was, well, if that's so, we'll have to go Now, if we were to go it alone, which is conceivable, because we as a society can control our own destiny by making clear that that's what we wish our elected congressmen, such as congressmen Paul, to be for, if we were to go it alone, there would be operational problems that would

30:16In the first place, we would need to set the price. Initially, the price would have to be something, it seems to me, that would lead neither to a large inflow nor to a large outflow of gold. That is a hard technical problem to decide what that price is. It isn't just reading off the gold price today of $383 an ounce. It's got to be something that will take into account the change in the circumstances of the United States currency on the attitude of holders of gold versus gold money to come in the United States. And there will be some figure different than 383. In any event, it would have to be set some way so that we would not immediately experience a big inflow from gold holders around the world, or we would immediately be faced by this inflation that would destroy the system almost immediately.

31:32On the other hand, we, of course, wouldn't want to lose all our gold in the next thirty or sixty or ninety days because I would destroy the experiment, too. You would have to stop. If you had no more gold, you could not have a gold standard, and therefore you would have to stop the experiment. Second, so we'd have to find the price. And we would need to be prepared to accept shocks that originate abroad in a system where we alone are the gold standard country. Gold discoveries or industrial absorptions from new developments, new inventions, new uses of gold, speculative movements and hostage movements and fugitive movements of gold that and how it might come in to the country or might go out, politically motivated strategies affecting the gold market by countries such as Russia, China, would all be kinds of shocks that we would have to be prepared to take.

32:39Sometimes, perhaps often, certainly in today's environment, the net tendency would be for the gold to come here, just as we've had a lot of money in dollar terms that has flowed into the United States in the last couple of years as a haven country. But there would be other times when the gold would go out. Remember now, in a gold standard we're talking about a fixed link between the supply of domestic Money and what is available locally, that is, within the country, in terms of gold. You either do it, if it's a pure gold standard, by coining all of the gold that comes in, or if it's a gold agency standard, by printing gold certificates, as we did before, or by By having some fixed ratio between the total amount of circulating media and the amount of gold that is on hand, in any event, there would be a direct relationship between what happened in terms of the inflows and outflows of gold resulting from what knows kind of

33:54a development that occurred abroad, and that would have a directly inflationary or deflationary Effect on the United States economy. And I think that would be a very high price to pay, and I wouldn't be in a position to recommend that we take the risk. The fourth point I would make is that a managed monetary system, which we have, which we've A managed monetary system suffers from the disability of being affected by the political process.

34:40I rather resent Congressman Paul's suggestion that the Federal Reserve responds to the particularized demands of politicians who wish to get re-elected. I don't think that's true. I have seen no evidence of that in the twenty years that I have spent at the Board. But it is true that a politician will be elected. It will be Mr. Paul or the fellows running against him. And politicians are interested in providing good conditions for their constituencies for, I think, obvious reasons. And therefore I think it is true that in a democratic system There is a tendency to want to err on the side of liberality. Sometimes, maybe, you err a little more than at other times. Sometimes you go through moods in an economy where the greatest thing that the people want to get rid of is unemployment, or where they become concerned about inflation and one can change the mix a little bit. But it is, in a small My question is whether it would be any different when it comes to the big decision if you had

36:02a gold standard system. It seems to me that if the effect of the gold standard system were sufficiently unfavorable for the populace of the country, for the constituencies of these congressmen, that the Congress would modify the gold standard system. Therefore, when it comes to big kinds of crises that might occur in the continuing fight that we have of trying to exert discipline on the social and economic and political process of the country and that process and its own desires.

36:50It seems to me that when you got to that big crisis point, if you had gold, you would simply change the gold standard. We have numerous examples of that in the history of the United States and in the history of other countries. I have no reason to believe that our politicians or our public have become so far seen in their vision and what they want to see in the days and years and decades to come that they no longer would be inclined to change the system if it wasn't producing what was wanted in the short run. I have a trivia question for everyone. That is, how much gold is stored in the United States Treasury?

37:53If you don't know, I'll tell you. 8,740 plus tons. I think we ought to now have the rebuttals, and I'll let Mr. Paul. Thank you very much. I think it's interesting that Governor Partee, when he was referring to our gold eagle, didn't talk about the meaning of a gold eagle. He inadvertently said we were going to print a gold eagle. You know, we had a subcommittee report saying that the Constitution, the right of the Congress to coin money and regulate the value thereof, and I thought, boy, we have come full circle, you know, they even put it in and put it in quotes, and when I pointed that out, they did take that out, even though they believe you can print money, they literally wrote print money instead of coin money.

38:59We have never had the authority to emit bills of credit, which really I believe think that, I think that the Constitution should be changed even to accommodate the system that we have. Yes, it is true that I have a bit of a religious fervor for this because I do feel intense about it, but I don't think that should necessarily be a negative. I think that a philosophic and a sincere commitment to something, I believe, and I think it's interesting to note that you don't find many who have that same type of commitment for a paper standard. It is much different. I do believe I would concede to Governor Partee about the preconditions.

39:45I for one see a lot of shortcomings. If I could wave that wand tomorrow and have my gold standard, I may end up being discredited, because I see gold and the issue of money as more part of an entire system of government philosophy, and that is, if we had the philosophy of government intervention overseas, and militarism, and if we have a government that is going to run a welfare state, and we had the gold standard that we would like tomorrow, I don't believe the gold standard is strong enough to, you know, present and make the people live within their means and limit the power of government. So I see the gold standard as one that restrains and keeps the government from drifting and going off a system which is limited, but I don't see it as the panacea.

40:36So I would say the conditions are very bad. I don't think they're as good as they were after the Civil War. There was a lot more trust in the system and trust in the money after the Civil War and and after from 1876 to 1879 they were able to resume convertibility. I believe our conditions are much worse and therefore I do believe that if it's done carelessly we could get into a lot of problems and I think there's a great danger of accepting a pseudo gold standard which is essentially what we've had most of the time throughout history and if we accept that and go to a standard that you could suspend rather easily, if it's a fractional reserve, if it's not a gold coin standard, I do believe that that type of a gold standard would not serve us well. I would also say that it is true that when you do, even if you have a very good gold standard, yes, there is always a threat, just like there's always a threat that our civil

41:30liberties will be abused, that our right of free speech would be abused. In times of war, our civil liberties are taken from us. So I don't think that's any justification, but I would say that, you know, because our Our civil liberties are taken away from us because we lose the right of free speech. It doesn't mean there's something wrong with the right of free speech. There's something wrong with the politicians who take away the right or something wrong with the people who take the gold standard from us. So I would not see this as a reason not to have a gold standard because there is a threat, and I concede there certainly would be a threat as there have been over the centuries, that When politicians want more power to finance war or a welfare system, they indeed destroy the money. So I would say that it is that notion of government that is a greater threat to us than the gold standard itself.

42:20The first point that Governor Part T made was that of the need to expand the money supply, the economic need for an increase in money in order to accommodate economic growth and population growth. I don't accept that. I don't... I think there's a fallacy in that. I don't think it's necessary at all. Because, again, I go back to a more primitive society when it's very easy to see what you need is production. You need work and you need effort. That you don't produce anything with the creation of money and credit. That is only a vehicle and the unit of account is something that we measure our productive efforts by, but it doesn't produce it. It does, in an inflationary climate, at the early stages of an inflation, by deceiving the people and creating new money, there's a deception.

43:07And yes, people do feel better, and it might stimulate for a while, maybe even for decades, but eventually it does the opposite. And that's what I'm afraid we're moving into now, where even the stimulation that we have today will not produce what we want and desire. And each time we go through a cycle, we need more and more. And I believe the figures bear this out, that in the past year, So here we have had to have more monetary inflation in order to achieve what we could achieve in previous recessions with a lot less new money. So to me it's entirely unimportant about how much gold there is. Totally unimportant about how much new gold there is. And I don't see it as a problem if you're having economic growth and you have a gold dollar. If you put a dollar in the bank and you get three percent interest, so you get a dollar plus three percent, but your purchasing power goes up because prices went down, but there's economic growth.

44:02I see no problem. I think that's a good deal. I think that's more incentive to save, and therefore more capital, and more reason for people to invest in the future because things are looking good. I do not equate decreasing prices with depression. I equate depression with bad economic climates and a decreasing money supply in an artificial system which brings it about. But to have prices going down is no concern at all. It can be a definite asset. And it is true, though, that you don't have to worry about a steady money supply under a gold standard. Most likely there would be an increase. The average is 3% about what the monetaries would like to increase the money supply at, but it is true it's erratic.

44:49I agree with Governor Partee, it is erratic. One year you might have a 5% increase, one year a 1% increase, but to me that is unimportant as well. The most important thing is that you have a free pricing mechanism. If you're worried about price fixing and a price level, that's different. If the prices are allowed to fluctuate because there is an influx of gold or an outflow of gold from the country, as long as the pricing mechanism is there, there really is no deep concern. But the chances of having gold inflation today is rather slim. My real concern is about the paper inflation. You know, they say watch out for Russia. They could, you know, withhold gold or dump gold. You know, it would take them a hundred years to double the supply of gold in the country So, therefore, to really significantly affect the purchasing power of gold, a hundred years to produce that much gold.

45:43It took the Fed only ten years to nearly triple M3. So, I would say that's what you have to worry about. But it is not necessary to worry about the amount of money, amount of gold. The market can adjust for that. As a matter of fact, I think the market would have adjusted as the purchasing, it would not be steady, you know, as the purchasing power of a gold dollar goes up, there would be more incentive to mine gold. If the purchasing power goes down, there might be less mining. But the most important thing is that we can measure value in something that is steady in value. And over centuries, gold certainly has served that purpose. You cannot use recent history and say that gold varies rapidly in its purchasing power, because of the Federal Reserve note ratio to gold in these recent years.

46:37That's the dollar that is one day strong and one day weak. And it's the anticipation that they don't know what the future will bring. Stable exchange rates. Yes, I think stable exchange rates are what we need, but we don't need a law to mandate them. We don't need a new Bretton Woods agreement. That's not it because it is true today, and even if we had some reform in the system, I doubt very much if we could trust everybody today to not inflate their currency and to define their currency in a strict with a strict weight but all I think about it when I think about fixed exchange rates is you don't need a law for us to decide that if we're exchanging maple leaves and Krugerrands to exchange them rather freely you know and if the dollar or the foreign currency is defined as a precise weight and then that ratio is set automatically But it is indeed true that if you have paper currencies, whether they're loosely linked to gold or not linked to gold, printing at different rates, you know, fixed exchange rates would be totally chaotic.

47:42Even under the Bretton Woods Agreement, there were thousands of periodic devaluations because even then they weren't supposed to be printing at different rates and they were supposed to link their currencies together to the dollar. But there was always abuse because governments have this insatiable desire to create credit. The concern about flow of gold in and out, if it's a gold dollar, it doesn't matter. If for some reason our goods are priced too high and we are buying goods overseas, gold will go out. Our gold money will go out and then there will be less of a gold supply. That is not a concern to me. Because then, as long as there's free pricing mechanism, the prices will drop down and then our goods will be more attractive and gold will come back in.

48:27To me it's just important that you don't have a static economy and say that gold must be this, increasing at a certain rate. Let the market handle these things. The market is much smarter than we are in trying to determine what the money should be. It certainly would be more important if all the countries went together. I do believe that if we led the way it would be a significant event. The first countries would follow us. We led them away from gold. We could lead them toward gold. But it is not necessary that everybody does everything precisely at the same time. But I do think there would be a tremendous advantage to us doing it together. I do think that I did not mean to indicate that Governor Partee literally does certain things for the politician, but the point that I would like to emphasize is that the politician, and the Congress who overspend, then so frequently the Fed has no choice.

49:23You know, last year they had to monetize some debt, but the debt wasn't their fault. So they're absolutely correct. As a matter of fact, all the Federal Reserve governors, including Paul Volcker, when he comes before the banking committee, he never fails to tell us, you know, if you guys didn't give us so much debt, our problems would be a lot easier. But it's the accommodation and it's the system that works. So the politician keeps voting and voting and spending, which he couldn't do when there wasn't a Federal Reserve system to create new credit and to buy the Treasury bills. It's only under those conditions that the Fed accommodates. So, yes, they can criticize us and then the Congress gets over here and they say, well, it's the Federal Reserve's fault. They're either not printing fast enough or they're printing too slow and the interest rates are too high.

50:10So it's sort of one of these deals where they just look at each other and blame each other, but it's neither, it's both. It's the system, it's the system of big government, deficit spending, accommodation by the creation of credit that is the problem. And I believe the gold standard can handle that and bring that back into perspective. I think that the solution obviously is to have a gold standard where we would restrain the ability to create credit out of thin air. And I do believe also that there's a better understanding. But many of you here, people here who have written and understood and understand this issue much better than I do, it is because of the 20th century understanding by the free market economists coming from the Austrian School, coming from von Mises, The understanding, I would say, is much, much better than it was in the 19th century.

51:04We've never had a real good gold standard. And for this reason, I always work very hard and correct any interviewer I ever have when they come and say, Oh, you're the guy that wants to go back to the gold standard. I do not want to go back to the gold standard. I want to go forward to a modern and a better understood gold standard, better than we have a better understanding today Well, I really don't see any need to go through the points again. It will just have to be repetitious. There are disagreements, as you can see, between Congressman Paul and myself.

51:55I would make this point, that if you look through these disagreements, I think that there is a good deal of agreement. I believe that what I feel that the country and the world and the economic society needs is discipline, and I believe that what the Congressman thinks the world needs is discipline. They have a difference in the way we would get there, and I think we also have a difference in what we believe to be the degree of tolerance of the societies of the world to discipline. It's a strong dose, and I'm afraid that if applied too blindly, too greatly, it will simply The other comment I want to make is that I suppose I ought to be, having been in Washington as long as I have, I ought to be pretty cynical, and I guess I am really pretty cynical, about the political process and the role of lobbyists and political action committees and all that and so on.

53:19That kind of stuff in determining what positions are on various issues. But I guess I still perhaps am enough of a dreamer that I think that a politician in the long run reflects his public. And therefore I don't really think that you ought to talk about those politicians over there doing all those bad things that the public doesn't want. We have There are certain time constraints so that we have only exactly ten minutes for questions and we must be out by 5.30.

54:19There's a reception in this room at 7 o'clock and the first session tomorrow is at 9 o'clock in the morning. Now we can field a few questions, I think. Yes? The question is whether the gold standard would result in dramatically lower interest rates. Governor Forte. Well, I've heard that comment often and I haven't been able to understand the analytics of it. I don't see that that would be the case. That is, if one is talking about a system where all the money units of the United States have been turned to gold. I can certainly see it if one were to offer a gold-backed bond, let's say, that it would have a lower rate than and a non-gold back bond would have, but I don't think that it would be true that there would be a necessity for interest rates to be lower.

55:38Now I may be, I guess I would visualize, we would have to somehow do this transition to the gold standard, and I don't think in the first instance it could be a pure gold standard

56:19environment. Why, of course, without inflation, and there certainly wouldn't be an inflation, it would be deflation in the short run, the nominal rate, I would think, would be lower for the gold debt than it would for the non-gold debt. But it's really such an extreme case, and the problem of the transition is so extreme that I can't truly evaluate what the interest rate profile would be.

57:13The Federal Reserve Note, at the top, says that the United States of America promises Will Dave is a bearer on the band, twenty dollars, I don't have any Federal Reserve note or credit right at any Federal Reserve Treasury Department, I can go ahead and take this in and get my twenty dollars worth of money in each time I want to do it. At the same time, when we had other issues with the Federal Reserve note, it kept saying, Will Dave is a bearer on the band, even when our gold standard went through, it said, Will Dave is a bearer on the band, twenty dollars in legal money.

58:35I think this is a good question. I think it's an important one. We have governors of the Federal Reserve who sit there. Their job is to look at this. This is not condemning an impersonal ancient ass. This is an indignity question. Every accountant, every attorney, everyone in this room knows this is not at all. I think it's just another deceitful thing that has happened to us. Why were governors of the Federal Reserve the key to call us to vote? How long do you think the average people are going to continue to accept this worthless piece of paper for their continued good production? When that holds up their place, they don't. Then what's going to happen to America?

59:34The Federal Reserve notes issue is when people used to say to me, well, what does that, when it says we'll pay the bearer on demand, what's that going to pay you? And I used to say, well, we'll give you some more Federal Reserve notes. And that's the very case, the very fact of the matter. That's all we undertake to do. The government undertakes to receive those Federal Reserve notes in payment of taxes. People do sell their services, their goods and services, for those Federal Reserve notes. And that's how you're able to go to the grocery store and use them, and any other place you might want to go and use them. And as far as the matter of confidence in the currency is concerned, sir, I think you're putting a great deal on the symbolism of a little bit of gold, that it may be behind the thing.

1:00:24In the last year, in the last two years, tens of billions of dollars have flowed to the in the United States, from people elsewhere in the world who felt that this was a much better system than what they could have confidence in at home. Well one way to say something about how long will they accept it, they will accept it as long as it's legal tender and has behind it the coercive power of government. I'd just like to say that it's like Catalan food. Catalan people put the plate of food down in the door and drink the bell, and about a tenth of the time, the drug is still salivating.

1:01:09The legal tender is not to salivate this. All the speakers seem to be in agreement that our monetary problems are largely related to the name of a political system. No one in the party said that the politicians are paid at least the normal amount of the politicians are paid the way they truly want.

1:02:15This is the other choice school that is going out first. Decisions get made, my colleague. The sum total of another decision is made that gets made in a way that calls for the results of an intervention with the business. That's a very good question, and I don't have an answer to it. I think that the system, of course, has grown more and more complicated, and the issues that the public has to decide have grown harder and harder and more technical over time.

1:03:03You can't hardly give a fair, objective statement of trade-offs to the public. There isn't agreement within the economics profession, for example, as to what a trade-off is. And therefore, one can't say, would you rather have more inflation or more unemployment, because people wouldn't agree that over the long run more inflation is associated with more unemployment. And so I can't think of a way to state the big issues in terms that would be objective on which there could be enough agreement to state them, and therefore my view of the matter is that if the people don't like the way things are going, what they ought to do is throw the rascals out.

1:03:50Mr. Paul would like to comment on this. Yes, I will. Is this microphone on? Yes, it's on. Okay. I wanted to comment on this in general because, again, there is an area that we do have agreement, and I think it's important that we do find the areas that we do agree, and that is when the governor party says it's not only the politicians, it's what the political system is demanding and what the public wants. Once. I think that's why a group like this is so important because what you're doing is you're changing perceptions. You did not exist. Groups like this did not exist 20 and 30 years ago. So, therefore, maybe I will have my way someday, mainly because you're existing and that the public perceptions will change. And it is absolutely true the politician only reflects the public view. So I do think that's very, very important. But I think we're in a transition period now, which is critical to our nation.

1:04:47I would like to address very, very quickly about the interest rate. I think that we can go by past record and show that under gold standard interest rates were low. I don't think you have to have a collapse of the money system if you go to a gold standard. All you have to do is adjust your definition. If you had to use a government gold standard and not use the ounce, you could certainly define the dollar as one-fifteenth hundredth of an ounce of gold rather than one-fourth hundredth, and all of a sudden you have an unbelievable amount of credit that you would and currency that wouldn't cause a collapse. How have you made an excellent point a while ago when you said that you had that big idea of competing currencies many years ago and a lot of those bankers in the private sector countered all that money and there are some real bad guys in the bank today, the private sector, and of course.

1:05:42My question is, if Congress can call and show that those governors and banks are at a higher risk compared to the amount of money that's been spent by other governors, would you concede more insight? I just want to respond with an anecdote. I don't think that the political process is tolerant to the loss by the public of sizable amounts of their money or what they regard as their cash balances because of the abuse or the misperformance of the banking community. As one example of that, I have been seriously questioned over the last few weeks by one of the congressman's associates on the House Banking Committee as to whether we should not require that all banks be insured by the FDIC because there was a bank in his district that went down and it turned out that it was not insured and it did not have the money to pay its deposit.

1:06:53I really think there's very little sensitivity or appreciation on the part of the public to absorbing the kinds of losses that it used to take fairly normally as a result of collapse of banks and banking systems. So I just don't think there's an awful lot of percentage in it. You're going to tell me that we've counterfeited a lot of money by printing a lot of Federal The Federal Reserve notes, and I don't disagree that we've printed a lot of Federal Reserve notes, but it's nothing compared to what the banking system left to its own devices might have done. We are basically trying to limit the growth in money and credit, and we do limit the growth in money and credit compared with who it would otherwise be.

1:07:39We are bothered once in a while by strong demanders like the U.S. government, but nevertheless We have even paid not much attention to their needs in the last few years, and that's why interest rates have been as high as they've been. I'm very sorry, but we're going to have to stop. We have to be out of here at 5.30, and that is that.