A Seminar on Money

0:00I think I have 45 or 50 minutes to talk to you about money. This is simply ridiculous, you know, it's impossible. Therefore, but on the other hand, you know already something about money, you know, even Sometimes there are disagreeable experiences with not sufficient quantities of money. And as we mentioned quantities, we approach already one of the problems, perhaps the most important problem from the practical point of view, the problem of the quantity of the supply of money.

0:48We are talking in economics about the supply, supply of useful things, supply of useful people, and so on, and then we are talking about the supply of money. The supply of money is something very different from the supply of other things, you know. The supply of shoes, the more shoes are available in the country, the smaller is the number of people who must do without shoes. And it's the same with most of the other useful things.

1:34But with money, it is something a little bit different. It's not true that the supply of money is something which you have to deal with as the supply of other things. The supply of money can be seen from the point of view of the whole economic system, it can be too large. While the individual and the whole society are in perfect agreement with regard to the supply of most other things, the problem of supply is not so simple as that when we are dealing with money.

2:26You hear every time I see somewhere printed the word, the supply of money, I have an uneasy feeling. Because increasing the supply of money in the economic system, the total supply of money is something quite different from increasing the supply of commodities. Therefore, those books and lectures in which one talks about the supply of money and in In which people are discussing the problem that the annual supply of money should be increased by 3% or 5% or some other percentage, these discussions are misleading.

3:34They are misleading because they are leading directly to one of the most critical problems, to the problem of inflation. What does it mean, inflation? We know that most of the useful things, most of the useful commodities are not available in quantities which would make it possible for everybody to enjoy as much of them as he wants.

4:20And we know that it is a very beneficial thing to be a man who increases the quantity, the supply of useful things, whether these are shoes or books or something else, it is always The better that the supply should be increased, then the supply should decrease, but with money there is something different. As we have today a state of affairs in which the governments are in a position to increase the supply of money and they are doing it because this increasing of the supply of money on the part of one institution, group or factor, while all other factors must be satisfied with the money which they are getting on the market, because this increase brings about certain problems, let us say, the problem of inflation.

5:50I could try to deal with the problem from a right general standpoint, beginning with the most simple things and proceeding step by step to a system that implies all the essential This would not be a job for, I think, 45 minutes, I don't know, perhaps 48 minutes. Therefore, I want to start with the most important, practically most important problem, the problem of inflation.

6:52As conditions are, as we have today in most of the countries of the world, almost in all of Countries of the World. The Governments are in a position to increase the quantity of money and they are making use of this power. The Government, let us say, wants to spend People don't pay taxes with great enthusiasm and the government doesn't like a nation that has little enthusiasm for the activities of the government.

7:52And therefore the governments want to find a method of spending which does not burden the individuals. The governments want to appear as institutions that are giving, while in fact they cannot give if they had not first taken away, and taking away by taxes is not very popular. And therefore the governments are increasing the quantity of money. Let us take the following situation, the typical situation.

8:44The government wants to spend more than it did spent up to yesterday. But it doesn't want to tax more or it simply cannot, by political reasons, it cannot tax more. It cannot also borrow the money because the conditions under which such a borrowing could take place are considered from the point of view as unsatisfactory, but when the government does something which is familiar to everybody, the government increases the quantity of money.

9:38This is a very cheap prospectus in the world in which paper money is legal tender. The governments and the writers for the government make fun of the fact that the nations of the in the world consider gold as money and they try to say a lot of things against the gold standard only that they have no valid arguments against the gold standard because the gold The gold standard works like the paper standard of the government works in a way which the government itself doesn't consider as satisfactory.

10:48Let us take the most practical case. The government wants to spend more and doesn't want to tax the people. The government wants to appear as Santa Claus. This is a very agreeable situation. It is a situation which is much more popular than the situation of a tax collector. And therefore the government does not tax the people in order to get the money for its new expenditure, But it prints it. This is very cheap, very cheap procedure. What happens now? If the government had collected the tax, the money it needs for some additional new expenditure, by taxing of the People, the taxpayers would have been forced to restrict their spending, their expenditure.

12:10They had therefore a definite quantity of money, the money which the government has taxed away would have disappeared from the hands of the people, of the citizens, and would have reappeared in the hands of the government. The people who had paid the taxes had been forced to restrict their expenditure, and The government has expanded its expenditure. It is not to be expected that the commodities which the government would have, which the government wants to distribute, directly or and Directly are the same which the citizens would have spent and therefore there appears some problems which we cannot deal with because we have only 45 minutes but what we have to realizes this, if the government taxes the people and the people are forced to restrict their expenditure, then the prices of certain commodities and services are necessarily dropping

13:51because there is a smaller demand for them than was before. On the other hand, the government appears now on the market with the money collected and the prices of those commodities and services which the government wants to buy and buys in order to spend certain things are going up. By and large, the average prices do not change. This is only an approximate statement but for our purposes it is sufficient. Therefore, The purchasing power of the monetary unit by and large remains the same.

14:50But if the government prints the additional money, the situation is quite different. This is the situation which people have in mind when they are speaking about inflation. The government appears on the market with a newly created quantity of money, created specially for this purpose, to buy. And the quantity of commodities and services didn't change. Therefore, the result of this government printing of additional money and spending this money Money on the market means a tendency for prices to go up, and there is a different situation now.

16:02If the government had taxed the people, the taxpayers would have been forced to restrict They are not forced to restrict their buying on the market immediately enough because the government didn't take away the money. And so we have now on the one hand higher prices paid by those people to whom the government gives the money. Let us assume that these are government employees. Certain government employees who do not discuss the problem, whether it was necessary or not necessary to improve their situation. This is quite a different thing. But the fact is that these government employees or people who are getting money from the government for some other reasons, that these people are now in a position to pay more, to offer higher prices on the market and there is nobody on the market who is forced to restrict this expenditure and whose behavior brings about without a drop in prices, and then this drop would be compensated by the opposite tendency emanating from the higher pay of the government.

17:38And this is the situation of inflation, and this is all the wisdom of the governments. I can say in all the periods of history, but in the period of history in which we are living. This is inflation. This is precisely this inflation, this is a word newly created when these things appear There is, from the point of view of government finance and public finance and general finance, there is no possibility to avoid a tendency to add higher prices when the quantity of money is increased.

18:39It could only be avoided if this increasing of the quantity of money were compensated by something else. For instance, in the 19th century, there happened several times that with improvement of geographical knowledge and the increase in traveling, the people discovered new sources of gold production.

19:28The gold production increased and for instance, in the middle of the 19th century, there was There was such an increase once in California and there was at another time such an increase in Australia for a definite period, a new quantity of gold above the regular yearly increase in the production of gold was flowing into the market. And this brought about higher prices, this was, if you want to call it inflation, we use another term in order not to confuse the things, but it brought about similar effects.

20:23That means the people who were happy enough to meet the first arrivals in California and I found that gold quantities, these people, they are appearing on the market with additional gold, new gold in this world, and they bought many things in a very short time. Some places in California who had been simply in the uncultivated zone became equipped with many things which in the west were known before.

21:14The people in these countries, in these districts of Australia and California had at that time a similar experience, similar to the conditions of inflation, but this was a limited problem. It was limited because the quantities, the additional quantities were very soon integrated into the whole system of monetary problems and there were no further increases in the quantity of money. But this is different if the increase in money is simply an effect of the printing on the part of the government.

22:07The government prints. The government may declare never again, but who is the government? In the best case, it's the present chief of the government. And tomorrow, there will perhaps be another man in the government, or the same man will say, I said this under different conditions. of Change. It seems now to be necessary to increase the quantity of money. Why? Because next month there are elections, and such in this way one must say.

22:57Some people tell us how silly to take this yellow metal as money and so on and so on. Why are you in favor of the gold standard, they say? My answer is because you who are asking this question, because you can print money, but The answer is the gold standard is an accident, a geological accident, I would say, that there is such a limited quantity only available that we can deal with it as much.

23:47Perhaps, I don't know it, nobody knows it, perhaps one day people will discover a method of producing gold out of nothing, out of not-gold, that is, saying, if this will happen, the people who will live at that time will have a problem today. But we today have another problem. Our problem is not to increase the quantity of money, not to make inflation. You know, inflation, this is like all... I don't want to say that Inflation is a bias, I don't take these methods of talking serious and so on, but seriously there is one thing with inflation.

24:49You cannot tell today, later or not, tomorrow or today after tomorrow, people in the government will not be prepared to inflate for some reason, they will have some excuse, they will say inflation is bad, never should be a question of inflation and then they say yes but we didn't take into account the conditions of an important war, really this is, they didn't And then, they are increasing the quantity of money. And then it happened again and again in the history that inflation was continued up to to the point in which the purchasing power of the monetary unit reached the zero point.

25:58This has nothing to do with the problem of the cause for which people did the inflation. Let us now talk about historical problems. It happened again and again in the history of mankind in the last 200 years, not earlier times, that people went inflating, that means In modern methods of inflation, that means imprinting paper money so far that they finally reach the zero point.

26:52This happened, for instance, with the so-called continental currency and the War of the American Revolution in 1781 and so on. It was a very desirable experience for some people, but don't forget, at that time, at the end of the 18th century, the people of America, the colonists of America, the colonists of the North American colonists that revolted against England, were an agricultural people. More or less everybody was connected with agriculture and he didn't buy the food, he didn't buy other things.

27:44The food, this is something that you ask to your wife, where is our food, if we had to, but it is not the problem of going to the market. And therefore the impression which this left and the whole problem was of minor importance only for the Americans at the end of the Revolutionary War. I mention it only because I assume that you are very well familiar with the financial History of the American Revolution. But it happened again and again in other countries.

28:33Later and later, at the time, when everybody, more or less, was living in money economy. and you should not believe that the whole thing is inflationary, that this is a vice of our There is a very bad general tendency of historians or pseudo-historians to ascribe all virtues to the past generations and all vices to those living today.

29:31I would be very unhappy if you were to believe that what I wanted to say is that all ages were very virtuous, but only since the invention of the printing press, they have developed a paper money. There were already inflationists in the ages, long, long before the printing press. I can't give you all historical examples. I want only to advise you if you want to study this problem.

30:19There are many important cities, also in the United States, but still more natural in Europe. There are historical museums in which you find the coins of the past collected and you can look at these coins from various points of view, mostly people look at it from the from the point of view of aesthetics, but you could also look at it from the point of view of the history of not of coins but of money. And then you will discover that for instance in the second century after Christ, the Roman emperors were already very efficient in making inflation, only, imagine, inflation of a very by different kind, which was not called inflation, developed only later, they didn't have the printing press.

31:31And people in general believe that most of the vices of mankind developed only with development of Modern Methods of Production. Now, the printing press is certainly a modern method, but the method of using money for such purposes as the inflationists of our days are using it was already known and practiced by the Roman emperors of the second century after only that they had other methods, they had only hard money, silver coins, and their method was, there was no question of printing, the question was of admixing a little bit copper to the silver and to more and more, and under the assumption that the people, that the masses, that the people will be stupid enough not to see it.

32:51At the beginning, really they didn't see it, but more and more and then the governments became more aggressive, let us say, and they took more and more copper and the colors changed. You know, when you add copper to silver, there's a tendency for the color to change a little bit. And this is some, this was too much for the people, you know. And you had this story of dealing with silver coins and mixing copper, you had this as a method of government finance even in the modern ages before the development of the printing press in the field of the production of money.

33:53What I want to say is, and this is, I think it must be known by everybody is this, increasing the quantity of money is not the same as increasing the quantity of money. Therefore, to use the term supply of money is already very dangerous, very dangerous. Because you have a lot of people who consider themselves as specialists in monetary problems, who are using this term supply of money and say, the supply of other things increases, Why should not the supply of money increase too?

34:53And there is one specialist says every year 2% Another specialist says every year 3% There is no limit to such progress And really we have professors who are discussing Should the yearly increase of money be 2% or 3% or 5% or what else? If the money is made by mortal men who have the great facility of a printing press, then And this is a very dangerous way of formulating the problems.

35:57Every kind of question dealing with the problem of the supply of money can be answered and is answered from the point of view of, from the personal point of view of the people who have to answer this. If people have debt, then they are in favor of what has been called a light monetary unit. If people are expecting that the additional quantities of money, the creation of which they are suggesting, will first come to the group of people to which they are belonging, It is absolutely out of question to leave the decision where the quantity of money should be increased by 1% or by 1000% to leave this to the people or to the government or to any specialist and so on.

37:34What this means has been again and again demonstrated by history. There were, if you look at the history of the last 50 years, you will find that in almost all countries of the world inflation went far beyond the proposals and ideas, even of If we want to have money, it must be something that cannot be increased with a profit by anybody, with the government or citizens and so on.

38:36And the worst faking of money, the worst things that were done to money, were not done by criminals, but it was done by governments, which by and large very often could be considered as ignoramuses, but not as criminals. We had the people who were living in the period of between 1900, that is 1920 and 1950, had A dozen times this experience in various countries of the world.

39:46People will say, oh, this may be the effect of bad monetary policies, but we are in favor The problem is not what a man who has no power and no influence and no possibility to increase the quantity of money or to derive any advantage from the increase of money may say.

40:31These people don't come. This is a pure theory, a very abstract theory if you say if I were the head of the government I would only increase every year the quantity of money by X percent, not more, only X percent and I will say three percent and not more. And what will you say if the people elected will add one percent today and the second percent tomorrow and so on? Specifically, we cannot have a system of money, which the decision is left to the people who derive.