The Cultural Upheaval of Loose Money

0:00Our next speaker is the Editorial Vice President of the Ludwig von Mises Institute that just scratches the surface of what he does day in and day out for the Institute, however, he is seemingly on the job 24-7, 365, keeping Mises Org going and the inspiration of so much of what we do at the Institute. He's of course a frequent writer for Mises Org, he's been a frequent writer for lewrockwell.com, he writes a column for The Wanderer, and of course he's the author of a book I'm sure you're all familiar with called Sing Like a Catholic, or not, but he's got a new book coming out, and I wish we had it today to sell, but we don't, but we're going to have it very, very soon, please look for it.

0:57It's going to be called Bourbon for Breakfast, Living Outside the Statist Quo. It's a clever title. He's a clever speaker. He's going to talk today about the cultural upheaval of loose money. Please help me welcome Mr. Jeffrey A. Tucker. I always appreciate Doug's introductions. Interesting. Okay. Well, every time I'm asked to talk about money, of course, I'm sure it occurs to you also, you want to sing the Monty Python money song, right? So, I printed out the words just in case I was inspired to do that.

1:42And I feel a vague inspiration. I've got 90,000 pounds in my pajamas. I've got 40,000 French francs in my fridge. I've got lots of lovely lira, now the Deutschmark's getting dearer, and my dollar bills would buy the Brooklyn Bridge There is nothing quite as wonderful as money There is nothing quite as beautiful as cash Some people say it's folly, but I'd rather have the lolly With money you can make a splash I'll skip to the end. Everyone must hanker for the butchness of a banker It's accountancy that makes the world It's money that makes the world go round. You can keep your Marxist ways, for it's only just a phase. It's money that makes the world go round.

2:37It's a wonderful children's song, you know, teach that to the kids, raise them up right, you know. So, what is the core of truth to the song? I like the phrase, it's a countancy that makes the world go round, because it illustrates something about the case that Mises made concerning money, that it allows us to calculate profit and loss, and it's the calculation of profit and loss that gives us the tools to build up an economic structure and ultimately civilization. It amuses me that even now, you know, you'll be bumping into some campus socialists and I say, well, you know, the real problem is we just need to get rid of money. I mean, if we just get rid of money, everything would go away. I mean, inequality, you know, injustice, all the capitalist exploitation.

3:27It's a remarkable claim because without money, of course, we're back to barter. And in a state of barter, you can't do a darn thing. We're all reduced essentially to hunter-gatherer state. And it was Mises's great contribution in 1912 in his book The Theory of Money and Credit which I notice we have brought with us now, 1912. So almost a hundred years ago he spelled out this marvelous treatise, he explained the origin of money, its function, in this he was drawing from Carl Menger, who was really the first to fully explain, I should say probably in modern times, that money isn't something that is imposed upon us by the state or given to us by any particular rulers and it didn't come about through a consensus, for example, we can't all just in this room decide that we're going to make a new currency out of this Hilton meeting note sheet or something like that, it doesn't work that way.

4:30Money originates through market exchange, it's a real commodity that's demanded in the market Mises very patiently explains how we move from an economy of barter to an economy of monetary exchange, an economy of direct exchange to an economy of indirect exchange, and that That permits economic calculation, permits accountancy, you could say, and therefore the building of capital and the building of production structures that stretch over long periods of time. So you can begin to make sense out of the world.

5:17That's the purpose of money. Mises' unique contribution in this book was to explain the initial value of money. Where does that come from? And in a logical derivation that's since been called to me like the regression theorem, he explained that the value of money initially comes from its value as a commodity. And one of the features of money is that it's stable, it has a high value per unit of weight, it's durable so it lasts over time, so it becomes a source of security for you, you know, like something really dependable. In some ways the most dependable thing, because you acquired, it's the most demanded good Do you acquire it because you're sure it's going to be worth something in the future and it can make your dreams come true in the future, whatever they happen to be.

6:06But what happens in a world in which that is no longer true, when money doesn't make the world go round anymore, when you can't depend on it, it's no longer your source of security and instead becomes worthless. It's demonetized. That's when, I think we could say, the world turns upside down. And history provides us many examples of this, many intriguing examples that begin to fascinate you once you study them. Tom DiLorenzo mentioned the case of the hyperinflation of the continental, the hyperinflation of the civil war. These are the way war and inflation is connected. These are destabilizing events that turn society upside down. You wonder why it is that anybody would fall into this policy of inflationism.

6:55We've learned again and again and again, since the ancient world, that inflation is folly. And yet, we keep doing it. And I don't think it's just merely because it has some advantages for the government or for some producers or for debtors or whatever. It's also because some people actually favor that. They favor the way inflation creates a kind of social upheaval. and Central Upheaval. And I think that's what I'd like to talk about here a little bit. First I'd like to quote from Mises' book a hundred years ago. Now keep in mind that the 20th century is the age of central banking. It's the longest period of time in the history world where most governments in the world have had central banks that have systematically destroyed currency.

7:41And from that fact follows many other things The arguments urged in favor of centralization, monopolization, and state control of banks of issue in general, and of credit issuing banks in particular, are thoroughly unsound. Mises is great, really clear. During the past 20 or 30 years, the literature of banking has got so thoroughly lost among the details of commercial technique and has so entirely abandoned the economic point of view and so completely surrendered itself to the influence of the most undisguised kinds of etatistic argument, by which it's a French word means statist or government biased argument, that in order to find anything that's correct, anything that's really sound on this question You have to go back to banking literature and policy of two or three generations ago.

8:46Mises was observing this. It was true in America, too. The 19th century was filled with hard-money writers. People understood the needs of the gold standard, anti-central banking writers, like Tom DiLorenzo was talking about. By 1912, the United States, you could hardly find anybody who was against the Fed. The economics established under him had been largely corrupted. So he sums up what's wrong with central banks. He says, their one intent may be summed up in one sentence, by Hook or Crook, keep the rate of discount down. They have achieved the circumvention of all the natural and legal obstacles that hinder the reduction of the bank rate below the natural rate of interest. And with this one tool, you can destroy civilization. It seems amazing, doesn't it?

9:35But if you've got a central bank constantly suppressing an interest rate below its natural rate, everything can unravel in time. And that's in effect what's happened in the 20th century, Mises saw it. So Mises' favorite safeguards, some kind of restriction on central banks so that they wouldn't inflate. But he said it's not enough, it's not enough to simply restrict a central bank. What we need to do is restrict the ambitions that lead the central bank to do what it does. says money is part of the mechanism of the free market in a social order based on private property in the means of production. Only where political forces are not antagonistic to private property in the means of production is it possible to work out aiming at the greatest possible stability of the objective exchange value of money. What he means to say is that look, you know, inflation and monetary expansion is not just an end in itself. It serves ideological and those ends include expanding the state, favoring debtors over creditors, favoring social revolution, funding wars, all these things that are really behind inflationary policy

10:53and Mises says we have to get rid of the ideology that's backing these various policies and inflationary funding before we'll get true stability I would like to talk today about 10, what I'm kind of calling 10 cultural effects of inflation, and kind of enumerate them one by one. And in so doing, we're going to be drawing on the work of Guido Hulsman, Murray Rothbard, many other writers. Doug French has contributed to the literature beautifully. I would like to focus a little bit in particular on what happened in Germany during the hyperinflation of the Mark in the early 1920s. I think we do well to learn something about this because as I was reading about it, I was really spooked about the ways in which that experience seemed seems to have some parallels with our own and I say this because you know this word inflation it's it's funny we think of it as rising prices and probably many of you in the room every time somebody says the word inflation from this podium you're

12:09thinking well doesn't seem to be that bad you know well inflation takes many different forms the old definition of inflation in the 19th century you read a dictionary it said the expansion of money and credit all right didn't say Is there anything about rising prices? Rising prices are one of the effects of inflation. Nowadays people use the word inflation to just mean prices are going up. But if you think of it that way, you'll miss a lot of the underlying dynamic of what happens in an inflationary economy. Essentially inflation is the expansion of credit and money, the destabilization of the currency, the manipulation of the interest rate, and that can have many unpredictable effects. and it's not like a machine, it's not like the central bank pushes a button and that causes prices to rise over here and if the prices aren't going up then everything's safe, you know?

13:00I mean what you have here is essentially the central bank violating natural law and the spillover effects of that can be unpredictable, unpredictably dangerous. After the war, in Germany the central bank embarked on a big inflationary policy to pay war reparations and to somehow get out of its debt and to build up the regime, which was seriously reduced after the war. But the effects of it really weren't obvious at all. Even up to 1918, inflation was running anywhere between 1% and 6%, and it was actually lower inflation. The price inflation rate was running 6% or something. It was actually lower than in many other European countries and the US.

13:45So nobody had any real reason to worry too much. By 1923, five years later, the market had fallen to one trillionth of its value of the previous five years. Without any big drastic change in central bank policy, it just persisted. What happened was that the psychology changed and people began to act differently. And it was like a forest fire that went out of control, and by 1923, the whole thing began to unravel. The culture, really, was turned inside out. The old bourgeois values were out the window, and new values came along, and the entire society just went into upheaval because the money failed, because the money died.

14:41And what's interesting to me, especially in reading about this, is that if you lived in the thick of it, in 1921, 1922 Germany, there were rising, there's properization going on all over the place. People were getting poorer, but many other people were getting richer. And it wasn't entirely obvious to people if society as a whole was rising in prosperity or falling. It was unclear. It was just a lot of confusion. Many people were excited. Business was booming, for example, even under hyperinflation. People used to work eight hours a day. Now they were starting to work 16 hours a day. Everybody went to work. There was a job for everybody.

15:30Everything, the old jobs went away and there were new jobs for everybody else and everything One of the main jobs that was available to even the lowest peasants was pushing wheelbarrows of money from place to place, actually, because that's the way you ended up near the end of having to carry the currency around. It was a dangerous job in some way, a great deal of security risk, you might think. It's true, there were robbers that would come along and steal your wheelbarrow. It's very strange when this becomes the kind of jobs that are highly remunerative in an economy. Many wonderful plays and stories were written about this ghastly event in the years that followed, and it wasn't entirely clear to the typical German until after the whole thing happened.

16:26In the late 1920s, then that's when the writers and the playwrights and the short story writers and the punents began to realize what had happened. It was really after the fact that they looked back and said, oh my god, that was just a disaster that led to a complete cultural social upheaval. We'll never be the same again after something like that. But you see, it wasn't obvious in the middle of it. It seemed like business was doing very well. I'm afraid that that's probably going to happen to us, actually, if we start seeing these kind of things take place. The other thing is that in the middle of this inflation, nobody really understood that it was the central bank that was doing it. Everybody blamed everything else, foreign exchange problems, the weather, as Doug was claiming about Zimbabwe, but speculators, of course, were the top evil.

17:18You know, but the central bank wasn't really part of the equation. It was only after the fact. Once the intellectuals began to get involved and see what happened, that the public opinion turned against the central bank as being the source of the problem. People were still blaming the Treaty of Versailles. And now we know what happened in Germany after the hyperinflation. The National Socialists took power. And what's the connection between hyperinflationism, hyperinflation and the rise of Nazism? This writer named Bernd Wittig, Culture and Inflation in Weimar, Germany, he has an interesting theory about this. He says, look, if money is this crucial form of communication in society, it's the thing that helps enterprises talk to each other, it helps us form our values and shape what we do and helps us how to undertake our activities. It's the thing we rely on most that helps us be stable and helps us plan for the future. When that's gone, what do you turn to? The argument of the National Socialists was the merchant class has failed

18:33The money has failed you. The traders have failed you. The money lenders, the Jews, have failed you. Look what they've done to you. You can't depend on this system anymore, this laissez-faire capitalism. You need something else, something that's really going to last, something that's really true and really stable. What is that? That is blood. That's the blood of the people, the German people. That's what lasts through the generations. Not this money, not commerce, not laissez-faire. We need order. We need order rooted in blood. That was a persuasive argument, but it was only persuasive because the money failed.

19:18Do you see? I think it's an interesting theory. I think he's right. Mises could never fully account for it, I think, when he was understanding the relationship between these two things, the Weimar inflation and the rise of Hitler. I think this book is right about that. When the money goes, everything is up in the air, and people are prone to glom onto crazy theories, crazy ideologies, very dangerous movements. You know, so often, the effects of inflation are masked to us. As I was preparing this trip, I walked into my closet, into my home, I thought, well, I need a bag.

20:05And you know what airlines are doing to you now, right? With the bag thing? You know, you go and you try to check a bag and say, oh, well, that would be $600. What? You know. So nobody's carrying bags on airplanes anymore. Well, our values have changed, you know. I mean, even a year ago, we'd travel with lots of suits and shoes, I don't know, whatever. But now, I opened up my closet and I saw something like eight huge bags that I used to take some pride in, you know. And now I look at them and I think, what was I thinking? Look at these, they're monstrous and terrible. What am I going to ever do with these bags? I want to hurl them in the trash. So we began to dig around for bags and I couldn't find anything that was small enough to carry just on the plane, you know. So I finally went to my daughter's room, she's 15 years old, knocked on his leg.

20:44She gave me this, and I thought, well, you know, leave it to the young, you know, they're always ahead of us, you know, especially in inflationary times, the young are always kind of hip and happening, and we old-timers, you know, are stuck on the past, or they're big bags, or she's got the small bag. So I took the bag, and I was feeling kind of, you know, on top of the game, you know, wheeling into the airplane, and I turned around to the guy next to me, and I don't know, I just struck up a conversation or something, Well, he had this thing hanging around his neck that was about that big and I said, so, did you check your bags? He said, oh no, this is what I've got. This is what I'm carrying is about that big. So I suddenly felt like I was behind the times with my, that's our future. Now, but how do you trace this to inflation? I mean, how's this related to inflation?

21:27Well, prices went up. The airplanes discovered that they wanted to get more value out of their flights. They're starting to rent out all the baggage spaces to carriers that are willing to pay more. and uh... so there's an opportunity cost every time they pack a bag for us the opportunity cost is what they would otherwise you know pack for the for the uh... for the for these uh... for other commercial packaging so they kick us out and uh... the profits are squeezed because of the recession which was caused by the bubble which was caused by the central bank uh... the bailouts allowed them to continue to pay the unions and not cut back where they should cut out anyway all these effects all these but this is all hidden stuff you have to think about it for a long time Even the terrorist incidents, you know, are probably ultimately blamed on inflation. Why did Bush think he could have that war back in 89, that stirred up every terrorist in the world?

22:16You know, with an inflationary policy, you have an unconstrained vision. You know, like Thomas Sowell talks about unconstrained vision. Hey, why don't we have free healthcare for everybody and free drugs for everybody? Yeah, why not? And what's stopping it, you know? Why don't we, you know, there's some bad guys in the world. Don't you think about it, just kind of launch some missiles at them, kill them and clean up them? Let's do it. Hey, why don't we educate every last person so they can just make sure that everybody pays for everybody to get a Ph.D. and also a huge home. Yeah, sure, why not? What's stopping it? You know, when you've got the printed presses running, everything seems possible. It's an unconstrained vision. That's the state you have under a central bank.

23:03Number one, inflation. Central Bank funds a vast expansion of government and a loss of individual responsibility. This is, I think, the number one problem. I mean, if you could have inflation, you could deal with the economic effects, but the fact that it's fueling Leviathan and expanding the state with this unconstrained vision is extremely dangerous. The crushing of intermediate institutions and the decline of family and other social units. By the way, this is brand new in print. Ludwig von Mises on Money and Inflation, a synthesis of several lectures. I can tell you when you're reading through these things, he was a different guy when he would lecture, as versus when he was writing Human Action, so he would tell these great stories. But he talks about how all throughout the 19th century, in Vienna and Austria and Germany and all over Europe, over Europe, that there were vast foundations that have been established with private money to care for widows and orphans and the poor, that were elaborate and huge, just like in

24:03the United States, and that these were all wiped out through the inflation, making society radically vulnerable. So what inflation does, it destroys these, the inflationary policy destroys these intermediating institutions, the things that stand between us as individuals and the state, you know I'm talking about churches, civil associations, all these organizations that rely on private funding, the leftovers of our production that we don't use for eating and feeding or clothing ourselves, these go to fund these big nonprofit organizations where they get destroyed through inflation and it made Europe very vulnerable to the state. The family issue in the United States is a very interesting one because If you look at the data, you go to the women's studies departments, they herald the glories of the professionalization of all women.

24:55You know, wow, the women didn't used to just get in the unit of work, you know, they could just sort of stay at home or whatever. Well, the claim it's due to feminist ideology and raising of social consciousness, I contend to, if you look at the data very carefully, it was all due to the Carter inflation of the 1970s. Extends wars and tempts politicians with bad programs that do not work. Achievements the liabilities for enterprises and punishes real entrepreneurs. During the dot com bubble embossed or during the real estate boom embossed, the chumps were the old fashioned entrepreneurs The subsidizers going into debt for individuals and addiction to credit.

25:57Did you know how bad American addiction to credit was before the bust of 2008? I had no idea. I turned on the television. I saw some guy going, yeah, what's with this car company? I'm trying to buy a car and they wanted me to put down like $400. I didn't know it got that bad. I mean, it's insane. Brings about financial dependency, you know. We live in Auburn. Auburn is a student town. I've never seen anything like it. It teaches the youth how to live in the present. They become disrespectful to our elders. They begin to look at everybody older than them. Anybody who has old-timey values is just a bunch of chumps. It's very dangerous. It brings about a shift in professions toward finance and causes rampant materialism. It happened in Germany. It happens anywhere you see these big bubbles develop.

26:51People just glom onto finance. They're making money by trading money and that's it. This is one of my favorites. This is number nine. It inspires language and dress to become sloppy. I'm sort of a sociologist of these kinds of issues of manners and dress. You can train You can look at the business cycle and compare it with books and what people are wearing. People dress up during recessions and dress down during booms. It's an interesting thing. That's a different lecture, though, isn't it? My tenth one is the one that Tom already brought up. It turns people against capitalism, and let me just tell you, I think this is the number one dangerous aspect, probably the number one most dangerous aspect of inflation is Capitalism. How many people do you know are blaming the boom-boss today on capitalism?

27:43They say it's discredited capitalism. This is the number one thing I hear all the time. I was just the other day in a coffee shop. I was reading this book and a guy comes up to me and says, a friend of mine, he's from Germany. He was raised in liberally minded public schools in Germany. He said, oh, culture inflation in Weimar, Germany. Then he said to me. He said, yeah, Weimar, the last great hurrah of laissez-faire capitalism. He's looking at me like that, you know, and I'm kind of staring back thinking, do I want to continue reading my book or have a two hour long argument with this guy? So I decided to have a continue reading the book. But listen, he's raised in German public schools, a liberal progressive He said what Hitler said. You see? This is what inflation does. It discredits the private property capitalistic order.

28:38It needs to be uprooted from a truly free society. A truly free society, as Greenspan once said, should not have a central bank. It should have a money that's a market money. That can be a gold standard. It can be any money that the market chooses. In 1944, Mises wrote, All governments are firmly resolved not to relinquish inflation and credit expansion. They have sold their souls to the devil of easy money, and that is in fact what we have have done in this country and we will pay the price.

29:25But listen, what's the answer? I think the answer we see before us, in the last two years, I have seen more public discussion of issues of the Fed and paper money and the problems of credit expansion and even the Austrian business cycle theory than I've seen in my entire life. I never thought I would see anything like it. We're living through times that are very much like the 19th century in the sense that people actually debate the topic. They're talking about it for the first time. You know what it's like to work at the Mises Institute and see this kind of stuff happening? Listen, we held a conference in 1982 on the gold standard. Everybody said we were crazy. For all these years, 30 years, some of the 28 years, we've been putting into print books on this topic when everybody else was ignoring it. Right now, we have in print every important hard money treatise written throughout the whole of the 19th century in America. We have in

30:17and print. All the books of Murray Rothbard on this topic and Mises and Hayek, if it weren't for the Mises Institute, you would not have a book on Hayek in print right now of all of his major business cycle writings. Everything was in place and ready when this bust happened. And we were there. I mean, how gratifying was that? We'd been working for all this decade, for decades, with people saying, this is stupid. What's your obsession with this Well, we did the right thing. We did the right thing with your help and with many other people who are like you, who helped us through their contributions. It's this kind of education, this kind of public consciousness that's going to change everything. We cannot let the central bankers and the government get away with blaming speculators, with blaming China, with blaming The only way to do that is by getting the word out. We've never had a better opportunity than we have right now. Thank you so much for listening.