Easy Money, Easy Morals

0:00It has been said by the enemies of capitalism that money is the root of all evil. Now, this statement as it stands is completely false. In fact, money is the basis of human civilization, as I'll argue in a little while. However, it is true that unsound or loose money is the cause of a great deal of economic and moral evil. In fact, this would be easily understandable, and I wouldn't have to be up here belaboring the point today, if the concept of inflation was properly defined. The proper definition, the old definition, the definition that the sound classical economists accepted and the Austrian economists accepted, was that inflation was an increase in the quantity of money by the state, and not by the money, not by the market, rather.

0:57That is, an increase in gold was a natural market phenomenon, and it was not to be seen as inflationary. However, the printing up of paper dollars or other currencies out of thin air was, in fact, inflationary, and moreover, inherently immoral. Now, the modern definition is that inflation is merely a rise in prices, And the rise in prices can be caused by bad weather, right? Price of food goes up. It can be caused by evil OPEC sheiks that make oil scarce, more scarce, and drive the price up. It can be caused by greedy businesses or greedy labor unions. And of course then, the government is cast in the role of the great inflation fighter.

1:44But once you understand that in fact inflation is merely the printing up or counterfeiting of money out of thin air, Then you realize Alan Greenspan is an inflation fighter. He is the root cause of inflation, okay? Now this was clearly understood by two great economists, Henry Hazlitt and Ludwig von Mises. Let me tell you what they said about the definition of inflation and how important they thought that a clear and a proper definition was. Hazlitt wrote that the word inflation originally applied solely to the quantity of money. It meant that the volume of money was inflated or blown up, overextended. It is not mere pedantry to insist that the word should be used only in its original meaning. To use it to mean a rise in prices is to deflect attention away from the real cause of inflation, and the real cure for it.

2:37As we'll see, the abolition of the central bank, the so-called inflation fighter. And Mises said, inflation, as this term, was always used everywhere, and especially also in this country, meaning the United States, means increasing the quantity of money and bank notes in circulation and the bank deposit subject to check. But people today call inflation the phenomenon that is the inevitable consequence of inflation, that is an increase in prices. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has up to now been called is called inflation. There is no name for the increase in the quantity of money, the printing up of money.

3:26Now, a name has come into use after World War II in particular. It's a very benevolent sounding name. It's called money management. Money has to be managed or monetary policy. We have to have a policy regarding money. So now inflation means something that used to be the result of inflation and the term money management now means the fighting of this phenomenon, which is visited on the economy from above, it's not caused by really anything, it's caused by many things. Having said that, let me go on to the essential nature of inflation. As I said before, I refer to inflation as essentially a counterfeiting process. It's no more and no less than swindling, a nice old word that we don't hear much of anymore.

4:16But it is swindling. When the new money is printed up, let's assume that there are counterfeiters in New Jersey, living near me, with Italian surnames, but not related to me. In any case, what do they do? They print up a quantity of money. It looks just like the other Federal Reserve notes that we use in our exchanges. They go out and they purchase goods and services. They purchase jewelry, they purchase wine, they purchase new automobiles. Now, on the one hand, they're all beneficiaries, right? The automobile dealers now make more money. They now put on more salespeople in their showrooms. The people who sell wine make more money, okay? They give greater orders to the California vineyards from which they purchase their wine.

5:05There are more jobs in that industry. So it seems as if this is a benevolent process. But of course now, remember what happened. You and I, who do not work in these industries, and most people do not, find that we suddenly have to pay more money for our wine, we have to pay more money for our automobiles, and so on. But it doesn't stop there. But remember, that is a step in the reduction of our real wages and income. We now have to pay higher prices. So real wealth is surreptitiously, secretly being redistributed away from the producers, you and I who work hard for money, to the counterfeiters and to those groups that they've first spent the money on. Now the counterfeiters then get these people on their side. They want more loose money or easy money. But these people then, the people who own the vineyards, the people who produce automobiles and the workers, have more money.

5:54They have this new money, and they spend it on other things. They spend it on steak dinners, they spend it on beer, on entertainment, and prices creep up further. And you and I have to pay higher prices for more goods. So step by step we are swindled by the counterfeiters. Now, there's no difference between what the counterfeiters do and the economic effects of their activity and what is done, in fact, by the people who run monetary policy. They print up new money, they spend it on more computers for defense, they spend it on farm subsidies. In that way, they buy votes, right? They get the supports of these groups. These groups in turn spend that money on other things and prices rise throughout the nation.

6:43The prices of bread and meat and so on. Now I'm in New York. I'm a professor of economics. There's been no increase in the demand for the education that I help bring about. I teach MBA students at Pace University. But after maybe 12 months or 18 months, the new money percolates into New York. people invest more in the financial district people more tourists who have some of this new money come to New York City and spend on entertainment so eventually salaries and wages begin to rise in New York 12 months 18 months later in the meantime I've paid higher prices for all of these months at last there's an increase in on the part of people let's say who work in the financial industry in getting in demand rather for a Pace University education Okay, that is, they want to get their MBAs. So, maybe 24 months later, my dean gives me a raise.

7:39Okay, so I finally get some of that new money, but in the meantime, my real income, let's say prices have gone up by 5%, my real income has been reduced by 5%, and that happens throughout the nation. Okay. So, counterfeiting, rather, inflation is counterfeiting, okay, it is swindling, alright. And you can see this with the origins of inflation. Where did inflation originate? It originated among the kings, now the kings originally took over the mints in order to make sure that the coins that were being fabricated or manufactured were sound. Now when they did this, they began to charge monopoly prices for minting the coins. Anyone else who tried to mint coins was then thrown in jail, prosecuted for violating this prerogative of the king.

8:29However, that revenue was not enough for the king, so what did he do? To add from the revenues, he began to secretly take the coins that he was minting for the people, the public that was bringing it in, and clip it, reduce some of the gold and silver content, and mix it with base metal like copper. So he secretly clipped the coins, reduced their weight, and then pocketed the gold and silver. When he did that, he then made new coins and spent them, okay? The result was rising prices throughout the kingdom. He also took, called back the coins that were being worn out. Gold and silver coins tend to wear out when you circulate them, okay? When you pay them to people for goods and services and they're re-exchanged.

9:19And what he did was he called these back and he made them lighter, okay? Okay, let's say his name was King Knitwick, and he put his own image and a name called the Knit, one Knit, on a gold coin, and that was equal to one ounce of gold. Well he revalued the coin, he took one half of an ounce of gold, put his picture on it and one Knit, and then took the rest of the gold and coined it on his own account and bought the things that he and his family and courtiers and so on desired. That drove prices up throughout the kingdom. and that was simply fraud. The other origin of inflation was in banking and I don't want to go into this in too much detail but banking originated in the English speaking world in the 1600s in England when people began to deposit their gold with the goldsmiths.

10:11Now what they did was they deposited their gold for safekeeping and in exchange they They received warehouse receipts, they received pieces of paper that would affect titles, represented their titles to the ownership of the gold that was deposited. Because they trusted the goldsmith, they began to exchange these titles, they were called money substitutes and they were bank notes, they came to be known as bank notes. People accepted them because, the sellers that is, accepted them in exchange for the things they were selling, because they had full confidence that in fact the goldsmiths would pay off on these ownership titles. But that very act of confidence in the goldsmiths meant that the goldsmiths realized that this gold stayed with them for a long period of time.

10:56And that on any given day, very little was redeemed, which in turn meant that they had the ability to loan out maybe 50% of it or 25% of it at interest. So they not only were earning the fees for storage, They were earning interest on fraudulent loans. Later on, when some of them were found out and went bankrupt as people rushed to get their gold out, they kept all the gold and they did something that was even more sneaky. They simply printed up more of these ownership titles. Now, these ownership titles represented a claim to nothing, but since they looked like the other ownership titles, the legitimate ownership titles, they passed them out and they were accepted in exchange and they increased prices. So, every increase in money on the part of kings, on the part of banks that were given special privileges by the kings and the state, originated in fraud and in swindling.

11:50And that was where the original term inflation came from. And having said that, let's just jump ahead a little bit to the modern era. This inflation caused increases in prices, but not just an increase in all prices, increases in certain prices, for example, a fall in interest rates, which drives up the prices of capital goods. This inflationary boom brought about what we might call a distortion. There were too many capital goods being purchased, rather demanded and purchased, because the borrowers were predominantly businesses. On the other hand, when the new money got to the workers, when they finally were paid the new money, they rushed out and spent it on consumers' goods.

12:38Eventually what happened was that we had a recession. Many of the firms producing these capital goods went out of business, could not repay their loans and do runs on the banks. To keep this prosperity, this illusion of prosperity going, the banks turned to the government. and eventually they lobby the government for a central bank. And this is where the idea of managed money came in, okay? Especially in the 19th century in the United States, the late 19th century, we had pressure for a central bank building up. We finally had the central bank. After we got a central bank, the central bank began to issue its own money, okay? Its own claims to gold, okay? There was still a gold standard. But now the central bank was putting its own imprimatur on paper money.

13:26So paper money became completely acceptable to everyone in their daily lives. And this is where managed money comes in. When the central bank inflated and allowed the banks to inflate, and we had recessions, which is always a result, we had a situation in which you then had the banks under tremendous pressure. And it was at that point that it was realized that this inflation would drive the banks all into bankruptcy. And in fact, in the United States from 1931 to 1933, half the banks in the country collapsed. People's checking accounts disappeared into thin air. Well, the United States went off the gold standard. That was part of managed money. Going off the gold standard meant simply you told people that had entrusted their property with you, American citizens that they could no longer take those ownership titles and get that gold out, okay?

14:19You reneged on a solemn pledge. You attacked their property rights. So in 1933, Americans were no longer permitted to convert their dollars into gold, and the, in fact, Americans weren't allowed to own gold. It was against the law unless you were a dentist or a jeweler to own gold from 1933 to 1976. And again, this was money management. Now, in 1946, we went back to a gold standard. The world found that monies without gold were chaotic. However, only the United States dollar was convertible into gold, and it was only convertible for the people who, foreign official institutions. Well, there were problems with this system. It was known as the Bretton Woods system.

15:05And this involved what we might call, or what is again, swindling. For example, the British government promised solemnly in 1948 or 1946 to make sure that the British dollar or the British pound, excuse me, was always equal to $4.03 basically. So it always could exchange for $4.03. So the British public then had to write the claim dollars and then exchange the dollars for gold. They could still own gold in Great Britain. Now, what was happening, of course, was that there was a lot of inflation, the British government didn't have enough dollars to honor this promise, so they engaged in money management. And the money management involved the following, the Chancellor of the Exchequer in Great Britain made the following promises, okay, 12 different times.

15:54He said in January 26, no alteration in the value of sterling is contemplated by the British government following the devaluation of the franc. In March 4th, he said, a reported plan to devalue the pound is complete nonsense. On May 6th, 1948, he said, the government has no intention of embarking on a program to devalue the pound, and so on and so on, denying that they would devalue the pound. And finally, on September 6th, he said, I will stick to the statement I made in the House of Commons that Sterling will not be devalued, and of course, 13 days later, he devalued the pound. Now, this even upset Winston Churchill, okay? So as Henry Hazard points out, this is the essence of monetary management. And of course, President Nixon did the same thing in 1971.

16:39After solemn pledges to the rest of the world to make sure that, or to guarantee that the dollar would be convertible into gold at the fixed price of $35 per ounce, Nixon closed the gold window. That was the harmless phrase that was used, the euphemism that was used, but of course what he did was he reneged on a solemn promise of the United States government to all the other governments of the world to convert the dollar into gold. So inflation itself is inherently immoral. Today, since 1971 of course, the dollar is convertible into nothing. and nothing. So the government, the U.S. government, through the Federal Reserve system, can and does inflate ad libidum, meaning at will.

17:28It can print up new dollars and it does so out of thin air, setting into motion the counterfeiting process I talked about. Now the second part of this talk I want to direct towards the morality, the implications for social morality of this. Let me just say a few words about the German hyperinflation, because this is the culmination of the swindling process of inflation. And you can see the effects on social morals and mores operating. To give you an idea of the extent to which this inflation went, in January of 1921, You could buy a German newspaper for about three-tenths of a mark, that's January of 1921.

18:18By October of 1923, it cost 2,000 marks, as if a candy bar that cost us 30 cents today in two years' time cost us $2,000. But it continued to go on from there. By October 29th of that same year, it was up to one million marks. And by November 17th, it cost 70 million marks to buy German newspapers as if a candy bar then, in two years, two and a half years' time, was 70 million dollars. The German government had 2,000 printing presses, had taken over all the printing presses in the country and was printing up money as fast as it could in order to keep up with the rise in prices. At some point, people lose confidence in the money, in the value of the money.

19:07The price continues to rise at ever-rapid rates, even more quickly than the government can print money out. So even in the middle of this massive inflation, people experience a shortage of money. They didn't have enough money. As much as they had, they didn't have enough money to buy goods and services. Let me give you some of the social consequences, then we'll talk a little bit about the morality of it or the immorality of it. It destroyed people's bank deposits and pensions. If someone had a pre-war pension of 200 marks per month, which was very comfortable, they couldn't even buy a meal by 1920, so it destroys your savings. Someone, for example, a man who thought he had a small fortune in a bank, 68,000 marks before the war, received a letter after the hyperinflation started, telling him that the bank deeply regrets that it can no longer administer your deposit of 68,000 marks since the costs are all out of proportion to the capital.

20:04We are therefore taking liberty of returning a capital. Since we have no bank notes, small enough and small of a denomination at our disposal, the government had stopped printing new money, just printed 1 million, 1 billion marks on the existing mark notes. So there was no note for less than a million. Since we have no bank notes and small of a denomination at our disposal, We have rounded out the sum to one million marks. We're going to send him back one million marks, even though he only has 68,000 marks. The stamp, the canceled stamp on the letter that he got cost five million marks. So he couldn't even buy a stamp. Workers didn't want to hold money for a week, so they began to demand to get paid three times a week, and then every day, and then three times a day.

20:53had their fiancés and wives at the factory gates, got the new money, rushed out to buy things as quickly as possible, okay? Teachers and professors who were traditionally paid monthly in Germany quit their jobs because you held money for a month. Okay, if you had to wait a month for your income, that income was worth one millionth of what it was worth prior money. So they quit their jobs and became taxi drivers and waiters. Farmers refused to pay you, to sell you an egg, even for a whole wheelbarrow full of marks. Thieves, when women went to the grocery store with their laundry baskets filled with marks, and they left them outside because there was no room for people carrying around laundry baskets, thieves would come by, dump the marks out, and just grab the laundry baskets because they were worth so much more, and they could make a quicker getaway.

21:42Now, let me quickly mention the effects of this. Those people that were able to get the new marks as they were printed up by the banks were the ones that benefited. They got it before the prices rose. And they spent it. They bought up hotels, they bought up land. You had so-called joint ventures in Germany, which put together calls, banks, hotels, electricity. Hugo Stinnis was a great industrialist who came up with all these great ventures, which were not very productive. and in fact collapsed. They were put together by paper money. On the other hand, this was based on the looting of the savings of the people on pensions who had no access to this new money right away and to the middle class who were getting paid every two weeks or every month.

22:31So you had this nouveau riche, these newly rich, that began to rush out and spend the new money, because they knew it was going to depreciate, on ostentatious examples of conspicuous consumption. Who were the victims? The middle class, the small businesses, the pensioners, they were all wiped out. Now what about the effects on moral values? Obviously, it no longer paid to be thrifty and to save your own future and your child's future. So thrift, such an important value in the economy, in the capitalist economy, went by the board. People no longer carefully planned their investments. They simply bought anything because they felt that the price was going to go up the next day or the next two days. So people no longer looked to the future. They suddenly became very interested in immediate gratification, to get anything and get it now.

23:23Productive work was discouraged because most people, towards the end, left the factories and spent all their time hunting for bargains, trying to get rid of their marks, okay? Even sexual morals changed. Women's dowries were wiped out. Now you laugh about that, but dowries had a very important function in the old culture. And it was a way of signaling to a prospective suitor that the woman's family was virtuous, had thrift, and they worked hard, and they had family commitments to one another. Now the women became discouraged of ever accumulating dowries in the future and ran off with their boyfriends. Now, the term boyfriend was not used in polite society in Germany in the 1920s, okay? Prior to the hyperinflation, it was a scandal for an unmarried middle-class girl to have a boyfriend, quote-unquote, okay?

24:14Everybody sought after this ostentatious luxury, and that replaced the goal of having a good and solid family name, okay? Of being sober and so on in your investments. And finally, the people who were looked up on were the unscrupulous gamblers and profiteers who now got to the top of the social structure where the old families and the old wealthy who worked hard and so on and were good examples to the rest of the populace were now at the bottom. Now, there is a direct link between inflation and the breakdown of morality, an even more direct link. Think of it, let me just explain it in the following way. By bringing about a thoroughgoing social revolution, it really does destroy the middle class and the productive rich.

25:03But by destroying money itself, it destroys everyone's ability to plan for the future, and leaves them no recourse but to seek after immediate gratification. Moreover, whether we like it or not, men and women live in a world where they cannot live or flourish physically and spiritually without property. But remember, property is not merely a collection of material things. It refers to those things that are judged valuable in serving human wants and desires. But in the modern world, you can never know what the value of property is in a specialized economy of mass production, unless you know its money value. So in a real sense, valuable property is an extension and a definition of an individual's very personality.

25:50Let me give you an example. One is not really a doctor, a carpenter or an auto manufacturer unless his business has a monetary value. If he doesn't know the monetary value of his skills and of his business, then he's just playing games. He's not serving anyone. He's not providing a valuable service to anyone. He isn't truly a doctor. One does not know his family and his own and his family's position in a social order or the degree of success unless he can calculate the value of his possessions. And finally, people do not even know what or who they will be in the future without their knowing the monetary value of their savings, which is lost under inflation. So money is an essential, without exaggerating, you know, I'll end with a very insightful statement by a German sociologist and historian.

26:38Without exaggerating, money is an essential element of human becoming and being, okay? We're not really truly human. We cannot really plan. We cannot really have an idea of who we are without sound money in society, okay? When we get on sound money, the human personality shrivels and human society decays. Now, the German sociologist and historian, Konrad Heiden, a very insightful observer of the German hyperinflation, wrote the following way. The German people was one of the first to witness the decay of those material values, which a whole century had taken as the highest of all values. The German nation was one of the first to experience the death of the unlimited private property, which had lent such a royal pride to modern humanity.

27:28Money had lost its value. What then could have any value? Of course, many were accustomed to having no money, but that even with money you had nothing. That was truly the twilight of the gods, as horrible as anything Wagner could have foreseen. A cynical frivolity penetrated men's souls. No one knew what he really possessed, and some men wondered what they really were. Man had measured himself by money. His worth had been measured by money. Through money he was someone, or at least hoped to become someone. Men had come and gone, risen and fallen, but money had been permanent and immortal. Now the state had managed to kill the immortal thing. The state was a conqueror and successor of money, and thus the state was everything.

28:15Man looked down at himself and saw that he was nothing. Now a shrewd and cunning German politician, Adolf Hitler, understood the nature of inflation as a gigantic material and spiritual swindle and perceived the transformation of the German soul and German souls and personalities. He both taunted the German people for acquiescing in it and promised them material relief and spiritual salvation in the state, which he saw and he made sure they knew was a successor of money. Let me just end by just a few statements from Hitler. It's really chilling. In 1923, Hitler told the following story, and I'm quoting. We have just had a big gymnastic festival in Munich.

29:01300,000 athletes from all over the country assembled here. That must have brought our city lots of business, you think. Now listen to this. There was an old woman who sold picture postcards. She was glad because the festival would bring her plenty of customers. She was beside herself with joy when sales far exceeded her expectations. Business really had been good, or so she thought. But now the old woman is sitting in front of an empty shop, crying her eyes out. For with the miserable paper money she took in for her cards, she can't buy a hundredth of her old stock, her old inventory. Her business is ruined, her livelihood absolutely destroyed, she can go begging, and the same despair is seizing the whole people. We are facing a revolution. He went on in another speech. The government calmly goes on printing these scraps because if it stopped, that would mean the end of the government.

29:51Because once the printing presses stopped, and that is a prerequisite for the stabilization of the mark, this is Hitler talking, he saw that, that's how you stop inflation, okay, he knew the Austrian lesson. The swindle would at once be brought to light, for then the worker would realize that he is only making a third of what he made in peacetime, because two-thirds of his labor go as tribute to the enemy. Believe me, our misery will increase, the scoundrel will get by, but the decent solid businessman, who doesn't speculate will be utterly crushed. First, little fellow on the bottom, but in the end, the big fellow on top, too. But the scoundrel and the swindler will remain top and bottom. The reason? Because the state itself has become the biggest swindler and crook, a robber's state. Soon you will starve completely unless you blindly follow me.

30:41Citizens reckoning in billions, okay, you know, there's no mark notes less than one million, so people are regularly reckoning in billions of marks, will die of hunger because the farmer will stop selling his grain or butter for the worthless billions, with which he can paper his outhouse or his manure heap. And don't go complaining, how mean of the farmer. Will one of you step forward and say he is willing to give away his work of many months for nothing? The money you offer the farmer is no longer a note on work done. It is a note on a swindling regime and that means hunger. If the horrified people notice that they can starve on billions, they must arrive at this conclusion. We will no longer submit to a state which is built on the swindling idea of the majority. We want dictatorship.

31:28The German people are children, for only a childish people would accept million-mark bills. And so, now Hitler's going on saying that, making the connection between majority rule and inflation and dictatorship as sort of a spiritual salvation from this inflation. and he finishes it off with a call for dictatorship. He says something like, or he says exactly, true strength is the quality of a few men or else we would not have the word hero. The masses consist of average men, Democrats. Cowardly men choose the most cowardly as their leaders so that they won't have to show courage. And they choose the stupidest among the stupid so that everyone can have the feeling that he's a little better than the leader. People subjected to the decision of the majority is on the road to ruin.

32:14And then he goes on and talks about how cowardly the German people have become because they've swallowed the democratic poison. It's penetrated everywhere, okay? Nations that have lost their character and honor deserve no good fortune, no happy life. The German people is going the same way that the ancient peoples went. It is a people passing little by little into decay. So, Alain, in conclusion, really to secure the future of human liberty and society And really, of human personality itself, we must smash the swindling status, soul-destroying creators of paper money, and return to the gold standard.