World Currency War

0:00To draw out a distinction between Austrian economics and Keynesian economics or mainstream economics, sort of based on what the first two talks have been here today, my talk is going to be about the world currency war that's underway, and we're going to get to that, but I want to point out a couple of things. You know, when you look outside at people moving around and going to the restaurants and going to the shops down the street, going to work and so on and so forth, How do you make sense of all that? How do you make sense of how the world actually works? Well, Austrian economics wants to take a very realistic view of how the economy actually works. And what we find, as what's been shown here today, is that the workings of the economy are actually highly complex.

0:57It involves a lot of individuals making consumer choices, those same individuals making labor choices, and entrepreneurs organizing labor, capital, and raw materials based on the prices of those same things, those prices arising through competitive marketplaces, and all of those transactions being done in terms of money. So we view society as any time an individual is interacting with other individuals. That's society.

1:45And in any complex relationships, Most transactions by individuals take place in terms of money. So that when I go buy an iPhone, I'm interacting with all the people, in a sense, who went into the marketing and distribution and production and design and conception and all of the manufacturers The first who made parts in the 15 different countries that make parts that go into the iPhone, all of those parts are sent to China and it's assembled, transported to distribution points around the world, to retail establishments and then the ultimate consumer.

2:34And so when we look at the world, we see a very, very complex thing. And we see a society which is largely, those interactions are largely based on money. And that we don't want to tamper with this system. It's too complex for us to be able to manipulate it effectively. And so when I laid out for you what our general propositions are, we've come to believe that private property, individual sovereignty, is vital for the good workings of this society, our overall world society.

3:28We find that free markets are important because that's the best way we can interact. When everybody is free to participate, no one is excluded and the information is all centralized in those marketplaces. And the third principle that I mentioned is sound money. Sound money is generally speaking referred to as the gold standard. Now, our Keynesian counterparts don't have this type of view of the world. They don't understand the economy in that manner at all. They believe that it's a more of a mechanical process, like the plumbing system in your house, that you can adjust the water pressure, add new pipes, change out about various parts. They can manipulate it. They know the whole system. They know how it works. They don't have the Austrian conception of things.

4:34So when you go to a Keynesian economist, like Paul Krugman, and you say, Paul, we've got this housing bubble crisis. There's a lot of unemployment. There's a lot of bankruptcies, there's a lot of foreclosed homes. Well Paul just gets busy on a piece of paper and he says, well, if we have a two trillion dollar stimulus package, that'll solve it. Well, Paul, how are we supposed to spend that money? Oh, it doesn't matter, you just throw it in any old place in the economy and GDP is going to rise. Of course that didn't work, did it? Well his next idea, very ingenious actually, he said, we're going to get everybody, we're going to go to the UN and we're going to get everybody together and everybody is going to pretend that there is a Martian invasion of the world in two years.

5:34So that all the governments will be free, the people will be scared, the governments This will be free to go out and borrow a bunch of money out of the economy and start building anti-martian devices, new jet fighters, stun guns, a plastic shield over the globe, and then he says that would fix the economy. And so our counterparts tell us, the Keynesian counterparts to the Austrians, tell us that the solutions to the world economy crisis, and any old crisis, going back in time, is the same. Just throw some money at it. Just borrow and spend. Dig holes and fill them back up.

6:24Well, in the 17th and 18th and 19th century, the Keynesian style solution was, yeah, we can print some money, but the best way to save jobs here in our country is to throw up a wall of protectionism, of tariffs so that foreign products can't get into our in our market and compete with our workers. And of course, Austrian economists along this wall fought for several centuries to show that protectionism doesn't work. It doesn't help the local economy. It saves jobs in some areas, crushes jobs in other areas and raises prices on everyone.

7:15And we also showed as Frederic Bastiat David Fiat, who's behind me, a French economist, showed that if goods don't cross borders, armies will. In other words, protectionism and economic phenomenon is a prelude to actual warfare. Well we finally got the point across. And the world has moved in the second half of the 19th century and through the 20th century, we've been successful at bringing down protectionist walls around national economies around the globe so that we have today relatively free trade, in that tariffs are low, restrictions are limited.

8:13What's replaced that is a different form of protectionism, and it's called a beggar-thy-neighbor policy. And when it goes into its full bloom, beggar-thy-neighbor policy turns into a world currency war. And just to point out, we are in a world currency war. The United States policy is called quantitative easing. In Europe, the ECB has the euro crisis bailout package. In China, it's called a PEG currency. In Japan, the newly launched assault is called Abenomics.

9:00And everybody else in the world is following suit, trying to protect themselves from the onslaught of these inflationary policies, where the idea is that the central bank, rather than the customs house, responds to a crisis by bailing out big banks and exporting unemployment by increasing the supply of money. So again, this is another one of these simple solutions, throw money at it, just print up And just like with regular protectionism, it's not going to work, it's going to hurt, and it's going to lead to war. Now let me show you how this basically works.

9:52If we have a world, a very simple example, where we're in a world where a dollar exchanges is for a Euro. And where a bushel of wheat is $5 in the U.S. and 5 Euro in Europe, in and throughout Europe. And the Fed's solution to an unemployment problem here in the United States is, well, if we increase the supply of money, we can devalue the dollar. Doesn't It doesn't make sense that somehow if we reduce the value of some of our stuff, that that could somehow help us.

10:46But it does help some people. So the Fed announces a doubling of the money supply so that thereafter it's going to take $2 to buy one euro.

11:07Well, after that takes place, American wheat, which was $5 in the U.S., and the Euro wheat is now going to cost $10. So when American consumers of wheat look for wheat, European wheat is now very expensive for them, and American wheat is now cheaper, so all Americans are only going to buy American wheat, and nobody's going to buy European wheat. As a matter of fact, Europeans are going to find the value of their euro so attractive that they're not going to want to buy European wheat. They're going to want to buy American wheat. And so all the demand shifts over from a balance between America and Europe to everybody now and now wanting European, excuse me, American wheat.

12:02As a result, of course, the price of wheat in the United States is going to rise. So you're going to get a higher quantity demanded and a higher price and wheat farmers are going to be very, very happy. However, European farmers are not going to be happy. And they're going to propose to their government that they increase the supply of money. and that they drive the American wheat market out of Europe and they try to recapture some of the American market. Now none of this is in balance with one another. All of this is having the disruptive effect on economies. It has real impacts on consumers who face higher prices. It has a real impact on labor who now has lower purchasing power and maybe have lost their market entirely.

12:53It has a bad effect on banks and loans, and it has a bad effect on importers, who now face higher prices, it's harder to buy in Europe and so forth. And so, America's central bank may respond again with more inflationary pressures. And the process can go on and on. But the end result is that it's not going to help any of these economies, that ultimately it's going to be disruptive to all of these economies and every assault is going to be met with another counter attack and the whole process is going to end up in a very disruptive economy with much higher prices and a lot of real effects looming throughout all of those economies and if we make the example more complex and we bring China and we bring other countries into it what we have now in the world is lots of financial Financial Bubbles, Lots of Financial Imbalances, and more antagonism from one country to another.

13:57So, the Soviet Union, or excuse me, the Russia is upset with the United States and China's, the United States is upset with China, various European countries are upset with other European countries and the United States. So it does nothing good for the economy. only raises the level of antagonism politically and economically throughout the world and currency wars do not end well. Thank you very much.