The Gold Standard versus Fiat Money | Joseph T. Salerno

my topic is the gold standard versus fiat money and I'll try not to make it as dry as it sounds there'll be some pictures and some jokes let me just start off with a chart that I came up with a number of years ago I was unhappy with the way international trade was taught or our International Economics which includes the monetary component because often what you would see is when they discuss the gold standard they'll put the gold standard under fixed exchange rates so the gold standard would be one example fixed exchange rate and that would be right alongside things like fiat currencies created by a World Bank okay where there would be a fiat currency in the view of Keynes and some of the later Keynesian which would be issued by World Bank and then individual currencies would be tied to that world currency by fixed exchange rates so the golf den was there and then on the other side was fluctuating exchange rates and those were rates or as a system in which different national currencies fluctuated in value against one another of course this is not satisfactory the key difference is that between a market supplied money or commodity money whose supply and demand is anchored in the market and money whose supply is kenapa lies by the political authority be it through its central bank or directly through the the government so the best systems from the from the point of view of Austrians if we're if we're using as our standard satisfaction of consumer wants and the ability of entrepreneurs to calculate is the market supply commodity money's okay and then things get progressively worse until we get to a world central bank so having said that we know as Professor engelhardt has has told us that all money originated and must have originated logically as commodity money so all money in some sense was 100% reserved or pure gold standard copper standard silver or in ancient days cattle and so on all money came on to the market while general media of exchange as some sort of a commodity okay but we have the most information about the classical gold standard now how do we know whether whether something is really a genuine gold standard or not because I've written on this a genuine gold standard such as the classical gold standard and unlike the Bretton Woods false false a phony gold standard the mark of the genuine gold standard is that gold coins are actually in circulation okay they're used in everyday circulation it's not necessary that that there there be 100% reserves though that is better but but but almost from the start when money originated the government's began to interfere so it's very hard to find a pure commodity money operating in history so we'll stick with what we know best we'll stick with sort of slightly watered down version of a pure commodity money the classical gold standard and we'll compare it or actually right not really compare we will compare a little bit at the end we'll show the step by step process by which the gold standard was deliberately really destroyed by governments I mean that's means this big point that the gold standard did not fail it was deliberately destroyed by governments so what were the main characteristics of the gold standard the monetary unit was defined as the weight of gold they'll talk I'll give you an example development later on so that really gold and nothing else was money gold was the base money okay that it was a bank reserves and it was the currency in circulation nothing else was was was considered money proper as Mises would use the term anything upset circulated as a medium of exchange was a money substitute so bank notes and deposits to the extent that they existed were instantaneously redeemable into gold at par or at face value and they were the money substitutes okay so gold coin circulated alongside money substitutes were real which were really as well see just claims to gold held by banks finally it was not necessary under the classical gold standard for a central bank to exist the US during most of the period of the classical gold standard did not have a central bank we were the last industrial economy to set up a central bank Great Britain said had a central bank in 69 or established its central bank in 1694 or so okay mainly so the king could build palaces and fight wars okay so the central banks were initially creatures of government as they have remained okay so the monetary unit was as I said simply a weight unit of gold okay so for example from 1834 1933 US dollar was legally defined as about 127 ounce of gold which is 20 3.22 grains of gold the British pounds on the other hand from 1821 when Great Britain went back on the standard after the Napoleonic Wars was from my 8021 to 1931 was legally defined as approximately one quarter of an ounce of gold okay or 113 grains of gold and then the French franc was about a hundredth of an ounce of gold okay so notice something here the franc the pound the dollar are homogeneous money or money's okay they're not separate monies they are all gold okay they're all gold money but their names just denote a different weight of gold a different unit in which the people in that nation calculated but but the money itself was pain and just purely the coins that were in circulation I mean there's a $20 bill from 1921 and a five $20 coin from 1921 and then a five dollar coin from 1906 and since the British Pound was worth about $5 4080 Six Senses we'll see we have the the British sovereign the pound okay one from 1894 and one from the last year that Great Britain was on the gold standard in 1931 so it's it this is called sound money because it made a certain sound when you dropped it on the counter when you're paying for something all right I mean that's that's where it comes from or that's a mark Thornton told me you could be lying to me to sort of embarrass me he's mentioned a few times he's a slippery character so a lot of talk of opioids yeah okay all right so the so called exchange rate between the dollar and gold I'm sorry between the dollar and the pound was four dollars and eighty six cents per pound okay plus or minus one percent so the way that that was gotten out through worth meticulously GLE definition of the pound divided by twenty three point twenty two grains of gold is the legal definition of the dollar yields you four point eight six this is no more a fixed exchange rate then is the fact that or then is trading five nickels for one quarter or four or five five dimes for 50 cent piece so really it's a law of arithmetic the US dollar contains one twentieth one-fifth the amount of gold as does the British Pound and that's why a pound was worth about or exchanged for about five dollars and so um for example I said plus or minus 1% if course the transportation between the grapefruit in the US were about 1% so that if you wanted to buy pounds to pay for something in Great Britain and you an American importer and you wanted to buy pounds the price of a pound could rise about 5 cents okay if it rose as high as five four dollars and ninety one cents for those 92 cents if you suddenly say you know what it's cheaper just to put take American coins Oh American bullion put in the ship and ship it over there okay I'd save money that way okay so so there was this little there called the export and import point at which gold was moved gold wasn't moved that frequently okay you operated through the exchange foreign exchange market when you sent when you purchase goods from abroad okay so the lessons at the gold exchange the gold standard is not a fixed exchange rate system okay because all nations on the gold standard use the same currency okay they use the same commodity as money what about paper currency okay so banknotes and government-issued notes under the gold standard we're not money proper but as I said they were money money substitutes okay and they substituted for gold in exchange as warehouse receipts okay so you were trading claims to gold you didn't need to trade the physical gold it gave you greater security it was more convenient to carry around claims to gold and as I give you an example that you could say claim checks for good the dry cleaners or a coat check when you check your coat at a fancy restaurant and so on it was simply a title that that expressed the fact that you you were the owner of the underlying asset or thing that was referred to so let's look at some of these money substitutes prior to 1920 banks could not only issue checking deposits but but by the commercial banks could also issue their own notes so let's take one from the farmers and merchants National Bank of Los Angeles ok that name doesn't spire confidence but anyway notice not what it says it will pay to the bearer on demand $20 that's not $20 these papers and $20 ok the $20 is that gold ounce that will be paid to you if you bring in for redemption that piece of paper so people recognize it as what it was and it was clear what it was okay just by what was written on the face of the note that it was a claim to gold here's one other the First National Bank of Fort Myers will pay to the bearer on demand $5 $5 was legally defined as um 1/4 of an ounce of gold right so gold was was the underlying money and then even when the US Treasury issued gold certificates they put similar things on there the United States arm $100 in gold coin repayable to the bear on demand in other words they would repay you your gold that you left with with the Treasury so let's talk about the connection between the gold standard and money and prices okay so when in redeeming $20 for a gold ounce one that one central bank gave you your gold ounce when you in exchange for the $20 okay they were not as a monetarist claim selling gold okay they weren't selling gold whew alright they were just fulfilling their contractual obligation of redeeming that claim to gold there was no sale involved here because you can't you can't sell a claim against what it's claiming okay that's just that that's just a legal interaction in which the warehouse owner returns to you the property so in the long run vent under a genuine gold standards the money supply is strictly limited by gold mining okay or or as we'll see by the more strictly by the balance of payments for countries that don't mind gold so you can only increase banknote banknotes and bank deposits to the extent that gold flows into the banks okay there is some wiggle room there they can change their ease their reserve ratio but for the most part the money supply increases and contracts with flows of gold and this is rational this is embedded in more in the subjective decisions that drive the trade of goods and services and of end of assets so the result was that since we had a tremendous economic growth let's say in the u.s. after the Civil War we went from basically an agrarian nation before the Civil War to the mightiest industrial nation in the world by World War one there's tremendous amount of technological improvement of saving and investment and the accumulation of new capital and so on and that caused the supplies of goods and services to increase year after year the gold standard the money supply under the gold standard increased extremely slowly okay much slower than was the increase in the supply of goods and services so therefore the natural effect was for prices to fall and I call this um growth deflation this is even a mainstream economists today he recognized a good some some of them and some of them actually connected with the st. Louis Fed and some other FET fed district banks talk about good deflation or benign deflation deflation that results from from growth okay you know we were told back in the in the 1960s and 70s when Keynesian economics was riding high and the 50s of course that inflation was always always a company growth growth was inflationary in some sense okay that's ridiculous economists are the Austrians have always recognized that that economic growth is all other things equal deflationary okay but mainstream economist Mack we can't stop beginning to recognize that today and that that's not a bad thing so just to give you the example we had a very gentle price inflation in the u.s. between 1880 and 1896 prices fell by about 30 percent or almost 2% per year prices were going down because of the tremendous progress and material prosperity in the US economy on the other hand real GDP grew by about eighty-five percent or five percent per year so we we naturally had this as foreign prices so if you just look at this chart for a moment you can see that the spikes in prices occurred during wartime because governments abandoned the gold standard in this case the US government and resorted to paper money inflation so if you see the first spike their prices shot up began to shoot up during the war of 1812 it would help along by the first bank of the US which acted as a quasi central bank and then we had the panic of 1819 which as someone pointed out murray rothbard is the greatest expert in the world on who's he wrote the only book on the panic of 1819 and then as as as the bank was was not renewed we went back to a harder gold standard and prices began to fall naturally okay but notice that that initial deflation okay from the top of the spike back down to around 150 or so that initial deflation that's not a natural market driven deflation okay that's a bank credit contraction that's a destruction of fractional reserve bank notes as we does that that comes out of a recession in which you have business failures and and inability to repay banks their loans and so on and and therefore you have bank failures okay it's necessary but it is caused by by government by the initial inflation and we see until the Civil War we see prices falling and then they shoot up right before 1840 odd that's when the second second central bank created of the u.s. created inflation or encouraging for inflation and we had the panic of 1837 and we had a quick quick recession was very deep prices fell very quickly banks failed and businesses failed but yet once we liquidated or once in the economy all of these malinvestments were liquidated and banned bad loans were written off and so on the economy went back to a pretty stable price level until the Civil War and then we had in this kit in this case credit money inflation it wasn't quite fiat money people did trust that after the war was over they would begin to pay off the greenbacks in gold so and then then we got the great industrial boom that we had after the Civil War okay and you see prices falling one thing I want to point out is that there's a natural market mechanism to keep prices from falling too much in some sense even under growth deflation so under growth deflation and you don't see it here but prices began to rise right around the late 1890s and they rolls all the way up until 1913 but there's a natural phenomenon because it resulted from the gold of new discoveries in in sources of gold okay and also new discoveries in how to extract gold from ore okay so we had an increase in gold production from year-to-year over those years and that drove prices up again but that wasn't all simply technological an accident where we found new sources of gold and so on when you have a fall in prices all prices fall including the capital goods that are used in mining extracting and exploring for gold so gold becomes more as general prices for the value of gold goes up obviously because it's the other side of the coin and as a result that's that that lowers the cost of producing goals exploring for gold increases the profitability of gold mining and in that way increases the production of gold so there's a natural market mechanism that that keeps gold and/or whatever commodity money's in use it keeps it from fluctuating too wildly in value now that's not to say that it stabilizes prices we don't want stable prices we want prices changing okay we have continual change in the economy so the purchasing power of money which is simply the other side of the whole structure of prices it's the reverse of it or the reciprocal that that's also changing radically okay we want to allow that to change but but sometimes Roger Garcia has used a good a good analogy and that is from the perspective of we people on earth the Sun is stationary we're moving around the Sun but yet the Sun is obviously moving through the galaxy and and so so gold is like the Sun in some sense it's not relatively much more stable than prices of other goods and services of single goods and services okay so let's talk about the a boom and bust okay there could be temporary recessions and inflationary booms under the classical gold standard it was possible because there was fraction reserves for private commercial banks to reduce their reserve ratios or or to multiply an inflow of gold by creating fiduciary media and to cause an inflation and to cause malinvestments distortion of the interest rate of bad loans and so on which then would have to be liquidated okay so there was some room for that to happen and that did happen under the gold standard um but it would eventually end and pretty quickly in a recession or a bust okay and you have all the phenomena connected with with booms and busts but what would happen under gold standard is that you would have a rapid decline in price in wages the government never tried to to maintain of prices and wages up okay until the the Great Depression so till they felt their equilibrium levels but there were these were minor compared to what occurred after the gold standard was destroyed by by government let me say a few words about the balance of payments adjustment mechanism which more or less ensured that number one inflation's that did take place under the classical goal state it could not be too great and number two that as people increase the demand for money in one nation because they became more prosperous money would automatically be redistributed away from nations that weren't growing as fast to nations that were growing faster okay so it had a natural distribution mechanism built into it so let's talk about a increase in the money supply brought about by fractional reserve banks okay so they drive the domestic money supply up and of course then the price level rises the u.s. price rises above world prices okay because of the Kantian effects so the money tended back then to be injected into the domestic economy the new money that that the bank's created and then the second effect was look if the u.s. price levels above the world price level people are going to buy as many exports from us or exports going to fall there'll be an increase in imports from abroad because it's now relatively cheaper to buy things from England and France and so on if they weren't inflating to the same extent as US banks for I should have never put this animation here then you have a balance of payments deficit your your imports would suddenly exceed your exports you'd have to ship gold abroad the the price of the pound for example would rise to the to the export point and and and so pounds would be very expensive and it'd be cheaper to ship some of the gold from the US to Great Britain to Germany to your other apart trade partners so you'd have a deficit and once you have a deficit the goals will begin to flow out in payment of that deficit to the foreign countries gold banks gold reserve - then fall now at that point under the gold standard gold reserves one centralized at the central bank so they couldn't use reserves to move them around and bail out banks there was no central bank that acted as a so-called lender of last resort or as I like to call a bail or router of last resort okay so the bank so what this external drain of gold the external drill is a drain of gold out of bank reserves - as people came and turn their dollars in because they wanted to ship the gold abroad to foreign countries it would also be the threat of an internal drain as people saw gold flowing out of the out of their banks and they they had the the money substitutes which they knew were just money substitutes and would give them the ability to redeem for their gold they rush to the banks and there'll be an internal drain okay to be a domestic bank run and so to prevent that I mean that that didn't really have to happen it just you know the fear that would happen would cause banks then to reduce their contractor their deposit their deposits the money supply would be reduced and and the whole thing would be reversed you get a bust then of course because somebody's why we reduced and interest rates would rise and many projects would be rendered unprofitable long long term projects that lengthened the structure of production okay so the money supply would go back down again and you would have recession unemployment but they would be very quick and prices would fall ok let's talk a little bit about the the structure of what what money looked like under the classical gold standard let's take a vita Sumer we have a central bank now for a moment at base you would have the total amount of gold in the country let's say central banks held the gold reserves you have let's say 2 billion dollars if the central bank kept the reserve ratio of 40% then that meant that it could issue its own notes up to a total of 5 billion dollars because 2 billion dollars in gold represents 40% of those know now the commercial banks of private banks who issued banknotes and deposits would also want to backup their their notes and deposits and let's assume they kept the reserve ratio of 20% okay and in the US was 20 to 25% something like that that mean it could ignore the numbers in red font okay so that means that with five billion dollars of central bank notes which acted as their reserves okay they could in turn on create twenty five billion dollars worth of deposits okay but notice now things were kind of shaky here because you had 25 billion dollars of claims on two billion dollars of gold so if the central bank encouraged bank credit expansion by reducing its own reserve ratio and adding another 1 billion dollars to the bank's reserves by creating their own notes the banks would then multiply that 1 billion five times the money supply would increase by 25 percent prices would shoot up and that whole balance of payments adjustment mechanism would come into play gold would start to flow out of the country as people as exports became more expensive and imports relatively cheaper so the US would then have a balance of payments deficit and to make a long story short banks would pretty quickly realize that they had to reverse course and they would have to contract their lending and their deposits okay so the this inverted pyramid as we call it never really tipped over but notice it gets more unstable the more that the central bank encourages bank credit expansion okay get wider and wider at the top on the same narrow base so now let's talk about the step by step destruction intentional of the gold standard so the first the first step actually were steps before this we had something called a national banking system which tended to centralize control over banking in the large Wall Street banks okay so we were moving toward centralization even before this and and and we were moving towards undermining the gold standard but there we have it our Brighton for Christmas I in 1913 President Wilson signed the FEL Reserve Act okay and notice what what the subtitle there sub-headline Wilson declares it the first of a series of constructive acts to aid business yeah they left out the word big to a big business okay and big banks this is this is really the agenda of the progressive era of the progressive movement was to a big business and that was the one of the most important steps in that direction okay so let's move on to the next few steps so the credit of gold standard as I said existed from 1834 to 1933 in the u.s. more or less it got watered down during after the enactment of the fel Reserve Act so the Fed immediately started mucking things up okay its mucking with an EM during World War one gold reserves were centralized in the Fed so now you suddenly had the Fed able to operate as a lender of last resort which of course introduces systemic moral hazard into the whole financial system they placed a heavy tax on private issue of notes they wanted to drive private notes out of existence and they stopped gold or prohibited goal from being exported in 1917 on the 1920s they finally outlawed the private issue of banknotes because they wanted people to think of not gold but a government-issued paper okay as money so they wanted to people come familiar with government paper there was a big propaganda campaign by the way to part of the bank's in the government against using gold in 1920 you're old-fashioned who does this your grandfather did this but you know that's ridiculous you're safer and your money is more secure it's more convenient if you carry Reserve notes okay so people began to attach the name dollar not to the weight of gold but to the piece of paper that was a claim to gold so that changed Murray Rothbard stresses that change from weight to name even it began to a car under the gold standard itself when gold the gold reserves were were centralized and you were even discouraged from me you could withdraw a gold during the 1920s but you would discourage from doing so they would be slow in doing it they'll tell you to come back in a few days or whatever or they berate you out loud in front of other customers at the bank and so on for being so old-fashioned and then they of course they cut reserve requirements in half fell to the - from around twenty to ten percent and that doubled the money supply during World War two and we had a big boom which is followed by the last Austrian style recession of 1920 1921 in which prices and wages fell traumatic fell very rapidly fell very deeply sharply but the economy adjusted and and moved out of the recession pretty quickly so the Fed also expanded bank reserves during the 1920s now is beginning it discovered open market operations in which if it just bought government bonds from the public it realized it could increase the money supply okay so it did that to help out Great Britain okay to get back on the gold standard arm we then had the Great Depression when when when the Fed hiked interest rate and stopped expanding the money supply as quickly in 1928 1929 and we had the beginning of the Great Depression and we had of course the stock market collapse okay and then we had a bank runs from 1920 31 to 1933 there were periods of bank runs and bank collapses so FDR declared a bank holiday in march and then when the banks reopened we opened with the promise that I think that was about five days later it was reopened with the promise that they would ensure all deposits that were in banks and then in 1930 in May a few months later they outlawed the the ownership of gold okay and then devalued it okay they really define the dollar it's 135th of an ounce of gold okay they reduce the amount goldman dollar so there it is this is the Fe Arts executive order notes it says under executive order the president Papa it says all persons are required to deliver honor before May 1st 1933 all gold coins gold bullion and gold certificates now owned by them so you had to deliver them to a Federal Reserve Bank branch or agency or to any member bank okay so you turn everything in and at the very bottom it tells you the penalties for not doing so criminal penalties for violation of executive order $10,000 fine or 10 years imprisonment or both as provided for in section 9 of the order okay so they weren't kidding around okay they want they want to smash gold and in politics nothing happens by accident this is the words of FDR it had if it happens you can bet it was planned that way so if you would say that someone well you know World War two know what that wasn't an accident of in fact they were forces there were people who wanted World War two on both sides people saw your conspiracy theorists well out of the mouths of conspirators comes in truth okay alright so let me quickly talk about the Bretton Woods system that was sort of the final nail in the coffin of the gold standard suffice it to say that that the system that followed after the 1930s from France in 1936 and and and all other countries the Latin Union Belgium and so on they all went off the gold standard by 1936 u.s. one off the bill 1033 Great Britain 31 so we had a system a chaotic system of fluctuating national fiat currencies and people each try to make their currencies cheaper so that their goods would be cheaper and they could sort of offload their unemployment by selling more exports on to their neighbor was called beggars on a beggar thy neighbor policy the Allies got together when it was cleared they thought they were going to win the war world war two and they wanted to get rid of these currency wars which we have today by putting in a system of fixed exchange rates but and calling it a gold standard okay the main architects of the Bretton Woods system as it was called and I'll explain why were both the US and British governments and their leading financial experts Harry Dexter white and and John Maynard Keynes ah white had his own he wanted both of Wonderworld currency and ultimately they both wanted a world currency white named his in Grand yells wave UNITA unite the whole world and and Keynes trying to be clever called his bank which is Bank gold core is the root for gold I think in Greece in Greek but in any case they wanted to replace gold that's the kind of creepy and menacing place in New Hampshire I visited it's renovated it's great that is the Bretton Woods resort very plush beautiful on the interior but they must have been there that day and so that must be the clouds gathering and kind of diabolical alright there's white contains as we all know by now and is I mean no one disputes it Harry Dexter white was a Soviet spy so if the Soviet Union collapsed they opened up the archives and all the evidence was there so he was called to testified before the house on American Activities Committee and historians now agree that he did pass secret state information to the Soviet Union during World War two and there's a great book on Bretton Woods by Ben's file when she's no libertarian or even a conservative but he talks about a white he says well white wasn't really uh he kind of won't want to whitewash him but he knows he can't given the evidence he says well white was not really a member of the Communist Party he acted not simply because he believe that the Soviet Union was a vital Ally so he admits that but because he also believed passionately in six in the success of the bold Soviet experiment of socialism imagine saying it's about someone well you know he wasn't really a member the Nazi Party but he also believed passionately in the success of the bold so Nazi a German experiment with with Nazism it's ridiculous whenever they talk about Bo and let's just talk about bold they mean bloody murderous and so on okay okay so you can look at its please book I recommend this book for anyone who's interested in this area okay he's got all the facts in there he's a good writer but he's got a lot of good gossip in there too so David okay what about the Bretton Woods system the key characteristics was that the US dollar was now going to be the only currency convertible into gold all other currencies were going to be fixed to the US at a fixed exchange rate though could be adjustable okay if there was some sort of the sequel Librium occurring um so the US conscience it'd to be as good as gold at least in the early 1950s okay okay we just jump ahead here so the other other nations currencies though were back not buy gold directly but buy US dollars that they were holding okay mainly US short-term US Treasury bills um so now you had two foreign currencies being permitted on top of us deposits in other words we had a situation in which the US could automatically export inflation to the rest of the world so let me just show you that so there's a gold US held more than half of the gold in the world at the at the end of World War two so fed notes and deposits deposits where bank reserves as were the Fed notes were we then pyramid on top of the gold and then you had the commercial bank deposits because they held the Fed notes as backing as well as the reserves at the Fed that is deposit at the Fed and then the foreign currency and commercial bank deposits were in a sense pyramid on top of commercial bank deposits here in the US okay but they exchanged those deposits for interest-bearing government bonds but but as US deposits increase more money flowed abroad because US prices began to go up okay we continually increase the money supply during the 1960's both to fight the Vietnam War have guns and butter the fight that the Vietnam War but at the same time to implement President Johnson's Great Society programs so the whole point was well we can have consumers can have we can have consumers goods produced and we can have more military equipment and and and machine military machines and weapons and so on how did well how do we do that I mean if the economy's is given sighs how do we include both how do consumers not suffer us consumers what what because tax rates didn't go up while on the other hand the military industries were expanding very simply we fought we forced the or fortunately cause the Europeans to pay for it okay because well what do we do we sent them we have bounced to payment surpluses from 1958 onward so what we did we sent them paper which they then took they took the US dollars the exporter to the US sold them to their central banks who then bought them by creating their own your other bureaus their own marks and francs and pounds and so we exported to the rest of the world paper money inflation in exchange for real goods and services so in real sense the Europeans paid for a large part of the Vietnam War and u.s. Johnson's Great Society programs okay and the so the French economist Jacque left was a friend of von Mises he called this a deficit without tears the US could run deficits every year but since none of the foreign central banks demanded gold in exchange for the dollars no gold flowed out of the u.s. at least until later on we'll talk about the moment but what happens simple paper paper money flowed up from the US and then the foreign governments bought up that paper money to back their own money they created new paper money okay and so we exported this inflation okay so we had what I've already talked about we had cheap imports paper paper money went to Europe France and Germany began to get a little nervous about the fact that there was so much paper money u.s. liabilities piling up okay and backing their own money that they began to demand their own money back so or rather their gold back in exchange for the reserves the US reserves that they were holding so Germany was more or less blackmailed into not exercising its claims to get the gold money back to get their gold reserves back we told them look you know we no longer afford to provide you with a nuclear umbrella you know if you if you continue in this course of trying to get your gold back okay and we also had troops I mean it was an occupied country so they would do what we told them France under shouldered all dropped out of NATO and start its own nuclear force because the u.s. tried to use the same sort of blackmail technique on them and so here's the u.s. gold stock variations there and the variations of foreign liabilities initially we had 25 billion dollars worth of gold at the rate of $35 per ounce in 1950 and foreigners only held 12 billion dollars worth of liabilities so since Americans could not exchange their dollars for gold only foreign central banks and Treasuries they weren't really worried about that mismatch but however notice what happened by 1967 after many years of inflation in the US had lost some of its gold and foreigners had built up all of these excess dollars they were holding okay so that's when Germany and France began to get nervous about the whole thing the u.s. 64 abolished the the reserve ratio for fed deposit liabilities and then they abolished the backing the gold backing for fed notes which was again 25 percent in 1968 okay we're trying to free up more gold the show show foreigners that we had sufficient gold of for for their to cover their their claims Germany left the Bretton Woods system for in 1971 it was no longer willing to replace currency to buy depreciating dollars Switzerland redeem fifty billion dollars of gold and in early August of 71 France sent a naval warship to the New York Harbor to pick up 131 million dollars worth of gold all by the US okay they didn't send a commercial ship a regular merchant ship and I don't want you didn't want any accidents where maybe a US military vessel gets too close and sinks to ship by accident so there's the French know that hey I can't lose their yeah I know he sails yeah so the front this isn't the French warship but more likely the one that went there and then mix and then finally to end to end this on August 15th President Nixon slam the gold window shut he reneged on the solemn US promise an obligation to convert dollars for gold according to the terms of Bretton Woods system so he wrote find us on YouTube it's great I mean he looked ridiculous making this the state and statement I've directed secretary Connally to suspend temporarily yeah the convertibility of the dollar is the gold or other reserve assets except in amounts of conditions determined to be in the interest of monetary stability in the best interest of the United States just a bunch of garbage okay and so we we see the the price level after 1971 after we went off the last vestige of the gold standard okay the price level shot up okay okay and I'll let you look at these we're over time so I'll let you can look at these online I have some interesting statistics about how badly the Fed performs okay thank you you

Channel: misesmedia

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Keywords: Gold, Standard, Fiat, Money, Economics, Austrian School, Mises, Salerno

Id: bOHEMD-WJFw

Length: 46min 34sec (2794 seconds)

Published: Sat Jul 29 2017