Good afternoon, uh it's it's a pleasure for me to be here.  I like to say when I when they first asked me to come here, I said oh it's such a short time ago that I was sitting where you are. Then I did the math this year and I realized it's 13 years ago. For me it feels like a short time. it's amazing how much shorter 13 years is when you're my age versus yours but that's okay. and I'm especially excited to give this particular lecture because I like to say I became an economist because I decided I'd rather study money than have any. My wife doesn't laugh at that joke. It's too close to true. So before we really get into anything too substantial we we do need to answer a very simple question, right? That's what is money,  right? What is this lecture even supposed to be about, right? So I brought here a nice visual right there. Here is it's a dollar bill. You can see it has many very important features. It's made out of some combination of paper and cloth I believe to give it a little bit more durability. It has this kind of greenish ink on it. Naturally there's the portrait here of the Mona Lisa, I mean George Washington. I was looking at his face, too. He has the same expression and I wonder if there was some kind of plagiarism going on. But anyway so this is money right but then I had a couple other things in my wallet that I was pulling things out today. I have here uh this. It's, it's a three Barber bucks from my barber Barber Phil. It says this this is fabulous Phil's Barber Beauty Shop. This note is legal tender only at fabulous Phil's. Apparently, I didn't know you could do that but it looks remarkably similar. Like okay, the back is a little bit more blank but it's definitely greener paper. I don't think there's as much cloth content. Barber Phil is certainly better looking, right, than George Washington, right? Yet somehow, right, we would say this is money, right? This is not but then I found another one, right? You you can tell that I'm an economist when your Barber gives you, oh this is $3 off your next haircut. You don't use it. You say, oh I can use this in class. This is great. Okay, all right and then I got this right here, right. This is apparently, it's a one Dillion Dillers note. I got this from the Mount Olive Pickle Company it's located in I think North Carolina. If I recall, it's from the delinquent Bank of delirium. It says this certificate is a Dilly but not tender at all to lawmen issued by the state of confusion, right? Of course, many of you in the crowd may believe that a lot of the things on here should say what it says here. For example, the certificate is good for nothing is printed at the very top. Well we know that isn't actually true, right? Even if, right, we acknowledge that there is a certain amount of instability here we'll get to that give me 45 minutes we still recognize that this is money right and these things are not right so why right well let's simply the definition of money right the money is the commonly accepted medium of exchange or the general medium of exchange so we we recognize that this dollar however much we may like it or dislike it right if I take it and I take it to say Barbera Phil right he will in fact accept this as partial payment for my haircut now he won't cut my entire head of hair for this dollar do maybe like a quarter of it that's if he feels good about me that day right he's willing to accept this and not only is he willing to accept this but I can take to the grocery store and I can buy a pack of gum or I can take it to Starbucks and get what fifth of a coffee or something like that this is generally accepted by the majority of vendors that I'd run across at least here in the United States whereas this one there's exactly one vendor that will accept this right this one there are exactly zero vendors that will accept this as far as I'm aware I've not tried downstairs maybe they'll take it I don't know I suspect not right right so it is that General acceptance right that makes one of these things money and the other's not okay now those that are philosophically inclined to start to feel kind of nervous cuz we say okay well medium of

exchange we'll get into exactly what that means it's fairly precise but generally accepted right generally is in itself a problematic word if you're trying to define the thing what do we mean by General right do we need 60% acceptance is that generally accepted do we need 85% what about 53% right where's the line for generally take a deep breath get over it this is something there there's going to be a certain amount of vagueness right in this um definition and this is something that mises himself who tried to be very very precise as much as possible frankly admitted in Human Action he says here's the definition sure it's kind of vague but you know what that that doesn't matter because anything we say about money is going to be true it turns out for any medium of exchange at all whether it is generally accepted or not right we just think of money as being that one that is generally accepted so we know we have some sense then vague as it may be of what money is right so why would we bother right having lectures about money why is it socially important now here I think is really the key if you're going to take one thing away from this lecture this is what I want you to take away from it and that is that I believe that money it's not just that I believe it you don't take that away take away the fact right that money right binds a society together right by easing trade right Dr herner just gave a wonderful lecture about the importance of the division of labor in increasing the material productivity of society and fact it gives us a material reason to care about being around and having relationships with other people it's not just because I happen to like hanging out with people watching TV it's because I'm in fact materially better off and wealthier right because I'm interacting with other people even if I don't interact with them on a social level even if I don't like them on a social level I am better off interacting with them in the economy because we can each specialize according to the division of labor in that area in which we are most productive making all of us better off but right for us to be able to do this we need to be able to trade trade with each other right right after all I like to believe that my comparative advantage that is the thing that I'm relatively least bad at um would be giving economics lectures right it turns out that you cannot eat on the basis of giving yourself economics lectures right you need to have be able to trade this with somebody who will in fact provide you with food right so in order to highlight why is it that money is so important so essential I'm going to do kind of I guess the typical Economist trick uh well think about counteract uals right so what are the Alternatives this is kind of the obsessive question that economists ask right what are the Alternatives so if we didn't have a monetary system what could we do instead well one option would be to have a system where we just don't trade at all right a system of autarchy or self-sufficiency now I suspect the system of autarchy or self-sufficiency could follow one of two possible paths depending upon our technological level

and I suspect that one of these paths is in fact impossible but let's go with the more possible first I suspect that a world where each of us is trying to be entirely self-sufficient would result in Mass poverty and in fact starvation and billions of people would likely die nobody laughs at that because it's not a joke right you think about this a little bit you recognize this is obviously true right uh in fact I I know this from my own life right one thing that I I don't always engage in the division of labor maybe as much as I should right because there are some things you just kind of enjoy doing right so you do kind of as Hobbies even if you're not very good at them um one of those is that I have a garden right so those who've heard my lecture here before know that you kind of get a yearly Garden update from me here um so my garden this year uh we decided we're going to specialize a little bit more than we had in previous years because we

found out that if you grow things that you don't eat and have no good way to distribute them to other people it's totally pointless right so we decided we have one bed is strawberries strawberries do very well it turns out you don't have to be a great Gardener where I live to grow strawberries well they grow very well on their own right we get enough rain that I don't even have to water them right they just appear and I don't get to eat any of them because I have a four-year-old and a two-year-old boy we got in the backyard and they eat all the strawberries okay so in part I'd starve because I like my children I'd let them eat first but then I look at my other Garden which takes a lot more work which I do not give to it and even if I try it I don't think it would do very well so that year that one this year we decided to specialize in three crops right one of those was peas our peas did very well I think we got at least two side dishes out of our peas right uh we also decided Well we really like cauliflower right cauliflower it's it's fairly healthy dish right so we're going to try to grow this it's also something you can plant very early in the season right so you can get some idea of how it's going to go no now if I had to rign my cauliflower crop I would in fact have starved by now this year came up and then just nothing happened just nothing happened at all I'm no good at drawing cauliflower turns out uh and then we also have tomatoes we're not quite to the point where they'd be ripe although I suspect that is another thing where I would starve them my boys would be perfectly fine uh they're very fond of picking the green tomatoes and trying to eat them um and they spit them out and we're probably not actually going to get any get to the point where they're red and actually able to be eaten right now if I extend this out right know some people have occasionally I make bad decisions right I look at the comments on YouTube for my lectures and a couple years ago there somebody oh right somebody needs to teach this person right how to farm and they could be self-sufficient you I just don't have any evidence of that all the evidence I have suggests exactly the opposite right um and okay may maybe right maybe so maybe it is just a lack of knowledge or a lack of my willingness to put the time into it but the great thing about the market system is that I don't have to have that knowledge and I don't have to devote that time to it right I can do things that I'm relatively better at and let's someone else grow my food and that is in fact exactly what we do right so I suspect right even if let's say even if I manage to get the knowledge and manage to put forth a time I would still consider myself to be substantially poor because while I enjoy kind of puttering around the garden pulling weed here and there I don't think that I would enjoy doing it 10 hours a day to make sure I had enough food to last through the year right but I do enjoy giving economics

10:23

lectures right so even though it is something that I've managed to fool people to pay me into doing right I also

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enjoy it right so it's a great thing I am in fact made wealthier maybe not in a material sense right from the fact that

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I'm allowed right and able right to make a job out of what I make a job out of right I am better off in terms of my own

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subjective well-being and I suspect that this is true for most people that many people even if they could right manage

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to survive eek out right some kind of survival on their own they would really find that a

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miserable existence right they would consider themselves to be very poor right in terms of their own well-being

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relative to what they can do in a system where we have the division of labor where we can specialize in those things we're relatively better at and so I

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suspect that is the most likely thing if we devoted ourselves right to a system of self-sufficiency we'd see Mass

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poverty and I don't think any of us want to go there I know I certainly do not now there is another possibility uh if

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you've heard me speak before I actually got some criticism of my um lecture I think it was last year uh because I

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didn't talk about Star Trek enough because I had in previous years and they were very excited right so it's

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back okay so the other possibility is maybe we have a society where we're so

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technologically well off that we might be considered post scarcity right that is anything I want I can walk up to a

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hole in the wall in Star Trek they call these things replicators so I walk up to the hole in the wall I say t Gray hot

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right and right there somehow it reformulates all the molecules there in the atmosphere into Earl gry tea that is

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hot which I personally would not drink I don't care for tea but I could ask it for something else that I want right so

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at this point I don't really have to worry about producing things right it's anything I want is just freely available

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to me from this hole in the wall and so that'd be kind of nice I suspect technologically we're very far from this

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point and I suspect we'd also probably never reach this point because even in

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Star Trek and we will get to this actually this leads right into the next Point let's do it even in Star Trek there are problems with this now I

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suspect the problem is that it turns out if you take out all conflict and all

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scarcity fiction becomes exceptionally boring right right CU I'm I'm married to

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a fiction writer um right so she's written more books than I have so look her up instead of me she likes to write

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fantasy and science fiction and I and I share right this type of if you can't tell I already mentioned Star Trek I

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share that passion and what this is all about really when you think about fiction this is a different lecture that I need to stop going into but here it is

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right right it's really about Human Action right it's Human Action in kind of this speculative world right so we

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make some assumptions about the world around us but ultimately it's about people trying to fulfill their ends using the means available at their

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disposal right so I I really like to appeal to fiction because they're doing the kinds of thought experiments that we

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as economists also do right and are often adding to it you some elements that perhaps make them more exciting

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right so what's another option right self-sufficiency post scarcity we're at least not close to that at this point I

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suspect we never will be but even in the world of Star Trek right one of my favorite episodes it's a great

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documentary about economics I was from another thing you should feel bad for my wife cuz she has to watch all this stuff

13:34

with me and you find out when you watch stuff with me everything is a documentary about economics and I just told you why right so like any movie

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documentary about economics some are clearer than others right okay but anyway so this one very clear documentary about economics it was an

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episode of Star Trek Deep Space 9 right generally not considered to be one of the best Star Trek out there but but

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this episode was great right because it turns out even in the world of Star Trek the replicator can't do everything right

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again I suspect it's because actually having scarcity does in fact help storytelling right so there was one

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episode where there's some kind of thing that had broken on the space station um I I think that they had just been in a

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battle or something like that I don't remember the exact context I'm sure someone commenting on YouTube right now can provide exactly what the title of

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this episode is you know the one I'm talking about okay all right so so what is happening right so we have this part

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that broke it's like a graviton stabilizer or something like that what the part was it really doesn't really matter right and it was something that

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was complicated enough or they didn't have the energy or something along those lines we couldn't just replicate another one right so we're going to have to get

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one somehow the problem is that we're in the middle of this war so these things are not being readily made available

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right so this one character a character named nog who is a fangi uh the fangi were originally designed to be kind of

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this villain designed around Yankee traitors tells you kind of the view of the people who ran wrote Star Trek at

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the time U but they they later became much more I guess sympathetic in a sense always slightly Sinister right but not

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necessarily so bad U so nog was kind of this um based around this Yankee Trader

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Society he was familiar with the idea of having to trade to get what you want rather than just talking to a hole in the wall right so he said no you need to

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trust the great material Continuum right that guides resources right to where they need to be used now there are lots

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of problems with this image of the market it kind of takes Humanity out of it but I guess in this case takes fenity

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out of it as well um right we need to keep that in there but his idea was fair

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enough right what we need to do is take this resources that we have that we don't necessarily have any immediate use for and find right those resources that

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we do have an immediate use for we need to engage and trade right so he went looking for who might possibly have this

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part right and he found right this one ship oh yes we have an extra graviton stabilizer but we need a phase inductor

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or something like that right some part of the weapon system that we had that broke that also for some reason right

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able to walk to the hole in the wall and ask them for okay well we don't have that right so he went through a number

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of steps till finally he found somebody or what they wanted they wanted a picture uh behind the desk of the

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captain of the space station said okay I can arrange that packs up the captain's

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desk and sends it off right the captain happened to be away gets the picture taken right then

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that person gives him the part that somebody else needs who gives them part somebody else needs and so on WE arranged this whole line of Trades to

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finally end up with what we want another example again because I'm that kind of

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person uh several years ago I played this game online you can tell I'm really good at allocating my time effectively

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right yeah so I was playing this game called RuneScape um hey there we go all

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right yeah um okay I'm going to confess I found out about this game here when I

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was a fellow at The Institute I was walking through and like one of the people who was working they

16:57

didn't have anything to do and they were on one of the computers downstairs we're playing that's really interesting what is that I kind of look over shoulder and

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then immediately go back to my dorm room that night and there I am playing RuneScape well there's this one mission

17:09

in it that is set up very much like this episode of Star Trek Deep Space 9 where you go okay we need this one very

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specialized thing it's only available this other part of the map and you end up having to walk I think you arranged something like 12 trades over the course

17:21

of this to get what you want now why am I telling all of these stories right um

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I suspect if we lived in this system of barter where we had no money but we were in fact still trading we would end up

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having to do this kind of thing right that is if I decide that in fact I'm horrible at growing my own food but I'm

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reasonably okay at giving economics lectures I have to find a farmer that wants an economics lecture that is

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willing to provide me with food I suspect such a farmer does not

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exist my father-in-law is a farmer he has never asked me to give him an economics lecture I assure him I will

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not charge him and he in fact offers me free apples to not give him economics lectures so I

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guess that's an alternative method that I have at my disposal um right but no

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these people don't exist right so instead I have to find out what do these Farmers want right and then Trace down till I finally find somebody that wants

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an economics lecture that will provide me with something so I can go through these 12 trades to finally get the food that I need to

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survive this is a huge pain right it's a huge pain we give a very specific name uh Dr Howen mentioned this before right

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we need to have reverse preference that is that you have what I want and I have what you want uh or as Walter block

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likes to say if I'm a chicken having pickle W I have to find a chicken having who know I never get that right okay if

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I'm a chicken having pickle wer I have to find a pickle having chicken wer I think that's right something like that

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right and just to make the point right I need to find somebody who has what I want and wants what I have right so that

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we can then ex make that exchange and in a complex society where we're producing millions and millions of

18:56

different Goods the reality is we are producing millions of different Goods in our economy right this becomes extremely

19:03

difficult in fact so difficult I suggest that a society based on barter would not be able to become as complex as what we

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have I very much doubt there would be economics professors in an economy based on barter I just don't think it would be

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possible right because the market is so so small for this thing if we have a

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society that's relatively simple for the most part I'm going to have to do something else I'm going to have to try to grow broccoli right which is not a

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good thing for anybody involved right right so right so in the system based on barter I suspect right we would not have

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this wealthy complex economy we have it would have to be much simpler we would be made significantly worse off right

19:40

precisely because of the difficulty of getting us right to have these reverse preferences another name for that it

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would be the problem of having a double coincidence of wants right that is your want and my want right coincide in such

19:53

a way I want what you have you want what I have feel like I've already said that right it's an important concept

19:59

so what does money do for us then as opposed to a system of self-sufficiency right money doesn't

20:05

make any sense if we have a self-sufficient economy right I I don't in fact right print off a bunch of

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Englehart dollars in my basement so I can roll around in them it's first that wouldn't be money nobody's going to take

20:17

them from me right and it doesn't provide any direct pleasure in itself right this even if I were to take these

20:24

and roll around in them it wouldn't provide any direct pleasure for me I am not Scrooge McDuck right that likes to swim around in my piles of gold which

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there are physical problems with that if you become if you become wealthy enough to have that Vault don't dive in head

20:38

first please please please okay also send me some it will make it slightly

20:43

safer um anyway so what was I talking about yes the double coincidence of want

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so that's the problem right for us to be able to arrange this trade I have to want what you have you have to want what I have money comes in and solves this

20:57

problem for us not by removing it right we still have to have the double coincidence of wants I have to want what you have you have to want what I have

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but in a monetary system where there is some kind of generally accepted medium of exchange we can trust right that each

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of us has money and each of us wants money so we no longer have to figure out

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well how am I going to pay for this right it's going to be in money it's just a matter of quantity then that we have to debate right so then the

21:22

question is just how many dollars are you willing to accept how many dollars would I be willing to accept is that acceptable or not we don't have to

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debate about whether we should use whatever right whether we should use I don't know loaves of bread or whether

21:35

we should use shoes right in order to make this exchange happen right money right allows us to achieve the double

21:40

coincidence of wants much more easily precisely because everyone is willing to accept money basically all right so that

21:47

is where a medium of exchange comes in and is very useful because it increases the likelihood of for us having this

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double coincidence of wants at least in terms of the qualitative features of the thing that we are trading

21:59

quantity may be a problem that could always be a problem okay now let's go a little bit further I'm looking at my

22:05

notes and I realize I'm through like four lines of my first of two pages so I should probably

22:12

move all right so money then uh misus lays out in his theory of money and credit great book I would not recommend

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it be the first misus you read though uh but he does he lays out he says money right presupposes behind it a system of

22:25

the division of labor with private property that that is we need to have a system where we're actually going to

22:30

have trade occurring right you need to have private property for us to have trade right if I don't own things and

22:36

you don't own things we can't possibly trade and a system of division of labor as well that is where we are improving

22:41

our productivity where there is a reason right for me to have this excess stuff right that I want to get rid of and give to you and vice versa that we need to

22:48

have this in the background right for us to actually have money okay so how do

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then does money arise now here okay I'm going to see Tom Woods in the room I

23:00

don't think so oh good okay cuz I'm going to pick on him a little bit okay right so last I always try to avoid

23:06

disagreeing right with the people who were faculty when I was a student here right so because he said you know money

23:11

arises on its own this is not actually true right right it we can you can just

23:17

observe say out in the wilderness of I don't know pick the middle of Nevada or something someplace that isn't very SP

23:24

is very very sparsely populated perhaps not populated at all we don't see right dollar bills popping up right you don't see money arising right

23:31

because money doesn't arise on its own rather money arises out of the market process right people interacting in the

23:38

market create money now I don't think that Tom Woods would disagree with me on that he was making a different point which was true that is that we don't

23:44

need the government to produce money the market will produce it for us right so but how right what is the process by

23:49

which this happens right do we all get together and say you know I think it be kind of nice if we printed up these

23:54

slightly green shades of paper uh with very elaborate right printing on them and then we just start trading these

24:00

things back and forth right we use that right so everybody should just be willing to accept these it'll make life

24:05

easier I don't suspect that argument would get very far after all you

24:11

know doesn't taste good it's not it's not going to satisfi surprisingly it doesn't taste that bad now when

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I'm there's just no taste it turns out um on the other hand we know that money also carries lots of germs so if if I'm

24:27

not around to give my lectures the last half the week you know what happened okay all right this isn't directly

24:32

useful right I guess I could maybe put some paste on it put it on my wall right that kind of thing but I'd rather paint

24:38

my walls than wallpaper them and it's not particularly pretty wallpaper either um so it's not directly useful so why

24:44

would people accept this and even if they did right why would they accept it any specific quantity right why should I

24:50

say that one of these right is worth however much versus two these are questions we need to face right so how

24:55

then does money actually arise we can't leap to having these bills well Misa suggests and here he's

25:03

building very much on the work of Carl manger that the way that money arises is that when we have a system of

25:09

barter somebody realizes that it might make sense right for them to accept

25:14

something that they don't have a direct use for but that most people do that is it may be perfectly possible maybe I

25:20

find right as a relatively I'm primitive person that I can't eat things based on grain right because we have this

25:25

undiagnosed Celiac or something like that right so it makes me ill so I try to avoid eating grain if at all possible

25:32

but at the same time I know right that most of society does in fact right use this grain to make bread and and then

25:38

eats it so it might make sense right for me to accept grain right not because I

25:43

plan to use it but because I know other people will take it right that's the idea of a medium of exchange it's something that I accept right not

25:49

because I have any direct use for it but rather it serves as a medium right that is in between right two things right so

25:55

I take it as a medium and then I give it away right to somebody else in exchange for something I actually want right so

26:01

somebody has this idea that it makes sense to accept something they don't actually have any direct use for right

26:07

and then trade that to somebody else because they know this good is very marketable right that is it is a good

26:13

where there's a wide a very broad demand for it it's relatively easy to get rid of if I don't have any use for it so

26:19

this then means that what we must have when we first start out with money we can't start with something like this that is basically useless right on its

26:26

own it has to be something that has right some use that people will recognize in society that is it has to

26:31

be what we would call a commodity money right where it is some commodity that does actually have some direct use that

26:37

most people would recognize but added then to this use people start saying well I I'm willing to accept it

26:44

precisely because I can give it away to someone else to get what I actually want and as this happens right we've now

26:50

added to the direct use value this indirect use value or this monetary use value and as that happens what happens

26:57

is we have what we call a network effect right so we have this network of people right that trade with each other right

27:02

some of them are willing to accept grain because they bake bread some people are willing to accept grain now because they know they can give it to the people that

27:08

are willing they want to make bread and as grain becomes more and more acceptable in it in fact becomes more

27:14

and more acceptable to any individual the more people that want grain now I can sell not I can give my grain not

27:21

just right to those people that want to bake bread directly but to those people that want to give the grain to somebody else right now it becomes all the more

27:27

desirable for me to accept grain again even if I'm not going to use it like many things these Network effects are

27:34

not limited to money they're all over the place right it's anything that is more useful the more people there are

27:40

that use it right telephones are this way right the first telephone if you only produce one it's not very useful

27:45

right that's why you produce it in a pair the first time right and as we have more and more telephones they become exponentially more and more useful even

27:52

some things we may not expect right to be to have these Network effects seem to

27:57

right uh think of Pokémon go for example making confessions we may as

28:03

well my plan was okay you know I I'm so bad with my time I really am I'm going

28:08

to stay away from this one but it turns out my wife is not as even as good with

28:13

her time as I am so she decided to go go for this looked like fun to her and then my boys decided it also looks like fun

28:21

they're four and two right and they're oh yeah let's Play Pokémon together and it turns out that when my wife takes her

28:27

phone and hands it to my four-year-old the 2-year-old gets very upset or that he doesn't have to have a phone to play Pokémon go on this is a network effect

28:34

at work so install Pokémon go and now now I'm out there walking around Auburn

28:39

in 90° weather trying to find Poké stops right so I can get enough um pokeballs

28:44

to catch whatever happens to be near here okay that's a network effect right and we know that we've we see this

28:50

network effect at work not just because and now we're finding out we can possibly trade Pokemon oh big announcement if you haven't heard that

28:57

yet it's coming um right Network effects right but we already see this just from the social

29:03

aspect right my wife and I went to one of the neighborhood parks because again this is the kind of thing we are doing

29:09

now it was packed it was packed with people we had gone here before because there's a playground my kids like to play on and it was normally fairly empty

29:16

we had to drive around the parking a lot a couple times looking for a space right just packed with people there's this

29:22

social element right social elements tend to bring with them Network effects right if it's something you like to do

29:27

together Network effects tend to be very big language is is another one right so I've been spending some time trying to

29:33

learn Esperanto because I don't actually understand Network effects if you've never heard of

29:39

espiranto there's a reason it turns out I think there are at least 2,000 of us that have tried to learn some espiranto

29:44

at some point in our lives not a useful language compared to English or Spanish or take any other language you've

29:51

actually heard of but there's Network effects there too and network effects with money the more people there are that accept dollar bills or that accept

29:58

grain or that accept gold coins the more acceptable these things become and they tend to spread therefore throughout

30:04

society and so this is how money would tend to arise now at this point misus would point out then we really

30:10

understand that the function of money the primary function is to facilitate the business of the market by acting as

30:16

this common medium of exchange right that everybody accepts that's the primary function but we add to this and

30:21

it does adopt other functions as well uh here I'm borrowing words that I first learned from um Dr Howden actually a

30:28

couple years ago media let's see what is it money is a matter of functions for a

30:34

medium a measure a standard a store ah I like rhyming so so there we go I'm going

30:40

to do those but not in that order right so the medium of exchange we've already talked about helping to ease these transactions by making the double

30:46

coincidence of wants more likely uh secondly a standard of deferred payment that' be the standard in that list now

30:52

here misus makes a very important point and that standard of deferred payment is really just a way of saying that money

30:57

is the medium of exchange for credit transactions that is where we buy now pay later that type of thing you'll

31:03

learn certainly more about that later on in the week a money is also a store of value that is it transmits value through

31:08

time and space which makes me think about Doctor Who and I'm going to have to fight that urge because time okay so

31:16

transmits value through time and space that is I can hold on to this dollar bill it will be the same physical dollar

31:22

bill next year may not buy quite as much right but it will transmit some of that value that it has today right into the

31:28

next year in a way that is very different from many other Goods that are not quite so durable I would suggest

31:34

that say uh this dollar bill is a substantially better store of value than say if I took I don't know a little

31:41

baggie of milk and stuck it in my pocket for the next year not the same milk right it fundamentally changes over the

31:47

course of that year in a way that this does not okay right so it's a store of value not the only one right but it is a

31:55

store of value now one point that I would make here right is that the storability of a good tends to make it

32:00

more marketable right after all Then I then I know that I don't have to get rid of the thing right away I can hold on to it for a while right so one of the

32:06

reasons I've mentioned grain is that it's something that appears in Fairly primitive economies that stores fairly well as long as you keep it fairly dry

32:13

it can last a very long time right right so it ends up grain was one of the fairly early forms that money

32:19

took right so storability tends to make these Goods more marketable and therefore it shouldn't be a surprise

32:24

that it's these storable Goods that tend to arise early on as money okay uh money also serves this measure

32:31

um I prefer the term unit of account or that is that we express the objective exchange value of goods that

32:38

is the price of goods in money that is it's that makes it useful then for economic calculation which you've heard

32:44

hinted at a couple times already I know I will hint at it another time and let Dr solo talk about it I believe tomorrow

32:50

morning right economic calculation very very important if we want to have a complex economy that's really what I'm

32:55

basing my argument when I say I don't think we'd have as complex an economy without money it's because without money

33:01

we can't do economic calculation we need economic calculation if we're going to have this complex capital structure

33:07

which Dr Garrison's going to talk about at 3 o' I believe right and if we're going to have this complex economy we're

33:13

all trading in these really weird very specific things right you think about something like very specific chips that

33:19

have very specific functions inside of a smartphone that kind of thing I can't imagine A Primitive Economy based on

33:25

barter coming up with this you need to have this comp Le structure of production for that to occur right so we need a unit of account

33:32

in order right for us to be able to do economic calculation to decide right which lines we should go down which

33:37

lines we should not right so money has these other secondary functions which are still very

33:44

important we can then also think about what are the traits that would make a money a good money that would make a say

33:51

commodity serve as a good money now based on everything we've done so far thinking about these various uses we

33:57

should be able to conclude that first money needs to be portable that is it should be easily transported from one

34:03

place to another after all if I can't take my money to Market with me it's not going to be very useful money should

34:10

also be divisible I suggest its divisibility when we look at some of the research it suggests that cattle was a

34:15

very early form of money uh we switched fairly quickly to grain because two halves of a cow are fundamentally

34:22

different from a whole cow right it's not the same thing right on the other hand you can take say a a cup of grain

34:29

something like that divide it into two half cups of grain put them back together it makes no difference right

34:34

right you can divide and you also can recombine in a way that you cannot with say animals it needs to be fungible

34:39

fungible just meaning that one unit is basically the same as any other unit of the good right this is generally true

34:45

with most grain it turns out right as long as you have a particular quality and type of grain it doesn't matter which particular grain you

34:52

have uh another it needs to be relatively scarce that it is something that would therefore have some economic

34:58

value it be an economic good right so air makes a terrible money right despite the fact there's a broad-based demand

35:04

for it being the last thing we need so we need something broad-based demand relatively scarce it will actually have some value right fungible various units

35:11

can be interchanged without a problem divisibility and also portability all of these will help aid the function of

35:17

money as a medium of exchange now as we've watched over time in the market we can see this transition

35:24

right as we move from say cattle which aren't a reasonable reasonably okay money it's fairly mobile it turns out

35:31

not necessarily easy to direct but it's fairly mobile it'll walk there itself right just have to get it to go the

35:36

right place we've move from there to something like grain move from there toward precious metals things like gold

35:41

and silver which one seems to depend on geography right so why would we make

35:46

these transitions well as with anything else in the market when a better good comes along and we find out it fulfills

35:52

a function right we start switching over to the better good that fulfills that function right right so so grain it

35:58

turns out for very good reason right is better than cattle to serve as a form of money it turns out gold and silver are

36:05

even better right after all grain it will eventually rot right you do also

36:10

have the possibility that it's going to get wet which makes the rot happen faster the same is not true however for

36:15

gold and silver right gold and silver you can take it you can throw it into the ocean for hundreds of years pull it back up it's exactly the same gold it

36:22

makes no difference it's very very durable it stays the same not only that but gold and silver are remarkably

36:27

divisible in fact we have um the Spanish system was built around this idea of Pieces Of Eight which was literally

36:33

taking gold coins cutting them up into e right which then if you wanted to you could melt down put back together no

36:39

problem right easily divisible easily Rec combinable without any kind of problem at all again controlling for

36:45

Quality certainly fungible very scarce right gold and silver precious metals they're called precious for a reason

36:51

that is there isn't a whole lot of them around okay all right so very very good monies gold and silver here to arise on

36:58

the market alongside what we call Money substitutes that is that people do not

37:03

always carry around with them gold coins or silver coins we had perhaps things that looked suspiciously similar to this

37:09

right that served as a claim on that coin it turns out that if you're carrying a lot of gold and silver coins

37:15

around in your pockets it makes a lot of noise and it turns out that at least good thieves can hear

37:22

right you can carry a lot of these around in your pocket makes very little noise there's a security advantage to

37:28

this right not to mention this is in fact lighter right than a coin now I guess that's not true for a dollar's

37:34

worth of gold you can barely see a dollar's worth of gold nowadays um right but it could potentially be lighter

37:40

depending on how many zeros we add to this thing talk about zeros in a second okay all right so right point being

37:46

having these money substitutes was something that was useful and they tended to circulate alongside of monies but this ended up creating a problem now

37:53

Dr herner is going to go into more detail on this when he talks about fractional Reserve banking

37:58

we start to see right these paper certificates take on a life of their own right and through various interventions

38:05

that I will let I'm Dr herner talk about we end up transitioning away from a gold and silver based money to a paper based

38:11

money now the way this happened it was in no way natural it was not a part of the market process that we moved away

38:18

from having these gold and silver coins to exclusively right using this paper money that I cannot in fact go to say a

38:24

warehouse and say I'd like to exchange this for the gold that backs it I can't do that at this point in fact it was the

38:30

force of government that led to that transition first in the 1930s right FDR said no more monetary use of no more

38:37

monetary gold is allowed to be held within the United States if you have actual physical gold that has some kind

38:42

of monetary form to it bars coins Etc turn them in we will hand you this paper

38:48

stuff in exchange right you have a wedding ring that's fine you can keep that but not much more okay then we have

38:55

uh in the 1970s right president Nixon right making that final break from right

39:01

these dollars which were still a claim to Gold officially though only foreigners could actually make good on

39:07

that because Americans weren't allowed to hold the gold right well we were too nervous there are lots of these paper

39:12

bills floating around outside of our borders we didn't actually have enough gold in our vaults to back them all and

39:19

it wasn't just making us nervous in the states it was making people nervous abroad as well uh France in particular

39:24

was very very nervous about the dollars they were holding and kind of wanted the gold back so President Nixon said oh by

39:31

the way these actually aren't good as gold anymore right they they have a life of their own and they continue on down

39:37

to this day right so the way that this paper money acquired its value and its use as a common medium of exchange was

39:43

because it was tied right originally right to the gold that backed it and we

39:48

can actually see this kind of thing happen when we have designs for new currency arise when we look at say the history of the Euro and the way that it

39:54

was introduced it was really produced on the basis of previously existing Fiat

40:00

currencies in Europe right for us to have some sense of what it was worth right we needed to tie it to something that already had a value in the minds of

40:07

people which then brings up the question of the specific value of money right so

40:14

we know that this is a dollar we have some rough idea of what it's worth now we've talked about the social value of

40:19

money that this makes us more productive by using trade but why is a dollar worth a dollar in exchange now here to

40:25

understand the value of money we first need to kind of think about how we talk about that right the value of a t-shirt is

40:31

something like $10 say right the value of a dollar is a dollar is not nearly as useful right so we should think of the

40:37

value of money in terms of the purchasing power that is what can this dollar get you in exchange I think I

40:43

gave a few examples right a part of a haircut right a part of a coffee right

40:48

maybe even a whole candy bar some places right that kind of thing the various things the money could buy now once we

40:53

make that leap I don't actually have to do anything to say determines the value of money right supply and demand there

41:01

we go right like with any any economic good right the greater the Supply right the lower the value of the good is going

41:06

to go that is our money is going to buy less the greater the supply of money there is right we would often call this

41:12

price inflation right generally prices are going to go up right as prices go up my money can't buy quite so much and

41:19

also the demand for money would have an impact as well if people decide that they don't want to hold on to money anymore or at least hold on to money in

41:25

this form right it's going to lose value right exactly as if the demand for H drawn carriages Falls right horse drawn

41:31

carriages are going to lose value right right so it is exactly the same um supply and demand that determine the

41:37

value of money as anything else now there there is an issue here though that me steals with that is when

41:45

we think about money's demand it is slightly different right but meaningfully different right from the

41:50

demand for other Goods because for most Goods right the way that things work is that we know that this good is useful for filling some sort of need right so

41:57

right now my mouth is feeling pretty dry okay there's an objective use value in

42:04

this water it can satiate my thirst or at least help a little bit Ah right because of that objective

42:13

use value I then subjectively recognize this value and decide that having a bottle of water is in fact something

42:18

that I'm willing to do i' in fact be willing to give money right to get bottles of water this then leads to

42:24

right the supply of and demand for bottles of water leading then to the objective exchange value or the price

42:30

now money is a little bit different because we started by saying that money as money right this dollar bill it does

42:35

not have an objective use value it is not directly useful at this point yet we

42:41

do know that it does have value in exchange I can use it to buy other stuff so how does this work right well now

42:47

here's the problem right right the reason I want this is that it has value in exchange right so it has this

42:53

objective exchange value I can use this to buy other things objective right therefore I decide that I want

42:59

money that's the subjective value that I attach to it and because of that subjective value I we can therefore

43:05

derive demand and Supply right and that leads to an objective exchange

43:10

value this feels like circular reasoning because it is or appears to be right

43:16

right so that was the problem right that misus faced was how do we right how do

43:22

we make this work right without getting into this circular reasoning which basically boils down to saying that money has value because money has value

43:28

right that doesn't tell us anything we're supposed to explain value as Economist and so he gives us what is

43:34

famously called the regression theorem now I'm not going to go into great detail on this except to say we've

43:40

actually already uncovered the regression theorem to some degree right because here's why after all right the

43:46

reason that I am willing to accept this dollar right now is that I have in the past observed right that it had value in

43:52

exchange right ah added the time element right and now we've broken the circle

43:58

right so so I had this so I saw this dollar had value yesterday that makes me value it today I'm willing to accept it

44:04

as a means of payment or as a medium of exchange and my value that I attached to

44:10

today subjectively then helps to determine what is its value in exchange today right so across time right the

44:15

objective exchange value today is based on my subjective value today which was based on the objective value yesterday

44:22

right okay what I previously observed okay of course then we just have to go back a step right can't I can't go back

44:28

the step because microphone um so objective exchange value yesterday was determined then by the subjective value

44:35

yesterday which was determined by the objective value the day before yesterday I don't feel like we've improved things

44:41

right we're just kind of going to go back and for back down Turtles all the way down don't we have a problem there

44:47

right well no we don't right and that is what the origin of money tells us when we understand the origin of money we

44:53

don't trace this all the way back Turtles all the way down to Infinity right we trace it back to the time when we were actually using a commodity that

44:59

did actually have direct use value where people wanted the thing because it was directly useful right so there was a

45:05

true beginning at the end I'll keep that there's a true beginning at the end of this line of reasoning there was a true beginning in

45:12

time that then led to the value that money has today so I'm going to talk a little bit

45:18

in the time remaining which is very very short I think 30 seconds about changes in the money supply now one of the big

45:25

points that I'm going to emphasize here is that austrians take a slightly different view of this than you see in

45:31

the mainstream right in the mainstream we'll often see um touted right something like the angel Gabriel or

45:37

helicopter model right something along the lines of saying well we increase the money supply say we double it just to

45:43

make the math easy well all that really does is double prices in wages right so not really a big problem right okay

45:49

numbers all look bigger but so what this doesn't make any difference but as an Austrian we understand when we move away

45:55

from this aggregate level down to the indidual level money does not in fact drop out of a helicopter evenly across

46:00

the entire economy it enters at specific points now people that really take this

46:06

Angel Gabriel um helicopter kind of view that money just kind of drops evenly across the economy have no way of

46:13

understanding why counterfeiting would be attractive right why would you counterfeit if that's all that's happening you print out a bunch of money

46:19

then prices all rise in proportion you're not fact any better off except you are better off because your amount

46:24

of money has increased faster than prices have right right so that is in fact that's going to have consequences

46:30

you are made better off as a counterfeit because you are printing money at such a rate and it is acquiring to you right so

46:37

that you can actually get more stuff as a whole we don't have more stuff we're not more wealthy as a society but you individually are more

46:43

wealthy now if we start understanding this way things this way we can understand the argument that increases in the money

46:50

supply in our system lead to Greater inequality which certain people are concerned about right right so Trace out

46:57

right how does money work and get into our economy now in our economy a Fiat based system right money first comes in

47:03

at the point of the Federal Reserve right who's in charge of effectively printing it okay physically they don't Print It Whatever right they create the

47:09

money they get it first who do they hand it to right well they hand it to

47:15

Banks there's good research showing that if you want to look at inequality specifically between COO pay and kind of

47:21

the average worker pay do you know where the Gap is largest it's in the financial system

47:27

[Music] I'm not shocked right it in fact makes sense given the structure of the system

47:34

right this money goes first right to the finance to the r of Finance also we know one of the biggest borrowers of money

47:40

that would therefore receive it um fairly early on would be the government right so where does money go first right

47:46

it goes into right the hands right of the government the hands of Wall Street right and then over time of course it

47:52

does trickle through the rest of the economy as they do spend this money right but who gets the greatest benefit

47:58

those that get it before it has lost its value right those that those who get the greatest proportion of it as well right

48:05

before it has lost its value as well right so if you really want to understand why is it that Wall Street is so wealthy right why is it that it seems

48:11

like the government manages to find funds to to hire more people all the time in the middle of recessions they hire more people right well who's first in line when we're creating more money shouldn't be a shock okay all so I think I will have to close there unfortunately oh well so thank you very much



Last modified: Wednesday, February 12, 2025, 10:56 AM