Jenny Beth Martin asks Lawrence W. Reed about the world's first experience with paper hyperinflation.
France, 1715. Louis XIV has spent decades fighting wars across Europe and has spent the treasury into near bankruptcy. He dies, and Louis XV inherits an empty treasury and a long list of wants. A Scotsman named John Law gets in to see him. Reed reconstructs the conversation from its outcome: you have the police, the army and the navy, so print the money and make the people use it. At first it looks wonderful, and a large chunk of the national debt is paid off with paper. Then prices rise faster and faster, and by 1720, five years in, French paper money is completely worthless. John Law goes from savior of France to a hunted man, because somebody had to be the scapegoat and the king was never going to let it be the king.
Then the American answer. After the Civil War paper inflations in both North and South, Congress in 1875 passed the Specie Resumption Act, declaring that on January 1, 1879 American money would again be gold or paper redeemable in gold. Reed calls it a time when Congress did the right thing. The Gold Standard Act of 1900 formalized it, and it lasted thirty three years. Why do governments not like gold? Because they cannot print it. It is as simple as that.
This is part three of a four part economics series with Lawrence W. Reed, president emeritus of the Foundation for Economic Education.
Watch the full episode and the rest of the series at jennybethshow.com. Learn more about Tea Party Patriots Action at teapartypatriots.org. To tell your senators and representative to stop spending, call the Capitol switchboard at 202-224-3121.
00:00 — France, 1715: The First Paper Hyperinflation
00:39 — John Law of Scotland Gets In to See the King
01:14 — Just Print It and Make the People Use It
01:30 — The King Goes Along, and Prices Rise From the Start
01:44 — By 1720 the Paper Was Worthless
01:58 — From Savior of France to Hunted Man
02:15 — The King Needed a Scapegoat
02:27 — How America Returned to Sound Money After the Civil War
02:51 — The Specie Resumption Act of 1875
03:16 — When Congress Did the Right Thing
03:39 — The Gold Standard Act of 1900, and Why Governments Hate Gold
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