David Stockman on The Forgotten Cause of Sound Money

This year's Henry Hazlitt Memorial Lecture at the Austrian Scholars Conference was delivered by David Stockman, former budget director under President Ronald Reagan and current investment banker. In his excellent and very thought provoking lecture, "The Forgotten Cause of Sound Money," Stockman documents the far-reaching consequences of leaving the last vestiges of the gold standard in 1971.



He argues that the 2008 financial crisis was the result of leveraged speculation made possible by easy credit fueled by monetary inflation--bad investments that should have been liquidated according to ordinary free market rules. Instead they were papered over with monetary inflation and government spending.

He also explains why we do not see evidence, in the form of higher interest rates, of government borrowing crowding out private borrowing. Continued monetary inflation keeps interest rates artificially low. What has happened to the debt-to-income ratio since 1971 is astounding. The bottom line is that by resorting to monetary inflation and government deficit spending, we are borrowing GDP, not growing it.