Unemployment and threaten to undermine the savings of the whole people. Well, now weve all agonized about this problem. Milton friedman has spent many years analyzing it, and hes convinced he understands the cure. As youll see in this film. The sierra nevadas in california, 10,000 feet above sea level in the winter, temperatures drop to 40 below zero. In the summer, the place bakes in the thin mountain air in this unlikely spot, the town of bodie spring up in day. Bodie was filled with prostitute drunkards and gamblers, part of the colorful history of the American West west. Is. A century ago this was a town of 10,000 people. What brought them here . Gold if this were real gold, people would be scrambling for it. A series gold strikes throughout the west brought people from all over the world all kinds of people. They came here for one purpose and one purpose only to strike rich quick. But in the process, they built cities in where nobody would otherwise have of building a city gold built these cities. And when the was exhausted, the cities collapsed, became ghost towns. Many of the people who came here ended up the way they began broken or unhappy. But a few struck it rich for them. Gold was real wealth, but was it for the world as a whole . People couldnt eat the gold. They couldnt wear the gold. They couldnt live in houses made of gold because there was more gold. They had to pay a little more gold. Buy goods and services. The prices of things in terms of gold went up at tremendous cost. At of lives. People dug gold out of the bowels of the earth. What happened to that gold . Eventually, at long last, it was transported distant places only be buried again under the ground. This time in the vaults of banks throughout the world, theres hardly that hasnt been used for money. Rock salt. In ethiopia. Brass rings in west africa. Cowry shells in uganda. Even a toy. Anything can be used as. Money. Crocodile money in malaysia. Absurd isnt it . That beleaguered minority of the population still smokes may recognize this stuff as the raw material from which their cigarets are made. But in the early days of the colonies, long before the United States established this was money. It was a common money of virginia, maryland and the carolinas. It was used for all sorts of things. Legislature voted that it can be used legally to pay taxes. It was used to buy food and housing. Indeed, one of the most interesting sites was to see the husky young fellows at that time lug 100 pounds of it down to the docks to pay the costs, the passage of the beauty young ladies who had come over from england to be their brains. Now you know how money is. Theres a tendency for it to grow for more and more of it to be produced. And thats what happened with tobacco has more tobacco produced . There was more money. And as always, when theres more money, prices went up. Indeed, at the very end of the process, prices were 40 times as high in terms of tobacco as they had been at the beginning, the process. And as always, when inflation occurs. People complained. And theres always a legislature tried do something and theres always the little avail. They prohibited classes of people from growing tobacco. They tried to reduce the amount of tobacco grown they required people to destroy part of their tobacco. But it did no good. Finally, many people took it into their own hands and they went around destroying peoples tobacco fields. That too much. And they passed a law making it a capital offense punishable mumbai death to destroy somebody elses tobacco. Greshams one of the oldest laws and economics was well illustrated. Did that law says that cheap money drives out dear money and so it was with tobacco. Anybody who had a debt to pay of course tried to pay it in the worst Quality Tobacco he had. He saved the good tobacco to sell overseas for hard money. The result was that bad money drove out good money. Finally, almost a century after they had started using tobacco as money, they established warehouses in which tobacco was deposited in barrels certified by an inspector. According his views as to its quality and quantity, and they issued warehouse which people gave from one to another to pay for the bills that they accumulated. These pieces of green printed paper are todays counterparts of those tobacco certificates, except that they bear no relation. Any commodity. In this program. I want to take to britain to see how inflation, the social fabric of society then to tokyo, where the japanese the courage to cure inflation to berlin. Where there is a lesson to be learned from the west germans. And how socalled old cures are often worse than. The disease. And to washington, where our government keeps these machines working overtime and im going to show you how inflation can be cured. The fact is that most people the early stages of the inflationary process. Now that britain in the swinging sixties there was plenty of money around. Business was brisk, jobs were plentiful and. Prices had not yet taken off. But everybody happy at first. But by the early seventies, as a good times rolled along. Prices started rise more and more rapidly, with soon, some of these were going to lose their jobs. We have got in the the party was coming to an end shut down by the were on top of the shall. The story is much the same. The United States. Only the process started a little later. Weve had one inflationary party after another, yet we still cant seem to avoid them. How come. Before every election our representatives would like to make us think. Getting a tax break and theyre able to do it while at the same time actually raising our taxes because of a bit of magic. They have in their kitbag. That magic is inflation. They reduce the tax rates. But the taxes have to pay go up because we are automatically shoved into higher brackets by the effect of inflation. A neat trick. Taxation without representation. The more i work, it seems like more they take off me. I know if i work an extra or two extra days, what they take in federal income tax alone is is almost doubled because it puts you in a higher income tax bracket and takes more off you. Bump crawford with his wife and three children in a suburb of pittsburgh. Theyre a fairly average American Family dont slam the door downing. All right how you doing make in favorite dish. Yeah. We went to the crawfords home after hed spent a couple of days working out his federal and state income taxes for the year for benefit. He tried to estimate all the other taxes he had paid way. In the end, he didnt discover much that will surprise anybody. Inflation going up. Everythings getting more expensive no matter what you do. As soon as you walk out of the house going up your gas bills keep going. Electric bills, your gasoline. You can name a thousand things that are going up, but just everythings sky high. Your. My wife goes to Grocery Store we used to live on, say. 60 or 50 every two weeks just for our basic food. Its 80 or 90 every two weeks. Things are just theyre going out of sight as far expense to live on. When i say its getting tough and the seems like every month it gets worse and worse and, i dont know where its going to end. At the end of the day. Ive spent nearly 6,000 of my earnings on. That leaves me a total of 12,000 to live on. That might like a lot of money, but five, six years ago, i was earning 12,000. How does taxation representation really affect . How much the crawford family has left to spend after its paid income taxes . Well, in 1972, bob crawford earned 12,000. Some of that income was not subject to income tax. After paying income tax on rest. He had this much left spend. Six years later, he was earning 18,000 a year. By 1978, the amount free tax was larger. But was now in a higher tax bracket. So his taxes went up by a larger percentage than his income. However, those werent worth anything like as much. Even his wages, let alone his income after taxes, hadnt kept up with inflation. His buying power was lower before that. His taxation without representation and in practice we had a number of you better to sitting here today that were with us all Night Committee and id like to tell you one of the thing there are many scapegoats blamed for inflation. How often have you heard inflation blamed on labor unions for pushing up wages, costing the workers course . Dont agree. But this is not true. This a subterfuge. This is a myth. Your wage rates are not creating inflation. And hes right. The higher wages mostly a result of inflation than a cause of it. Economists in this country, indeed the impression that unions cause inflation arises partly because union wages are slow to react to inflation, inflation and, then theres pressure to catch up on a day to day basis, trying to represent own members that in fact is not the case. Not only can we not play catch up, we cant even maintain a wage rate. Commensurate with the cost living. Its going up in this country. Another scapegoat for is the cost of goods coming from abroad. Inflation, were told, is imported higher prices abroad, driving prices at home. Its another way government can blame someone else for inflation. But this too is wrong. The prices of imports in the countries from which they come are not in terms of dollars. Theyre in terms of lira or yen or foreign currencies. What happens to their prices in dollars depends on exchange rates, which in turn reflect inflation. In the United States. Since 73, some have had a field day blaming the arabs for inflation. But if High Oil Prices were the cause of inflation, how it that inflation has been less here in germany country than most important. Every of oil and gas that it uses on the roads in an industry then example it is in the United States which produces half of its own oil. Japan no oil of its own at all. Yet at the very time that the arabs were quadrupling oil prices, the japanese people were bringing inflation down from 30 to less than 5 a year. The fallacy is to confuse particular like the price of oil prices in general. Back home, president nixon understood this now heres what i will not. I will not take nation down the road of wage and price controls. However, politically expedient that may seem the cause and may seem like an easy way out, but they are really an way in. The more trouble they that follows when you try to clamp a lid on a rising head of steam without bringing down the fire under. The pump. Wage and price only postpone a day reckoning. And in so doing, they rob every american of very important part history. Now, listen to this the time has come for Decisive Action action that will break the vicious circle of spiraling prices and costs. I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days. In addition, i upon corporations to extend the wage price freeze to all dividends. Many a political leader has been tempted to turn to wage and price controls despite their repeated failure in practice. On this subject, they never seem to learn. But some lessons may be learned that happened to british prime james callahan, who finally discovered that a very different economic myth was wrong. He the Labor Party Conference about it in 1976. We used to think that you could use your way out of a recession and increase employment, cutting taxes and boosting government. I tell you, in all candor that that option no longer exists. It only works on education since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployed as the next step. Thats the history of the last 20 years. Well, one thing to say it. One reason why inflation does much harm is because it affects different groups differently. Some benefit and of course, they attribute that to their own cleverness. Some are hurt and of course they attribute their to the evil actions of other people. And the whole problem is made far worse by the fault cures which government adopts, particularly wage and price controls. The garbage in london felt justifiably aggrieved because their wages had not been permitted to keep pace with the cost living. They struck hurting not the people who impose the controls, but their friends and neighbors who had to live with mounting piles of rat garbage. Hospital attendants felt justifiably aggrieved because their wages had not been permitted to keep up with the cost of living. They struck hurting not the people who imposed the controls, but Cancer Patients who were out of hospital beds. The behaved as a group in a way they never would behaved as individuals. One group is set against another group. The social fabric of society torn apart, inflicting that it will take decade to heal and all to no avail because wage and controls far from being a cure for inflation, only make inflation worse within the memory of most of our political leaders. Theres one vivid example of how economic ruin can be magnified by controls and a classic demonstration of what to do when it happens. Germany, 1945. A devastating country, a nation defeated war. The new governing body was the allied control commission representing the United States. Britain, france and the soviet union. They imposed strict controls on practically every of life, including wages and prices. Along with the effects of war, the results were tragic. The basic economic order of the country began to collapse. Money lost its value. People reverted to primitive barter. Or they used cameras, fountains, cigarets whiskey as money. That was less than 40 years ago. This is germany as we know it today. Transformed into a place a lot of people would to live in. How did they . Their miraculous recovery. What did they know . That we dont know. Early one sunday morning, it was june 20th, 1948, the german minister of economics, ludwig erhard, a professional economist, similar, introduced a new currency. Todays deutschmark and one fell swoop abolish almost all controls prices and wages. Why did he do it on a sunday morning . It wasnt, as you might suppose. The stock markets were closed on that day. It was as he loved to confess because the offices of the american the and the French Occupation authorities closed that day. He was sure that if he had done it when they were open, they would have countermanded the order. It worked like a charm. Within days, the shops were still full of goods within. The German Economy was along at full steam. Economists werent surprised the result. After all, thats what a price system is for. But to the rest of the world, it seemed an economic miracle that a defeated and devastated country could, in little more than a decade, become the strongest economy on the continent of europe. In a sense, this city, west berlin, is something a unique economic test to set as it is deep communist east germany. To fundamentally different economic systems here in europe. Ours and. Theirs. Separated by a political philosophies definitions of and a steel and concrete wall. To digress from inflation, Economic Freedom does not stand alone. Its part of a wider order. I wanted to show you how much difference it makes by letting you see how the people live on the other side of that berlin wall. But the east German Authorities wouldnt let us. The people over there speak the same language as the people over here. They have the same. They have the same forebears. They are the same people. Yet you dont need me to tell you how differently they live. There is one simple explanation. The political system there cannot tolerate Economic Freedom. The political system over here could exist without it. But Political Freedom be preserved unless inflation is kept in bounds. Thats the response ability of government, which has a monopoly over places like this. The reason we havent inflation in the United States or for that matter anywhere in the world is because these pieces of paper and the accompanying book entry for their counterparts in other nations are growing more rapidly than the quantity of goods and services produced. The truth is, inflation is made in one place in one place only here in washington. This is the only place where there presses like this to turn out these pieces. Paper we call money. This is a place where the power resides to determine how rapidly the amount of money shall increase. What happened to all that noise. Thats what would happen to inflation if we stopped letting the amount of money grow so rapidly. This is not a new idea. Its not new cure. Its not a new problem thats happened over and over again in history. Sometimes inflation has been cured way on purpose. Sometimes its happened by accident. During civil war, the north in the civil war overran the place in the south where the Printing Presses were setting up, where the pieces of paper were being churned out. Prior to that point, the south and had a very rapid inflation. If my memory serves me right, something 4 a month. It took the confederacy something over two weeks to find a new place where they could set up their Printing Presses start some going again. During two week period, inflation came to a halt. After the two week period when the presses running again inflation up again. Its that clear that straight forward more recently theres another dramatic example of the only effective way to deal with rampant inflation. In 1973, japanese housewives going to market were faced with an unpleasant fact. The cash in their purses seemed to be losing its value. Prices were starting to soar. As the awful story inflation began to unfold again. The japanese government knew what do. Whats more, they prepared to do it. When it was over, economists were able to record precisely what had happened. In 1971, the quantity of money started to grow more rapidly. As always happens, inflation wasnt affected for a time. But by late 1972, it started to respond. In early 73, the government reacted. It started to cut monetary. But inflation continued to soar for a time. The delayed reaction made 1973 a very tough year of recession. Inflation tumbled only when the government demonstrated its determination to keep monetary growth in check. It took five years to squeeze inflation out of the system. Japan relative stability. Unfortunately, there is way to avoid the difficult road the japanese had to follow before they could have both low inflation and a healthy economy. First, they had to live through a recession until. Slow monetary growth had its delayed effect on inflation. Inflation is, just like alcoholism in, both cases. When yo