Rune Østgård | Fraudcoin – 1000 Years with Inflation as a Policy | Part 1

In this episode I'm joined by Rune Østgård, a lawyer with a deep passion for monetary history and the author of "Fraudcoin: A Thousand Years with Inflation as a Policy" as we delve into the historical roots of inflation and its persistent role in shaping economic policies.

Rune takes us on a fascinating journey from the Viking era to the present day, revealing how inflation has been used as a tool to transfer wealth from the masses to the ruling elite. We explore the story of King Harald Hardrada of Norway, who nearly a millennium ago, began the practice of currency debasement, setting the stage for inflation as a deliberate policy.

This episode isn't just a history lesson; it's a wake-up call to the realities of our current financial system. Rune sheds light on the practices of modern central banks and the banking sector, drawing parallels between ancient tactics and today's monetary policies. We discuss the concept of monetary freedom, its resurgence in the 21st century, and the revolutionary steps countries like El Salvador and Argentina are taking towards financial autonomy.

If you've ever wondered about the true cost of inflation and who benefits from the manipulation of money supply, this episode is an eye-opener. Don't miss out on Rune's insights and the historical context that could change the way you view your money and investments.

TRANSCRIPT FOLLOWS AFTER THIS BRIEF MESSAGE

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Rune: Those who didn't accept those coins as payment, they could be punished by death. And he also ruled that there should be no foreign coins in Norway. No foreign coins. So briefly, he introduced, um, in money creation and started to debase the silver coins. And that was the beginning of inflation as a policy in Norway. And that's also why I have given my book the subtitle 1000 years with inflation as a policy, because it's almost 1000 years ago.

Phil: Hi, and welcome back to stocks for beginners. I'm Phil Muscatello. Is inflation a feature or a bug in the system? Have we been conditioned to accept inflation without realizing how much it erodes our purchasing power? Joining me in this episode to explain is Rune Ostgard.

Rune Ostgard's Fraudcoin traces inflation from Viking era to present day

Hello, Rune.

Rune: Hello, Phil. How are?

Phil: Good, good, thank you. Rune Ostgard is a lawyer and the author of Fraudcoin. A thousand years with inflation as a policy. It's an historical journey unraveling inflation and how it's designed to squeeze money from ordinary folk, from the viking era to the present day. And that's, uh, one of the things I love about it, Rune, is that you've given the historical context for where inflation has come from, especially from your ancestors, the vikings.

Rune: M. That's correct. I think it's very important to trace policies like this historically because it makes it so much easier for, uh, the average person to understand what this is all about. So that was my idea. Trace it backwards in time and look at how it has developed over time.

Speaker D: That's right.

Phil: As you say, it makes it much easier to understand when you see the brutal policies of the past and the effects that they had. So we'll get into that during the interview.

What inspired you to write this book about monetary policy and inflation

But to start with, what inspired you to write this book?

Rune: So I wrote an oped in 2008 in the midst of the, um, financial crisis. And when I researched the oped, I found some interesting stories in the royal sagas, in the norwegian royal sagas. And I pieced together how it all started. So I used it as a sort of, uh, pedagogic trick in order to make the average reader of the newspaper able to understand what monetary, uh, policy and inflation was all about. So it was a rather harsh piece where I criticized the Norriguez punk, which is the norwegian central bank, and asked for the governor to leave his post, and it got some attention. So when the inflation reared its ugly head again. I think it came to Norway in the early summer of 2022 or something like that. Then I decided I just had to pick up on where I stopped with that oped, and, um, just wanted to write a short pamphlet, a few, let's say, 1020 pages or something like that. And in the end, it became a whole book. So I just had to do it. It was something that was very deep, sort of that I felt that I had to write because I had the knowledge that perhaps not so many others in Norway had, and I knew how to get the message across to the average man in the know.

You started thinking about inflation and monetary policy 23 years ago

Phil: I'm just interested, though, where you got the idea or where you started learning about this. Uh, you're not an economist yourself, but you obviously started to think long and hard about where inflation comes from and monetary policy. How long ago was that, and what was the spark for you?

Rune: So, um, around, um, 23 years ago, I was working in the government. We were trying to reform the radio spectrum management in Norway, just like New Zealand had done in the late 1980s. And then we had to read up on economics. We didn't have economists working in my department then, so we had to learn everything from scratch, everything from auction theory to the economic function of property rights, etc. So I was lucky enough to stumble upon Ayn Rand's, uh, great novel, uh, Atlas Shrugged, which you might have heard about. And in this book, she explained how the economy and how society functions in a sort of very vivid and easy to understand way. I took away a lot of economics lessons from that book, and I also found out that Ludwig von Mises, the great austrian economist, he was one of her acquaintance, or perhaps also friends. And that led me to the austrian school of economics with Ludwig van Mises, Friedrich, and also, of course, the great Murray Rothbard. So I read a lot about monetary theory and the history of how monetary policy developed in the United States. And, yeah, it was very interesting because the monetary system is really the cornerstone of our civilization. So once you start to understand it, it's very hard to just stop thinking about it, because it's so fundamental to us as human beings.

Phil: So people like the Austrian School of economics, Ayn Rand, are often demonized these days because they're seen to know the creators of what's called neoliberalism, or unfettered capitalism and those sort of ideas. Why do you think it is that so many people are unaware of this school of economics and what it actually has to offer for ordinary people who are unwittingly being ripped off by governments.

Rune: So that's quite easy to explain, because the austrian school was the only school in economics in the 1920s and 1930s, which was really vocal about the new developments in monetary, uh, policies. So they advocated for the gold standard and sound money. But Keynes, on the other hand, John Maynard Keynes and, um, Norway, he was, uh, sort of the representative for the Oslo School of Economics, and also Irwin Fisher in the United States, a professor at Yale. They were all in favor of manipulating the money supply as sort of, ah, a tool to. Their argument was that it would be good for making the economy more efficient. So since the Austrians were opposed to these socialist ideas on controlling and manipulating the money supply, they fell out of favor with all the politicians, because the politicians, the government, they loved the ideas of these statist economists who wanted to have policy measures which enabled the growth of the state, not perhaps because they wanted to grow the state, but this, where they call it scientific, and I will also add political ideas. So the Austrians fell out of favor. Ah, and they didn't get any funding in the United States and in Europe, and this has been going on for generations. So when I talked about the austrian school of economics in, ah, 15, uh, 20 years ago, nobody understood what I was talking about. Uh, nobody had heard about it. So they have been suppressed, we might say, financially in every way, actually. But the last, we might say 15 years or something like that, they have really had a revival, and it's very important because their theory, um, is a lot more sound than the Kenyesism and also the monetarists. Yeah, the, you know.

How was King Harold Hadrada able to create inflation in Norway

Phil: Okay, let's go back a thousand years now to your fellow countryman, King Harold Hadrada. How was he able to create inflation? Or tell us, first of all, who he was? And he also ended the viking invasions of Britain at the time.

Rune: Yeah, he was a power mad, you know, just like the rest of them. And he's, uh, more or less not celebrated, but he is said to be the one who really put together Norway to one country with one central apparatus, with the state and so on. Um, and before that, it was more or less decentralized, especially in my region, which is in the middle part of Norway. It's called Trøndelag We despised kings back then. My ancestors, they killed kings now and then because they didn't like them. And Pyrol was basically the one who. He carried the torch from his half brother, uh, ulav, and another king, which he started. It was a king named Ulav Trigvasan. He started christianizing the norwegian people by sword. Using coercion and violence and all kinds of ugly things. Around 995, after Christ, and then Ula, Harold's half brother, he did the same. He was a tyrant, and he's celebrated today as a holy king, a holy person. These were despots. They tyranized, uh, everybody and forced everybody to accept the Christianity, to be baptized and so on. These two kings, they broke down the spirit of the norwegian people and changed belief systems that they had previously, because they used to love freedom, they loved sovereignty, individual sovereignty. And then they started fear the king. So when King Harald hard Radha, that means hard ruler, he killed one of the chieftains in my region, and also his son in a very cowardly plot in the year 1050. And that was the end of freedom in my area, in Trøndelag. So Hydrol killed this Chifton Anr tomboshanver because he stopped him from raising taxes. And what hydrol set out to do then was that he set up one mint in the biggest city in Norway and a second mint in another area, where he also had little power to begin with. And then he forced people to start accepting his coins and his coins only. So what he said was that, uh, or he decided that people who didn't accept his coins, those were silver coins, uh, struck with a, uh, christian cross on one side and also his name on the other side of the coin. So those who didn't accept those coins as payment, they could be punished by death. And he also ruled that there should be no foreign coins in Norway. No foreign coins. So briefly, he introduced a, ah, monopoly in money creation and started to debase the silver coins. And, uh, yeah, that was the beginning of inflation as a policy in Norway. And that's also why I have given my book the subtitle 1000 years with inflation as a policy, because it's almost 1000 years ago.

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The ruling authority will take control of the money supply

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Phil: So the process you're describing is that, first of all, the ruling authority will take control of the money supply. Like you said, you're under the threat of death if you don't accept Harold's coins. And then he can mint the coins. And debasement, I'm presuming, means that the amount of silver is reduced over time in the coin itself, thus creating that inflation. Is that a fair summary?

Rune: Yes. I think I should go a little bit more into details, because when people know that these are the only coins that he will accept when they pay taxes to him, then they have some silver. Perhaps they had some foreign coins, because in Norway until then, it was only foreign coins that circulated in the society. So they handed their silver over to the mint, and the mint struck new coins for them, and, um, they didn't hand back coins to them containing the same amount of silver. They kept some of the silver for themselves and created new coins for Harold. So Harold could basically create money out of nothing, you might say. Okay. And, um, have the ability to create money out of nothing and force people to accept his coins as payment. It pays off very handsomely because he can make money that the others, that the rest of society will have to work for. They have to work for the money. He can create money. And then it's so easy for a ruler to outcompete the rest of society in the competition for scarce resources, whether it's real estate, capital, labor, you name it. He can secure a greater and greater share of the wealth in society very quickly with that kind of policy. And also what he did was that he reduced the silver content from 90% to 33% in just 16 years. And when you do that and you require the people to pay with these coins, what happens then is that they might not notice how fast he manipulates, increases the money supply. But over time, they understand that the prices, they just increase quicker than their salaries, you might say. What they themselves earn in money sort of doesn't go up as fast as the prices that they pay for stuff in society. So what he's able to do then as a ruler is to make them run faster and faster and faster, to sort of keep up and uh, in order to maintain their wealth, the living standards. So uh, the system that he set up is more or less the exact same system as we have today. The difference is that today we don't create money out of silver and other types of metal. The money that is being created is created when the banks issue loans to people, to citizens, to institutions, to corporations, et cetera. So that's how uh, money is being created today. So today the king or the government shares this monopoly with the banking sector. They allow the banks to create money. And now it's definitely out of nothing because there is no backing in silver or gold or anything like that. It's pure electronic money or paper money or some worthless from a metal perspective at least. Um, the coins that we use today. So the policy is the same, it's totally the same. People need to understand that. It's the conspiracy when it all started, whether it was 500 years ago in your country or 300 years ago or thousand years ago almost in my country. It's how it started and to understand why it was set up. That's the important thing. Everything else which has happened afterwards is purely, that's details. A lot of it is uninteresting stuff, that's my perspective. And to sort of focus on all the small conspiracies related to who owns the central bank, et cetera, and who set up this law, et cetera. When you got new laws which facilitate the political manipulation on the money supply later on, those are uninteresting topics in my view. If you understand the basics, how it all started, how that worked, then you know more than enough.

Banks create money via loans, but they also decrease the money supply

Phil: I was actually surprised to learn about how banks do create money via loans. I think a lot of people who don't have an interest in this area just think, oh, you know, they take money on deposit and then they go and lend out that money, but they're actually creating money out of thin air, aren't they?

Rune: Yeah, that's correct. So to be a bank is a, ah, privilege. So it's a license. You have to acquire, you have to apply for this license and you have to have some capital, you have to have some skills, you have to document that, you have the formal requirements, the right people with the right education and so on, and then you're good to go. So it doesn't mean that you can create as much money as you want. Because the market forces also dictate how the prices, which is the interest, is the price for money. That dictates how much it's possible to increase the money supply. And, um, one other thing which is quite important to understand, I must admit, with today's system, and that is the role of the central bank. Because when you share a monopoly with someone, you set up an oligopoly. And then you need an institution that can coordinate the activity which goes on in the market, coordinate oligopolists. And, uh, what the central bank does is that it coordinates the increase in the money supply by regulating the price of money, which is the key interest rate. So when it sets the key interest rate, the banks are more or less forced to follow the interest rate policy and it affects the rates they set. And then that in turn affects how much money people want to borrow. It's one other thing which is also quite interesting to understand. We often talk about inflation as, uh, the problem. We say that they inflate the money supply, increase the amount of money in society. And the general price increase happens because of the increase in the money supply. But there are two other things that central bank and the government can facilitate with the system that is set up now. They can dictate who gets the most of the newly created money, which parties, which institutions, which players in society, that gets access to the newly created money. And that's what I, uh, call channelization. So you have inflation and then you have channelization. So you can channel the new money, for instance, to the most wealthy or to the public sector or. Yeah, in different ways. And, um, the third thing that you can do is deflation. You can deflate the money supply. So what you do then is that you decrease the money supply. In order to do that, you have to increase the key interest rate. So decrease the money supply. That's just another way of manipulating the money supply. So what happens then is that the real interest rate, not the nominal interest rate, but a real interest rate, goes up a great deal. Because suddenly people have to pay back their loans not only with higher nominal interest rate, but with money that has become more scarce because it's less money now in society than it was when they borrowed the money. So when it's less money available in society, then you pay back your loan with money that is more worth than the money that you borrowed. So it's a recipe for bankruptcies at a large scale in society. And this has happened several times. It happened in the Norway, it happened in many other countries at the same time in the 1920s. And, um, it is more or less what we have seen now, the last year as well, with the Federal Reserve shrinking the money supply. They started in March 2022, and then shrank it and also kept it. It went sideways a little bit and moved a little bit up and down, but they shrank the money supply and that's the same that they did in Norway. So it's a recipe for disaster. And of course, the strongest players, they benefit, uh, whether you inflate the money supply or whether you deflate the money supply. If you inflate the money supply, then they are the ones who can borrow the most money because they put up the most valuable collateral and they have the best revenue streams. So the richest and also the banks that benefit for all three of these policies. I should also mention that, uh, as you have read in my book, there's a master's, um, thesis from Norway a few years ago. It was written in 2015 or something like that. And the student who wrote the book, he quantified how much money the banking sector earns just from issuing new money. And he calculated that it was between a half a percent and 1%, approximately, of the GDP. And that's quite a, uh, handsome profit, I would say, just for creating nothing, isn't it, Phil?

Phil: It's amazing.

Rune: It's great profit.

Australia is currently having an inquiry into what it calls cost of living pressures

Phil: It's interesting that here in Australia we're currently having an inquiry into what, uh, they're calling cost of living pressures. And it seems to be that it's being used not so much to question government policy, but it's a way for bashing the supermarkets by saying that the supermarkets are gouging and they're the ones that are causing inflation and things like supply chain problems. Do you find that the governments have this look over their policy rather than pointing the finger at, ah, know, they.

Rune: Have been blaming all kinds of things. I read when know the famous pop artists came to Sweden last year, I think it was in the summer last year, the hotel prices went up and then they actually blamed Beyonce for the inflation.

Phil: Beyonce to blame, I love that.

Rune: So they are in the business of blaming everything else but the increase in the money. Know they have to point at everybody. And also the worst thing is when they point at workers and blame workers because they have unions and they went on strike and forced the employers to pay them more money to increase the salaries. But if you try to track how high the percentage is in the increase of the money supply, which in the United States and in Norway has been 7% each year, which basically waters out the value of the currency by approximately 7% each year. And you compare that with the pay increases over the years, I would say in the last 20 years, the salaries, what people earn, it has increased by perhaps, uh, 3% or something like that. So it's uh, a very ugly thing when they blame the workers for the increase in the prices. It's not only nonsense, it's pure evil. And I don't know if the unions understand this, but they don't do anything about this. I guess they are possibly part of the game. I don't know.

Phil: Well, I mean, on a very basic level, they're going to be looking out for their members and trying to make sure that their members can still afford to live.

Rune: Yeah. Then they should try to study how the monetary policy actually works and also to give lectures and make it possible for their members to understand this, because they really should do that. Uh, it should be one of the key things that they do in order to take care of the interest of the members, but it doesn't seem like they are very much interested in doing that. I guess it's the same all over the world when it comes.

The Dutch created their prosperity by encouraging monetary freedom

Phil: Let's go back a few hundred years again to when the Dutch created their prosperity by encouraging monetary freedom. Tell us about that process. I find it's really interesting because the Dutch seem to have always been very, very good at understanding how money, capital and trade works.

Rune: So it's important to understand that you have basically two types of monetary policy. The kind of policy that has been the dominant policy throughout the history of humankind. As long as we have been civilized people. The last 5000 years, most of the time it has been monetary freedom. You were allowed to use the money that you liked best. Nobody dictated what type of money that you should be allowed to use. And what happened then was that people, they preferred to use the money with the highest quality. And over time it was sort of silver and gold coins with a high quantity and high and stable quantity of silver and gold that people preferred to use. Those were the winners in sort of dyravinian selection process. So we lost that in 1050 after Christ when hydrol, hydrother came. And um, the irish people that the Celtics, they managed to preserve this, right? I think it was until the 17th, uh, century, they lost to the British, they conquered them, and they ended the monetary freedom. But in the meantime, they rebelled against the emperor in, I think it was 1566 in Poland, in the Netherlands. And after that, because they were so sick and tired of the inflation policy, they were put under thumb. And they understood this policy very well. And they introduced, or better yet, they reintroduced monetary freedom in the Netherlands. So what happened then, and that's very important to understand, was that since they were sort of an island in a sea of inflation policy, it was all over the european continent and in the nordic countries and in Great Britain, they had inflation as a policy. So when you have this inflation policy, there's always sort of, uh, a tendency that the capital and the talented people, they want to escape away from that situation. So the Netherlands, they experienced an extreme influx of money and talent. This small country, it's totally flat there, and almost only thing they have is rivers and some quite good on agriculture, of course. And a few dikes. Yeah, a few dikes. And they created a few more dikes when they got more money. So they came incredibly wealthy over a period of 150 years or something like that. It was pure magic almost. And it has been sort of almost a mystery for historians and economists, the dutch golden age. But it's directly related to the fact that you get a huge influx of talent and capital when you allow a monetary freedom to emerge again in your country.

Phil: Yeah, I know it sounds. And this monetary freedom, it's simply to do with having mints that you could take your precious metals to, and you would receive coins in return at exactly the same value that you brought along to the mint.

Rune: So what they did was that they said you could use, uh, whichever money you liked. But Amsterdam bank, it was a very good bank, which didn't engage in any fractional reserve lending at all. It was always full reserve banking. And they also set up a mint, which only took a very small charge, which covered the cost of the reminting of the silver and the gold. So they got quite a decent reputation for producing coins with high and stable value, or, um, content on silver and gold. So people preferred to use that type of standardization instead of using all kinds of money, spanish and british, et cetera. So the standardization of the coins made the coins and the silver and the gold more valuable than using coins from other countries. In the end, Amsterdam bank, they couldn't resist the temptation, so they let some of their customers overdraw. So I think this adventure lasted for about 150 years. And then it was back to the old grifting with manipulating the money supply. So it all went overboard afterwards with a lot of wars.

Phil: So what does monetary freedom look like in the 21st century from your point of view?

Rune: It's very promising actually, because these days, I should also mention that Argentina and the United States, they introduced monetary freedom after they freed themselves from the British, the colonies in the United States in the end of the 18th, uh, century and the beginning of the 19th century. They introduced monetary freedom in Argentina after their rebellion in 1816. So it lasted for at least, uh, six, seven decades or eight decades even in those two countries. So it's not very old concept, it's quite recent historical perspective at these days. What happens now is that first of all, you have had a few countries in Latin America that have sort of, uh, allowed the people to use the US dollars instead of their own native or national currency, because the people started to refuse accepting the national currency. So that was almost like a small monetary rebellion from the people's side. I wonder if it was in Costa Rica. I can't remember. And then you have El Salvador, which had been using the US dollars for a few years. And then they also decided that addition to USD bitcoin should be legal tender. So you can pay the taxes with both bitcoin and us dollars. And having the possibility to pay with two types of money, that's a whole lot more, um, freedom than being obliged to use, for instance, the pesos or something like that, which was manipulated all the time. And what happened now, just before Christmas in Argentina, they got a new president, Javier Milei. You have probably followed him a, uh.

Phil: Little bit, otherwise known as El Loco.

Rune: He's a great guy. He can be a clown and, um, also one of the smartest guys.

Phil: What an advertisement for monetary freedom and anti keynesian economics.

Rune: Definitely. So he promised that he wanted to make it possible to return to monetary freedom, but he wanted to dollarize the economy. That was his promise. And then just before Christmas, I think it was two weeks, he took up his position. Then he basically came m whether it was a proposal for a new law or if it was sort of an edict, where he said that this is now sort of decided by me as president, I don't know for sure, but what he did was that he said everybody can decide in their contracts what they want to use as, uh, payment, and they have to accept what the contracting parties have decided. If they wanted to decide that it should be paid in bitcoin, then the court had to decide that the party that owes something to the other has to pay in bitcoin and not, uh, in argentinian pesos, which is sort of a monetary policy revolution, I would say. So he actually opted for the monetary freedom alternative directly instead of going via, uh, dollarization. That being said, people probably prefer to use the dollar and also the pesos for quite a while, uh, because it's not easy to just start using many types of currencies. Uh, accounting is a challenge. It's a whole lot of things that, uh, needs to be rearranged, you might say, but at least makes it possible now to do this. And I was so happy because I know very much how much this is worth for the people.

Rune: Great. Thanks for listening to stocks for beginners podcast

Phil: Okay, so, Rune, I do like to keep these episodes around about 40 minutes long, but I still have so many questions I want to ask you because, I don't know, it's become a bit of a mission of mine on this podcast to promote the understanding of austrian economics and the way governments control the money supply, as you've been describing. So let's continue this in the next episode.

Rune: Great.

Phil: I would love to Rune Ostgard. Thank you very much for joining me in this episode, and we'll continue the conversation in another soon to be released episode as well.

Rune: Great. Thanks for having me, Phil. It's been a pleasure.

Chloe: Thanks for listening to stocks for beginners. If you enjoy listening, please take a moment to rate or review in podcast player or tell a friend who might want to learn more about investing for their future.

Thanks for having us Phil.

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