[BLANK_AUDIO]. You're not going to do this again. [LAUGH]. The banks are not, are not going to fall for this twice, okay? So what do you do now? Okay, the second thing that Salmon P Chase did, was something called legal tenders, or the greenbacks. And I brought to class today a, my own proud possession. The top one here is a, is a greenback, okay, that's authorized by the act of March 3rd, 1863. It's not the first greenback act. I think it's the third, the third one. Ultimately, they issued, they were ultimately, Congress, the Treasury was authorized to issue $400 million worth of this stuff, okay? These are dollar bills that say on the top of them, this not is a legal tender for one dollar. Okay? [SOUND]. And what that means is, nothing. You, you, you, you can't get gold for this, you can just exchange it for another dollar bill, okay? That's it okay? The U.S. is off the gold standard, it's not legal tender, for, for anything except Payments within the United States. You're not, you're not allowed to refuse this as payment for a debt in the United States. So let's just now play this out, the second, the second phase. And understand how, how this worked. Okay, so we, we're running out of room there, so let's start here again with the same set of balance sheets. We have the government, [SOUND]. We have the private sector, [SOUND]. We have the private sector, [SOUND]. And we have the, banking system, [SOUND]. Young is, by the way, in these passages drawing heavily on the work of his, of his friend, Wesley Clair Mitchell. Who wrote a great book called The Greenbacks, about this whole period. which I've assigned sometimes in, in, not in this class but in, but in other classes, where we're reading great text. Wesley Clair Mitchell, I see no recognition of this name at all, okay? But, he was very famous professor here at Columbia. And he taught, he taught here for many, many decades. Okay, and he was a, a, he was basically one of, one of Alan Young's best friends. They grew up, they grew up together and went to, went to graduate school together and so forth. So he's leaning on the historical research and quantitative research. Wesley Clair Mitchell was one of the, one of the founders of National Bureau of Economic Research as a matter of fact, which is a big, big deal here. A big American institutionalist, quantitative economist. Okay, that's just in the side. So, how does the legal tenders work? Legal tenders work this way, okay, that the government is the is buying more goods from the private sector [SOUND], for legal tenders. It's just giving theme these pieces of paper here and I'll write that number 400 million. There were not actually 400 million ever totally issued, but almost 400 million were issued, so it's a lot of money there. Okay, that's what the private sect, so the private sector is accepting this in payment. and the, and the government is getting the war goods so the government gets war goods here as its own asset. And it is printing these legal tenders here. [SOUND]. Okay, Young is pretty aghast at this. You can see in this, in this in this article. Governments under pressure. If you're fighting a war, you do what it takes to win the war, okay? So, and he appreciates that, but you'll see there's a, there's a better way to do this, which is which we're going to come to in the third one. [COUGH]. Probably Salmon P Chase underestimated the bond market, at at this time. But he, so he starts to print money, and what happens to these legal tenders, is that they get deposited in the banking system. Or some of them because the banking system still exists. So, I'm going to say just for example here, so, this is stage one. That the private sector is taking this $400 million worth of, worth of, of greenbacks. And they deposit $100 million [SOUND] in the bank [SOUND], okay? [SOUND]. Okay, they deposit it in the bank. The legal tenders then become the asset of the banking system, and it's the legal tenders that become the reserves of the banking system. So that if somebody is withdrawing their deposit, they're withdrawing their deposit not in gold, but in these legal tenders. Essentially, what Salmon P Chase did in the hierarchy of money was to insert this sort of, legal tender money in between gold and deposits, okay? To insert it at the top of the U.S. hierarchy, okay? and, as a way, as a form of war finance, 400, 400 million, $400 million here. Okay, this had, you could never use these legal tenders, by the way, to buy, foreign war goods. Okay, that's what the gold was for, okay? This is to buy domestic war goods, okay? Foreigners, if you, if you try to, use, use, legal tenders to buy things. They're going to say well, but what's the gold value of these legal tenders? Let me, let me trade this for gold, and so he makes a big deal that throughout the war, the value of these legal tenders kept falling relative to gold. Okay, and they eventually fell to $.50 on the dollar, so that there was, there was this exchange rate effect through the falling value of the, through the falling value of the dollar internationally. There's also domestic inflation. The price level is rising domestically as a consequence of this too. Because the government is basically buying things without making anyone else buy anything less, okay? So, it's not, whereas here, when you're ex, when you're saying, I'm going to give you a bond, you're going to give my your deposits. You're reducing the purchasing power of the private sector. Here, here, you're just adding purchasing power, that didn't exist before, okay? And the consequence of this is to depreciate the value of these legal tenders relative to the pre-war, par.