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Saifedean Ammous: Bitcoin, Anarchy, and Austrian Economics | Lex Fridman Podcast #284


small model | large model

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You can't have a permanent war without fiat.
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And I also think there's a case to be made
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that you can't really have fiat without war.
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The following is a conversation with Safety Namus,
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one of the central and most impactful economists,
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philosophers, and educators in the world of Bitcoin.
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He's an Austrian economist, an anarchist,
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and the author of The Bitcoin Standard
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and the new book, The Fiat Standard.
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Safety does not mince words in his criticism of economists
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and humans in general with whom he disagrees.
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For example, Paul Krugman,
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who is a neo Ecclidean economist
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and a previous guest at this podcast.
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Safety's opinions are strong and often controversial.
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I do push back in this conversation,
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playing devil's advocate or trying to steal man each side.
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But as always, I do so in the service of exploring
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the rich space of ideas that Safety has
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about human nature and human civilization.
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I trust the intelligence of you, the listener,
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to come to your own conclusions.
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That is the burden of being a free thinking human.
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It is on each of us individually
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to dive into this chaos of ideas.
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And from that chaos,
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discover long lasting universal wisdom to live by.
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This is the Lex Friedman podcast.
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To support it, please check out our sponsors
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in the description.
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And now, dear friends, here's Safety Amoose.
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Let's start with a big question.
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What is money?
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And what is the role of money
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in the history of human civilization?
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Money is a medium of exchange.
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The thing that defines money is that it is a good
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that you don't buy for its own sake
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because you wanna consume it itself
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or because you want to employ it
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in the production of other goods,
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which is what capital goods are.
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So we have consumption goods, we have capital goods.
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Money is distinct from those two
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because it is a good that is acquired
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purely to be exchanged later on for other goods.
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So it's not something that you acquire for its own sake,
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you acquire it so that you can then later on exchange it.
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And that's a market good.
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That's a market good like all other goods.
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You acquire food because you eat it,
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you acquire a car to move you around,
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you acquire money so that you can exchange it
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for other goods.
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And that's something that many people
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have a hard time grasping,
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of the concept of money as a market good.
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But it is a market good, just like all others.
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And the importance of it is that it allows us to trade.
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It allows us to develop the division of labor,
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which would not be possible
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at any kind of sophisticated level without money.
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So if we live in a small society of 10 people,
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then think about all the things that we can make,
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all the things that we can produce.
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If we're only 10 people isolated from the world,
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there's only very few things that we can make.
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And therefore we can exchange those things directly
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with one another.
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But as, you know, if we get in contact with other societies
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that have more people,
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then the opportunities for specialization increase.
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You know, if there's 10 people,
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the only thing that you can make is the very basics
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you need for your survival.
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But if you're part of an economy of 10 million people,
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there's much more room for specialization.
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You can make a car, you can make a house,
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that's very sophisticated.
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And that relies on the division of labor.
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That relies on you specializing
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in doing one tiny little thing,
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which is not what you consume.
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You know, and you trade that thing
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for all the things that you consume.
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So as the economy becomes more sophisticated
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and involves more people,
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and currently we're all part of an economy
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of almost 8 billion people,
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each one of us produces one tiny little thing.
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And they exchange that thing
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for all the things that they want.
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And so, because we specialize,
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we become more productive
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in doing the thing that we're good at.
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So, you know, there's people out there who are engineers,
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who are designing windshields in cars.
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It's a very specialized thing.
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They sell windshield design to Mercedes Benz.
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And then from that, you know,
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that windshield design is added on
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to millions of cars around the world.
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And from that, they're able to get enough money
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to meet all of their needs.
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So the division of labor is enhanced enormously with money,
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because without money,
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it's very difficult to be able to exchange
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a large number of goods.
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It's very difficult to have a sophisticated economy
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with a large degree of specialization,
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because it's very difficult to find people
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who want the thing that you have
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and have the thing that you want.
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We call this the coincidence of wants.
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And that's really the problem that money solves.
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So you make apples and I make oranges.
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I'd like to have some of your apples,
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but you don't want my oranges.
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And that's, we have a problem of coincidence of wants.
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So what do I do?
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You want bananas.
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I need to find somebody who has bananas,
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give them my oranges, take their bananas,
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give you their bananas, and then I take the apples.
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In that case, bananas are a medium of exchange.
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So it's natural that a medium of exchange will evolve
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and will emerge in an economy
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as an economy becomes more sophisticated.
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As we move beyond 10 people and 10 goods,
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it's inevitable that we're going to come to a situation
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where we have the problem of coincidence of wants.
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And the way to solve that is to use a medium of exchange.
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And it can be anything.
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It can be a banana, it can be food stuff,
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it can be any kind of good.
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As long as I acquire the good
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with the purpose of passing it on to you,
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not for the purpose of me consuming it or using it,
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then that's a medium of exchange.
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So when we look at the entirety of human society
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of millions of billions of people,
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you think of them, just a bunch of individuals running around.
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I love the term coincidence of wants.
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So each one of them, it's like a stochastic system.
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They have desires, it's like a random collection of desires,
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somehow rooted in our evolutionary history,
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but mostly random in terms of preference
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of banana or apple, that kind of thing.
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And then they also have the capacity for competence
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and excellence in particular kind of labor.
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So like specialization, they're able to be like incredible
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at a particular set of tasks.
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So there's a bunch of ants running around
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with consciousness and intelligence,
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and they have desires and they have capabilities.
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And then there's a coincidence of both the wants they have
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and the capabilities they have,
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and you wanted to create a system
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that kind of exchanges those things.
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So when you imagine like what is a good, what is markets?
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When you imagine a market is like a hierarchical system,
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what do you imagine?
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What is a market?
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A market is just the name
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for the naturally emergent phenomena
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of people voluntarily exchanging things.
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It's at any scale.
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At any scale, yeah.
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Individually, it could be a market of two people
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on an island on their own.
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It could be 8 billion people across the planet.
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Naturally emerging.
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Yes, this is the thing I think that is very hard
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for many people who don't have a good understanding
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of economics to grasp that capitalism and markets
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are not something that you need a central planner
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or a government officer to make happen.
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Capitalism is just what happens
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when people are left to their own devices.
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It's just our cognitive capacity allows us to develop tools
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that we can use for production.
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And that's what we do.
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That's what humans have been doing
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since they started making spears to hunt.
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That's the first capital good probably.
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So we're constantly accumulating capital.
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We're constantly trading with one another.
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We find an opportunity.
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You've got a lot of oranges.
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I've got a lot of apples.
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Then I'll take some of yours.
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You'll take some of mine.
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We're both better off.
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This is just a naturally emergent thing.
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And money is what makes it enormously powerful.
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Money is what allows it to scale really.
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Money is what allows it to go beyond small societies
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into just something that is global.
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Because with money, again, as I was saying earlier,
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all you need to do is specialize in doing one thing,
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the thing that you do best,
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and then you exchange that for money.
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And you don't have to worry
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about whether the other people involved in this
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want what you have and have what you want.
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You just sell it for money to whoever wants it.
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And you buy whatever you want from whoever has it.
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And that's an enormous reduction in the mental burden
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of how a market economy functions.
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So the first thing that I would say about money
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is that it allows for the division of labor
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and it allows for the market system to grow.
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And the second thing is that money is a mechanism
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for storing value into the future.
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So again, as humans, we develop the capacity
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to think for the future.
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We make a spear so that we can hunt,
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and then we see that it works.
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And then we take it out of the animal
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that we hunted it with,
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and we keep it for the next day's hunt.
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And then we start making a better spear,
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and we make a better fishing rod,
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and then we make a fishing net,
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and then we make a fishing boat.
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And that's our ability to think of the future.
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And as we start building durable goods,
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we start thinking more and more of the future.
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We start becoming more and more future oriented.
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And that's really the process of civilization,
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the process of denying our needs now
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in order to think for the future.
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So instead of spending all of our day on the beach,
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enjoying ourselves, we take time off from leisure
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on the beach and spend some time making a spear
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or making a fishing rod so that our productivity
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in hunting or fishing tomorrow is gonna be higher.
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And so that ability to think for the future
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is enhanced by our ability to provide for the future.
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And we do that with durable goods.
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But then money ends up being the best mechanism
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for providing for the future,
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because the future is uncertain.
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So you can save your apples and oranges.
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You can save the spears.
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You can save the animal that you hunted.
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But these things, first they rot.
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They're not very good at holding onto their value over time.
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But even if they were,
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even if you have objects that are durable,
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the problem with them is that you don't know
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if you need them tomorrow or next month or next year.
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You're not sure if you're going to be needing them.
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And you might end up not needing them.
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And you might end up not finding anybody who needs them
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or finding somebody who needs them,
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but doesn't value them much
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and won't give you much in exchange.
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Money allows you the optionality
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of saving the most liquid good, the most saleable good.
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So it's something that you can sell tomorrow
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with the least uncertainty.
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It has the most liquidity, the most ability
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to be sold without a loss in its value.
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So money is our most advanced technology
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and our best technology for moving value into the future.
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And so I think history really,
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I argue this in all my books,
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is that really history we see,
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we can think of it as a process of our money gets harder.
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And so our money gets better
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at holding onto its value for the future.
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And by harder, I mean harder to produce.
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We find things that are hard to produce
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that are better at holding onto their value.
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So they hold onto their value better for the future.
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And that allows us to plot and plan for the future.
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That makes the future less uncertain.
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And that makes us more future oriented.
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In other words, it lowers our time preference.
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And the harder the money is,
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the better it is at allowing us to think of the future.
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So people should know that you've written the book
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Bitcoin Standard from 2018, I believe.
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And then a new book called Fiat Standard.
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The Bitcoin Standard is considered kind of the Bible
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in the cryptocurrency space, in the Bitcoin space
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of just a very rigorous systematic explanation
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of why Bitcoin, what is it, why should it be,
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why is it good?
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So you're describing in that book and in the new book,
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different implementations of the technology of money.
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In the new book, you talk about fiat money,
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which is another way to do money.
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So obviously, there's a lot of different ways to do money.
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And maybe you haven't discovered the best way to do money,
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yet our conversation today is how to do money better.
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Maybe we'll go back to bananas eventually, right?
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Very good reasons why we won't.
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Well, we can disagree.
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We can agree to disagree on this.
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I'm open minded to the bananas.
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One of the biggest source of joy to me
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when I first came to this country is eating bananas.
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And so maybe money, happiness, perishable happiness
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will eventually become the best medium of exchange.
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I don't know, open minded.
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Anyway, so you mentioned hard money and soft money.
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So there's different ways to do money.
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What is hard money?
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What is soft money?
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In the Bitcoin standard, I present the argument
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that money is always whatever is the hardest thing to make.
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Historically, I think we see many examples of that.
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So for instance, in prison, people use cigarettes as money
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because nobody can make cigarettes in prison.
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In societies, we have the example of Yap Island,
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for instance, it's an island that doesn't have any limestone
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but there's a nearby island that has a lot of limestone.
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And it's very expensive obviously with primitive technology
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to move limestone from Palau to Yap.
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So on Yap, limestones were money.
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Seashells, rare seashells that are not easy to find
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end up serving as money in places where they're rare.
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Glass beads were money in West Africa
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where there was no glass making technology
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because they were imported from abroad
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and they were very hard to make.
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And I think there's a conscious effort
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of some people might recognize the hardness
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and the scarcity and choose this as money.
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But I think what's more important
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is just a natural evolutionary process
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whereby people choose all kinds of random things as money,
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bananas maybe even.
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But then the people who end up making these bad choices
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don't end up with any wealth left.
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Whereas the people who store their wealth
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in the things that are hard to make
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end up maintaining their wealth
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and maybe even increasing it over time.
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00:14:29.120
And of course this culminated in the 19th century,
link |
00:14:32.000
in the end of the 19th century
link |
00:14:33.160
by basically the entire planet being on a gold standard.
link |
00:14:36.920
And that's...
link |
00:14:37.760
What is a gold standard?
link |
00:14:38.640
The gold standard is basically when money is gold
link |
00:14:41.800
or at least government currencies backed by gold.
link |
00:14:44.720
But the reason gold became money
link |
00:14:46.800
and not copper, not nickel, not bananas
link |
00:14:49.120
is that gold is the hardest metal in the world.
link |
00:14:52.160
And it is the hardest metal to increase the supply of.
link |
00:14:55.960
And the reason for that is based in chemistry.
link |
00:14:58.000
So gold is indestructible.
link |
00:15:01.080
You can't destroy gold in any meaningful sense.
link |
00:15:03.680
It's been accumulating stockpiles for thousands of years.
link |
00:15:08.680
The gold that was worn by Nefertiti back in ancient Egypt
link |
00:15:12.400
is today probably in somebody's necklace
link |
00:15:16.080
or in somebody's gold coin.
link |
00:15:17.120
It's still there.
link |
00:15:17.960
So for thousands of years, humans have been digging for gold.
link |
00:15:21.000
They dig it out of the ground, they refine it
link |
00:15:23.240
and then they put it in a jewelry or a coin
link |
00:15:25.880
and then it just stays there.
link |
00:15:27.440
It gets melted down into new other forms.
link |
00:15:29.880
The jewelry gets turned into coins
link |
00:15:31.520
or coins get turned into bars.
link |
00:15:34.240
But it's just stockpiles that are accumulating.
link |
00:15:38.560
On the other hand, every year we get better
link |
00:15:41.920
at our technology of looking for gold.
link |
00:15:43.880
There's more people all over the world.
link |
00:15:45.400
The population increases, the technology improves.
link |
00:15:47.880
So we keep finding more and more gold
link |
00:15:49.960
and we keep making the stockpiles bigger.
link |
00:15:52.080
However, because we're constantly adding to a stockpile
link |
00:15:55.240
that is not being devalued,
link |
00:15:57.720
sorry, that is not being consumed
link |
00:15:59.280
because there's no way of consuming gold.
link |
00:16:00.600
You can't eat it, you can't burn it, it doesn't rust.
link |
00:16:05.840
Because of that, we're constantly adding
link |
00:16:07.320
to a constantly growing stockpile.
link |
00:16:08.920
So if you look at the numbers,
link |
00:16:11.000
you see over the last 100 years,
link |
00:16:13.240
we've got pretty reliable data on gold production worldwide.
link |
00:16:16.360
We see that pretty much gold stockpiles increase
link |
00:16:19.120
at around one and a half to 2% per year, every year.
link |
00:16:22.480
So yes, we're making more every year,
link |
00:16:25.200
but we're making more so we're adding to the stockpile.
link |
00:16:28.080
The stockpile grows more.
link |
00:16:29.200
So every year we're adding only around one and a half
link |
00:16:31.560
to 2%.
link |
00:16:33.840
Compare that to the second highest,
link |
00:16:36.360
the second hardest metal historically was silver.
link |
00:16:39.160
And that increased historically at around maybe 5%
link |
00:16:42.400
per year or so.
link |
00:16:43.720
Now it probably increases at something like closer to 30%
link |
00:16:46.840
because it's now getting used extensively
link |
00:16:49.160
in industrial uses.
link |
00:16:50.840
So when you use it in industry,
link |
00:16:53.920
when you put silver in a laptop or in a camera
link |
00:16:56.440
or in a machine, effectively,
link |
00:16:59.520
you are consuming the stockpile
link |
00:17:01.040
because it's not used as money.
link |
00:17:02.600
It's taken out of the monetary stockpile.
link |
00:17:04.920
So over the last 150 years, since 1870 in particular,
link |
00:17:08.320
and I discussed this in detail in the Bitcoin standard,
link |
00:17:11.960
what happened in 1870 was Germany won
link |
00:17:14.600
the Franco Prussian war and Germany was on a silver standard,
link |
00:17:18.960
but the value of silvers was declining.
link |
00:17:21.160
So Germany did something very smart,
link |
00:17:22.640
which is they took their indemnity from France
link |
00:17:25.640
in silver and gold and use that big chunk of gold
link |
00:17:30.480
to switch to going on a gold standard.
link |
00:17:33.040
And since then, silver has been collapsing in value
link |
00:17:36.720
next to gold.
link |
00:17:37.560
So back then the price of an ounce of gold
link |
00:17:40.080
was around 15 ounces of silver.
link |
00:17:42.080
Today it's closer to 100.
link |
00:17:43.400
It's just been declining for the last 150 years.
link |
00:17:46.520
And so because of that, because of the fact
link |
00:17:48.480
that it's lost its monetary role
link |
00:17:50.720
as people shifted toward gold,
link |
00:17:52.840
the value of silver went down
link |
00:17:54.560
and so it became economical to use it
link |
00:17:56.120
in more and more industrial applications.
link |
00:17:58.240
So the stockpile declines and then as a result
link |
00:18:01.880
that weakens its monetary properties
link |
00:18:05.160
more and more and more.
link |
00:18:06.720
So that's why by the end of the 19th century,
link |
00:18:09.520
I mean at the beginning of the 19th century,
link |
00:18:10.840
gold and silver were money.
link |
00:18:12.120
By the end, it was basically only gold.
link |
00:18:14.400
And the countries that were still on a silver standard,
link |
00:18:16.800
China and India in particular suffered enormously from it
link |
00:18:19.680
because their money was devaluing very quickly
link |
00:18:22.920
next to gold and so Europeans who would come to China
link |
00:18:25.800
or India were able to buy things
link |
00:18:28.160
at practically a big discount.
link |
00:18:30.280
So I hope it's okay if I ask very simple,
link |
00:18:33.520
very basic questions.
link |
00:18:34.600
There's few people in this world that are good,
link |
00:18:37.680
as good as you are at answering very basic,
link |
00:18:41.160
almost ridiculously basic questions
link |
00:18:42.920
because I think exploring questions like what is money
link |
00:18:45.960
is a really great way to think from first principles,
link |
00:18:49.080
to really think deeply about this world.
link |
00:18:50.760
So I really appreciate you doing that.
link |
00:18:52.640
When you say standard, what does it mean?
link |
00:18:55.600
When you say silver standard, gold standard,
link |
00:18:57.560
again with a basic question.
link |
00:18:59.920
The term really I think was based out of gold.
link |
00:19:03.800
The first time this came out was the gold standard
link |
00:19:06.240
because so I said gold was money
link |
00:19:09.280
at the end of the 19th century,
link |
00:19:10.960
but it wasn't just that everybody was using gold coins
link |
00:19:13.520
and trading with gold coins
link |
00:19:15.080
because that's got a problem of divisibility.
link |
00:19:19.320
So a lot of things are worth less than one gold coin.
link |
00:19:23.400
So how do you buy that thing?
link |
00:19:25.160
And the answer was that you created the monetary instruments
link |
00:19:28.080
that were backed by gold and so currencies,
link |
00:19:31.560
national currencies under the gold standard
link |
00:19:34.360
were specific units of gold
link |
00:19:36.760
and that's how a gold standard functioned.
link |
00:19:38.960
Money was gold, but you had pieces of paper
link |
00:19:41.960
that were redeemable in gold.
link |
00:19:43.880
So you could go to the central bank,
link |
00:19:45.080
you'd give them the piece of paper,
link |
00:19:46.920
the $100 bill or the $10 bill
link |
00:19:49.120
and they'll give you gold in exchange
link |
00:19:50.960
and they give you a specific quantity of gold in exchange.
link |
00:19:53.760
Effectively, the paper was just a receipt for gold.
link |
00:19:56.200
So the paper exactly represented the amount of gold.
link |
00:19:59.440
Exactly, that was the plan.
link |
00:20:01.080
That was what it's supposed to do,
link |
00:20:03.160
but arguably we never had a pure gold standard
link |
00:20:07.240
because the nature of gold means
link |
00:20:09.200
that the people who are in charge of the gold,
link |
00:20:12.000
they have an enormous amount of power
link |
00:20:13.480
because the gold is concentrated with them
link |
00:20:15.120
and as long as not everybody shows up at the same time
link |
00:20:17.800
asking for their gold,
link |
00:20:18.840
then you can make more receipts than you have gold.
link |
00:20:21.720
So there's always shady stuff going on,
link |
00:20:24.160
but at least that's the state of gold
link |
00:20:26.120
is the receipts should exactly represent
link |
00:20:28.320
the amount of gold there.
link |
00:20:29.840
And also when you say standard,
link |
00:20:31.720
it means that governments sort of publicly stated
link |
00:20:38.160
that this is the approved,
link |
00:20:40.480
the main way of making transactions that are monetary.
link |
00:20:44.040
So this is the money, this is the official money
link |
00:20:46.760
that you should be using if you live in this country.
link |
00:20:48.760
Yes, although I would say it's more like
link |
00:20:51.320
the other way around.
link |
00:20:52.160
It's not that the governments established gold as money.
link |
00:20:55.440
It's more like gold gave the governments
link |
00:21:00.040
the credibility for their currencies.
link |
00:21:01.920
So governments were not the ones that made gold money.
link |
00:21:06.320
Gold has been money before states were invented.
link |
00:21:10.440
States, if you have a government
link |
00:21:12.240
and you'd like to have some legitimacy
link |
00:21:14.200
and you'd like to be able to deal with other governments
link |
00:21:16.600
on an equal footing, you had to go by the gold standard.
link |
00:21:19.800
You had to have a currency that was redeemable in gold
link |
00:21:22.480
so that you could trade with the rest of the world
link |
00:21:24.120
so that people could in your country use that currency.
link |
00:21:28.160
So it's not that governments were choosing gold.
link |
00:21:32.120
It's more like they were having to adapt
link |
00:21:35.440
their own currencies to gold
link |
00:21:37.760
in order to give their currencies credibility.
link |
00:21:39.360
So there's a dance there though,
link |
00:21:40.960
because if they had to,
link |
00:21:43.560
then why did they switch away from it after?
link |
00:21:46.520
So there is a dance where the governments,
link |
00:21:49.640
the people pressure.
link |
00:21:52.120
So first of all, the basic characteristics
link |
00:21:56.040
of the hard money pressures the governments
link |
00:21:59.720
and the people in terms of what should be used.
link |
00:22:02.720
Then the people, based on their community,
link |
00:22:05.200
the network effects, the narratives they tell each other,
link |
00:22:09.200
all that kind of stuff, they pressure the governments
link |
00:22:12.400
to take on a particular money.
link |
00:22:14.080
Then the governments, they like power,
link |
00:22:17.960
they like control, all those kinds of things.
link |
00:22:19.720
They pressure the people
link |
00:22:21.080
and tell different kinds of narratives.
link |
00:22:22.280
So there's a dance going on in this evolution
link |
00:22:24.880
of what technology to use for a monetary system.
link |
00:22:27.400
So the reason I don't know if governments had to,
link |
00:22:32.400
because they clearly didn't have to,
link |
00:22:34.240
because they eventually moved away from it.
link |
00:22:37.440
But there was pressure probably.
link |
00:22:39.040
Yeah, but even after they moved away from it,
link |
00:22:41.320
central banks, until today,
link |
00:22:42.520
they still hold a lot of gold reserves.
link |
00:22:45.000
In fact, if you look at 1914,
link |
00:22:47.480
when the world really went off the gold standard,
link |
00:22:51.200
the amount of gold reserves held by central banks
link |
00:22:53.720
was a tiny fraction of what it was.
link |
00:22:55.720
As time went on,
link |
00:22:57.440
central banks accumulated more and more gold.
link |
00:22:59.840
What ended up happening is they prevented their citizens
link |
00:23:02.160
from using the gold, but they continued to use it.
link |
00:23:04.240
So gold continued to be money up until 1971
link |
00:23:07.560
because effectively the world was on a dollar standard
link |
00:23:10.800
and the dollars were backed by gold.
link |
00:23:12.960
But then after 1971, even then,
link |
00:23:15.600
central banks continued to accumulate gold
link |
00:23:17.280
because why would you as a central bank
link |
00:23:20.000
want to accumulate pieces of paper effectively
link |
00:23:22.520
or credit liabilities of another central bank
link |
00:23:25.240
that can produce them infinitely?
link |
00:23:27.960
And it's a lesson that's becoming more and more obvious
link |
00:23:31.800
to governments today,
link |
00:23:33.680
as we see US sanctions taking, say, Russian reserves
link |
00:23:36.640
or Afghanistan reserves.
link |
00:23:39.040
And this is why we see China and Russia
link |
00:23:40.840
have accumulated a lot of gold over the last 10, 20 years.
link |
00:23:44.080
So just to return to the question of definitions,
link |
00:23:48.440
so what is hard money versus soft money?
link |
00:23:51.000
Yes, so hard, I mean, it's a relative thing,
link |
00:23:54.120
but the hardness refers to the difficulty
link |
00:23:56.560
of producing more units of the money supply.
link |
00:23:59.520
So an easy money would be a money
link |
00:24:01.640
that is relatively easy to make.
link |
00:24:04.480
So you can increase the supply by 10, 20, 30, 40, 50%
link |
00:24:08.840
or something like that.
link |
00:24:09.680
So pretty much all commodities, all market commodities,
link |
00:24:12.640
other than gold and silver, they're easy money
link |
00:24:15.560
and they're not suitable as a monetary medium
link |
00:24:18.920
because they're being consumed.
link |
00:24:20.160
So if you look at, and in the Bitcoin standard,
link |
00:24:22.320
I mentioned this metric called the stock to flow ratio,
link |
00:24:25.080
which is the ratio of the annual production, the flow,
link |
00:24:28.840
to the stockpile, the existing stockpile.
link |
00:24:31.480
If you look at all the other metals,
link |
00:24:33.120
they're easy money because they're being consumed.
link |
00:24:36.160
So think about how much stockpiles of copper
link |
00:24:38.360
there are in the world today.
link |
00:24:40.120
So copper companies obviously have
link |
00:24:41.960
some stockpiles of copper.
link |
00:24:44.000
Major copper consumers will have stockpiles of copper,
link |
00:24:47.080
but the vast majority of copper
link |
00:24:48.600
is essentially on a conveyor belt of production
link |
00:24:53.120
from the mine straight to the consumer good
link |
00:24:56.840
that it's being used for.
link |
00:24:58.480
So the existing stockpiles are roughly
link |
00:25:01.800
in the range of one year's production.
link |
00:25:04.920
If you take all of the companies,
link |
00:25:06.800
I don't have exact statistics,
link |
00:25:09.040
hence it's very difficult to get these,
link |
00:25:10.440
but it's roughly in the same range.
link |
00:25:12.760
Like if copper production were to stop completely today,
link |
00:25:17.280
we'll have about a year's production
link |
00:25:19.520
stored in various places.
link |
00:25:22.000
So that makes copper terrible money
link |
00:25:24.720
because if you started using copper as money,
link |
00:25:27.480
and this is why a lot of people say,
link |
00:25:28.880
well, money is a collective illusion.
link |
00:25:30.680
Money is a social construct.
link |
00:25:34.240
If we all agree that something is money,
link |
00:25:35.960
then something is money.
link |
00:25:36.800
I think this is completely clueless,
link |
00:25:37.880
and it's usually Marxists who believe this,
link |
00:25:40.000
obviously no understanding of economics.
link |
00:25:42.280
It's completely clueless
link |
00:25:43.360
because even if everybody in society
link |
00:25:45.640
decided we wanted to make copper as money,
link |
00:25:47.880
even if we all decided to collectively
link |
00:25:50.400
take part in this hallucination or illusion,
link |
00:25:53.320
it would not make copper money.
link |
00:25:54.960
It would just make everybody who decides
link |
00:25:56.720
to take part in this hallucination poor, that's it.
link |
00:25:59.480
It would make copper miners rich.
link |
00:26:01.040
It would make all of the people
link |
00:26:02.240
who chose copper as money poor,
link |
00:26:04.160
and copper would not be money.
link |
00:26:05.640
It can't work because what happens is,
link |
00:26:07.720
because of the fact that the stockpiles are so small,
link |
00:26:10.280
if you buy, you know,
link |
00:26:11.320
even if you get the 1,000 richest people in the world,
link |
00:26:14.120
all of the world's billionaires,
link |
00:26:16.240
they get together,
link |
00:26:17.080
and they all dump all of the money that they have,
link |
00:26:19.680
all the stocks, all the bonds, all the gold,
link |
00:26:22.520
all of the Bitcoin, everything that they own,
link |
00:26:24.440
they dump it, and they buy copper with it.
link |
00:26:27.520
What's gonna happen?
link |
00:26:28.360
Price of copper is gonna go up a lot,
link |
00:26:30.840
but what's gonna stop copper miners
link |
00:26:33.040
from flooding the market with even more copper
link |
00:26:36.000
than what the billionaires bought?
link |
00:26:37.800
Nothing.
link |
00:26:38.640
They're gonna dump all of that extra copper production.
link |
00:26:41.880
If the price of copper is gonna go up
link |
00:26:43.040
so there will be a lot more copper mining
link |
00:26:45.640
than all the other metals,
link |
00:26:47.080
a lot of nickel companies and gold miners
link |
00:26:51.080
are gonna switch to focusing on copper,
link |
00:26:53.480
and then we're gonna dump an enormous amount of copper
link |
00:26:56.200
on the market.
link |
00:26:57.040
The value of copper is gonna crash,
link |
00:26:59.000
and the people who chose copper as money
link |
00:27:01.560
are just gonna end up with large warehouses
link |
00:27:03.760
of very cheap rusting metal.
link |
00:27:06.480
So that's a brilliant description,
link |
00:27:07.920
and that kind of pushes towards gold
link |
00:27:09.880
where the stock to flow ratio,
link |
00:27:13.240
I guess you would say is 1.5 to 2%,
link |
00:27:15.560
like you mentioned earlier.
link |
00:27:16.840
That would be like the inverse of the stock to flow.
link |
00:27:18.680
That's the supply growth rate,
link |
00:27:19.960
so the stock to flow is the inverse.
link |
00:27:21.240
It's around 60.
link |
00:27:22.560
60, got it.
link |
00:27:23.680
But let me push back on,
link |
00:27:26.000
as somebody who likes human psychology,
link |
00:27:27.800
let me push back on the collective hallucination
link |
00:27:30.920
and the illusion.
link |
00:27:32.120
So that's for copper, but what about paper money?
link |
00:27:35.860
That's not, you can't smoke it,
link |
00:27:40.980
you can't eat it.
link |
00:27:42.420
It's just, it's supposed to represent,
link |
00:27:44.820
it's supposed to just be the medium of exchange,
link |
00:27:47.020
and in that sense, what role does collective hallucination
link |
00:27:53.980
play in the effectiveness of money?
link |
00:27:56.060
Exactly zero, because all of the paper money,
link |
00:27:59.060
first of all, there's never been an instance,
link |
00:28:00.900
and again, this flies in the face
link |
00:28:04.780
of a lot of what a lot of people like to think about money.
link |
00:28:08.180
There's never been an instance
link |
00:28:09.420
where a government came out and said,
link |
00:28:11.980
all right, we're printing out these pieces of paper,
link |
00:28:13.700
use them as money.
link |
00:28:14.540
This one is worth 10 apples or use it for buying things,
link |
00:28:19.020
and here's the piece of paper.
link |
00:28:19.900
This has never happened.
link |
00:28:21.340
They've always taken fiat money, paper money,
link |
00:28:26.620
all of these things were always born out of fraud.
link |
00:28:30.660
Initially, it was a receipt for gold,
link |
00:28:32.740
and then they told you, well, you know,
link |
00:28:34.860
you don't need the gold anyway, and you have to use this,
link |
00:28:36.940
and then if you don't use it, we throw you in jail.
link |
00:28:39.460
And then, so first of all, it doesn't,
link |
00:28:42.900
you can't enforce this thing,
link |
00:28:44.340
so it's never really just happened,
link |
00:28:45.700
and it's never been hallucinated into existence.
link |
00:28:48.340
People can hallucinate this kind of nonsense
link |
00:28:50.100
in writing textbooks and books and in academia,
link |
00:28:54.340
but in the real world, people don't hallucinate money.
link |
00:28:57.580
People are very careful about what they put their money in.
link |
00:29:00.140
For people listening,
link |
00:29:01.540
we're gonna have fun in this conversation,
link |
00:29:03.100
because you already said Marxist, fraud, hallucination,
link |
00:29:08.340
just because we use these words doesn't mean they're true,
link |
00:29:11.500
but they're fun to talk about.
link |
00:29:12.900
So you have a strong certainty about the way you talk,
link |
00:29:17.220
which I think is fun,
link |
00:29:20.100
but allow me in my dumb self to push back,
link |
00:29:22.400
to play devil's advocate,
link |
00:29:23.740
and I'll actually ask you sometimes
link |
00:29:25.180
to play devil's advocate if possible,
link |
00:29:27.180
because you're smarter than me on all this stuff,
link |
00:29:28.880
so we want the smartest devil's advocate possible,
link |
00:29:33.500
and I'm certainly not that, but anyway,
link |
00:29:35.820
but nevertheless, we are currently on a fiat standard,
link |
00:29:41.460
so money does have value, paper money,
link |
00:29:50.420
and the reason it has value
link |
00:29:51.900
is because we believe it has value.
link |
00:29:53.780
To what degree, if we put the hallucination word aside,
link |
00:29:57.760
the belief that something is worth value
link |
00:30:01.220
is actually value, and is the thing that helps money work,
link |
00:30:06.060
because you're saying it's fraud,
link |
00:30:09.220
and the belief is almost valueless,
link |
00:30:13.780
but how much value?
link |
00:30:14.860
Can we quantify the value of the belief,
link |
00:30:17.380
the collective belief?
link |
00:30:18.460
I should say, all economics is subjective.
link |
00:30:21.660
I consider myself an Austrian school economist,
link |
00:30:24.180
and the starting point of all Austrian economics
link |
00:30:26.740
is that all value is subjective,
link |
00:30:28.900
so obviously, value only exists
link |
00:30:33.300
because humans choose to make the valuation.
link |
00:30:35.900
However, the economic reality of the way that money works
link |
00:30:40.020
means that it's just a technology like all others,
link |
00:30:42.640
and so for me, when people say,
link |
00:30:45.060
well, if we hallucinate that this thing can be money,
link |
00:30:47.220
then it'll be money.
link |
00:30:48.220
If we can hallucinate bananas to be money,
link |
00:30:49.900
then it'll be money.
link |
00:30:50.860
For me, it's like saying, well, if we hallucinate
link |
00:30:52.380
that bananas can be spaceships, they'll be spaceships.
link |
00:30:54.960
I mean, you can call them spaceships if you want,
link |
00:30:56.940
but a banana's not gonna get you to the moon.
link |
00:30:59.700
Well, then nevertheless, that's true.
link |
00:31:03.080
So you're drawing a big distinction
link |
00:31:05.060
between physical reality and the space of belief,
link |
00:31:09.340
but it seems like so much power of human civilization,
link |
00:31:14.580
so much destruction, so much creativity, creation,
link |
00:31:18.940
happens in our minds.
link |
00:31:21.180
Absolutely, everything does happen in the mind.
link |
00:31:23.540
You're not gonna get to the moon,
link |
00:31:24.980
but you might still have a significant impact
link |
00:31:27.580
on human civilization if a lot of people believe a thing.
link |
00:31:31.540
True, but economic reality exists in a way
link |
00:31:35.420
in which your beliefs are rewarded
link |
00:31:37.940
when they match up with economic reality,
link |
00:31:40.620
and they're punished when they don't.
link |
00:31:41.900
So if you ride a banana and jump off a cliff
link |
00:31:44.740
thinking you're gonna get to the moon,
link |
00:31:46.940
that solves the problem of people thinking
link |
00:31:48.620
that bananas are spaceships by killing people
link |
00:31:50.620
who think that bananas are spaceships.
link |
00:31:53.020
And I think, to go back to your question
link |
00:31:55.020
in terms of paper monies, so yes,
link |
00:31:56.820
even though ignoring the original sin
link |
00:32:01.380
of the creation of fiat money,
link |
00:32:02.980
and ignoring everything that happened before 1971,
link |
00:32:05.460
all right, well, here we are, people are using,
link |
00:32:07.860
well, it's not really paper money.
link |
00:32:09.340
We should say fiat money is predominantly credit.
link |
00:32:12.780
So it's also a digital currency.
link |
00:32:15.020
So more than 90% of dollars are digital.
link |
00:32:18.780
Less than 10% of dollars are physical.
link |
00:32:21.380
So it is a digital currency,
link |
00:32:22.740
and all over the world, all these governments
link |
00:32:24.700
are using digital currencies effectively
link |
00:32:26.420
with some physical manifestations in paper.
link |
00:32:29.500
But yet, even within these currencies,
link |
00:32:32.380
it's still the same analysis,
link |
00:32:33.740
and I discussed this in chapter four,
link |
00:32:35.140
the Bitcoin standard.
link |
00:32:36.300
You look at government monies,
link |
00:32:37.700
you see that the currencies that have held onto their value,
link |
00:32:40.140
the ones that have the biggest value,
link |
00:32:42.180
the ones that play the biggest role in global trade,
link |
00:32:44.660
the ones that are used as currency reserves
link |
00:32:46.900
all over the world,
link |
00:32:48.100
are the ones that have the lowest supply growth rate.
link |
00:32:50.860
The ones that grow, whose central banks
link |
00:32:53.420
are the least inflationary.
link |
00:32:55.380
And on the other hand,
link |
00:32:56.420
the ones who supplies more inflationary,
link |
00:32:58.900
similar to copper, end up failing.
link |
00:33:00.900
You look at Lebanon, Venezuela, Zimbabwe,
link |
00:33:03.460
these are currencies whose supply increases very quickly,
link |
00:33:06.500
and therefore, their value collapses.
link |
00:33:09.060
Whereas the dollar, the Swiss franc, the Euro,
link |
00:33:12.540
the British pound, the Japanese yen,
link |
00:33:14.940
they increase at a much lower rate in general
link |
00:33:17.140
than these terrible currencies.
link |
00:33:20.220
And that's why all over the world,
link |
00:33:21.940
you see people are looking to get more dollars
link |
00:33:24.180
and more of these harder currencies than the easier ones.
link |
00:33:28.180
So I think this analysis of the hardness of the money
link |
00:33:32.380
and the ease of money is pretty well supported empirically.
link |
00:33:37.580
So like you said, you're at least in part,
link |
00:33:40.780
or in whole, consider yourself an Austrian economist.
link |
00:33:44.740
So you're perhaps a great person to ask about the basics.
link |
00:33:48.980
What is Austrian economics?
link |
00:33:50.500
What is Keynesian economics?
link |
00:33:52.220
How do you compare the two?
link |
00:33:54.660
What should people know?
link |
00:33:56.340
What are the interesting defining characteristics
link |
00:33:59.580
to you about these schools of thought?
link |
00:34:01.700
So Austrian economics, the way that I say it,
link |
00:34:03.340
Austrian economics is economics.
link |
00:34:04.900
It's, we call it Austrian economics
link |
00:34:07.660
because economics has been hijacked
link |
00:34:09.420
by a bunch of frauds, really.
link |
00:34:11.420
Or people who are wrong, okay.
link |
00:34:12.860
Well, it's much worse than wrong,
link |
00:34:14.540
by people who are just essentially propagandists
link |
00:34:16.620
for inflation.
link |
00:34:17.460
Right.
link |
00:34:18.500
So.
link |
00:34:19.340
It's like your opinion, man.
link |
00:34:20.180
Right.
link |
00:34:21.020
Yeah, well, that's also like your opinion, man.
link |
00:34:23.820
Yeah.
link |
00:34:24.660
But you asked.
link |
00:34:25.500
That's true.
link |
00:34:26.340
Well, I also talked to Paul Krugman on this podcast.
link |
00:34:28.620
So he's, the O speaks enough,
link |
00:34:32.740
but he's one of the people
link |
00:34:35.500
that is perhaps most harshly criticized
link |
00:34:38.700
by folks in Austrian economics perspective
link |
00:34:42.660
and vice versa, which is a fascinating tension.
link |
00:34:45.740
Yeah, he's done a great job as an actor
link |
00:34:48.940
who plays an economist on TV and the internet.
link |
00:34:52.420
So anyway, now tell me what you really think.
link |
00:34:55.420
No, but, so the basics of what is Austrian economics?
link |
00:34:58.580
What is the, what perspective does it take on the world?
link |
00:35:00.580
Yeah, so I mean, Austrian economics really is
link |
00:35:03.900
the continuation of a tradition
link |
00:35:06.060
that it goes back to the ancient Greeks
link |
00:35:08.380
of studying economics.
link |
00:35:09.660
Historically, it's really just economics
link |
00:35:13.260
and that has evolved over time.
link |
00:35:14.620
And the establishment of the Austrian school per se
link |
00:35:20.300
came in 1871, 150 years ago,
link |
00:35:23.500
when Karl Menger, the father of the school,
link |
00:35:25.500
wrote a book called Principles of Economics
link |
00:35:28.100
and essentially invented marginal analysis,
link |
00:35:30.820
which is a big deal in economics.
link |
00:35:32.780
Marginal analysis is the idea that in economics,
link |
00:35:35.300
individuals carry out decisions at the margin,
link |
00:35:37.780
that it's, when you make choice, you're not making it.
link |
00:35:42.660
For instance, if you're making a choice
link |
00:35:43.980
between what should I spend my money on,
link |
00:35:46.740
you're not making a choice whether it is,
link |
00:35:49.700
this thing is object A or B,
link |
00:35:51.820
which one is more valuable for me in general,
link |
00:35:53.820
which one is more valuable for me for the rest of my life.
link |
00:35:56.740
You're choosing about the next unit right now
link |
00:35:59.380
at this point, at this stage.
link |
00:36:00.900
And if you analyze economic decision making at the margin,
link |
00:36:04.060
it makes a lot more sense and you can understand
link |
00:36:05.980
why people decide and make the decisions that they do.
link |
00:36:09.660
Whereas if you don't apply marginal analysis,
link |
00:36:12.540
things don't make sense.
link |
00:36:14.300
The key thing that marginal analysis helps us solve
link |
00:36:17.220
is what is called the water diamond paradox.
link |
00:36:19.780
So you will die without water.
link |
00:36:22.220
We all need water and yet water is dirt cheap.
link |
00:36:25.820
Whereas diamonds are extremely superfluous,
link |
00:36:29.260
nobody needs them.
link |
00:36:30.940
Nobody is gonna live or die because they have a diamond
link |
00:36:33.660
and yet they're extremely expensive.
link |
00:36:35.460
So why is it that as human beings,
link |
00:36:37.020
we pay maybe say a dollar a liter for water,
link |
00:36:41.660
whereas we pay thousands of dollars
link |
00:36:43.140
for a few grams of diamonds.
link |
00:36:44.940
Why is this the case?
link |
00:36:46.140
Do we value water less than diamond?
link |
00:36:49.260
The answer is no, but at the margin where we are right now,
link |
00:36:53.940
you live in a place where water is very abundant
link |
00:36:55.860
because cities are only built in places
link |
00:36:57.900
where water is abundant.
link |
00:36:59.620
And you're only making a choice
link |
00:37:03.500
about the next unit of water.
link |
00:37:05.300
And so water is extremely abundant
link |
00:37:07.260
and you're choosing about whether to spend
link |
00:37:10.380
the next unit of money on water.
link |
00:37:14.580
The valuation that you give to water,
link |
00:37:16.420
given that you have a lot of water at home
link |
00:37:18.900
and that you live in a place that has abundant water
link |
00:37:21.420
is pretty low to the marginal unit,
link |
00:37:24.660
but it's very high for water overall.
link |
00:37:26.940
So if I asked you,
link |
00:37:28.420
how much would you spend for water in general?
link |
00:37:31.980
How much would you pay for water for all of your life?
link |
00:37:34.940
It would be a lot higher than diamonds.
link |
00:37:36.980
If I told you, you can only have water or diamonds
link |
00:37:39.180
for the rest of your life.
link |
00:37:40.500
You choose water, obviously,
link |
00:37:42.340
but nobody's ever had to make that choice.
link |
00:37:44.940
You only make your choices at the margin.
link |
00:37:47.220
So at the margin where we are, modern civilization,
link |
00:37:50.300
we have an abundance of water.
link |
00:37:51.540
That's why we have civilization
link |
00:37:53.100
and diamonds are very rare and scarce.
link |
00:37:54.980
And people are only buying,
link |
00:37:58.340
you buy your first diamond when you're gonna get married,
link |
00:38:01.780
you give it to your wife
link |
00:38:03.260
and that's gonna be the first few grams of diamond
link |
00:38:06.660
that she's ever gonna own.
link |
00:38:07.500
Giving my wife water.
link |
00:38:09.980
Smart move.
link |
00:38:10.820
You should definitely give her Bitcoin instead of diamonds.
link |
00:38:13.180
I tell my wife, I occasionally remind her
link |
00:38:15.660
of how many Bitcoin we could have had
link |
00:38:18.100
if I bought her Bitcoin with the price of the diamond ring.
link |
00:38:20.300
What's the downside of, by the way, diamonds
link |
00:38:22.580
from the analysis of like gold and so on?
link |
00:38:25.620
Ah, that's a great question.
link |
00:38:28.420
Arguably, diamonds are a scam.
link |
00:38:30.060
Because they became popular as a thing in marriage
link |
00:38:37.500
after gold was banned,
link |
00:38:39.060
after gold ownership was banned in the US in the 1930s
link |
00:38:41.780
and in many places around the world.
link |
00:38:43.460
So before that, you'd give gold.
link |
00:38:44.900
And the reason you'd give gold in a dowry, in a wedding
link |
00:38:49.380
is because it wasn't just that it's pretty and shiny,
link |
00:38:52.500
it's because it's money.
link |
00:38:53.700
And so if you die, your wife can take the gold
link |
00:38:58.060
and she can live off of it.
link |
00:39:00.460
It's a demonstration that you're giving her
link |
00:39:01.860
something valuable.
link |
00:39:03.180
And that's because nobody can make a lot more gold.
link |
00:39:05.820
It has the high stock to flow ratio.
link |
00:39:07.140
But then they banned gold ownership,
link |
00:39:09.700
or they allowed people to only own
link |
00:39:11.100
very tiny quantities of gold.
link |
00:39:12.780
And that's when the diamond industry stepped in
link |
00:39:15.420
and marketed diamonds as the thing that you need to give.
link |
00:39:19.940
But the problem with it is, of course,
link |
00:39:21.500
that the diamonds aren't like gold.
link |
00:39:23.780
They're not very hard to make more of.
link |
00:39:27.100
And the reason we have scarcity in diamonds
link |
00:39:29.700
is really artificial.
link |
00:39:30.580
There's effectively a monopoly of diamond producers.
link |
00:39:34.420
They restrict the supply.
link |
00:39:36.580
And it's a pretty dirty business.
link |
00:39:39.060
And the way that they do it is,
link |
00:39:40.300
all of the talk about blood diamonds
link |
00:39:44.140
is a way for them to ensure their monopoly.
link |
00:39:46.300
So if you're part of the monopoly of diamond producers,
link |
00:39:51.180
then it doesn't matter how many people get killed
link |
00:39:53.340
producing your diamonds.
link |
00:39:54.420
If you're out of the monopoly,
link |
00:39:55.860
then human rights organizations descend on you
link |
00:39:58.620
and call for shutting you down for selling blood diamonds.
link |
00:40:02.180
And they're also restricting
link |
00:40:03.180
the production of artificial diamonds.
link |
00:40:04.460
This is the other thing.
link |
00:40:05.300
You can make artificial diamond,
link |
00:40:06.420
you can't make artificial gold.
link |
00:40:08.420
So they restrict the production of artificial diamond
link |
00:40:11.060
and they try and insist that, you know,
link |
00:40:13.500
you shouldn't take artificial diamonds,
link |
00:40:15.420
but they're indistinguishable from real diamonds.
link |
00:40:18.820
So it's an artificial scarcity.
link |
00:40:20.340
And I think there's gonna come a point at some point
link |
00:40:22.140
that this monopoly is gonna break.
link |
00:40:23.380
And a lot of people are gonna be left with essentially
link |
00:40:28.460
highly devalued jewelry.
link |
00:40:30.540
I'm gonna take this segment of the podcast,
link |
00:40:32.780
when I'm getting married, when the sun's up,
link |
00:40:34.580
and then instead you're getting water or Bitcoin.
link |
00:40:38.660
Yes, water and Bitcoin is all you need.
link |
00:40:40.660
So marginal analysis, focusing on the margin
link |
00:40:44.140
is the thing that allows you
link |
00:40:45.380
to most accurately capture human nature,
link |
00:40:47.900
the actual day to day decisions that we humans make.
link |
00:40:50.820
Yeah, that's really revolutionized economics, so 1870.
link |
00:40:55.620
And that was Menger's work.
link |
00:40:59.180
And then he had a student, Eugen Bomberg,
link |
00:41:02.580
who developed capital theory.
link |
00:41:05.020
And then he had a student, Ludwig von Mises,
link |
00:41:07.060
who is arguably the most important economist ever.
link |
00:41:10.620
And he developed theory of money.
link |
00:41:12.620
And he wrote a book in 1912
link |
00:41:14.980
called The Theory of Money and Credit.
link |
00:41:17.420
And then in the 40s, he wrote Human Action,
link |
00:41:20.180
which is a big treatise on economics.
link |
00:41:23.300
And I think this is the correct tradition of economics.
link |
00:41:27.340
And before World War I, this was just known as economics.
link |
00:41:32.340
And then after what happened in World War I,
link |
00:41:35.580
and I discussed this in detail in the Fiat Standard,
link |
00:41:37.740
is that the Bank of England essentially went off gold
link |
00:41:42.220
and tried to pass off their own credit
link |
00:41:45.220
as being as good as gold in order to finance the war.
link |
00:41:49.780
And incidentally here,
link |
00:41:51.380
this is part of the history that is not discussed often.
link |
00:41:54.060
This is presented as an innovation.
link |
00:41:57.340
Later on, they needed essentially a propaganda school
link |
00:42:00.860
that would justify what they did.
link |
00:42:03.260
And later on, it's presented as,
link |
00:42:05.420
oh, hey, we realized that gold was not good.
link |
00:42:08.180
And now look, we've built this thing
link |
00:42:10.700
that is better than gold,
link |
00:42:11.860
where now the government can just print money
link |
00:42:13.500
whenever it wants.
link |
00:42:14.380
And now gold money is not an issue anymore,
link |
00:42:17.980
which is extremely idiotic
link |
00:42:20.060
because the whole point of money
link |
00:42:22.140
is that it's not easy to make.
link |
00:42:23.380
If it's easy to make, it's not money anymore.
link |
00:42:24.900
It's just destroying the entire function of money.
link |
00:42:27.500
And we've seen that happen extensively
link |
00:42:28.980
in the 20th century
link |
00:42:30.380
after countries went off the gold standard.
link |
00:42:32.860
So essentially Keynesian economics
link |
00:42:35.060
is just inflation apologia.
link |
00:42:36.660
It's just propaganda to justify inflationism.
link |
00:42:39.940
And it's profoundly nonsensical.
link |
00:42:43.180
It's built on the idea that if you just make more money,
link |
00:42:47.220
you can stimulate economic production.
link |
00:42:49.460
And of course, this is very self serving
link |
00:42:51.420
to the central banks and to the banks
link |
00:42:53.180
and to the governments who promote this nonsense.
link |
00:42:56.260
And this is also very pervasive.
link |
00:42:58.700
If you've had the misfortune of studying at a university
link |
00:43:01.300
over the last century,
link |
00:43:02.740
you were taught Keynesian garbage economics.
link |
00:43:04.860
You were taught that if there's a problem in the economy,
link |
00:43:09.020
the way to fix it is that the government prints money,
link |
00:43:11.580
the government lowers the interest rate,
link |
00:43:13.420
and then that leads to more economic production,
link |
00:43:17.300
which is completely nonsensical.
link |
00:43:18.860
So you're, again, for the listener,
link |
00:43:23.460
you're using strong words, you know, push back
link |
00:43:26.220
just to find, to please devil's advocate
link |
00:43:30.420
to hopefully one day arrive at the truth.
link |
00:43:33.380
So just because it's in the interest
link |
00:43:37.020
of the central banks and the government,
link |
00:43:38.980
the interests and the models of Keynesian economics
link |
00:43:43.860
and the government are aligned doesn't mean they're wrong.
link |
00:43:47.460
So let's give them a chance.
link |
00:43:49.860
So the conventional wisdom, perhaps economics wisdom,
link |
00:43:54.260
is that inflation is good in moderation
link |
00:43:58.420
as it encourages spending,
link |
00:44:00.060
but too much is bad because it completely devalues,
link |
00:44:03.720
destroys people's savings.
link |
00:44:05.260
So a little bit of inflation is good to stimulate spending.
link |
00:44:09.080
And I mean, I suppose this is one of the things
link |
00:44:13.160
that's supported by Keynesian economics.
link |
00:44:17.100
Why is that wrong?
link |
00:44:17.940
This is basically the whole point of Keynesian economics,
link |
00:44:19.620
is to try and find an endless array of explanations
link |
00:44:23.420
to explain why inflation is a good thing.
link |
00:44:25.780
Well, the chicken and the egg.
link |
00:44:28.340
So that's the cynical take.
link |
00:44:30.540
This is a propaganda machine
link |
00:44:32.000
to sell the government's narrative.
link |
00:44:34.060
The less cynical take is there's a bunch of economists
link |
00:44:36.860
who are telling, who...
link |
00:44:38.900
Who figured out this thing
link |
00:44:39.820
and it happens to be good for banks and governments.
link |
00:44:42.380
Just because it's good for them doesn't mean...
link |
00:44:43.860
And it justifies the existence of government
link |
00:44:45.980
and your basic, I don't think it's your basic assumption,
link |
00:44:50.620
but a foundational principle of your thought
link |
00:44:53.660
is that a lot of government is not a good thing.
link |
00:44:56.660
Your first gut instinct, government bad.
link |
00:45:00.440
Like I mentioned, I live next door to Michael Malice,
link |
00:45:02.940
who probably beats you on the intensity
link |
00:45:07.140
and how quickly he says government bad.
link |
00:45:10.060
So there's a potential argument for government good.
link |
00:45:16.380
Some government is good.
link |
00:45:17.460
Maybe a lot of government is good.
link |
00:45:19.040
Maybe we need a lot of centralized management
link |
00:45:22.280
for resource allocation and so on
link |
00:45:23.900
because we humans specialize, we're too busy and so on.
link |
00:45:26.940
So there's an argument for that that exists.
link |
00:45:30.020
You probably disagree with any possible argument
link |
00:45:32.220
on that side, but anyway,
link |
00:45:33.260
so why is that idea of Keynesian economics wrong?
link |
00:45:36.820
I'm gonna focus for this on the money idea,
link |
00:45:39.560
the idea that a little bit of inflation is good.
link |
00:45:42.380
The idea here, I mean, the criticism is that
link |
00:45:46.260
without inflation, people wouldn't spend
link |
00:45:48.300
and then the economy would come to a grinding halt.
link |
00:45:50.940
And that's nonsensical because people spend
link |
00:45:53.220
not because they wanna keep this magical monster
link |
00:45:56.080
called the economy going.
link |
00:45:58.060
People spend because they need to consume
link |
00:45:59.940
because that's how we live, that's how we survive.
link |
00:46:02.600
You need to eat, you need shelter,
link |
00:46:04.360
you need clothes to keep you warm.
link |
00:46:06.540
And as technology advances, the capabilities
link |
00:46:09.620
of the things that we can do with our time increases
link |
00:46:14.840
and so we wanna buy more things.
link |
00:46:16.680
So people buy things because people want to consume.
link |
00:46:19.420
There's a limitless desire to consume,
link |
00:46:21.780
that there's no shortage of reasons for people to consume,
link |
00:46:26.780
shortage of reasons for people to consume,
link |
00:46:28.820
whether it's food or Ferraris or private jets.
link |
00:46:33.380
People just always wanna buy more.
link |
00:46:35.340
Can I interrupt just really quick?
link |
00:46:36.980
What about the fear about the uncertainty of the future
link |
00:46:40.040
where they might want to buy things
link |
00:46:45.940
but they're really afraid because it seems like
link |
00:46:48.140
there's a lot like a pandemic going on or whatever it is.
link |
00:46:50.340
Yeah, that's good.
link |
00:46:51.700
So fear of uncertainty, can you have too much fear?
link |
00:46:55.740
Here's the thing, what I was saying is,
link |
00:46:57.660
I was making the point that we don't need
link |
00:47:00.460
to be motivated to consume.
link |
00:47:02.140
Like we have the insatiable desire to consume.
link |
00:47:05.180
Everybody would like to have more of all kinds of things.
link |
00:47:08.520
Everybody would like to have a bigger house.
link |
00:47:10.420
Well, not everybody, some people have a big enough house
link |
00:47:12.300
but everybody would like a house,
link |
00:47:14.220
everybody would like a car, jet, all kinds of things,
link |
00:47:18.780
electronics, machines.
link |
00:47:20.920
So we don't need a desire to consume.
link |
00:47:23.940
But of course the limit on how much we consume
link |
00:47:26.500
is opportunity cost.
link |
00:47:29.300
Why don't you buy a Ferrari?
link |
00:47:30.820
Well, because that's really expensive
link |
00:47:32.300
and it would mean that, well, maybe you do have a Ferrari
link |
00:47:35.140
but I mean, most people don't buy a Ferrari
link |
00:47:36.860
because it's too expensive, they can't afford it.
link |
00:47:39.860
They'd have to work too hard to get it.
link |
00:47:41.820
And if they do get it, it might mean that
link |
00:47:45.100
they can't afford their house anymore.
link |
00:47:46.500
So we have to economize, that's a good thing.
link |
00:47:49.680
And we have to also think of the future.
link |
00:47:51.920
And so humans consume,
link |
00:47:54.180
we don't need more motivation to consume.
link |
00:47:57.080
We have to deal with the economic reality
link |
00:47:59.500
of the things that limit us from consuming more.
link |
00:48:02.980
So what Keynesians present is that
link |
00:48:06.700
when there is a problem in the economy,
link |
00:48:08.660
like there was after World War I,
link |
00:48:11.700
the problem is always caused by the inflation.
link |
00:48:17.180
And what the Keynesian hucksters do
link |
00:48:18.860
is that they look at the inflation,
link |
00:48:21.380
at the consequences of inflation
link |
00:48:23.260
and blame it on people not spending enough.
link |
00:48:25.580
When people are doing the rational thing,
link |
00:48:27.340
the money is, so there was inflation,
link |
00:48:30.500
caused an unsustainable boom, it caused the recession.
link |
00:48:34.380
And now a lot of people lost their jobs
link |
00:48:36.060
and they don't have enough money
link |
00:48:37.020
to go out and spend frivolously.
link |
00:48:39.940
So they save for the future, the future is uncertain.
link |
00:48:42.740
That's a good thing, that's how you fix things.
link |
00:48:46.380
You begin the recovery by, well, you lost some wealth,
link |
00:48:49.900
so you spend less, like if your business goes bust,
link |
00:48:52.780
if you lose your job, it's natural and smart
link |
00:48:56.020
that you stop spending money
link |
00:48:57.740
on the frivolous thing that you used to spend
link |
00:49:00.180
and you save it for the future.
link |
00:49:01.500
You invest in something else, you get a new job.
link |
00:49:04.220
And then once you've recovered, you start spending more.
link |
00:49:06.380
This is very sane and very good
link |
00:49:08.900
and it's the way to recovery.
link |
00:49:11.300
But essentially the Keynesians have used this
link |
00:49:14.660
as a justification for more inflation
link |
00:49:17.460
because inflation is an addiction.
link |
00:49:19.340
Once the government gets down the path
link |
00:49:21.300
of spending money to solve its problems,
link |
00:49:23.780
then every problem looks like it can be solved
link |
00:49:26.860
by more inflation.
link |
00:49:27.820
And so this is where Keynesian economics comes in.
link |
00:49:31.420
And of course, the Keynesian economics
link |
00:49:34.220
is based on the work of Keynes, which came in the 1930s.
link |
00:49:38.980
And this is the key point,
link |
00:49:40.100
like it's portrayed in the textbook
link |
00:49:42.740
as if it's just the scientific breakthrough
link |
00:49:46.620
that somebody in the 1930s, this genius,
link |
00:49:49.300
came about and realized that,
link |
00:49:50.860
oh, we don't actually need gold.
link |
00:49:53.260
We don't need hard money.
link |
00:49:54.260
We can actually just print all the money.
link |
00:49:56.620
And in reality, of course, it was just the very thin,
link |
00:50:00.620
flimsy, idiotic justification
link |
00:50:02.500
for what governments were already doing for 20 years.
link |
00:50:05.100
They'd already gone off the gold standard
link |
00:50:07.580
and they'd gone through 20 years
link |
00:50:09.900
in which they were lying to their population,
link |
00:50:11.900
telling their population we're still on a gold standard,
link |
00:50:14.020
but there are problems caused by various random things.
link |
00:50:18.460
But don't worry, we're gonna be going back
link |
00:50:20.100
on the gold standard.
link |
00:50:20.940
20 years later, after they went off the gold standard,
link |
00:50:23.980
they come up with this justification for why,
link |
00:50:27.060
oh, actually the gold standard was bad.
link |
00:50:29.860
And this is a really pernicious thing about it is
link |
00:50:32.900
the problems that were caused by us
link |
00:50:34.500
going off the gold standard
link |
00:50:36.380
were caused by the gold standard.
link |
00:50:39.020
And we're going to fix them
link |
00:50:40.620
by going off the gold standard even more.
link |
00:50:42.820
Just because government is lying and it's shady
link |
00:50:45.900
and it does these kinds of things
link |
00:50:47.220
doesn't mean Keynesian economics is wrong.
link |
00:50:49.660
So just, because I wanted to separate a few things you said.
link |
00:50:53.100
It could very well be very wrong
link |
00:50:55.260
and they could indeed be hucksters.
link |
00:50:57.020
All of these, such colorful language.
link |
00:51:00.820
I love you deeply for this, this is fun.
link |
00:51:03.260
Yeah, but I mean, it's like somebody like Krugman
link |
00:51:05.300
doesn't use this kind of language when discussing Austrians.
link |
00:51:07.940
It's just that when actors like him use it,
link |
00:51:10.700
it's presented as if it is legitimate
link |
00:51:13.220
because he's part of the major shows.
link |
00:51:15.620
So the case they make and the criticism Keynesians make
link |
00:51:22.100
of Austrian economics and the case they make
link |
00:51:24.820
for Keynesian economics is it's based on empirical evidence.
link |
00:51:28.180
So Austrian economists are pie in the sky theorists
link |
00:51:33.660
about like how human nature works.
link |
00:51:37.340
And it's just all theory.
link |
00:51:39.460
And just like you said, Keynesian economics
link |
00:51:41.540
kind of sell it as a science, data driven science.
link |
00:51:44.780
And so where's the data, bro?
link |
00:51:50.580
So one way of saying it is how do you know
link |
00:51:55.660
if we get rid of inflation?
link |
00:51:57.980
How do you know if we get rid of central banks?
link |
00:52:00.020
If we push towards that direction,
link |
00:52:02.620
we will have a better world, a better functioning economy,
link |
00:52:06.740
better functioning markets, better functioning society.
link |
00:52:10.900
This is another inaccurate way in which they present.
link |
00:52:14.620
The economics, they present as if it's just theory
link |
00:52:16.620
and that the data doesn't matter, but that's not the case.
link |
00:52:19.780
What the Austrians say is that without guiding theory,
link |
00:52:23.140
data is mute, data is dumb, data can't say anything.
link |
00:52:26.460
So theory first, and then you have to have models
link |
00:52:32.620
to provide context for interpretation of the data.
link |
00:52:35.940
And it's a sign of just how little self awareness they have
link |
00:52:38.780
that they think that they're just being led by the data
link |
00:52:42.260
when they're being led by Keynes's moronic theories.
link |
00:52:47.300
And they use the data to justify those theories
link |
00:52:50.900
and to stick by them.
link |
00:52:52.380
And in fact, they are the ones whose theories
link |
00:52:54.980
cannot be refuted because it's just
link |
00:52:58.460
government mandated religion.
link |
00:53:00.380
So according to Keynes's nonsense,
link |
00:53:06.100
so the way that they justify the inflationism is this,
link |
00:53:10.660
and I'm just using this to give an example
link |
00:53:12.380
of what you're talking about in terms of theory,
link |
00:53:14.580
the way they justify the inflationism
link |
00:53:15.980
to tie it back to the original point,
link |
00:53:17.780
they justified it, all right, we need money to spend.
link |
00:53:20.100
And then the level of spending in the economy
link |
00:53:22.140
is what determines the state of the economy.
link |
00:53:23.700
And I've taught macro economics
link |
00:53:25.140
at university level for a while.
link |
00:53:26.460
So I know Keynesian nonsense better than most Keynesians
link |
00:53:31.300
know Austrians, if not all of them, I guarantee you.
link |
00:53:34.260
And so the way they see it is the level of spending
link |
00:53:38.180
in the economy is what determines the state of the economy.
link |
00:53:40.380
There's a level of output and there's a level of spending.
link |
00:53:42.660
So there's like the factories on the one side
link |
00:53:44.420
that are churning out goods,
link |
00:53:45.940
and those goods have a certain quantity and value,
link |
00:53:48.740
market value, and it's completely nonsensical of course,
link |
00:53:51.660
because how can the value of the goods produced
link |
00:53:54.820
be different from the value of the spending?
link |
00:53:56.660
But let's put that aside for a second.
link |
00:54:00.060
So the amount of spending that happens in the economy
link |
00:54:02.420
determines the state of the economy.
link |
00:54:04.100
If the value of the production, which they call Y
link |
00:54:07.820
is higher than the aggregate expenditures,
link |
00:54:10.340
so this is the production
link |
00:54:11.300
and then the aggregate expenditure is lower,
link |
00:54:13.420
then we don't have enough spending to buy all the goods.
link |
00:54:16.700
And then that causes a recession.
link |
00:54:18.220
The factories start laying off workers
link |
00:54:20.740
and then the laid off workers start spending less.
link |
00:54:23.300
And then that leads to aggregate expenditure
link |
00:54:25.500
dropping even further.
link |
00:54:26.940
And so it's a vicious cycle
link |
00:54:28.300
where the economy gets into recession.
link |
00:54:30.540
And the only way out is for Keynes's bankster buddies
link |
00:54:33.980
and government buddies to print a lot of money
link |
00:54:36.060
to give to themselves.
link |
00:54:37.460
And then that will...
link |
00:54:39.460
That's one interpretation.
link |
00:54:40.740
But to print more money to increase the expenditure
link |
00:54:44.900
that to match the supply.
link |
00:54:46.260
To match the level of output.
link |
00:54:47.380
Sounds pretty good to me, I'm sold.
link |
00:54:49.180
All right.
link |
00:54:50.820
Even though you're saying huckster, so.
link |
00:54:52.620
Yes.
link |
00:54:53.460
I just, you know, the way, I love you very much,
link |
00:54:56.500
but like just for people who are listening,
link |
00:54:59.660
I think it's, I love the way you talk and it's great
link |
00:55:03.700
and keep doing it, but just for context,
link |
00:55:05.900
like I don't know anything that involves human nature
link |
00:55:10.860
deserves this level of certainty.
link |
00:55:12.460
I, at least my position is that we don't know
link |
00:55:15.300
what the hell we're doing on basically anything.
link |
00:55:18.180
Perhaps, but I mean.
link |
00:55:19.300
Like there's a lot, like certainty can get us in trouble
link |
00:55:23.740
is my worry.
link |
00:55:24.580
I don't know much about economics.
link |
00:55:27.180
I don't even know, you know, financial systems,
link |
00:55:29.500
monetary systems, but I just seen us get in trouble
link |
00:55:33.980
with human psychology, certainty,
link |
00:55:36.260
certainty of ideologies in general.
link |
00:55:38.380
You mentioned Marxism and so on.
link |
00:55:40.340
I came from the Soviet Union.
link |
00:55:42.180
There's a lot of people that are very certain
link |
00:55:44.460
throughout the history of the 20th century
link |
00:55:46.580
that communism is the utopia that humanity should strive for.
link |
00:55:52.540
So I'm nervous around certainty.
link |
00:55:54.380
I could be wrong, but you know, you ask me for my opinion.
link |
00:55:57.220
Yes, yes.
link |
00:55:58.060
Sorry, so it's that little bit of a caveat.
link |
00:56:00.220
So to go back to the idea, then on the other hand,
link |
00:56:03.180
you have the level of, if the other situation
link |
00:56:05.980
is when the level of spending is higher
link |
00:56:07.740
than the amount of aggregate output.
link |
00:56:09.980
In that situation, you have too much spending.
link |
00:56:11.780
So therefore what ends up happening is inflation.
link |
00:56:14.580
So according to the Keynesian worldview,
link |
00:56:16.100
this is really important because this is a way
link |
00:56:18.220
that I'm gonna get to your point about empirical data
link |
00:56:20.900
and to show you why they're not correct.
link |
00:56:26.540
Yeah, they're not correct about what they say
link |
00:56:28.300
about empirical data.
link |
00:56:29.580
So then what this means is that there's a level of output
link |
00:56:32.580
and there's a level of aggregate expenditure.
link |
00:56:34.180
The aggregate expenditure can either be higher
link |
00:56:36.060
or lower than the output or equal to it.
link |
00:56:38.620
If it's higher, we get inflation.
link |
00:56:41.700
If it's lower, we get recessions, okay?
link |
00:56:46.620
So is there any universe in this model?
link |
00:56:50.020
Is there any potential universe
link |
00:56:52.180
in which you can have both inflation and a recession?
link |
00:56:56.300
According to the Keynesian model, you can't, right?
link |
00:56:59.380
Because aggregate expenditure cannot be both higher
link |
00:57:02.700
and lower than output.
link |
00:57:04.980
So therefore, if you were truly being an empirical person,
link |
00:57:08.460
if you were looking at evidence and trying to analyze data,
link |
00:57:13.140
you'd look at this and say, one example,
link |
00:57:16.380
you just need one example of high inflation
link |
00:57:18.740
and high unemployment to refute this entire model, right?
link |
00:57:23.700
And of course, the world is full of examples
link |
00:57:25.980
of high inflation and high unemployment.
link |
00:57:28.140
And that's what happened in the 19, and of course,
link |
00:57:30.020
they ignored it when it happens in poor countries
link |
00:57:32.260
because poor countries don't really matter.
link |
00:57:34.500
But then in the 1970s, that happened in the US
link |
00:57:37.180
and in the Western economies
link |
00:57:38.260
and the most advanced industrial economies.
link |
00:57:40.380
So historically, before then,
link |
00:57:42.460
you had all these Keynesian central bankers
link |
00:57:47.180
talking about this model and saying,
link |
00:57:48.980
well, aggregate expenditure is too low now
link |
00:57:51.060
and that's why we have unemployment.
link |
00:57:52.420
So we need to print more money.
link |
00:57:53.580
And then they print more money, inflation goes up,
link |
00:57:56.500
but also unemployment goes up because this model is broken.
link |
00:58:01.860
That's not how the world works.
link |
00:58:04.300
The level of aggregate spending in the economy
link |
00:58:06.300
is not a lever with which you can control
link |
00:58:09.020
inflation and unemployment.
link |
00:58:10.820
So what would a scientist do?
link |
00:58:12.900
What would a non Huckster do in this case?
link |
00:58:17.300
Admit the theory is wrong
link |
00:58:18.660
and find another way to reformulate it.
link |
00:58:21.260
Have the Keynesians done that?
link |
00:58:23.020
No, still the same garbage in the textbook
link |
00:58:25.540
that is being taught until today.
link |
00:58:27.140
So is it possible to have a non Keynesian model
link |
00:58:29.700
where one that still supports
link |
00:58:31.980
moderate amount of inflation is good for the economy?
link |
00:58:34.580
I mean, since the 1970s, since this has happened,
link |
00:58:37.060
yeah, this is what basically most fiat economists,
link |
00:58:43.220
as I like to call them,
link |
00:58:44.060
essentially anybody at a university financed by governments,
link |
00:58:46.540
which is financed by central banks,
link |
00:58:47.860
which is financed by fiat.
link |
00:58:48.700
Oh, we'll talk about that.
link |
00:58:50.060
The effect of fiat money on our life,
link |
00:58:53.860
as you write about in your book,
link |
00:58:56.100
fiat standard, one of them is education.
link |
00:58:58.460
I'm sure we'll disagree there too.
link |
00:59:01.220
Not smart enough to disagree, but I'll disagree anyway.
link |
00:59:04.020
So yeah, so a whole bunch of other models came up,
link |
00:59:06.220
but basically it's such an example of motivated reasoning.
link |
00:59:10.660
Like anybody who's got a familiarity
link |
00:59:12.260
with the scientific method
link |
00:59:13.380
or who's got an engineering background
link |
00:59:14.900
who comes into economics immediately has a lot of red flags.
link |
00:59:18.580
And I remember when I used to teach macro economics,
link |
00:59:22.340
I used to teach introductory macro economics.
link |
00:59:24.500
And it's a course that would be taken by econ majors
link |
00:59:26.580
as well as engineers.
link |
00:59:27.660
A lot of engineers would take it as an elective.
link |
00:59:29.620
And every time I'd explain,
link |
00:59:31.060
and I would just teach the Keynesian basic stuff.
link |
00:59:33.260
And every time I'd explain it,
link |
00:59:34.180
there's always that smart engineering kid
link |
00:59:35.980
who just looks at me and says,
link |
00:59:37.980
sir, this doesn't make any sense
link |
00:59:39.620
because this and this and that.
link |
00:59:41.260
And I'm always like, you get it exactly.
link |
00:59:43.780
You're correct.
link |
00:59:44.700
Because if you have any kind of shred of scientific thinking,
link |
00:59:47.580
you see that this is all motivated reasoning.
link |
00:59:50.220
Like the answer is government needs to print money.
link |
00:59:52.820
And here's a whole bunch of models brought up by people
link |
00:59:56.740
for why government printing money is good.
link |
00:59:59.100
And the reason they're coming up to this conclusion
link |
01:00:01.940
is that you only get funded
link |
01:00:03.060
if you come up with this conclusion.
link |
01:00:04.340
If you come up with a conclusion
link |
01:00:05.260
that we need to shut down the central bank,
link |
01:00:08.260
you don't get funded by the central bank.
link |
01:00:10.100
You don't get published in the journals.
link |
01:00:11.620
You don't get a job at the prestigious universities.
link |
01:00:14.540
You don't get quoted by a fiat publications
link |
01:00:16.980
like the New York Times and CNN.
link |
01:00:18.820
They don't invite you on as an expert.
link |
01:00:21.340
Well, that's a fundamental flaw
link |
01:00:22.540
with a lot of institutions we have today
link |
01:00:25.660
and throughout human history.
link |
01:00:26.980
Let me zoom off for just a second to the big question.
link |
01:00:29.500
What is economics in general?
link |
01:00:32.420
What's the goal?
link |
01:00:33.260
You said there's a bunch of models.
link |
01:00:34.940
Is any economist basically trying to throw a bunch of models
link |
01:00:38.180
about human behavior on the table
link |
01:00:40.060
and try to generalize it to the global scale?
link |
01:00:43.940
So both dance between micro and macro somehow
link |
01:00:47.060
in order to determine public policy
link |
01:00:49.180
and explain the past, predict the future,
link |
01:00:53.100
prescribe policies that can control the future,
link |
01:00:56.940
those kinds of things.
link |
01:00:57.900
This is the big basic ridiculous question
link |
01:01:00.140
of what is economics?
link |
01:01:02.060
Economics is the study,
link |
01:01:03.300
the way the Austrians define it is the study
link |
01:01:05.380
of how humans make choices under the condition of scarcity.
link |
01:01:09.100
We begin with the starting point of economics
link |
01:01:11.020
as the fact that scarcity exists.
link |
01:01:14.100
And why does scarcity exist?
link |
01:01:16.500
Well, because it's easier to want things
link |
01:01:18.380
than it is to make them.
link |
01:01:19.460
It's much easier to want a Ferrari than it is to make one.
link |
01:01:23.300
And so because we have wants
link |
01:01:27.620
and we have limited means to meet those wants,
link |
01:01:30.980
we need to economize.
link |
01:01:32.260
It's a permanent marker of the human condition.
link |
01:01:37.220
We are always economizing at all times.
link |
01:01:39.980
And so how people make those decisions
link |
01:01:43.060
under the conditions of scarcity
link |
01:01:45.340
is what economists study.
link |
01:01:47.500
So to go back to your point on empiricism
link |
01:01:49.900
in Austrian school,
link |
01:01:51.340
so it isn't that the Austrians don't believe in data.
link |
01:01:55.660
On the contrary, it's that theory has to inform data.
link |
01:02:00.500
And in fact, if you think about it
link |
01:02:02.460
as the example of the stagflation of the 1970 shows,
link |
01:02:08.180
if you have stagflation,
link |
01:02:10.620
that just completely refutes the Keynesian model.
link |
01:02:13.460
The Austrian way of thinking,
link |
01:02:15.500
which is think from first principles,
link |
01:02:17.860
understand how the world actually works,
link |
01:02:19.860
think about how humans act and understand
link |
01:02:21.980
that economics is really all about human action.
link |
01:02:23.940
So it's not about aggregates of goods.
link |
01:02:26.620
This is really the key distinction
link |
01:02:28.020
in terms of methodology.
link |
01:02:29.500
For the Keynesians, it's physics envy.
link |
01:02:32.820
They look at the market economy,
link |
01:02:34.340
they look at individuals in the market economy,
link |
01:02:36.700
and they think that they can understand the market economy
link |
01:02:39.220
by looking at aggregates.
link |
01:02:40.780
This is really the key point of what I think
link |
01:02:43.460
makes a certain branch of economics pseudoscientific
link |
01:02:48.060
is the introduction of aggregates.
link |
01:02:49.780
When you introduce those aggregates,
link |
01:02:52.500
how much production takes place,
link |
01:02:54.460
how many people are unemployed,
link |
01:02:56.580
the percentage of the inflation rate,
link |
01:02:59.580
and then you think that you can establish
link |
01:03:01.540
scientific relationship between those aggregates,
link |
01:03:04.860
it's purely physics envy.
link |
01:03:07.500
In physics, for instance, or in chemistry,
link |
01:03:09.980
you put, let's say, a container that contains a gas,
link |
01:03:13.900
and you have the ideal gas law, PV equals to nRT,
link |
01:03:18.380
calculate the pressure, calculate the volume,
link |
01:03:20.940
and then the temperature.
link |
01:03:24.380
If you have the pressure and the volume,
link |
01:03:25.620
you can calculate the temperature
link |
01:03:26.620
because you have the nR constants.
link |
01:03:30.060
So there's a clear relationship
link |
01:03:32.740
that has been demonstrated in a laboratory
link |
01:03:34.620
and that we can do it right now.
link |
01:03:36.620
We can measure it and we can see it
link |
01:03:38.260
and it continues to hold.
link |
01:03:40.020
And all it takes is one scientist
link |
01:03:42.740
to show that this relationship does not hold,
link |
01:03:44.820
to do an experiment that shows that this does not hold,
link |
01:03:48.020
and it stops being a law of chemistry and it's broken.
link |
01:03:52.780
Whereas in economics, what they've done
link |
01:03:56.380
is they've copied the superficial shape of this
link |
01:04:00.180
without any of the scientific rigor
link |
01:04:02.860
that was used to build it.
link |
01:04:04.820
There's no experiments.
link |
01:04:05.860
You can't experiment on economies.
link |
01:04:08.100
We don't have the ability to establish laws,
link |
01:04:11.780
and all the laws that we establish
link |
01:04:13.340
are just models that get people published
link |
01:04:15.420
and get them on the media to say,
link |
01:04:18.140
my model says we need to print more money,
link |
01:04:20.540
but it's never subject to actual scientific scrutiny.
link |
01:04:23.420
If it were, they would all be rejected in 15 minutes
link |
01:04:25.620
because the world is full of examples that contradict them.
link |
01:04:28.180
Was it possible to do scientific scrutiny
link |
01:04:30.220
when it's human nature when you can't,
link |
01:04:32.100
when there's a nearly infinite number of variables
link |
01:04:34.660
and you can't control them?
link |
01:04:36.020
Is it possible, so what's the best thing
link |
01:04:38.300
you could possibly do?
link |
01:04:40.180
You do thought experiments.
link |
01:04:43.100
But the problem with thought experiments,
link |
01:04:46.500
Freud thinks everybody wants to have sex with their mother.
link |
01:04:49.820
Is he right? That's the problem with Freud.
link |
01:04:51.780
I don't know, maybe he's right.
link |
01:04:53.780
Well, obviously I'm joking on that front, but the...
link |
01:04:57.020
Freud is probably under the canes.
link |
01:05:00.300
Well, no, I think there's power to the thought experiment.
link |
01:05:03.660
Just like Einstein, a lot of general relativity,
link |
01:05:06.420
special relativity, that's a thought experiment.
link |
01:05:09.300
It originates in a thought experiment.
link |
01:05:10.860
Now, is it true?
link |
01:05:13.460
Nice thing about physics,
link |
01:05:14.660
you can't eventually have experimental validation.
link |
01:05:17.420
The downside of economics is you really can't have
link |
01:05:20.860
experimental, definitive experimental scientific rigor
link |
01:05:25.660
of validation of a theory.
link |
01:05:27.060
So a thought experiment is just a thought experiment.
link |
01:05:29.140
Using your intuition, it's the power of reasoning together
link |
01:05:32.740
about human nature.
link |
01:05:33.700
And that's why economics cannot make the claims
link |
01:05:36.540
that physics can make.
link |
01:05:37.380
So with physics, you can predict that if you get this gas
link |
01:05:40.700
at this pressure, at this volume,
link |
01:05:42.320
the temperature will be that much.
link |
01:05:43.980
And you can make that prediction and test it a million times
link |
01:05:47.840
and you'll always get the precisely correct answer.
link |
01:05:50.340
With economics, we can't make quantitative predictions.
link |
01:05:53.060
But still, on Twitter, and even today,
link |
01:05:54.860
you're very certain about the statements you're making.
link |
01:05:57.820
Do you...
link |
01:05:58.660
Yeah, but I don't make quantitatively certain statements.
link |
01:06:00.480
That's the thing.
link |
01:06:01.320
In economics, we don't make quantitative predictions.
link |
01:06:03.380
We cannot do that because we don't have experiments.
link |
01:06:06.140
But we can understand how the world actually works
link |
01:06:09.620
with humility.
link |
01:06:10.460
This is really the key difference
link |
01:06:11.660
that the Keynesians think they just wanna copy
link |
01:06:13.940
the methods of physics.
link |
01:06:15.060
And then that's just gonna give them the certainty
link |
01:06:18.480
of the results of physics, which is like me saying,
link |
01:06:20.340
I'm just gonna put a red blanket on my back
link |
01:06:23.680
and jump from the fourth floor because I'm Superman.
link |
01:06:26.180
Well, it's not the red blanket
link |
01:06:27.500
that's gonna make me Superman.
link |
01:06:29.020
There's a lot more to it.
link |
01:06:30.180
So humility manifests itself in economics
link |
01:06:33.500
as the belief in a free market.
link |
01:06:35.580
Meaning like, I can't centralize,
link |
01:06:37.380
I can't do centralized control on this thing.
link |
01:06:41.180
We're going to minimize the friction
link |
01:06:44.480
of the free exchange of goods.
link |
01:06:47.440
So Austrian economics puts priority in the market.
link |
01:06:52.260
Yes, and you could arrive at it through two paths.
link |
01:06:55.660
The more practical path, which most scientific minded
link |
01:07:01.380
people arrive at.
link |
01:07:02.260
I came from an engineering background.
link |
01:07:03.500
So I initially had this idea that what is lacking
link |
01:07:07.060
in economics is mathematicization.
link |
01:07:09.180
We need to have better math models.
link |
01:07:11.260
We need to get all of those tools from engineering,
link |
01:07:13.120
apply them to economics, and then we'll be able
link |
01:07:15.380
to plan the world economy and make it work better.
link |
01:07:18.340
And then you start actually trying to solve problems,
link |
01:07:21.180
trying to actually calculate them.
link |
01:07:22.340
And you realize nobody can have that ability
link |
01:07:24.700
because the difference ultimately comes down to the fact
link |
01:07:28.460
we can't have experiments.
link |
01:07:29.780
And the reason we can't have experiments is that
link |
01:07:31.780
you can experiment on particles of a gas.
link |
01:07:33.900
You can't experiment on human beings and entire economies.
link |
01:07:37.440
And because particles of a gas are just dumb matter.
link |
01:07:42.180
And so you kick matter in a certain way.
link |
01:07:46.020
You can calculate exactly how much is going to fly.
link |
01:07:48.780
Human beings are much more complex.
link |
01:07:50.340
They have a will inside them.
link |
01:07:51.660
And this is really, this is the humility to understand
link |
01:07:55.420
that you are a human being and other people
link |
01:07:57.140
are also human being just like you.
link |
01:07:59.420
And that every person wakes up every morning
link |
01:08:03.580
and they have a million things in their mind,
link |
01:08:06.420
a million things they care about,
link |
01:08:07.700
a million things they want to do.
link |
01:08:09.500
And you will never be able to make the decisions
link |
01:08:13.220
for somebody else, let alone for millions of other people.
link |
01:08:16.660
So this is one path by which you arrive at the conclusion
link |
01:08:18.980
that free markets are better because you realize
link |
01:08:21.120
that all of the people that think
link |
01:08:22.080
that they can centrally plan markets
link |
01:08:24.660
can't actually do that.
link |
01:08:26.900
And that there's really nothing scientific about them
link |
01:08:30.540
except essentially the rituals they ape
link |
01:08:33.100
of the scientific process.
link |
01:08:35.300
And the other path I think that makes you arrive
link |
01:08:38.140
at the Austrian perspective or the libertarian perspective
link |
01:08:41.380
I should say, is simply the notion of individuals
link |
01:08:47.020
as having their own inalienable right
link |
01:08:49.700
to decide what they want to do with themselves.
link |
01:08:51.820
If you, I mean, the only way that you can give yourself
link |
01:08:55.700
the idea that you get to be planner is ultimately
link |
01:09:00.740
you think you're better than other people.
link |
01:09:02.520
You think your choice, your judgment overrides mine.
link |
01:09:05.820
And I don't think that's a defensible position.
link |
01:09:08.060
I think I'm in no position to want to force anybody ever.
link |
01:09:11.620
I will never want to force anybody
link |
01:09:13.500
to do anything they don't want.
link |
01:09:15.820
The Keynesian perspective, the central planning perspective
link |
01:09:18.880
is unlike physics, which is let's force a bunch
link |
01:09:22.660
of particles to sit in the lab so that we can study them.
link |
01:09:26.100
In economics, you're forcing people to do things.
link |
01:09:28.500
Let's stop these people from doing this job
link |
01:09:31.100
because it's bad for the economy
link |
01:09:32.380
and let's get them to do that job.
link |
01:09:34.040
Let's force them to pay this price.
link |
01:09:35.700
Let's tax them this much.
link |
01:09:37.500
Let's prevent them from using gold as money
link |
01:09:39.460
and force them to use our credit as money.
link |
01:09:42.260
So it has to rely on coercion.
link |
01:09:44.540
There's no central planning without coercion.
link |
01:09:46.620
And coercion is a crime, in my opinion.
link |
01:09:49.180
There's no way that it is justifiable morally or ethically.
link |
01:09:51.780
So from a politics, from an ethical perspective,
link |
01:09:55.340
your view is the, I mean, perhaps the,
link |
01:09:58.020
broadly speaking, the libertarian view
link |
01:09:59.940
is coercion is unethical, freedom is essential.
link |
01:10:07.420
What is, what are the pros and cons
link |
01:10:09.940
of government intervention in the economy?
link |
01:10:12.380
So can you steal, can you provide pros?
link |
01:10:14.860
You just kind of provided arguments against.
link |
01:10:19.100
Is there any arguments to be made
link |
01:10:20.900
for government intervention,
link |
01:10:22.580
for the role of government in society?
link |
01:10:25.260
Speaking from a political or from an economics perspective,
link |
01:10:28.660
what is the positive role of government
link |
01:10:31.460
that you can imagine you can speak to?
link |
01:10:33.460
I can repeat many other cases,
link |
01:10:34.920
but I don't find any of them compelling
link |
01:10:37.020
for the reason that I mentioned,
link |
01:10:38.100
which is that ultimately they all rely on
link |
01:10:41.340
putting a gun to somebody's head
link |
01:10:42.520
and using the threat of force.
link |
01:10:43.820
So that's for me, it can never be justifiable.
link |
01:10:46.100
Whatever the ends are,
link |
01:10:47.940
if the means are violence and the threat of violence,
link |
01:10:52.980
then the ends aren't justified.
link |
01:10:55.100
Everything that's good,
link |
01:10:56.420
governments will use as an excuse to justify coercion.
link |
01:10:59.900
So, you know, what do you like?
link |
01:11:01.500
You like motherhood and apple pie?
link |
01:11:03.060
Well, government needs to ensure
link |
01:11:04.300
that motherhood works well,
link |
01:11:06.040
and we need the government central planning of birth.
link |
01:11:09.520
We need regulations on birth, for instance.
link |
01:11:11.380
We need regulations on how people give birth.
link |
01:11:14.460
We need to ban people from giving birth
link |
01:11:16.140
in traditional ways that have been tried
link |
01:11:18.100
for thousands of years.
link |
01:11:18.940
We need to force people to do things
link |
01:11:20.980
in the modern scientific way.
link |
01:11:22.820
Well, so what about things like that all of us use,
link |
01:11:26.500
so infrastructure, for example, or education,
link |
01:11:31.020
or, well, the economy too, right?
link |
01:11:35.180
Can you make a case for the role
link |
01:11:38.460
of some large scale centralized systems,
link |
01:11:42.140
whether it's government or not,
link |
01:11:43.580
that do this kind of management?
link |
01:11:45.340
I guess, perhaps you could say
link |
01:11:46.700
there's the economies of scale argument
link |
01:11:48.840
that some things must exist at a very large scale,
link |
01:11:52.280
and therefore you would want political accountability
link |
01:11:56.860
of the people who manage them.
link |
01:11:58.100
This is kind of the argument
link |
01:11:59.060
that's given for infrastructure monopolies.
link |
01:12:01.460
For instance, roads or electricity.
link |
01:12:05.780
Let's say we live in a country,
link |
01:12:07.060
we need one power plant.
link |
01:12:08.180
The bigger the power plant, the better off we will all be.
link |
01:12:11.180
And there's a natural monopoly in the power plant business.
link |
01:12:15.020
So we're gonna have to have one power plant.
link |
01:12:17.160
And since it's only one power plant,
link |
01:12:19.380
then we can't just let anybody own it
link |
01:12:22.100
because then they're gonna make it too expensive.
link |
01:12:24.380
So we need to have the government own it
link |
01:12:26.240
so it can make it too expensive.
link |
01:12:28.180
And you don't find that case compelling?
link |
01:12:29.900
Not at all.
link |
01:12:30.740
I used to believe in it.
link |
01:12:31.580
I was pretty much a Keynesian
link |
01:12:33.620
when I first started my graduate studies at Columbia.
link |
01:12:38.620
No, I don't find that compelling at all
link |
01:12:40.180
because I think all these examples that they mention
link |
01:12:42.700
of natural monopolies or economies of scale
link |
01:12:45.540
that can only fit at a scale of government,
link |
01:12:51.220
government bans people from opening power plants.
link |
01:12:54.420
And then there's only one power plant
link |
01:12:56.140
and they need to be in charge of it.
link |
01:12:58.180
But in reality, no.
link |
01:13:01.580
In reality, power plants can exist at all kinds of manners
link |
01:13:04.580
of scales of operation.
link |
01:13:06.420
And yes, of course, there are benefits to centralization
link |
01:13:08.820
in power plants in particular
link |
01:13:10.260
because there's efficiency in generation.
link |
01:13:13.180
One big power plant is more efficient
link |
01:13:17.100
than 10 equivalent smaller power plants.
link |
01:13:20.020
But there's also inefficiencies in centralization
link |
01:13:22.260
because the more centralized and the bigger the plant is,
link |
01:13:25.540
the further away a lot of the population is going to be.
link |
01:13:29.920
So you're gonna be losing a lot of the electricity
link |
01:13:31.960
and transmission.
link |
01:13:33.540
And you believe the free market is best in managing
link |
01:13:36.020
that dance, that balance of centralization.
link |
01:13:39.220
Exactly, and if we do end up in a situation
link |
01:13:41.540
where there's one power plant for an area,
link |
01:13:44.380
then if the markets ends up centralizing all of it
link |
01:13:48.940
into one power plant, I don't see that as a problem.
link |
01:13:52.780
There are places, there's a small town
link |
01:13:54.860
with only one barber shop.
link |
01:13:56.060
Is that a catastrophe?
link |
01:13:57.460
No, because they don't need two barber shops.
link |
01:14:00.900
Now, if that barber shop started to take advantage
link |
01:14:03.060
of people, started to charge higher price,
link |
01:14:05.380
well, then that's just an opportunity for others
link |
01:14:07.460
to step in and put them in their place.
link |
01:14:10.020
And that's the same thing with power plants.
link |
01:14:11.460
It's the same thing with everything.
link |
01:14:13.580
Ultimately, I think the key thing is this.
link |
01:14:17.340
From the central planning perspective,
link |
01:14:20.140
they'll present you the problem as it is,
link |
01:14:22.700
and they'll tell you, well, this is bad.
link |
01:14:24.620
So the fix, and what we can do is better.
link |
01:14:28.140
So let's stop what's bad and do what is better.
link |
01:14:31.900
Two problems here.
link |
01:14:32.740
Usually, the reason that the thing is bad
link |
01:14:34.960
in the first place is because it is a government monopoly.
link |
01:14:37.100
It's because of government intervention.
link |
01:14:39.180
But the second thing is that this notion
link |
01:14:41.980
that we could just pass a law and fix what's wrong
link |
01:14:44.180
and make it better, it ignores the fundamental
link |
01:14:48.700
underlying reality, which is that what you're doing
link |
01:14:51.500
is you're offering only one way for this problem
link |
01:14:54.780
to be solved and making all other solutions
link |
01:14:57.340
practically illegal.
link |
01:14:58.340
You're taking taxpayer money, you're putting guns
link |
01:15:00.860
to people's heads to take their money,
link |
01:15:02.940
to use it to build, say, this one solution
link |
01:15:04.940
for a power plant, but you're preventing
link |
01:15:07.380
the free market process from providing us
link |
01:15:09.820
with other alternatives.
link |
01:15:11.300
Well, so you phrased it sort of from that perspective,
link |
01:15:13.700
but in theory, there is a feedback accountability mechanism
link |
01:15:18.500
for the solution that you propose and enforce
link |
01:15:22.340
by, as you're saying, placing a gun to people's head.
link |
01:15:25.840
You're accountable for that choice,
link |
01:15:29.140
for the quality of that solution,
link |
01:15:30.780
by being voted out if the solution is actually bad.
link |
01:15:34.740
So it's just a different selection mechanism.
link |
01:15:37.300
And I think, I personally believe it is a selection mechanism
link |
01:15:41.420
that has worked in the past.
link |
01:15:43.540
It just often does not work nearly as well
link |
01:15:46.980
as a free market.
link |
01:15:48.660
And the question is, are there domains
link |
01:15:52.020
in which the free market gets itself into trouble?
link |
01:15:54.780
So this theoretical view is that that's the point
link |
01:15:58.820
of a free market, is it doesn't, if there's trouble,
link |
01:16:02.840
that's a signal, and it will respond to that signal,
link |
01:16:05.780
and it will respond appropriately
link |
01:16:07.860
to try to maximize happiness.
link |
01:16:10.340
The question is, is there a local optima
link |
01:16:12.460
that free markets get stuck in and need governments
link |
01:16:15.620
to represent the broader scale of the people
link |
01:16:19.100
to get outside of that?
link |
01:16:20.500
I think the fundamental problem here is the idea
link |
01:16:24.180
that there is a feedback mechanism
link |
01:16:26.100
when there is coercion in one party,
link |
01:16:28.940
when one party can employ coercion and the other one cannot.
link |
01:16:31.780
So in other words, I'm gonna put a gun to your head,
link |
01:16:34.840
I'm gonna take your money, and I'm gonna use it
link |
01:16:36.900
to buy more guns for me to put against your head,
link |
01:16:39.960
but somehow you're gonna put a paper in a box
link |
01:16:42.980
and that's going to deactivate my guns.
link |
01:16:45.920
Well, love requires a push and pull,
link |
01:16:48.020
a little bit of tension, a little spice in a relationship,
link |
01:16:50.340
I think, a little gun to the head.
link |
01:16:53.660
Good luck to anybody who's gonna be dating you
link |
01:16:55.500
if you think putting a gun to people's head
link |
01:16:57.140
is comparable to a relationship.
link |
01:17:00.340
All jokes, but yes, I mean, the people don't often think
link |
01:17:04.340
of it as government and the military as gun to the head,
link |
01:17:09.340
but that is sort of a libertarian perspective
link |
01:17:11.700
because ultimately when you, you know,
link |
01:17:13.820
turtles all the way down and at the bottom there's guns.
link |
01:17:16.660
Yeah, so.
link |
01:17:17.500
At the bottom if you don't want to pay,
link |
01:17:18.860
if you don't want to, you know,
link |
01:17:19.740
all right, I don't want to be part of your power plant,
link |
01:17:21.260
I want to get my own generator, I don't want to do it,
link |
01:17:23.180
and I don't want to pay for it, I'll go to jail.
link |
01:17:25.260
You can't not pay for it.
link |
01:17:26.620
That's really the asymmetry which the market doesn't have,
link |
01:17:28.580
which is why, in my opinion, it's not as if, you know,
link |
01:17:31.940
I'm being stubborn and stuck on the idea
link |
01:17:34.220
that I want a market and that the government can't work.
link |
01:17:37.580
It's presented as if, you know, we're choosing
link |
01:17:39.620
between two different machines.
link |
01:17:40.940
You know, should we use an Apple or a PC?
link |
01:17:43.940
And I'm just constantly choosing one of them
link |
01:17:46.740
and saying that the other one can't work.
link |
01:17:48.660
It's not equivalent, it's not two machines.
link |
01:17:50.500
We're comparing between a machine and a gun to the head.
link |
01:17:54.700
And we're comparing between a situation
link |
01:17:56.020
in which anybody anywhere is free to provide the service
link |
01:17:59.980
or the good, and anybody anywhere is free to buy it
link |
01:18:02.740
from them or reject to buy it from them.
link |
01:18:05.020
So anyone can build a power plant, anyone can succeed at it,
link |
01:18:08.260
anybody can fail at it, anybody can build it in a way
link |
01:18:10.860
that I can choose to take part in or not take part in.
link |
01:18:14.100
I can build my own.
link |
01:18:15.380
So we have a situation which 10 million people, let's say,
link |
01:18:18.260
they each can freely choose to provide the good
link |
01:18:22.220
or to buy the good.
link |
01:18:23.620
That cannot be considered an alternative on an equal footing
link |
01:18:28.100
to a situation where one person or one entity
link |
01:18:31.060
gets to decide for everybody and those people
link |
01:18:33.740
decide for everybody and those who disagree go to jail.
link |
01:18:37.260
So the problem is that the alternative to governments
link |
01:18:41.900
is other large successful entities that have humans in them
link |
01:18:45.820
and human nature is such that there's corruption,
link |
01:18:48.180
manipulation and so on.
link |
01:18:50.180
I think free market depends on the honest communication
link |
01:18:57.020
of information as widely as possible
link |
01:18:59.980
so that people can make great rational decisions
link |
01:19:02.620
but sort of my fear is, I'd like to propose
link |
01:19:06.100
is that in general there's manipulation
link |
01:19:08.060
whether it's government, whether it's companies.
link |
01:19:10.180
They're going to try to do propaganda.
link |
01:19:13.060
They're going to try to manipulate you, deceive you,
link |
01:19:16.980
shut down competition by playing games,
link |
01:19:19.940
human games of different kinds
link |
01:19:22.620
and sometimes even meaning well.
link |
01:19:24.380
It's not like everybody thinks they're doing good
link |
01:19:26.140
and they're actually doing evil.
link |
01:19:27.620
So how do we prevent the worst of human nature coming out
link |
01:19:32.820
in a free market as well?
link |
01:19:35.020
By not giving the worst of human nature
link |
01:19:37.540
a monopoly on violence in the institution of government.
link |
01:19:40.740
That little inkling of coercion,
link |
01:19:42.940
that little bit of asymmetry creates a gigantic
link |
01:19:47.100
like ripple effect of asymmetry in your view.
link |
01:19:49.940
Yes and it ends up just being the place
link |
01:19:51.700
where corporations, individuals, free markets,
link |
01:19:55.180
they can't coerce without the resort to government.
link |
01:19:57.820
So you think about all the examples
link |
01:19:59.460
of corrupt corporations doing bad things.
link |
01:20:02.740
It's always because they have certain privileges
link |
01:20:06.420
from governments because as it exists,
link |
01:20:10.060
Coca Cola, McDonald's, all of these giant corporations,
link |
01:20:13.060
they can't do anything to me without government.
link |
01:20:15.860
They can't take any of my money
link |
01:20:17.140
and they can't force me to buy their stuff
link |
01:20:19.300
and so it doesn't matter to me.
link |
01:20:21.460
So if Coca Cola is corrupted,
link |
01:20:24.020
that's a problem for Coca Cola customers,
link |
01:20:25.820
that's a problem for Coca Cola shareholders,
link |
01:20:27.940
that's a problem for anybody who deals with Coca Cola
link |
01:20:30.940
but as somebody who doesn't drink their stuff
link |
01:20:32.460
and isn't a shareholder,
link |
01:20:34.380
I have absolutely no interest in what happens.
link |
01:20:36.540
They could all go bust tomorrow and I don't care.
link |
01:20:38.980
I don't buy their product and I'm not a shareholder.
link |
01:20:43.220
So in this situation where you choose to voluntarily
link |
01:20:47.340
associate with people and you only give your money
link |
01:20:50.140
to people you want to voluntarily give the money to
link |
01:20:52.460
so you either buy their product
link |
01:20:54.260
or invest in their production,
link |
01:20:55.900
in that situation, the only way that a company
link |
01:20:58.740
can get my money is if they build a product that I value
link |
01:21:03.100
or if they convince me that they are going to use it
link |
01:21:07.260
in a way that's profitable and I may be wrong.
link |
01:21:10.780
I may invest in a company that fails
link |
01:21:12.700
or I may invest in a company that turns out to be fraudulent
link |
01:21:17.300
but that's my fault and it's my fault
link |
01:21:23.620
that I gave them my money
link |
01:21:24.740
and then it turned out to be scoundrels
link |
01:21:26.860
but it's a totally different problem
link |
01:21:28.980
when we make it mandatory.
link |
01:21:32.260
It's violence, it's a crime to put a gun to my head
link |
01:21:36.100
and force me to subsidize companies
link |
01:21:38.540
and force me to come at certain conclusions.
link |
01:21:41.300
Do you find an interesting distinction,
link |
01:21:43.180
Mr. Michael Malice, between anarchism and libertarianism?
link |
01:21:46.740
So this particular use of violence,
link |
01:21:50.900
this last resort, this policing force
link |
01:21:53.680
that libertarianism is okay with
link |
01:21:56.220
and anarchism is not okay with.
link |
01:21:58.740
So basically nation states that keep you safe
link |
01:22:02.500
from the worst of war.
link |
01:22:05.320
Yeah, I think to be more accurate,
link |
01:22:06.540
the distinction between anarchism and minarchism,
link |
01:22:09.020
I think libertarianism is kind of a vague term
link |
01:22:11.660
that can encompass both.
link |
01:22:13.300
Means a lot of things, okay.
link |
01:22:14.420
Yeah.
link |
01:22:15.500
On the Karl Marx to Michael Malice spectrum,
link |
01:22:19.880
where do you?
link |
01:22:20.720
No, no, I'm full anarchist.
link |
01:22:22.140
You're a full anarchist.
link |
01:22:22.980
Yeah, full anarchist.
link |
01:22:23.800
I mean, I don't find any justification
link |
01:22:26.320
for the use of force and I think recently perhaps,
link |
01:22:31.460
maybe I'm getting old, maybe I'm getting senile,
link |
01:22:33.780
maybe I'm getting wise, who knows?
link |
01:22:36.060
But I'm beginning to become more sympathetic to monarchy.
link |
01:22:39.660
So I'm an anarchist, monarchy.
link |
01:22:43.180
Which, what is that?
link |
01:22:44.440
Kings, royal. Oh, monarchy.
link |
01:22:46.020
Yeah.
link |
01:22:46.860
And I think.
link |
01:22:49.020
Wait, are you joking or not?
link |
01:22:51.860
No, I'm not joking.
link |
01:22:53.140
And I think, I mean, I think morally and intellectually,
link |
01:22:58.420
I'm an anarchist, but the reality is we find ourselves
link |
01:23:02.380
in a world in which a lot of people are not.
link |
01:23:05.560
And the question is, what is the thing
link |
01:23:09.380
that is going to provide you with more freedom?
link |
01:23:12.760
And I think, I'm recently coming around to the idea
link |
01:23:16.740
that monarchy might be the best way
link |
01:23:19.420
to provide people with the largest amount of freedom
link |
01:23:22.080
because to have a free society, you need a majority,
link |
01:23:25.960
perhaps, or a plurality of people
link |
01:23:28.060
to have a very strong understanding of libertarian ideas,
link |
01:23:31.880
to have a low time preference,
link |
01:23:33.100
to have a preference for the future.
link |
01:23:35.720
So you need a majority of the population
link |
01:23:37.480
to not decide to go and do something insane
link |
01:23:41.300
in order to continue to have a free society.
link |
01:23:44.400
You know, when a respiratory illness comes along,
link |
01:23:48.580
unfortunately, you know, the last couple of years
link |
01:23:51.140
showed that we, the vast majority of people
link |
01:23:53.620
are gonna freak out and lose their mind
link |
01:23:57.340
and support whatever their stupid TV tells them to support.
link |
01:24:00.500
And, you know, there's always a current thing
link |
01:24:03.580
and the media is always telling you
link |
01:24:05.840
that we need this current thing as an excuse
link |
01:24:08.320
for more and more government power
link |
01:24:10.260
and more and more government coercion.
link |
01:24:11.660
What's the role of kings and queens
link |
01:24:13.100
in that case of a monarchy?
link |
01:24:15.980
What's the role of a leader?
link |
01:24:17.700
I think there might be a case that,
link |
01:24:21.700
so as I was saying, you need a majority of the population
link |
01:24:24.340
to get together and decide, nope, whatever is the case,
link |
01:24:28.300
you know, the answer is voluntary.
link |
01:24:31.660
No matter how bad the disease is,
link |
01:24:34.100
it doesn't justify forcing people to stay home.
link |
01:24:36.320
You wanna stay home, stay home.
link |
01:24:37.520
You wanna wear a mask, take a vaccine,
link |
01:24:39.640
do whatever you want, but you can't force others to do that.
link |
01:24:42.460
So you need a majority of the people
link |
01:24:43.940
to strongly believe in this principle
link |
01:24:46.420
in order to get it in a democracy.
link |
01:24:50.380
Whereas in a monarchy,
link |
01:24:52.480
maybe you just need the king to get it.
link |
01:24:54.460
And I think the reason kings are more likely to get it
link |
01:24:57.400
is that kings have a low time preference
link |
01:25:00.000
where they think about things for many generations.
link |
01:25:03.540
Whereas in a democratic system,
link |
01:25:05.420
your president is likely only going to be there
link |
01:25:08.220
for four years or eight years or 10 years
link |
01:25:10.620
or five years or whatever it is.
link |
01:25:12.620
So the only way that, you know,
link |
01:25:14.540
all humans are self interested.
link |
01:25:15.900
So the only way that your president in a democracy
link |
01:25:17.940
can provide for themselves is to maximize
link |
01:25:20.980
the amount of exploitation that they can do
link |
01:25:23.300
of the population during their brief stint.
link |
01:25:26.380
And then when he's out, you get a new one,
link |
01:25:28.660
and then that one wants to start all over again.
link |
01:25:30.540
So every four years, you get a new robber.
link |
01:25:33.060
With monarchy, you sign up for a multi generation
link |
01:25:37.260
subscription to the same family.
link |
01:25:41.380
And when they have the security of knowing that,
link |
01:25:44.140
you know, his great grandson is going to be
link |
01:25:47.940
taking money from your great grandson,
link |
01:25:50.860
suddenly his interest in yours align
link |
01:25:54.340
because they both want your great grandson
link |
01:25:56.420
to be prosperous and have enough money
link |
01:25:58.500
for his great grandson to take.
link |
01:26:00.260
It's a monarchy with a tiny government.
link |
01:26:02.320
So anything required to really provide for a free market.
link |
01:26:08.980
So for maximizing individual freedom
link |
01:26:11.020
and the freedom of the economy.
link |
01:26:12.460
Yeah, and if I were a king, which is highly unlikely
link |
01:26:15.460
to ever happen, but I think, you know,
link |
01:26:17.060
if you look historically, the dynasties
link |
01:26:20.140
that have succeeded at lasting for a long time,
link |
01:26:23.180
the key thing that they managed to do
link |
01:26:24.940
is to basically be libertarian.
link |
01:26:26.900
The key to being a good king is to just leave people alone.
link |
01:26:29.780
Let them do whatever they want.
link |
01:26:31.180
Don't rob them too much or rob them as little as possible,
link |
01:26:34.260
or maybe even don't rob them.
link |
01:26:36.140
And, you know, as a king, use your power only
link |
01:26:40.580
to punish people who aggress against others.
link |
01:26:43.220
Don't use your power to enrich yourself
link |
01:26:44.900
and enrich your friends.
link |
01:26:46.340
And that's really, like, if you look at smart kings,
link |
01:26:49.760
this is what they do.
link |
01:26:50.600
This is what they teach their children.
link |
01:26:51.740
And the cycle of kingdoms is that, you know,
link |
01:26:54.180
the first king understands this,
link |
01:26:56.020
builds the empire and the first couple of generations,
link |
01:26:59.780
they get this and the society is free, the economy is free.
link |
01:27:04.700
And because of that, you know, there's peace and prosperity,
link |
01:27:09.100
but then over time, the next generation of kids
link |
01:27:12.500
become a lot more high time preference.
link |
01:27:14.780
They haven't worked hard.
link |
01:27:17.300
They don't understand the meaning of hard work.
link |
01:27:20.020
So they become more likely to engage
link |
01:27:23.780
in destructive behavior.
link |
01:27:24.940
So raise taxes, pass laws that require people to do things,
link |
01:27:31.180
even when they're not hurting anybody.
link |
01:27:33.860
And that ends up basically eventually destroying the kingdom.
link |
01:27:37.940
Of course, power corrupts.
link |
01:27:40.300
So you have to kind of create human institutions
link |
01:27:42.780
that prevent you as a king or any kind of leader
link |
01:27:45.940
from expand, so going back on the original promises
link |
01:27:52.180
and the purposes of your position.
link |
01:27:54.620
And then distracting, using tools of technology
link |
01:27:58.020
and communication to distract the populace
link |
01:28:00.060
while you expand the power.
link |
01:28:01.300
Exactly.
link |
01:28:02.140
All right, you wrote the fiat standard.
link |
01:28:05.780
I think we danced around it quite a bit,
link |
01:28:08.580
but I don't know if we actually defined it.
link |
01:28:10.180
So what is fiat money?
link |
01:28:11.860
What is the history of how it came to be?
link |
01:28:14.700
The fascinating history of the birth
link |
01:28:16.140
of the fiat monetary system is something
link |
01:28:18.460
that really only got uncovered in 2017.
link |
01:28:21.740
This is extremely, extremely interesting.
link |
01:28:25.100
In 1914, Britain joined World War I.
link |
01:28:29.700
And if you remember your history books,
link |
01:28:31.740
it's famous that this was called August Bank Holiday.
link |
01:28:35.380
It was just going to be a few weeks
link |
01:28:36.820
where the British troops were gonna go
link |
01:28:38.340
and kick European ass and come back triumphant.
link |
01:28:41.780
And most European countries believed that.
link |
01:28:44.100
But then the war kept on dragging on.
link |
01:28:46.420
And of course, to finance the war,
link |
01:28:48.380
the government, this is what they used to do
link |
01:28:49.980
under the gold standard,
link |
01:28:50.820
governments would issue bonds.
link |
01:28:53.020
So you'd issue the bonds, people would buy the bonds,
link |
01:28:55.660
the money would be used to finance the military,
link |
01:28:57.980
and then the government would pay off the bond
link |
01:29:00.740
over the next five or 10 or 20 years.
link |
01:29:03.060
So for World War I, the British government,
link |
01:29:06.260
the British treasury issued bonds for financing the war.
link |
01:29:10.220
And this only came to light in 2017.
link |
01:29:13.460
Only a third of the bonds were actually subscribed.
link |
01:29:15.860
So people, British people,
link |
01:29:17.260
and this is perhaps the greatest thing
link |
01:29:19.180
that they've ever done,
link |
01:29:20.340
they decided fighting a war in Europe
link |
01:29:22.220
is just not my ideal way of investing my capital.
link |
01:29:25.300
It's a stupid thing.
link |
01:29:26.140
Why should I go and fight?
link |
01:29:27.300
Because the Austrians and the Germans and the Serbians
link |
01:29:30.180
are at each other's throats.
link |
01:29:34.220
I'd rather invest in something else.
link |
01:29:36.180
So they only bought a third of the bond issue.
link |
01:29:38.940
And then the astonishing thing that happened,
link |
01:29:42.140
which really set the tone for the next century
link |
01:29:44.180
of war, murder, Keynesianism, and theft and inflation,
link |
01:29:49.140
was that the Bank of England went and got
link |
01:29:52.740
two of the high ranking officials in the Bank of England
link |
01:29:56.700
to buy the other remaining outstanding two thirds
link |
01:29:59.460
of the bonds under their own name
link |
01:30:01.580
with a line of credit from the Bank of England.
link |
01:30:03.220
So it wasn't their own money.
link |
01:30:04.740
But they took money essentially from the Bank of England,
link |
01:30:06.700
bought two thirds of the bonds that financed the war.
link |
01:30:10.420
And that was how England was able
link |
01:30:12.700
to keep going into the war.
link |
01:30:14.900
So that's essentially what they did
link |
01:30:17.140
is what we today know as quantitative easing.
link |
01:30:20.180
Back then, they just got, they printed money
link |
01:30:23.740
from the Bank of England, or credit, printed credit,
link |
01:30:26.220
gave it to those two employees.
link |
01:30:29.020
They bought the bonds.
link |
01:30:30.020
The government could fight the war.
link |
01:30:32.420
Sounds like it's a nice idea.
link |
01:30:34.540
And Keynes, of course, being a huckster himself,
link |
01:30:38.180
he himself said this was, he wrote a letter
link |
01:30:42.100
to the Bank of England that was uncovered recently.
link |
01:30:44.020
And he said, I congratulate you
link |
01:30:45.900
on this masterly manipulation.
link |
01:30:48.020
I quote it in the book.
link |
01:30:49.420
Masterly manipulation is what he called it.
link |
01:30:51.700
That they basically managed to buy the bonds
link |
01:30:54.740
using the money of the government.
link |
01:30:56.420
And of course, he never had an idea of how economics works
link |
01:31:00.020
because he never could ask the question of,
link |
01:31:01.620
okay, and then what?
link |
01:31:02.780
All right, so we just printed money
link |
01:31:04.380
to buy two thirds of these government bonds.
link |
01:31:07.340
What's gonna happen next?
link |
01:31:09.060
What could go wrong?
link |
01:31:10.420
Not a question Keynesians ask themselves
link |
01:31:12.860
because their jobs depend on not thinking
link |
01:31:16.740
about what's going to go wrong.
link |
01:31:18.300
So a quick question about war.
link |
01:31:20.660
And as somebody who's been nonstop reading
link |
01:31:23.660
and thinking about the wars of the 20th century
link |
01:31:26.700
and thinking that most of those wars
link |
01:31:31.660
were unjust, unethical, and destructive,
link |
01:31:37.060
how else do you find, how would you finance a war?
link |
01:31:40.180
So.
link |
01:31:41.020
Ideally you don't.
link |
01:31:41.940
No, but I mean, of course there are,
link |
01:31:43.060
sometimes you wanna fight for self defense.
link |
01:31:45.140
Yeah, you finance it, taxation, or bonds.
link |
01:31:48.540
See, the people really need to want a war
link |
01:31:51.140
not just with their voices, their thoughts,
link |
01:31:54.020
their tweets, or their actual financial investment.
link |
01:31:56.740
Put up the bullets and the cost of the bullets
link |
01:31:59.260
and the bodies.
link |
01:32:00.420
So their life and their financial well being.
link |
01:32:05.500
That's how it was under the gold standard mostly
link |
01:32:07.420
because under the gold standard,
link |
01:32:09.220
the government couldn't print gold.
link |
01:32:10.660
And so they had a budget and they had a certain amount
link |
01:32:12.780
of gold and that wasn't just, you know,
link |
01:32:15.020
that they couldn't infinitely increase it.
link |
01:32:16.740
So they couldn't tax their population at will.
link |
01:32:20.180
And it's very difficult to take money from people.
link |
01:32:22.860
You know, you go knock on doors and search everybody's home,
link |
01:32:25.620
see where they're hiding their gold.
link |
01:32:27.260
It's very complicated.
link |
01:32:28.620
On the other hand, when you gave them paper money,
link |
01:32:30.220
which is what the case was in 1914,
link |
01:32:33.220
you could take their wealth just by printing the money.
link |
01:32:36.220
And that's what changed everything when it comes to war.
link |
01:32:38.780
That's why the 20th century was the century of total war.
link |
01:32:41.980
Because under the gold standard,
link |
01:32:43.220
governments fought until they ran out of their own gold.
link |
01:32:46.420
Under the fiat standard, with paper money,
link |
01:32:48.700
with credit money, governments fought
link |
01:32:50.900
until they ran out of liquid wealth
link |
01:32:53.480
in the hands of all of their citizens.
link |
01:32:55.840
So let's find flaws in this thinking if there's any.
link |
01:33:01.460
Okay, there's a lot of pacifist type of thinking
link |
01:33:06.460
in World War II as Hitler was expanding and expanding.
link |
01:33:10.020
Hitler framed himself as a victim of the past, of history.
link |
01:33:14.660
He never attacked anybody.
link |
01:33:16.940
Everyone's always threatening to attack him.
link |
01:33:18.940
That's kind of the narrative.
link |
01:33:20.140
And he keeps expanding.
link |
01:33:21.580
He keeps sweet talking with his charisma,
link |
01:33:23.660
all the countries around him,
link |
01:33:25.940
into sort of embracing pacifism.
link |
01:33:28.820
Stay out of the war until the war is on your doorstep.
link |
01:33:31.820
So France, just very suboptimal military strategy
link |
01:33:37.380
from the perspective of many European nations
link |
01:33:39.940
in response to Hitler.
link |
01:33:41.860
They were basically hoodwinked by his words.
link |
01:33:45.620
So then there's Churchill, Winston Churchill,
link |
01:33:50.640
who stepped up and says, perhaps irrationally,
link |
01:33:55.300
from some kind of economics perspective,
link |
01:33:57.860
saying we're not going to back down.
link |
01:33:59.900
We're going to fight Germany.
link |
01:34:01.580
And perhaps that step alone is one of the biggest reasons
link |
01:34:05.220
that Hitler failed in his expansion.
link |
01:34:11.380
That decision to fight back,
link |
01:34:15.840
how, what's the right way to do that?
link |
01:34:18.780
If you're Winston Churchill,
link |
01:34:21.260
what's the right way to do that?
link |
01:34:23.320
If you're, to fight back evil when violence is required.
link |
01:34:28.320
Evil when violence is required.
link |
01:34:30.440
Now, you could argue that no war is just,
link |
01:34:35.440
but there is such a thing as a just war index.
link |
01:34:38.840
And a lot of people argue if there is a just war
link |
01:34:41.920
in the 20th century, it's World War II.
link |
01:34:46.000
So how would you fund, if you were Britain, the war?
link |
01:34:49.800
Would you require Winston Churchill
link |
01:34:52.200
to convince the populace?
link |
01:34:54.800
Don't fight until they're fully convinced
link |
01:34:57.480
that this is the right thing to do.
link |
01:34:59.120
You can't just make a decision for them.
link |
01:35:01.240
You have to convince them fully
link |
01:35:02.960
so that they give their life
link |
01:35:04.400
and they give their money to support the war.
link |
01:35:07.760
Is that the right way to do it?
link |
01:35:08.720
I think so.
link |
01:35:09.560
And I think when you have a true threat
link |
01:35:13.280
and a true evil and a true force
link |
01:35:14.760
that people really do think is genuine,
link |
01:35:18.300
you don't need to convince them.
link |
01:35:19.360
I mean, when it's real, people will want to fight
link |
01:35:22.760
and people will want to pay to fight.
link |
01:35:24.440
And I mean, I think, though, on this particular example,
link |
01:35:28.880
I think the best way to fight Hitler
link |
01:35:30.680
is to have not fought World War I
link |
01:35:33.400
and not take out the Kaiser of Germany.
link |
01:35:36.080
If Britain and the US had not gotten involved
link |
01:35:40.120
in World War I, which really is the senseless war
link |
01:35:44.560
about nothing, what was in it?
link |
01:35:46.600
And what was the goal from anybody fighting that war?
link |
01:35:49.600
If you look at it, after World War I,
link |
01:35:52.360
there were very minor adjustments
link |
01:35:54.800
in the borders of the countries that were participating.
link |
01:35:57.640
So Germany lost some land, Austria lost some land,
link |
01:36:00.840
but really it wasn't all that massive.
link |
01:36:04.320
And it wasn't like Britain wanted to take over Germany
link |
01:36:09.320
and move their people into Germany and kick the Germans out.
link |
01:36:12.040
So there was no real value from that war.
link |
01:36:17.160
And that's why the British people
link |
01:36:18.100
didn't want to take part in it.
link |
01:36:19.960
And that's why if they hadn't done
link |
01:36:22.760
this enormously criminal manipulation
link |
01:36:25.560
of printing money to buy the bonds,
link |
01:36:28.520
Britain wouldn't have gotten into the war.
link |
01:36:30.720
Germany would still be a kingdom and Hitler wouldn't rise.
link |
01:36:34.520
And yeah, there'd be small changes
link |
01:36:37.240
in the borders of various European countries.
link |
01:36:41.440
I struggled to see how it could have been worse.
link |
01:36:44.800
I mean, I struggled to see who benefited
link |
01:36:47.900
from four years of carnage in Europe.
link |
01:36:50.800
And then this came at the height of civilization.
link |
01:36:53.620
Before that, the people of Europe
link |
01:36:55.640
had the golden era under the gold standard.
link |
01:37:00.160
They were trading with one another, they traveled
link |
01:37:02.000
and technology was advancing.
link |
01:37:04.400
And they did not expect this war to last this long.
link |
01:37:08.760
And my favorite story from World War I
link |
01:37:11.360
is the Christmas truce football game,
link |
01:37:14.840
which I mentioned in my book.
link |
01:37:16.480
British and German soldiers at the height of the conflict,
link |
01:37:19.640
they stopped on Christmas day
link |
01:37:20.760
and they played a football game against each other.
link |
01:37:23.120
I mean, this is not a real war,
link |
01:37:25.100
where it's a war for survival.
link |
01:37:27.680
Britain didn't want to end Germany.
link |
01:37:30.340
Germany didn't want to end Britain.
link |
01:37:31.840
It was just kings who were emboldened
link |
01:37:35.920
by the fact that they had a printing press
link |
01:37:38.440
playing with the lives of the people.
link |
01:37:42.720
Take that away, take away the printing press,
link |
01:37:44.640
take away their ability to print money.
link |
01:37:46.360
I think we'd have had a much, much, much better
link |
01:37:49.480
20th century.
link |
01:37:50.960
Yeah, the counterfactual history.
link |
01:37:52.520
Neil Ferguson is a historian
link |
01:37:54.080
who gets in quite a bit of trouble.
link |
01:37:56.960
Basically, well, he's a Brit,
link |
01:38:00.220
suggesting that if Britain stayed out of World War I,
link |
01:38:03.440
there would be no Hitler, there would be no World War II.
link |
01:38:05.980
Yep, I agree entirely.
link |
01:38:09.140
But fiat money.
link |
01:38:10.620
Yeah, so how fiat money was born.
link |
01:38:12.280
Yeah, let's get back to that.
link |
01:38:13.560
So they financed the war with that money.
link |
01:38:16.160
So what could go wrong?
link |
01:38:17.960
That's where we left off.
link |
01:38:19.220
Well, what could go wrong when you've just printed
link |
01:38:21.240
an enormous amount of credit and used it to buy bonds?
link |
01:38:26.760
What goes wrong is that the value of the currency
link |
01:38:28.560
is going to go down.
link |
01:38:29.600
Or in other words, prices of things are gonna go up.
link |
01:38:32.880
So during the war, prices keep going up.
link |
01:38:35.240
And this is, of course,
link |
01:38:38.040
this is gonna sound very familiar
link |
01:38:39.240
to victims of the 20th century.
link |
01:38:41.560
A government tells you it's because of the war,
link |
01:38:43.400
it's not our fault, it's because of the Germans,
link |
01:38:45.240
it's because of the foreigners, it's because of Putin,
link |
01:38:47.120
it's because of this, it's because of that.
link |
01:38:49.120
This has always been the case.
link |
01:38:50.280
There's always, war is a very good cover for inflation,
link |
01:38:55.080
which is caused by monetary phenomena.
link |
01:38:57.880
So then the war ends.
link |
01:38:59.720
And inflation, prices have more than doubled
link |
01:39:02.640
over the past four years,
link |
01:39:04.760
over the four years of World War I,
link |
01:39:07.640
prices have more than doubled.
link |
01:39:09.420
And then the British economy is in bad trouble,
link |
01:39:12.800
obviously, lost a lot of the labor force for four years
link |
01:39:16.360
that was out there fighting.
link |
01:39:18.280
Now those workers come back, you've got prices are up.
link |
01:39:23.200
And so people are demanding
link |
01:39:25.960
that the government control prices
link |
01:39:27.280
and the government is trying to fix the problem
link |
01:39:29.440
of inflation by doing price controls,
link |
01:39:31.000
which is what they always do,
link |
01:39:32.840
which is catastrophic because it makes things worse.
link |
01:39:36.040
When you implement price controls,
link |
01:39:38.560
you are, when you make, you say, all right,
link |
01:39:40.840
well, bread can't be sold for more than X price.
link |
01:39:45.400
Well, that's just preventing bread producers
link |
01:39:48.200
from producing a lot of bread.
link |
01:39:49.920
And that's just making the problem worse.
link |
01:39:51.560
If you let the price rise, the extra price,
link |
01:39:55.160
first of all, it makes people economize,
link |
01:39:56.840
so people will only buy what they need.
link |
01:39:58.760
And it provides the money for the bread producers
link |
01:40:00.800
to acquire the capital and the resources
link |
01:40:03.240
they need to produce more bread,
link |
01:40:04.840
which then brings the price of bread down.
link |
01:40:06.480
But price controls destroy that.
link |
01:40:08.520
Then they also implement wage controls.
link |
01:40:10.640
So you wanna also make sure that people have high wages.
link |
01:40:15.160
So you raise people's wages artificially,
link |
01:40:17.080
you lower prices artificially,
link |
01:40:18.600
and you cause an economic problem.
link |
01:40:21.240
And this is basically, I use this historical example
link |
01:40:24.960
because it's the birth of fiat,
link |
01:40:26.680
because the Bank of England was the most important
link |
01:40:28.560
monetary system in the world at that time.
link |
01:40:31.640
And because it's the prototype
link |
01:40:33.560
that basically the entire planet copied
link |
01:40:35.120
over the last 100 years.
link |
01:40:36.200
We've had this same thing happen.
link |
01:40:38.120
The government prints money because of a stupid reason,
link |
01:40:40.280
because somebody in power decided
link |
01:40:42.240
this was worth destroying everybody's livelihood
link |
01:40:44.800
and savings for.
link |
01:40:46.160
And then the consequences come in
link |
01:40:47.600
and then they start covering up with price controls,
link |
01:40:49.800
wage controls, and then that makes things worse.
link |
01:40:52.760
And then they, and of course, throughout all of that,
link |
01:40:57.480
they're promising that we're going to go,
link |
01:40:58.840
oh, and also the other thing that they did,
link |
01:41:01.240
which I mentioned in the chapter is,
link |
01:41:03.080
they stopped people from using physical gold
link |
01:41:05.320
and they confiscated the, well, they didn't confiscate it,
link |
01:41:07.480
but they took the physical gold and they gave people paper.
link |
01:41:10.040
So I call it the fiat white paper.
link |
01:41:12.240
You know, in Bitcoin, we have the white paper.
link |
01:41:14.960
The fiat white paper was that the Bank of England
link |
01:41:17.360
announced to all of its banks and post offices.
link |
01:41:20.040
And from now on, you should not make payment in gold
link |
01:41:23.200
and you should take payment in gold
link |
01:41:24.920
and you should encourage all your customers
link |
01:41:26.320
to turn in all of their gold and give them paper instead.
link |
01:41:28.640
Is there an actual document?
link |
01:41:30.040
Oh, yeah, yeah, yeah.
link |
01:41:30.880
Nice.
link |
01:41:31.720
Yeah, it was, this is all new stuff.
link |
01:41:33.400
Obviously, nobody really likes to talk about this stuff
link |
01:41:35.360
because, you know, they're fiat economists,
link |
01:41:36.880
so they don't wanna talk about the original sin, but.
link |
01:41:41.160
Well, you should like republish it
link |
01:41:42.880
as the fiat white paper or something like that.
link |
01:41:45.160
There's a fascinating book by a guy called John Osborne.
link |
01:41:49.680
So in the 1920s, I think his name was Montagu.
link |
01:41:53.120
He was the chief of the Bank of England.
link |
01:41:54.800
He commissioned one of his secretaries, John Osborne,
link |
01:41:58.600
to study what the bank did during World War I.
link |
01:42:02.520
And it was a study that was kept under wraps,
link |
01:42:05.200
a confidential, in the Bank of England,
link |
01:42:07.720
only released in 2017, almost a century later.
link |
01:42:12.160
And.
link |
01:42:13.000
What was special about 2017, by the way, it's a year.
link |
01:42:15.800
It's just it was a year in which
link |
01:42:17.920
some of this information was released.
link |
01:42:19.840
Yeah, a bunch of people got into parts of the basements
link |
01:42:22.320
of the Bank of England and found this and published it
link |
01:42:24.400
and now you can download it as a PDF
link |
01:42:26.160
and find all of the amazing details.
link |
01:42:29.520
So they confiscated the gold
link |
01:42:31.480
and they forced people to use the paper
link |
01:42:32.960
and they promised people that as soon as the war
link |
01:42:34.560
was gonna be over, this is temporary,
link |
01:42:36.360
we're gonna be back to using gold.
link |
01:42:38.240
And of course, you know, if you told people in Britain,
link |
01:42:42.000
this is the real scam about fiat.
link |
01:42:43.920
If you told people in Britain in 1914,
link |
01:42:47.040
hey, we're gonna go off the gold standard
link |
01:42:49.040
because it's better.
link |
01:42:50.320
I mean, there might've been lynchings
link |
01:42:53.360
of government officials because the British pound
link |
01:42:56.720
at that point, it had been the global currency
link |
01:43:00.560
of the whole world.
link |
01:43:01.600
And the fact that they'd managed,
link |
01:43:04.800
the Bank of England had kept the British pound
link |
01:43:07.120
at a fixed rate next to gold for,
link |
01:43:09.920
since Newton, you know, the exchange rate,
link |
01:43:12.120
the value of the British pound was set
link |
01:43:14.560
by Isaac Newton himself.
link |
01:43:16.440
He was the warden of the mint
link |
01:43:18.600
and he made the pound a specific amount of gold.
link |
01:43:22.160
And since then, up until World War I,
link |
01:43:24.760
it was 4.25 pounds per ounce of gold.
link |
01:43:28.600
I think I might be wrong, but I have it in the book.
link |
01:43:31.480
So he'd set that price.
link |
01:43:32.760
And it was a matter of national pride
link |
01:43:34.240
for people in England, you know.
link |
01:43:35.960
The sterling is as good as gold
link |
01:43:37.600
because for two centuries it has been stuck to gold.
link |
01:43:40.360
There was the exception of the Napoleonic Wars,
link |
01:43:42.440
but for two centuries, mostly it was stuck to that.
link |
01:43:45.240
And so they went off that and then they couldn't go back
link |
01:43:49.200
because if they wanted to go back,
link |
01:43:50.320
they didn't have enough gold.
link |
01:43:51.320
They shipped their gold to the US to finance the war.
link |
01:43:54.720
And they had printed a whole bunch of money
link |
01:43:56.840
that was out there.
link |
01:43:58.080
So this begins the problem for England.
link |
01:44:01.280
And that begins the end of England
link |
01:44:03.120
as the world's superpower.
link |
01:44:05.120
And the way they tried to fight that
link |
01:44:06.560
was to get more and more countries around the world
link |
01:44:08.560
to establish central banks and have,
link |
01:44:10.640
and hold British pounds.
link |
01:44:12.200
So they'd hold, you know, basically dumping their bags
link |
01:44:15.640
like just any other shit coin.
link |
01:44:17.840
You just, if you get people to buy your shit coin,
link |
01:44:20.040
you know, that raises the value of your shit coin.
link |
01:44:21.840
So.
link |
01:44:22.680
Can you define shit coin?
link |
01:44:23.920
Shit coin is, in my definition of a shit coin
link |
01:44:27.000
is that it's any form of money
link |
01:44:28.720
where somebody can produce it.
link |
01:44:31.360
So soft money.
link |
01:44:33.320
Not necessarily, I guess.
link |
01:44:35.080
I think the difference, so there's easy money,
link |
01:44:38.160
but the shit coin is something that someone can produce
link |
01:44:42.120
at a rate that is, at a cost that is different
link |
01:44:45.200
from the market cost.
link |
01:44:46.520
So gold, nobody can make gold except if they dig for it.
link |
01:44:49.520
And the cost of mining gold is generally in the range
link |
01:44:52.520
of the price of gold.
link |
01:44:54.640
Seems true for Bitcoin.
link |
01:44:56.400
So gold is not a shit coin.
link |
01:44:57.800
Gold is not a shit coin.
link |
01:44:59.360
The copper is.
link |
01:45:00.640
Copper, I'm not so sure.
link |
01:45:03.000
I wouldn't call copper a shit coin
link |
01:45:04.320
as much as it is easy money.
link |
01:45:05.800
But I think government currencies and other alt coins,
link |
01:45:09.800
I think are shit coins because somebody could click a button
link |
01:45:13.080
and make 10 times the supply.
link |
01:45:14.960
Would it be fair to say that this began
link |
01:45:19.040
with the will for war in World War I?
link |
01:45:23.120
So the march towards fiat began
link |
01:45:30.160
with a global desire for war in the 20th century.
link |
01:45:35.840
Did war start this or was war a result?
link |
01:45:39.680
It's difficult to say really.
link |
01:45:40.840
I think it goes both ways.
link |
01:45:42.200
I think you can't have permanent war without fiat.
link |
01:45:48.320
And I also think there's a case to be made
link |
01:45:51.720
that you can't really have fiat without war.
link |
01:45:54.720
So it's some kind of weird dynamical system
link |
01:45:57.480
with a chicken and egg situation
link |
01:45:59.360
and they build on top of each other
link |
01:46:00.800
and there's a few individuals that figured out
link |
01:46:03.000
there's a way to manipulate this to play this kind of game
link |
01:46:05.840
and it escalates and nothing gives you the ability
link |
01:46:08.840
to manipulate money quite like war.
link |
01:46:12.200
When you have a war, you can declare an emergency.
link |
01:46:15.520
You can call all the people who oppose you traitors.
link |
01:46:19.360
You can get people to support you
link |
01:46:23.640
not because what you're doing is good
link |
01:46:25.400
but because you play on their sense of tribalism.
link |
01:46:28.240
In your book, you do cost benefit analysis.
link |
01:46:31.000
So you do acknowledge or think about
link |
01:46:33.240
the pros of fiat currency.
link |
01:46:35.440
Can you do just that, look at the benefit
link |
01:46:41.000
and look at the cost just broadly at the highest level?
link |
01:46:43.880
So the way that I write the fiat standard
link |
01:46:45.640
is that I try and analyze it as an engineering system
link |
01:46:49.440
in the same way that I wrote the Bitcoin standard.
link |
01:46:51.480
So with the Bitcoin standard,
link |
01:46:52.320
I looked at Bitcoin from first principles
link |
01:46:54.040
and tried to explain how it works
link |
01:46:56.080
for a reader that doesn't really have much of a background
link |
01:46:59.320
in computer science, networks or economics.
link |
01:47:03.760
And I thought I'll do the same with the fiat.
link |
01:47:05.520
Let's just ignore the official stories
link |
01:47:07.480
and look at how this thing actually works.
link |
01:47:10.280
And I think it does have value
link |
01:47:14.000
in the fact that the reason that they were able
link |
01:47:18.080
to pull it off is because it was not possible
link |
01:47:21.440
for people who don't want to be part of it
link |
01:47:25.520
to use gold independently of governments.
link |
01:47:28.000
This is really the key thing.
link |
01:47:29.480
Gold is just very expensive to move around.
link |
01:47:31.840
And the fact that it is expensive to move around
link |
01:47:36.040
means that there's inevitably going to emerge institutions
link |
01:47:41.040
where it is centralized in physical location.
link |
01:47:44.280
And then these institutions trade liabilities for the gold.
link |
01:47:47.840
So really the gold standard intrinsically must involve credit
link |
01:47:55.520
as becoming part of the monetary system.
link |
01:47:58.120
It has to be the credit and because it gets centralized
link |
01:48:00.840
it can easily be captured by the government.
link |
01:48:03.080
So to be fair, the benefits of the fiat system
link |
01:48:06.920
is that it saves us on the cost of moving gold around,
link |
01:48:09.520
which is pretty significant.
link |
01:48:11.240
Like generally, moving a bar of gold across the Atlantic
link |
01:48:15.000
is gonna cost somewhere between 0.1 to 1%
link |
01:48:18.160
of the cost of the gold bar.
link |
01:48:19.920
So you move it 100 times back and forth
link |
01:48:22.640
between the Atlantic, you need to pay the whole gold bar,
link |
01:48:25.320
the cost of the whole gold bar to move it 100 times across.
link |
01:48:28.400
Well, with fiat money, it's essentially government credit.
link |
01:48:31.280
And so it's just sending a message
link |
01:48:33.600
from one central bank to another
link |
01:48:36.120
and you can move it halfway around the world.
link |
01:48:38.160
Is there also something to be said about the cost in time?
link |
01:48:41.240
So you're saving the sort of,
link |
01:48:42.640
you're reducing the friction of the communication as well.
link |
01:48:45.920
Exactly.
link |
01:48:46.760
Of the transactions as well.
link |
01:48:47.880
Exactly, it's faster.
link |
01:48:50.480
How big is that benefit?
link |
01:48:52.000
Because wouldn't you argue that that potential
link |
01:48:54.280
is the thing that enables modern economy,
link |
01:48:56.680
both the speed and the low cost,
link |
01:48:58.400
so increasing the scale and the frequency,
link |
01:49:01.240
the speed of the transactions?
link |
01:49:03.160
Yeah, arguably it does help in that regard.
link |
01:49:06.680
However, it isn't as if you couldn't have
link |
01:49:10.160
fast transactions built on top of gold.
link |
01:49:12.400
So you could have gold being used for final settlement
link |
01:49:15.360
and you could have banks settling with one another
link |
01:49:19.600
essentially using credit settlement.
link |
01:49:21.040
Can you define settlement just for people
link |
01:49:24.120
who are outside of this world?
link |
01:49:25.360
Because we'll mention that word quite a bit probably.
link |
01:49:27.360
Good question.
link |
01:49:28.200
So the way that it works is, let's say right now
link |
01:49:29.920
I'm gonna pay you $10 over PayPal or credit card.
link |
01:49:35.080
So it shows up in your PayPal or credit card
link |
01:49:37.040
within a few seconds that I've sent you the money
link |
01:49:39.960
and then that's yours.
link |
01:49:41.200
But it didn't also happen in those 10 seconds
link |
01:49:46.600
that my bank, which could be in another country,
link |
01:49:49.840
sent the money to your bank into your account.
link |
01:49:54.760
There's a lot of infrastructure underneath that.
link |
01:49:57.160
So what actually happened is that I have an account
link |
01:49:59.160
with my bank and you have an account with your bank.
link |
01:50:01.600
And when the message is communicated from my app to yours,
link |
01:50:05.560
my bank crosses out the money
link |
01:50:07.560
and your bank credits you with the money.
link |
01:50:10.080
And then at the end of the day, week or month,
link |
01:50:14.400
banks in the same city will settle with one another,
link |
01:50:16.560
banks in the same country will settle with one another
link |
01:50:19.520
and banks from different countries
link |
01:50:21.720
will settle with one another.
link |
01:50:22.880
So they won't move the $10 from my account to yours.
link |
01:50:27.040
At the end of the day or week or month,
link |
01:50:29.600
they'll tally all of the money that was sent
link |
01:50:32.200
from one bank to the other
link |
01:50:33.880
and then just settle the difference.
link |
01:50:35.320
So it turns out at the end of the month,
link |
01:50:37.080
my bank had sent $15 million to your bank
link |
01:50:40.440
and your bank had sent $14 million to my bank.
link |
01:50:43.480
So they give them $1 million and that settles it,
link |
01:50:46.840
that finalizes the transaction.
link |
01:50:48.920
So final settlement 3D is like the,
link |
01:50:51.680
you can think about it as the infrastructure of the system.
link |
01:50:54.640
And then you can think of these things
link |
01:50:56.840
as being the higher layer levels.
link |
01:50:59.360
And you had a wonderful discussion about that
link |
01:51:01.080
with Michael Saylor.
link |
01:51:02.720
So the final settlement is like the moment
link |
01:51:05.960
when you paper and ideas connect to physical reality.
link |
01:51:11.880
Or to some representation of physical reality.
link |
01:51:13.760
Yeah, and under gold,
link |
01:51:15.560
everything was tethered to physical reality
link |
01:51:17.720
because there was a market commodity
link |
01:51:19.080
at the bottom of all of this
link |
01:51:20.520
and nobody could print that market commodity.
link |
01:51:22.440
And so at the end of the month,
link |
01:51:23.960
if your bank made too many payments,
link |
01:51:26.240
if you made too many payments, there was a reckoning.
link |
01:51:29.040
If you were reckless, if you were insolvent,
link |
01:51:33.040
you went out of business.
link |
01:51:34.440
So there was no way to fool that.
link |
01:51:37.640
But then we moved to the fiat century
link |
01:51:39.840
and everything is credit.
link |
01:51:41.840
At the end of the day,
link |
01:51:42.680
the final layer is government credit.
link |
01:51:45.680
And so as long as you're friends with the government,
link |
01:51:48.600
basically you never go bankrupt.
link |
01:51:50.280
So all kinds of hucksters managed to find their way
link |
01:51:54.200
into getting into position where they don't get bankrupt.
link |
01:51:58.840
So in part two of the fiat standard called Fiat Life,
link |
01:52:03.000
you describe the effects of fiat money
link |
01:52:04.640
on a bunch of things like life, food, science, education.
link |
01:52:10.640
What is the most pernicious effect of fiat money
link |
01:52:14.040
on our world, on our life?
link |
01:52:15.440
So taking a step outside of the monetary system,
link |
01:52:18.160
actually like how that affects our life from this book?
link |
01:52:21.800
I mean, there's a whole bunch of things
link |
01:52:23.480
and I won't be able to go over them
link |
01:52:25.440
and I highly recommend reading the book.
link |
01:52:26.840
But if I were to pick one,
link |
01:52:28.520
I would say it's the impact that it has
link |
01:52:29.880
on our time preference, on our valuation of the future.
link |
01:52:33.640
So remember when we started the discussion,
link |
01:52:35.680
I said that the key function of money
link |
01:52:38.840
is that it serves as a store of value.
link |
01:52:41.400
And the harder the money is,
link |
01:52:42.920
the better it is at providing us
link |
01:52:45.240
with a way for providing for our future.
link |
01:52:48.160
And so the harder the money is,
link |
01:52:49.800
the less we discount the future.
link |
01:52:51.320
We always discount the future compared to the present.
link |
01:52:53.200
So if I told you, I'm gonna give you something today
link |
01:52:56.200
versus giving it to you 10 years from now,
link |
01:52:58.640
the same thing, you would prefer to take it now
link |
01:53:00.840
because then you'd get to enjoy it over the next 10 years.
link |
01:53:03.240
So we always prefer the present to the future.
link |
01:53:06.520
There's always a discount on the future.
link |
01:53:09.080
And that discount is called time preference.
link |
01:53:10.920
The degree to which we prefer the present to the future
link |
01:53:13.600
is called our time preference.
link |
01:53:15.400
So the higher our time preference,
link |
01:53:18.960
the less we care about the future.
link |
01:53:20.840
And the process of civilization
link |
01:53:22.200
is the process of lowering our time preference,
link |
01:53:24.680
where we start caring more for the future,
link |
01:53:26.600
we start prioritizing the present less and less.
link |
01:53:29.680
So we start being able to not consume everything
link |
01:53:32.880
that we have and store it.
link |
01:53:34.800
And so money is essential for that.
link |
01:53:36.640
And under the gold standard,
link |
01:53:38.640
everyone in the world had the ability
link |
01:53:40.680
to provide for their future
link |
01:53:42.360
by simply using the same money that they use.
link |
01:53:44.400
You would work a day and you would get paid in a gold coin
link |
01:53:47.560
and you could take that gold coin
link |
01:53:49.080
and keep it safe for 10 years
link |
01:53:51.720
and know that at the end of those 10 years,
link |
01:53:54.000
that gold coin would buy you slightly more
link |
01:53:56.720
than what it bought you the day that you earned it.
link |
01:53:59.400
So anybody could provide for their future
link |
01:54:01.480
and anybody could have very high degree of certainty
link |
01:54:04.640
that whatever they're saving is going to be there
link |
01:54:08.160
when they want it in the future.
link |
01:54:10.320
Because the money supply was only increasing
link |
01:54:12.000
at one and a half percent,
link |
01:54:13.480
whereas the production of goods and services
link |
01:54:16.880
was increasing for most cases, for most periods
link |
01:54:21.040
at a higher rate than that.
link |
01:54:22.160
So you could buy more apples and oranges
link |
01:54:24.480
and houses and cars at the end of the 10 years
link |
01:54:27.720
than you could at the beginning of the 10 years.
link |
01:54:29.240
So everybody had a way of providing for the future.
link |
01:54:31.200
And with that, people lower their time preference.
link |
01:54:34.280
And that is reflected across all aspects of life.
link |
01:54:38.280
I think it's not just the economic thing.
link |
01:54:40.080
You see it in the savings rate,
link |
01:54:41.480
the ability to deny yourself gratification today.
link |
01:54:44.920
I could take the money that I have
link |
01:54:46.400
and throw a giant party, buy a sports car, buy a yacht.
link |
01:54:50.560
And yet you decided, I'm not going to do that.
link |
01:54:52.960
I'm going to keep it so that tomorrow
link |
01:54:54.360
I can throw a bigger party or buy a better yacht
link |
01:54:57.240
or have a better life or give my children a better life.
link |
01:55:01.280
So all of human civilization really
link |
01:55:03.880
is the process of us lowering our time preference
link |
01:55:06.680
and finding harder monies that allow us
link |
01:55:09.120
to provide better for the future
link |
01:55:10.960
is how we really technologically we do that.
link |
01:55:15.200
I think of the hardness of money
link |
01:55:17.720
as being the control knob for our time preference.
link |
01:55:20.760
And you can see this reflected in the 20th century
link |
01:55:23.520
where we go from the money supply increases
link |
01:55:26.120
at around one and a half percent under gold
link |
01:55:28.840
to this current situation where over the last 60 years
link |
01:55:31.440
I ran the numbers on money supply and fiat,
link |
01:55:34.440
the global fiat supply has increased
link |
01:55:36.360
at around 14% per year.
link |
01:55:38.000
So we've done a 10X in the increase
link |
01:55:40.280
in the supply of money annually.
link |
01:55:43.000
And 14% is a weighted average.
link |
01:55:45.280
So if you take a basic numerical average
link |
01:55:48.400
for all fiat currencies, you get something like 30%.
link |
01:55:52.000
The average fiat currency increases by 30%.
link |
01:55:55.000
But if you value it by the volume of each currency
link |
01:55:57.720
so that you're not giving equal weight
link |
01:56:00.160
to the Venezuelan Bolivar increasing at 500% a year
link |
01:56:04.880
and the dollar increasing at 8% a year,
link |
01:56:07.920
if you do it by value of the currencies
link |
01:56:10.480
so that you get the total supply of fiat,
link |
01:56:12.120
it's something like 14%.
link |
01:56:13.720
And weighted is 30% you said?
link |
01:56:15.440
Yeah, 30%.
link |
01:56:16.880
It's insane.
link |
01:56:17.720
I'd like to see the worst ones,
link |
01:56:19.040
the people that are tracking that average up.
link |
01:56:22.320
Yeah.
link |
01:56:23.160
But 14% is still an incredibly high, high number.
link |
01:56:25.560
And so you're saying that,
link |
01:56:27.440
sorry, that's the average over the century
link |
01:56:29.240
or the past 100 years?
link |
01:56:30.080
Over the past 60 years, 1960 to 2020,
link |
01:56:32.200
we get World Bank data on that,
link |
01:56:34.040
pretty reliable data on World Bank
link |
01:56:35.640
and European Union OECD data.
link |
01:56:38.640
I ran the numbers on that weighted average,
link |
01:56:40.680
something like 14%.
link |
01:56:42.120
And what effect that has on time preference?
link |
01:56:45.240
The effect is now it's much, much, much harder
link |
01:56:47.880
for everybody to provide for their future.
link |
01:56:50.080
Everywhere in the world, it's much harder.
link |
01:56:52.240
So how do I get the equivalent of the old gold coin
link |
01:56:56.640
that I could just put under my mattress
link |
01:56:58.080
and expect it to be there 10 years from now?
link |
01:56:59.720
Well, gold itself isn't cutting it.
link |
01:57:01.440
Gold can't keep up with inflation.
link |
01:57:03.400
And the reason for that is that gold is not being used
link |
01:57:06.120
as a money anymore in that you can't send it internationally.
link |
01:57:11.120
Internationally, you can't use it
link |
01:57:13.120
to settle trade internationally,
link |
01:57:14.760
which therefore means demand for it monetarily is limited.
link |
01:57:18.720
And so it's becoming more and more an industrial metal.
link |
01:57:23.400
And as a result of the fact that its value
link |
01:57:26.840
doesn't keep up with inflation,
link |
01:57:28.040
it becomes economical to use it in industry.
link |
01:57:30.120
So we're seeing gold become like silver
link |
01:57:32.760
in that it gets used in industry.
link |
01:57:34.400
So the stockpile declines.
link |
01:57:36.280
And so the stock to flow ratio declines as well,
link |
01:57:38.720
and it becomes more and more of an industrial metal.
link |
01:57:41.000
And it can't protect your wealth over time very well.
link |
01:57:44.960
So what do you do?
link |
01:57:45.960
Well, you could invest.
link |
01:57:47.400
And this is kind of the obvious answer
link |
01:57:49.040
that Keynesian will give you is,
link |
01:57:50.560
well, you just put your money in an investment.
link |
01:57:52.960
But investment is different from saving.
link |
01:57:55.120
Saving, the whole point of saving
link |
01:57:56.560
is that the thing is liquid
link |
01:57:57.840
and that the thing carries little uncertainty.
link |
01:58:00.240
You just held the gold coin and it just sat there.
link |
01:58:03.800
It did nothing.
link |
01:58:04.640
It didn't take risk.
link |
01:58:05.840
You knew that it was gonna be there in 10 years.
link |
01:58:07.680
Investment means you give the gold coin to somebody
link |
01:58:10.840
to go and do something with it.
link |
01:58:13.040
And it could work, it could not work.
link |
01:58:14.480
If it works, you get a positive return.
link |
01:58:16.600
You get more gold back.
link |
01:58:18.160
If it fails, you might not get any of your gold back.
link |
01:58:21.200
So taking on risk is something very different from saving.
link |
01:58:24.480
Saving is just a way of buying the future.
link |
01:58:27.000
Investing is taking on a risk
link |
01:58:29.480
and you could lose everything with it.
link |
01:58:31.280
So what ends up happening,
link |
01:58:33.280
and this is the Keynesian objection I think
link |
01:58:35.520
is very wrong and bad
link |
01:58:39.760
because investment is a job in itself.
link |
01:58:44.080
To figure out what to do with your money
link |
01:58:46.000
in order to beat inflation is something
link |
01:58:49.160
that there are professionals out there on Wall Street
link |
01:58:52.160
that have PhDs in finance, that have enormous computers,
link |
01:58:55.680
and they have enormous staffs of PhDs and master's degrees
link |
01:58:59.600
and math nerds that are crunching numbers
link |
01:59:01.560
and figuring out how to allocate your portfolio
link |
01:59:04.200
so that you can beat inflation.
link |
01:59:05.600
And guess what?
link |
01:59:06.440
The majority of them don't beat inflation.
link |
01:59:08.560
The majority of them can't beat inflation.
link |
01:59:10.440
Not as measured by CPI, which is completely fraudulent,
link |
01:59:13.480
but if you remember.
link |
01:59:14.880
14%.
link |
01:59:15.720
Yeah, that 14% or even the 7%,
link |
01:59:18.920
like if you look at just the increase in the money supply,
link |
01:59:21.120
which I think is a much better metric.
link |
01:59:23.160
And this is what's reflected on the desirable goods.
link |
01:59:25.440
Like if you look at the price of real estate
link |
01:59:27.120
in Miami Beach, as Michael Saylor mentioned in your example,
link |
01:59:30.200
it goes up at around 6, 7% per year on average
link |
01:59:32.840
over the last century.
link |
01:59:34.640
So that's, if you wanna live in a nice area,
link |
01:59:38.160
that's what happening to real estate.
link |
01:59:39.480
If you wanna go to the good universities,
link |
01:59:41.000
that's what's going up.
link |
01:59:41.840
It's going up at a rate that's similar
link |
01:59:43.120
to the increase in the money supply.
link |
01:59:44.960
And you can beat CPI,
link |
01:59:47.320
but CPI is designed so you can beat it,
link |
01:59:50.360
but you can't really beat the appreciation
link |
01:59:52.760
in the things that you actually want to buy,
link |
01:59:54.480
in the price of good food, the price of good real estate.
link |
01:59:57.120
So, and most investment professionals fail at doing that.
link |
02:00:01.720
So what hope does a doctor or an engineer or a scientist
link |
02:00:06.520
or an athlete have in doing those things?
link |
02:00:08.800
And investment is hard and saving should be easy.
link |
02:00:11.760
Exactly.
link |
02:00:12.600
Saving is essential for us as a civilization.
link |
02:00:15.800
And what fiat did is it took that away from us.
link |
02:00:18.920
And then it forced everybody to become an investor
link |
02:00:22.240
or more accurately a gambler, because you're not just even,
link |
02:00:25.720
because the money itself is broken,
link |
02:00:27.560
because the money itself is constantly changing in value,
link |
02:00:30.320
investing is becoming more of a crapshoot.
link |
02:00:33.000
I mean, value investing is completely underperforming,
link |
02:00:36.400
compared to market analysis.
link |
02:00:38.400
You know, you listen to the Fed,
link |
02:00:40.480
and what matters to the price of individual companies
link |
02:00:47.040
is monetary policy much more
link |
02:00:48.480
than it is their own performance.
link |
02:00:50.120
So basically you need to be a junkie watching the Fed
link |
02:00:52.440
and following all of the world's central banks.
link |
02:00:54.040
And yeah, I need to learn macro economics
link |
02:00:55.760
and you need to learn what all the central banks are doing.
link |
02:00:58.880
And you need to understand how commodity markets work.
link |
02:01:00.880
And you need to understand how equity markets work
link |
02:01:02.760
and bond markets and real estate markets.
link |
02:01:05.360
You need to do all of those things
link |
02:01:07.080
just in order to be able to save and earn
link |
02:01:10.400
and keep the money that you've already earned.
link |
02:01:13.280
That's the criminal thing about it.
link |
02:01:14.800
Like I've already earned that money being a doctor,
link |
02:01:17.640
being a dentist, being an athlete, being an engineer.
link |
02:01:19.640
I built a house for somebody and I got that money.
link |
02:01:22.600
And all I wanna do is just make sure
link |
02:01:24.240
that I can have it 10 years from now.
link |
02:01:26.800
The only way to do so is to become a crappy engineer
link |
02:01:29.280
because you have to spend half your time
link |
02:01:30.760
not doing engineering and instead spend half of that time
link |
02:01:34.640
learning about Japanese central bank monetary policy
link |
02:01:37.320
and commodity markets and what's gonna happen to copper
link |
02:01:40.160
and what's gonna happen to oil
link |
02:01:41.720
and what's happening in the wars
link |
02:01:44.600
and what's happening with foreign policy
link |
02:01:46.360
and Russia and the US and all of those things.
link |
02:01:51.360
Under the gold standard,
link |
02:01:52.920
you didn't care about any of that stuff.
link |
02:01:54.440
Your gold coin worked regardless of all of those things.
link |
02:01:56.840
So what this means is the future,
link |
02:01:59.120
so first of all, we have all of the problems I mentioned,
link |
02:02:01.400
but also it means that the future becomes
link |
02:02:04.760
much more uncertain.
link |
02:02:05.720
So you're far less likely to provide for yourself
link |
02:02:08.840
10 years from now,
link |
02:02:09.680
far less likely to find an easy way
link |
02:02:11.240
to give yourself value 10 years from now.
link |
02:02:14.880
And so you become more short termist.
link |
02:02:17.120
And that is reflected economically
link |
02:02:18.560
in a lower savings rate and we see savings rates decline,
link |
02:02:22.120
but it is also reflected in all manners of decision making.
link |
02:02:25.200
And I think if you really wanna see what it is,
link |
02:02:27.600
take a look at a society that goes through hyperinflation
link |
02:02:30.840
and look at what happens there.
link |
02:02:32.560
How do people change under hyperinflation
link |
02:02:36.680
and compare that to essentially what we see
link |
02:02:39.800
in the 20th century all over under not hyperinflation,
link |
02:02:43.440
but under low inflation,
link |
02:02:45.080
10, 15% that you see across the board most of the time
link |
02:02:49.600
is just slow motion hyperinflation.
link |
02:02:51.840
So what happens in hyperinflation?
link |
02:02:53.400
Everybody gets their paychecks,
link |
02:02:54.960
they run straight to the supermarket,
link |
02:02:56.880
they spend all of their money.
link |
02:02:58.520
Nobody thinks about savings.
link |
02:03:00.240
Nobody thinks about the future.
link |
02:03:01.840
Survival until the end of this month is highly uncertain.
link |
02:03:05.960
How likely are you to be planning
link |
02:03:07.560
for what you're going to be doing five years from now?
link |
02:03:11.120
Very unlikely.
link |
02:03:12.240
But also it's reflected not just economically,
link |
02:03:15.320
it's also reflected in all aspects of morality
link |
02:03:17.600
and all the way in which we deal
link |
02:03:19.160
with each other as human beings.
link |
02:03:20.960
When your survival is precarious,
link |
02:03:23.560
how much are you invested in the notion
link |
02:03:26.280
of being a good citizen, on caring about your reputation,
link |
02:03:29.760
on caring about not getting caught in a crime?
link |
02:03:32.800
All of these things become harder to value.
link |
02:03:35.760
So people start committing crime,
link |
02:03:37.160
people start caring less and less about the future.
link |
02:03:39.840
And we see it reflected in everything.
link |
02:03:41.280
And I argue, you see it reflected in architecture.
link |
02:03:43.920
We used to build houses in the 19th century
link |
02:03:45.760
that last until today.
link |
02:03:47.600
And then in the 20th century,
link |
02:03:48.720
we build essentially disposable cardboard boxes
link |
02:03:51.680
that get scrapped in 20 years.
link |
02:03:54.400
So what can you say about potential positive effects
link |
02:03:57.720
of lower time preferences?
link |
02:03:59.080
So I mean, it's a balance.
link |
02:04:00.520
Like basically, you're talking about
link |
02:04:04.400
an average kind of time preference,
link |
02:04:05.800
but there's some things in life
link |
02:04:07.360
where low time preference could be a negative thing.
link |
02:04:10.600
So like if I want to take on risk,
link |
02:04:13.720
not for investment, for a kind of investment,
link |
02:04:15.920
but say I want to start a business,
link |
02:04:18.160
I want to take something crazy,
link |
02:04:20.720
take a leap into the unknown, be an entrepreneur.
link |
02:04:24.000
What can you say about that kind of leap?
link |
02:04:26.840
Taking on debt.
link |
02:04:28.880
What's the value of that within the current system?
link |
02:04:31.840
What's the right approach to that
link |
02:04:32.960
within the current system?
link |
02:04:33.840
What's the right approach overall
link |
02:04:35.360
from an economics perspective?
link |
02:04:37.080
So it's not saving for the future.
link |
02:04:40.240
It's doing something wild,
link |
02:04:43.560
taking the money from your mattress, taking on debt,
link |
02:04:46.800
and having a dream in your heart
link |
02:04:48.680
that you somehow just want to do.
link |
02:04:50.800
Maybe it's not the wisest investment decision,
link |
02:04:52.960
but it's something, you know, it's being human.
link |
02:04:55.720
It's taking a leap into the unknown
link |
02:04:58.600
because something in your heart says to do it.
link |
02:05:00.680
I think you're more likely to be taking the leap
link |
02:05:02.280
in the unknown when you have a little bit of gold
link |
02:05:04.400
in the mattress than when you don't.
link |
02:05:06.320
I think this is the thing.
link |
02:05:07.360
Like if you look at the late 19th century,
link |
02:05:10.040
and I discussed this in the Bitcoin standard,
link |
02:05:11.920
that was arguably the most innovative period
link |
02:05:14.960
in human history.
link |
02:05:16.280
You know, there's qualitative evidence.
link |
02:05:17.960
You know, look at the world around you today.
link |
02:05:20.240
Pretty much everything that we use
link |
02:05:21.600
was invented in that period.
link |
02:05:23.200
The car, the airplane, the telegraph, the telephone,
link |
02:05:30.800
the camera, pretty much modern life as late 19th century.
link |
02:05:35.840
You know, the period between 1870 and 1914,
link |
02:05:38.840
because the whole world was practically on a gold standard,
link |
02:05:41.560
the whole world was using the same money,
link |
02:05:43.720
and the whole world could save in the same currency.
link |
02:05:46.440
That meant that a bicycle shop owner,
link |
02:05:49.000
two bicycle shop owning brothers in North Carolina
link |
02:05:52.160
could go and try and fly,
link |
02:05:53.880
even as all the scientific experts in 1903
link |
02:05:57.320
were confirming that the possibility of flight
link |
02:06:01.360
has been debunked as unscientific.
link |
02:06:03.760
You know, Lord Kelvin said,
link |
02:06:05.280
not in a million years we're going to be flying.
link |
02:06:07.640
Thomas Edison said it's never gonna happen.
link |
02:06:09.520
No, I think it was Edison who said a million years,
link |
02:06:11.160
but Kelvin also said it's never gonna happen.
link |
02:06:14.040
The New York Times said it's never gonna happen
link |
02:06:16.440
the same month in which the Wright brothers did it.
link |
02:06:20.000
And they continued to deny that it was gonna happen
link |
02:06:22.400
even two years after they did it.
link |
02:06:25.240
But that's, why could they do that?
link |
02:06:27.880
Because they had savings in gold.
link |
02:06:29.480
They had the security with something that you know
link |
02:06:33.400
is gonna be there.
link |
02:06:34.640
And then you can take a risk with the stuff that is extra.
link |
02:06:37.080
You know, I have say three years expenditures in gold
link |
02:06:40.760
under my mattress.
link |
02:06:42.240
And I know that I could take a risk with everything else
link |
02:06:45.000
because whatever bad things happen with all of my dreams,
link |
02:06:48.320
like even, you know, flying, think about how insane that is.
link |
02:06:51.640
I still can go back to the three years of gold
link |
02:06:54.280
that I have saved.
link |
02:06:55.120
It's still okay to take on debt
link |
02:06:57.000
given the stuff, the gold under the mattress.
link |
02:06:58.760
Well, this is the thing, under the gold standard,
link |
02:07:00.920
the way that people finance things
link |
02:07:02.560
was predominantly with capital, with equity.
link |
02:07:04.880
So you would, because you had gold savings,
link |
02:07:07.360
I had gold savings, everybody had gold savings.
link |
02:07:09.720
When you wanted to start the business,
link |
02:07:11.840
you could use your own savings or somebody else's savings.
link |
02:07:14.440
So you didn't need to get into debt.
link |
02:07:18.040
Well, you could get equity from others
link |
02:07:19.960
and you could also get debt from others.
link |
02:07:21.680
So there was.
link |
02:07:22.520
But it's directly mapped to physical reality.
link |
02:07:25.440
Yeah, it's directly mapped to economic reality
link |
02:07:27.520
and that there's a hard money out there
link |
02:07:28.960
that, you know, what you're spending money,
link |
02:07:31.160
you know, you wanna build your airplane factory,
link |
02:07:34.000
you need to get actual resources.
link |
02:07:35.640
So you get actual gold, either yours or somebody else's,
link |
02:07:38.360
you borrow it or you give them equity,
link |
02:07:40.400
but there's real resources.
link |
02:07:42.200
Now, what happened with the fiat system?
link |
02:07:43.680
And this is, you know, the first part of the book
link |
02:07:45.760
where I look at it from an engineering kind of perspective
link |
02:07:48.400
is essentially, and I think this is like the breakthrough
link |
02:07:50.840
inside of the book, what fiat does
link |
02:07:53.720
is that it replaces gold mining with credit creation.
link |
02:07:59.480
The way that we make fiat money,
link |
02:08:01.560
the way that fiat is mined into existence
link |
02:08:04.080
is through credit creation.
link |
02:08:05.200
Most people think of fiat money
link |
02:08:06.400
as being something that happens
link |
02:08:07.320
when government prints money.
link |
02:08:08.800
And we still use the term government's printing money,
link |
02:08:11.440
but the vast majority of fiat is not physical.
link |
02:08:14.480
And in fact, fiat is not created
link |
02:08:16.200
when it is printed physically,
link |
02:08:18.080
it's created when it is lent.
link |
02:08:19.960
So when you go to a bank to get a $1 million loan
link |
02:08:22.840
to buy a house, that bank is not gonna give you
link |
02:08:25.800
a million dollars from their own money
link |
02:08:27.520
or from their depositor's money.
link |
02:08:29.480
They're gonna make a fresh new million dollars.
link |
02:08:32.080
When you walk out of that bank,
link |
02:08:34.320
the money supply has increased by $1 million
link |
02:08:36.760
to finance your home.
link |
02:08:38.680
So what fiat does is, I mean,
link |
02:08:41.680
it was basically born out of government credit
link |
02:08:44.520
and the credit of banks that are backed
link |
02:08:46.840
by the central bank and the government.
link |
02:08:48.960
So if you're part of the institutions
link |
02:08:51.240
that are allowed fiat privilege,
link |
02:08:53.320
where you can just issue loans backed by the central bank,
link |
02:08:56.520
backed by the currency,
link |
02:08:57.960
you are effectively creating new currency,
link |
02:09:00.120
new money every time you issue the loan.
link |
02:09:02.360
That's fiat mining is credit creation, I love it.
link |
02:09:05.360
So can you say something, I mean,
link |
02:09:07.520
you can't really have credit without a demand for credit.
link |
02:09:10.720
You can't really have an increase in supply
link |
02:09:12.440
without a demand for it.
link |
02:09:14.120
Is there any value you place in the humans wanting it?
link |
02:09:18.920
Basically, people wanting to do something with that credit,
link |
02:09:22.720
wanting to take big leaps, big risks,
link |
02:09:25.280
big entrepreneurial decisions.
link |
02:09:27.840
So is all credit bad?
link |
02:09:31.240
No, I think what's bad is anything, in my opinion,
link |
02:09:36.400
anything that is consensual,
link |
02:09:38.400
I wanna borrow money from you and we agree the terms,
link |
02:09:40.600
I can't object to that.
link |
02:09:42.880
As long as you and I both agree, I can't object to that.
link |
02:09:46.080
But in the case of the fiat system,
link |
02:09:48.800
it's not just you and the bank who come to an agreement.
link |
02:09:51.960
Everybody who uses the currency
link |
02:09:53.600
is forced to be part of that agreement.
link |
02:09:55.800
Because if you default,
link |
02:09:57.640
effectively what's protecting the bank from you
link |
02:10:00.400
is the fact that the government
link |
02:10:01.760
can just print a bunch of money and make the bank whole.
link |
02:10:04.720
So effectively.
link |
02:10:06.480
Interesting.
link |
02:10:07.320
So that little agreement between the bank and you
link |
02:10:11.520
is actually an agreement between the bank, you,
link |
02:10:14.200
and the entire populace that's using the currency.
link |
02:10:16.440
Exactly.
link |
02:10:17.280
They're forced to provide the safety net for you and me
link |
02:10:19.720
to go and make that loan.
link |
02:10:21.360
And that safety net is the devaluation of the currency.
link |
02:10:24.040
That's how the whole thing actually works.
link |
02:10:28.200
So this is why I wrote the Bitcoin standard,
link |
02:10:30.960
explaining Bitcoin,
link |
02:10:31.800
and basically the takeaway message of the Bitcoin standard
link |
02:10:34.160
is you need to stack as much Bitcoin as you can,
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02:10:36.600
because this is the best money that has ever been invented.
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02:10:38.720
And we'll talk about that,
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02:10:39.960
why Bitcoin is the hardest money.
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02:10:42.760
Yeah.
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02:10:43.600
But with fiat, the conclusion of the fiat standard,
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02:10:45.600
and again, this is not financial advice,
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02:10:47.560
I'm a lowly academic,
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02:10:49.760
you shouldn't listen to me on issues of money,
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02:10:51.680
but I think theoretically and intellectually,
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02:10:54.320
the conclusion of the fiat system
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02:10:55.640
is you need to be short fiat as much as you can.
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02:10:58.840
That's the smart winning move.
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02:11:00.160
So human wisdom over thousands of years is to save,
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02:11:04.480
try and not borrow as much as you can,
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02:11:06.160
try and accumulate as much savings as you can.
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02:11:08.440
That's reversed under fiat.
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02:11:09.800
If you're saving money,
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02:11:11.680
you're just subsidizing everybody else taking on loans.
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02:11:14.720
If you're taking on loans,
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02:11:16.200
you're benefiting from all the people that are borrowing.
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02:11:18.880
So the winning move under the fiat system,
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02:11:21.000
and this is what rich people do, is you borrow.
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02:11:23.720
Rich people under the fiat monetary system,
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02:11:25.560
they don't hold assets.
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02:11:28.960
If you're worth a billion dollars today,
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02:11:30.680
you don't have a billion dollars in a checking account.
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02:11:33.440
You've got maybe a hundred thousand, a million,
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02:11:36.240
five million or something like that.
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02:11:39.280
A tiny fraction of your money is held in cash.
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02:11:41.720
The majority is going to be held
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02:11:43.640
in all kinds of other hard assets.
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02:11:46.160
And you're gonna be borrowing.
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02:11:48.120
The richest people in the world
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02:11:49.640
are the biggest borrowers in the world.
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02:11:50.920
The most powerful entities in the world,
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02:11:52.440
the governments are the biggest borrowers in the world.
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02:11:54.960
And that's how they are the richest and the most powerful,
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02:11:57.920
because every time you're borrowing,
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02:12:00.120
you're giving the bank an excuse to print new money.
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02:12:03.640
So you're devaluing everybody else's money
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02:12:05.480
and you're getting a bit of the cut.
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02:12:06.880
If you were going to buy a house with your savings,
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02:12:10.080
you're accumulating the savings and they're losing value.
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02:12:13.040
And if I were to go buy the same house with credit,
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02:12:17.920
I'm getting the bank to print money for me.
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02:12:21.400
So obviously they can cut me in on that deal.
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02:12:23.680
And that's why it's much cheaper
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02:12:24.960
for everybody to buy with credit.
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02:12:26.400
That's why everybody buys everything on credit.
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02:12:29.120
So when we look at the global monetary system,
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02:12:31.400
the thing you wanna do as a government
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02:12:34.280
is be the sexiest currency out there.
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02:12:37.480
So the main currency, like the dollar currently is,
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02:12:42.720
is the one that has the most power in that kind of context.
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02:12:46.000
So you have, if you were to try to summarize
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02:12:49.000
what is the global monetary system as it is today,
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02:12:53.040
is a bunch of fiat currencies battling for position,
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02:12:57.800
for use outside their nation,
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02:13:03.160
and in so doing trying to gain power
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02:13:05.400
in the geopolitical sense.
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02:13:06.600
Is that, if we just zoom out,
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02:13:09.400
what is the global monetary system?
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02:13:11.120
Like how, what is it currently?
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02:13:14.000
So outside of the United States, the whole thing.
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02:13:15.960
Yeah, you could say that, but I think it's more realistic
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02:13:18.520
looking at how it has actually evolved
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02:13:19.960
over the past few decades.
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02:13:21.600
It's really a dollar system.
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02:13:23.200
It's not a system of currencies buying with one another.
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02:13:26.440
It's a dollar system, and all other currencies
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02:13:28.400
are just basically, I like to call them dollar
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