you can't have permanent war without fiat.
And I also think there's a case to be made
that you can't really have fiat without war.
The following is a conversation with Safety and Amuse,
one of the central and most impactful economists,
philosophers, and educators in the world of Bitcoin.
He's an Austrian economist, an anarchist,
and the author of the Bitcoin Standard
and the new book, The Fiat Standard.
Safety does not mince words in his criticism of economists
and humans in general, with whom he disagrees.
For example, Paul Krugman,
who is a neo-Akensian economist
and a previous guest at this podcast.
Safety and opinions are strong and often controversial.
I do push back in this conversation,
playing devil's advocate or trying to steal man on each side.
But as always, I do so in the service of exploring
the rich space of ideas that safety has
about human nature and human civilization.
I trust the intelligence of you, the listener,
to come to your own conclusions.
That is the burden of being a free-thinking human.
It is on each of us individually
to dive into this chaos of ideas.
And from that chaos,
discover long-lasting universal wisdom to live by.
This is the Lex Friedman podcast.
To support it, please check out our sponsors
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And now, dear friends, here's safety and moose.
Let's start with a big question.
What is money?
And what is the role of money
in the history of human civilization?
Money is a medium of exchange.
The thing that defines money is that it is a good
that you don't buy for its own sake
because you want to consume it itself
or because you want to employ it
in the production of other goods,
which is what capital goods are.
So we have consumption goods, we have capital goods.
Money is distinct from those two
because it is a good that is acquired purely to be exchanged
later on for other goods.
So it's not something that you acquire for its own sake,
you acquire it so that you can then later on exchange it.
And that's a market good.
That's a market good like all other goods.
You acquire food because you eat it.
You acquire a car to move you around.
You acquire money so that you can exchange it
for other goods.
And that's something that many people have
a hard time grasping of the concept of money
as a market good.
But it is a market good just like all others.
And the importance of it is that it allows us to trade.
It allows us to develop the division of labor
which would not be possible
at any kind of sophisticated level without money.
So if we live in a small society of 10 people,
then think about all the things that we can make,
all the things that we can produce.
If we're only 10 people isolated from the world,
there's only very few things that we can make.
And therefore we can exchange those things
directly with one another.
But as if we get in contact with other societies
that have more people,
then the opportunities for specialization increase.
There's 10 people,
the only thing that you can make is the very basics
you need for your survival.
But if you're part of an economy of 10 million people,
there's much more room for specialization.
You can make a car, you can make a house
that's very sophisticated.
And that relies on the division of labor.
That relies on you specializing in doing
one tiny little thing which is not what you consume.
You know, and you trade that thing
for all the things that you consume.
So as the economy becomes more sophisticated
and involves more people,
and currently we're all part of an economy
of almost eight billion people,
each one of us produces one tiny little thing
and they exchange that thing
for all the things that they want.
And so because we specialize,
we become more productive
in doing the thing that we're good at.
So, you know, there's people out there
who are engineers who are designing windshields in cars.
It's a very specialized thing.
They sell windshield design to Mercedes-Benz.
And then from that, you know,
that windshield design is added onto millions of cars
around the world.
And from that, they're able to get enough money
to meet all of their needs.
So the division of labor is enhanced enormously with money
because without money,
it's very difficult to be able to exchange
a large number of goods.
It's very difficult to have a sophisticated economy
with a large degree of specialization
because it's very difficult to find people
who want the thing that you have
and have the thing that you want.
We call this the coincidence of wants.
And that's really the problem that money solves.
So you make apples and I make oranges.
I'd like to have some of your apples,
but you don't want my oranges.
And that's, we have a problem of coincidence of wants.
So what do I do?
You want bananas.
I need to find somebody who has bananas,
give them my oranges, take their bananas,
give you their bananas, and then I take the apples.
In that case, bananas are a medium of exchange.
So it's natural that a medium of exchange will evolve
and will emerge in an economy
as an economy becomes more sophisticated.
As we move beyond 10 people and 10 goods,
it's inevitable that we're going to come to a situation
where we have the problem of coincidence of wants
and the way to solve that is to use a medium of exchange.
And it can be anything.
It can be a banana.
It can be food stuff.
It can be any kind of good.
As long as I acquire the good with the purpose
of passing it on to you,
not with the purpose of me consuming it or using it,
then that's a medium of exchange.
So when we look at the entirety of human society
of millions of billions of people,
you think of them just a bunch of individuals
running around.
I love the term coincidence of wants.
So each one of them, it's like a stochastic system.
They have desires.
It's like a random collection of desires.
Some somehow rooted in our evolutionary history,
but mostly random in terms of preference of banana
or apple, that kind of thing.
And then they also have the capacity for competence
and excellence in particular kind of labor.
So like a specialization.
They're able to be like incredible
at a particular set of tasks.
So there's a bunch of ants running around
with consciousness and intelligence.
And they have desires and have capabilities.
And then there's a coincidence of both the wants they have
and the capabilities they have.
And you want it to create a system
that kind of exchanges those things.
So when you imagine like what is a good?
What is markets?
When you imagine a market is like a hierarchical system,
what do you imagine?
What is a market?
A market is just the name for the naturally emergent
phenomena of people voluntarily exchanging things.
It's-
At any scale.
At any scale, yeah.
Individual could be a market of two people
on an island on their own.
It could be eight billion people across the planet.
Naturally emerging.
Yes, this is the thing I think that is very hard
for many people who don't have a good understanding
of economics to grasp that capitalism and markets
are not something that you need a central planner
or a government officer to make happen.
Capitalism is just what happens when people are left
to their own devices.
It's just our cognitive capacity allows us to develop tools
that we can use for production.
And that's what we do.
That's what humans have been doing since they started,
you know, making spears to hunt.
That's the first capital good, probably.
So we're constantly accumulating capital.
We're constantly trading with one another.
We find an opportunity.
You know, you've got a lot of oranges.
I've got a lot of apples.
Then I'll take some of yours.
You'll take some of mine.
We're both better off.
This is just a naturally emergent thing.
And money is what makes it enormously powerful.
Money is what allows it to scale, really.
Money is what allows it to go beyond small societies
into just something that is global.
Because with money, again, as I was saying earlier,
you know, all you need to do is specialize
in doing one thing, the thing that you do best.
And then you exchange that for money
and you don't have to worry about whether the other people
involved in this want what you have and have what you want.
You just sell it for money to whoever wants it
and you buy whatever you want from whoever has it.
And that's an enormous reduction in the mental burden
of how a market economy functions.
So the first thing that I would say about money
is that it allows for the division of labor
and it allows for the market system to grow.
And the second thing is that money
is a mechanism for storing value into the future.
So again, as humans, we develop the capacity
to think for the future.
We make a spear so that we can hunt
and then we see that it works.
And then we take it out of the animal that we hunted it with
and we keep it for the next day's hunt.
And then we start making a better spear
and we make a better fishing rod
and then we make a fishing net
and then we make a fishing boat.
And that's our ability to think of the future.
And as we start building durable goods,
we start thinking more and more of the future.
We start becoming more and more future oriented.
And that's really the process of civilization,
the process of denying our needs now
in order to think for the future.
So instead of spending all of our day on the beach
enjoying ourselves, we take time off from leisure
on the beach and spend some time making a spear
or making a fishing rod so that our productivity
in hunting or fishing tomorrow is gonna be higher.
And so that ability to think for the future
is enhanced by our ability to provide for the future.
And we do that with durable goods.
But then money ends up being the best mechanism
for providing for the future
because the future is uncertain.
So you can save your apples and oranges,
you can save the spears,
you can save the animal that you hunted.
But these things, first they rot,
they're not very good at holding onto their value over time.
But even if they were,
even if you have objects that are durable,
the problem with them is that you don't know
if you need them tomorrow or next month or next year.
You're not sure if you're going to be needing them
and you might end up not needing them
and you might end up not finding anybody who needs them
or finding somebody who needs them
but doesn't value them much
and won't give you much in exchange.
Money allows you the optionality
of saving the most liquid good, the most saleable good.
So it's something that you can sell tomorrow
with the least uncertainty.
It has the most liquidity, the most ability
to be sold without a loss in its value.
So money is our most advanced technology
and our best technology for moving value into the future.
And so I think history really,
and I argue this in all my books,
is that really history we see,
we can think of it as a process of our money gets harder.
And so our money gets better at holding on
to its value for the future.
And by harder, I mean harder to produce.
We find things that are hard to produce
that are better at holding on to their value.
So they hold on to their value better for the future.
And that allows us to plot and plan for the future.
That makes the future less uncertain.
And that makes us more future oriented.
In other words, it lowers our time preference.
And the harder the money is,
the better it is allowing us to think of the future.
So people should know that you've written
the book Bitcoin Standard from 2018, I believe.
And then a new book called Fiat Standard.
The Bitcoin Standard is considered kind of the Bible
in the cryptocurrency space and the Bitcoin space
of just a very rigorous systematic explanation
of why Bitcoin, what is it?
Why should it be?
Why is it good?
So you're describing in that book and in the new book,
different implementations to the technology of money.
In the new book, you talk about Fiat Money,
which is another way to do money.
So obviously there's a lot of different ways to do money.
And maybe you haven't discovered the best way to do money.
Yet our conversation today is how to do money
better.
Maybe we'll go back to bananas eventually, right?
Very good reasons why we won't.
Well, we can disagree.
We can agree to disagree on this.
I'm open-minded to the bananas.
One of the biggest source of joy to me
when I first came to this country is eating bananas.
And so maybe money, happiness, perishable happiness,
will eventually become the best medium of exchange.
I don't know, open-minded.
Anyway, so you mentioned hard money and soft money.
So there's different ways to do money.
What is hard money?
What is soft money?
In the Bitcoin standard, I present the argument
that money is always whatever is the hardest thing to make.
Historically, I think we see many examples of that.
So for instance, in prison, people use cigarettes as money
because nobody can make cigarettes in prison.
In societies, we have the example of Yap Island.
For instance, it's an island that doesn't have any limestone,
but there's a nearby island that has a lot of limestone.
And it's very expensive, obviously,
with primitive technology to move limestone
from Palau to Yap.
So on Yap, limestones wear money.
Seashells, rare seashells that are not easy to find
end up serving as money in places where they're rare.
Glass beads wear money in West Africa
where there was no glass making technology
because they were imported from abroad
and they were very hard to make.
And I think there's a conscious effort
of some people might recognize the hardness and the scarcity
and choose this as money.
But I think what's more important
is just a natural evolutionary process whereby people choose
all kinds of random things as money, bananas maybe even.
But then the people who end up making these bad choices
don't end up with any wealth left.
Whereas the people who store their wealth
in the things that are hard to make
end up acquiring, end up maintaining their wealth
and maybe even increasing it over time.
And of course, this culminated in the 19th century,
in the end of the 19th century,
by basically the entire planet being on a gold standard.
And that-
What is a gold standard?
The gold standard is basically when money is gold
or at least government currencies backed by gold.
But the reason gold became money and not copper,
not nickel, not bananas,
is that gold is the hardest metal in the world.
And it is the hardest metal to increase the supply of.
And the reason for that is based in chemistry.
So gold is indestructible.
You can't destroy gold in any meaningful sense.
It's been accumulating stockpiles for thousands of years.
The gold that was worn by Nefertiti back in ancient Egypt
is today probably in somebody's necklace
or in somebody's gold coin.
It's still there.
So for thousands of years,
humans have been digging for gold.
They dig it out of the ground, they refine it,
and then they put it in a jewelry or a coin,
and then it just stays there.
It gets melted down into new other forms.
The jewelry gets turned into coins
or coins get turned into bars.
But it's just stockpiles that are accumulating.
On the other hand, every year,
we get better at our technology of looking for gold.
There's more people all over the world.
The population increases, the technology improves.
So we keep finding more and more gold,
and we keep making the stockpiles bigger.
However, because we're constantly adding to a stockpile
that is not being devalued,
sorry, that is not being consumed,
because there's no way of consuming gold.
You can't eat it, you can't burn it,
you can't, it doesn't rust.
Because of that, we're constantly adding
to a constantly growing stockpile.
So if you look at the numbers,
you see over the last 100 years,
we've got pretty reliable data on gold production worldwide,
we see that pretty much gold stockpiles
increase at around one and a half to 2% per year, every year.
So yes, we're making more every year,
but we're making more,
so we're adding to the stockpile, the stockpile grows more.
So every year, we're adding only around one and a half
to 2%.
Compare that to the second highest,
the second hardest metal historically was silver,
and that increased historically at around
maybe 5% per year or so.
Now it probably increases something like closer to 30%
because it's now getting used extensively
in industrial uses.
So when you use it in industry,
when you put silver in a laptop or in a camera
or in a machine, effectively,
you are consuming the stockpile
because it's not used as money,
it's taken out of the monetary stockpile.
So over the last 150 years, since 1870 in particular,
and let's discuss this in detail in the Bitcoin standard,
what happened in 1870 was Germany won
the Franco-Prussian war,
and Germany was on a silver standard,
but the value of silver was declining.
So Germany did something very smart,
which is they took their indemnity from France
in silver, in gold,
and used that big chunk of gold
to switch to going on a gold standard.
And since then, silver's been collapsing in value
next to gold.
So back then, the price of an ounce of gold
was around 15 ounces of silver.
Today, it's closer to 100.
It's just been declining for the last 150 years.
And so because of that,
because of the fact that it's lost its monetary role
as people shifted toward gold,
the value of silver went down,
and so it became economical to use it
in more and more industrial applications.
So the stockpile declines,
and then as a result,
that weakens its monetary properties
more and more and more.
So that's why at the end of the 19th century,
I mean, at the beginning of the 19th century,
gold and silver were money.
By the end, it was basically only gold.
And the countries that were still on a silver standard,
China and India in particular,
suffered enormously from it
because their money was devaluing very quickly
next to gold.
And so Europeans who would come to China or India
were able to buy things at practically a big discount.
So I hope it's okay if I ask very simple,
very basic questions.
There's few people in this world that are good
as good as you are at answering very basic,
almost ridiculously basic questions,
because I think exploring questions like what is money,
is a really great way to think from first principles,
to really think deeply about this world.
So I really appreciate you doing that.
When you say standard, what does it mean?
When you say silver standard, gold standard,
again, with a basic question.
The term really, I think was based out of gold,
the first time this came out was the gold standard,
because so I said gold was money
at the end of the 19th century,
but it wasn't just that everybody was using gold coins
and trading with gold coins,
because that's got a problem of divisibility.
So a lot of things are worth less than one gold coin.
So how do you buy that thing?
And the answer was that you created monetary instruments
that were backed by gold.
And so currencies, national currencies
under the gold standard,
where specific units of gold,
and that's how a gold standard function.
Money was gold, but you had pieces of paper
that were redeemable in gold.
So you could go to the central bank,
you could give them the piece of paper,
the $100 bill or the $10 bill,
and they'll give you gold in exchange,
and they give you a specific quantity of gold in exchange.
Effectively, the paper was just a receipt for gold.
So the paper exactly represented the amount of gold?
Exactly, that was the plan.
Well, that was what it's supposed to do,
but arguably we never had a pure gold standard
because the nature of gold means
that the people who are in charge of the gold,
they have an enormous amount of power
because the gold is concentrated with them.
And as long as not everybody shows up at the same time,
asking for their gold,
then you can make more receipts than you have gold.
And this has been-
So there's always shady stuff going on,
but at least that's the state of goal,
is the receipts should exactly represent
the amount of gold there.
And also when you say standard,
it means that governments sort of publicly stated
that this is the approved, the main way
of making transactions that are monetary.
So this is the money.
This is the official money that you should be using
if you live in this country.
Yes, although I would say it's more like the other way around.
It's not that the government's established gold as money.
It's more like gold gave the governments
the credibility for their currencies.
So governments were not the ones that made gold money.
Gold has been money before the states were invented.
States, if you have a government
and you'd like to have some legitimacy
and you'd like to be able to deal with other governments
on an equal footing, you had to go by the gold standard.
You had to have a currency that was redeemable in gold
so that you could trade with the rest of the world
so that people could in your country use that currency.
So it's not that governments were choosing gold.
It's more like they were having to adapt
their own currencies to gold
in order to give their currencies credibility.
So there's a dance there though,
because if they had to,
then why did they switch away from it after?
So there is a dance where the governments,
the people pressure.
So first of all, the basic characteristics
of the hard money pressures the governments
and the people in terms of what should be used.
Then the people based on their community,
the network effects, the way they,
the narratives they tell each other,
all that kind of stuff,
they pressure the governments
to take on a particular money.
Then the governments, they like power,
they like control, all those kinds of things.
They pressure the people
to tell different kinds of narratives.
So there's a dance going on in this evolution
of what technology to use for a monetary system.
So it's, the reason I don't know if governments had to,
because they clearly didn't have to
because they eventually moved away from it.
So it, but there was pressure probably.
Yeah, but I mean, even after they moved away from it,
you know, central banks until today,
they still hold a lot of gold reserves.
In fact, if you look at 1914,
when they, when the world really went off the gold standard,
the amount of gold reserves held by central banks
was a tiny fraction of what it was.
As time went on, central banks accumulated more and more gold.
What ended up happening is they prevented their citizens
from using the gold, but they continued to use it.
So gold continued to be money up until 1971,
because effectively the world was on a dollar standard
and the dollars were backed by gold.
But then after 1971, even then, you know,
central banks continued to accumulate gold
because why would you as a central bank
want to accumulate pieces of paper effectively
or credit liabilities of another central bank
that can produce them infinitely?
And it's a lesson that's becoming more and more obvious
to governments today, you know, as we see US sanctions
taking say Russian reserves or Afghanistan reserves.
And this is why, you know, we see China and Russia
have accumulated a lot of gold over the last 10, 20 years.
So just to return to the question of definitions.
So what is hard money versus soft money?
Yes, so hard, I mean, it's a relative thing,
but the hardness refers to the difficulty
of producing more units of the money supply.
So an easy money would be a money
that is relatively easy to make.
So you can increase the supply by 10, 20, 30, 40, 50%,
or something like that.
So pretty much all commodities, all market commodities,
other than gold and silver, they're easy money
and they're not suitable as a monetary medium
because they're being consumed.
So if you look at, and in the Bitcoin standard,
I mentioned this metric called the stock to flow ratio,
which is the ratio of the annual production,
the flow to the stockpile, the existing stockpiles.
If you look at all the other metals,
they're easy money because they're being consumed.
So think about how much stockpiles of copper
there are in the world today.
So copper companies obviously have some stockpiles of copper.
Major copper consumers will have stockpiles of copper,
but the vast majority of copper is essentially
on a conveyor belt of production from the mine
straight to the consumer good that it's being used for.
So the existing stockpiles are roughly
in the range of one year's production.
If you take all of the companies,
I don't have exact statistics,
and it's very difficult to get these,
but it's roughly in the same range.
Like if copper production were to stop completely today,
we'll have about a year's production
stored in various places.
So that makes copper terrible money
because if you started using copper as money,
and this is why a lot of people say,
well, money is a collective illusion,
money is a social construct.
If we all agree that something is money,
then something is money.
I think this is completely clueless,
and it's usually Marxists who believe this,
so obviously no understanding of economics.
It's completely clueless because even if everybody
in society decided we wanted to make copper as money,
even if we all decided to collectively take part
in this hallucination or illusion,
it would not make copper money.
It would just make everybody who decides to take part
in this hallucination poor.
That's it.
It would make copper miners rich.
It would make all of the people who chose copper
as money poor, and copper would not be money.
It can't work because what happens is,
because of the fact that the stockpiles are so small,
if you buy, even if you get the 1,000 richest people
in the world, all of the world's billionaires,
they get together and they all dump
all of the money that they have,
all the stocks, all the bonds, all the gold,
all of the Bitcoin, everything that they own.
They dump it and they buy copper with it.
What's gonna happen?
Price of copper is gonna go up a lot,
but what's gonna stop copper miners
from flooding the market with even more copper
than what the billionaires bought?
Nothing.
We're gonna dump all of that extra copper production.
It's the price of copper is gonna go up,
so there will be a lot more copper mining
than all the other metals.
A lot of nickel companies and gold miners
are gonna switch to focusing on copper.
And then we're gonna dump an enormous amount
of copper on the market.
The value of copper is gonna crash,
and the people who chose copper as money
are just gonna end up with large warehouses
of very cheap, rusting metal.
So that's a brilliant description,
and that kind of pushes towards gold
where the stock to flow ratio,
I guess you would say is 1.5 to 2%,
like you mentioned earlier.
That would be like the inverse of the stock to flow.
That's the supply growth rate.
So the stock to flow is the inverse, it's around 60.
60, got it.
But let me push back on somebody who likes human psychology.
Let me push back on the collective hallucination
and the illusion.
So that's for copper, but what about paper money?
That's not, you can't smoke it, you can't eat it.
It's supposed to represent,
it's supposed to just be the medium of exchange.
In that sense, what role does collective hallucination play
in the effectiveness of money?
Exactly zero, because all of the paper money,
first of all, there's never been an instance.
And again, this flies in the face
of a lot of people like to think about money.
There's never been an instance
where a government came out and said,
all right, we're printing out these pieces of paper,
use them as money.
This one is worth 10 apples or use it for buying things.
And here's the piece of paper.
This has never happened.
They've always taken fiat money, paper money,
all of these things were always borne out of fraud.
Initially it was a receipt for gold.
And then they told you, well, you don't need the gold anyway
and you have to use this and then if you don't use it,
we throw you in jail.
And then, so first of all, it doesn't,
you can't enforce this thing.
So it's never really just happened
and it's never been hallucinated into existence.
People can hallucinate this kind of nonsense
in writing textbooks and books in academia,
but in the real world, people don't hallucinate money.
People are very careful about what they put their money in.
For people listening, we're gonna have fun in this conversation
because you're like, you already said Marxist,
fraud, hallucination, just because we use these words
doesn't mean they're true,
but they're fun to talk about.
So you have a strong certainty about the way you talk,
which I think is fun,
but allow me in my dumb self to push back,
to play devil's advocate,
and I'll actually ask you sometimes
to play devil's advocate if possible,
because you're smarter than me on all this stuff.
So we want the smartest devil's advocate possible,
and I'm certainly not that.
But anyway, so, but nevertheless,
we are currently on a fiat standard.
So money does have value, paper money,
and the reason it has value
is because we believe it has value.
To what degree, if we put the hallucination word aside,
the belief that something is worth value
is actually value is the thing that helps money work.
Because you're saying it's fraud,
and the belief is almost valueless.
But how much value, can we quantify the value of the belief,
the collective belief?
I should say like, all economics is subjective.
I consider myself an Austrian school economist,
and the starting point of all Austrian economics
is that all value is subjective.
So obviously, value only exists
because humans choose to make the valuation.
However, the economic reality of the way that money works
means that it's just a technology like all others.
And so for me, when people say,
well, if we hallucinate that this thing can be money,
then it'll be money.
If we can hallucinate bananas to be money,
then it'll be money.
For me, it's like saying, well,
if we hallucinate that bananas can be spaceships,
they'll be spaceships.
I mean, you can call them spaceships
if you want, but a banana's not gonna get you to the moon.
With it, nevertheless, that's true.
So you're drawing a big distinction
between physical reality and the space of belief.
But it seems like so much power of human civilization,
so much destruction, so much creativity,
creation happens in our minds.
So- Absolutely.
Everything does happen in the minds.
You're not gonna get to the moon,
but you might still have a significant impact
on human civilization if a lot of people believe a thing.
True, but economic reality exists in a way
in which your beliefs are rewarded
when they match up with economic reality.
With this reality.
And they're punished when they don't.
So if you ride a banana, jump off a cliff,
thinking you're gonna get to the moon,
that solves the problem of people thinking
the bananas are spaceships by killing people
who think that bananas are spaceships.
And I think to go back to your question
in terms of paper monies,
so yes, even though ignoring the original sin
of the creation of fiat money
and ignoring everything that happened before 1971,
all right, well, here we are, people are using,
well, it's not really paper monies.
We should say like fiat money is predominantly credit.
So like, it's also digital currency.
So more than 90% of dollars are digital.
Less than 10% of dollars are physical.
So it is a digital currency.
And all over the world,
all these governments are using digital currencies effectively
with some physical manifestations in paper.
But yet even within these currencies,
it's still the same analysis.
And I discussed this in chapter four of the Bitcoin standard.
You look at government monies,
you see that the currencies that have held onto their value,
the ones that have the biggest value,
the ones that play the biggest role in global trade,
the ones that are used as currency reserves
all over the world,
are the ones that have the lowest supply growth rates.
The ones that grow, whose central banks
are the least inflationary.
And on the other hand,
the ones that who supplies more inflationary
similar to copper end up failing.
You look at Lebanon, Venezuela, as in Bobway.
These are currencies whose supply increases very quickly.
And therefore their value collapses.
Whereas the dollar, the Swiss franc, the euro,
the British bound, the Japanese yen,
they increase at a much lower rate in general
than these terrible currencies.
And that's why all over the world,
you see people are looking to get more dollars
and more of these harder currencies than the easier ones.
So I think this analysis of the hardness of the money
and the ease of money is pretty well supported,
empirically.
So like you said, you're at least in part
or in whole consider yourself an Austrian economist.
So you're perhaps a great person to ask about the basics.
What is Austrian economics?
What is Kenzian economics?
How do you compare the two?
What should people know some interest?
What are the interesting defining characteristics
to you about these schools taught?
So Austrian economics, the way that I say it,
Austrian economics is economics.
It's, we call it Austrian economics
because economics has been hijacked by a bunch of frauds.
People who are wrong.
Well, it's much worse than wrong
by people who are just essentially propagandists
for inflation.
So it's like your opinion, man.
Yeah, well, that's also like your opinion, man.
Yeah, that's true.
Well, I also talked to Paul Krugman on this podcast.
So he's, the O speaks enough,
but he's one of the people that is perhaps most harshly
criticized by folks in Austrian economics perspective
and vice versa, which is a fascinating tension.
Yeah, he's done a great job as an actor
who plays an economist on TV and the internet.
So anyway, now tell me what you really think.
No, but so the basics of what is Austrian economics?
What is the, what perspective has it taken the world?
Yeah, so I mean, Austrian economics really is
the continuation of tradition that it goes back
to the ancient Greeks of studying economics.
Historically, it's really just economics
and that has evolved over time.
And the establishment of the Austrian school, per se,
came in 1871, 150 years ago, when Karl Manger,
the father of the school, wrote a book
called Principles of Economics
and essentially invented marginal analysis,
which is a big deal in economics.
Marginal analysis is the idea that in economics,
individuals carry out decisions at the margin.
That it's, when you make choice, you're not making it,
for instance, if you're making a choice
between what should I spend my money on?
You're not making a choice whether it is,
this thing is object A or B,
which one is more valuable for me in general,
which one is more valuable for me for the rest of my life.
You're choosing about the next unit right now
at this point at this stage.
And if you analyze economic decision-making at the margin,
it makes a lot more sense and you can understand
why people decide and make the decisions that they do.
Whereas if you don't apply marginal analysis,
things don't make sense.
The key thing that marginal analysis helps us solve
is what is called the water diamond paradox.
So you will die without water.
We all need water and yet water is dirt cheap.
Whereas diamonds are extremely superfluous,
nobody needs them.
Nobody is gonna live or die because they have a diamond
and yet they're extremely expensive.
So why is it that as human beings,
we pay maybe say a dollar a liter for water,
whereas we pay thousands of dollars
for a few grams of diamonds.
Why is this the case?
Do we value water less than diamond?
The answer is no, but at the margin where we are right now,
you live in a place where water is very abundant
because cities are only built in places
where water is abundant.
And you're only making a choice
about the next unit of water.
And so water is extremely abundant
and you're choosing about whether to spend
the next unit of money on water.
The valuation that you give to water,
given that you have a lot of water at home
and that you live in a place that has abundant water,
is pretty low to the marginal unit.
But it's very high for water overall.
So if I asked you how much would you spend
for water in general?
How much would you pay for water for all of your life?
It would be a lot higher than diamonds.
If I told you you can only have water or diamonds
for the rest of your life, you choose water obviously.
But nobody's ever had to make that choice.
You only make your choices at the margin.
So at the margin where we are, modern civilization,
we have an abundance of water.
That's why we have civilization.
And diamonds are very rare and scarce.
And people are only buying, you buy your first diamond
when you're gonna get married, you give it to your wife.
And that's gonna be the first few grams of diamond
that she's ever gonna own.
Giving my wife water.
Smart move.
You should definitely give her bitcoin instead of diamonds.
I tell my wife, I occasionally remind her
how many bitcoin we could have had
if I bought her bitcoin with the price of the diamond ring.
What's the downside of, by the way,
diamonds from the analysis of gold and so on?
It's a great question.
Arguably diamonds are a scam.
Because they became popular as a thing in marriage
after gold was banned,
after gold ownership was banned in the US in the 1930s
and in many places around the world.
So before that, you'd give gold.
And the reason you'd give gold in a dowry in a wedding
is because it wasn't just that it's pretty and shiny,
it's because it's money.
And so if you die, your wife can take the gold
and she can live off of it.
It's a demonstration that you're giving her
something valuable.
And that's because nobody can make a lot more gold
that has the high stock to flow ratio.
But then they banned gold ownership
or they allowed people to only own
very tiny quantities of gold.
And that's when the diamond industry stepped in
and marketed diamonds as the thing that you need to give.
But the problem with it is, of course,
that diamonds aren't like gold.
They're not very hard to make more of.
And the reason we have scarcity in diamonds
is really artificial.
There's effectively a monopoly of diamond producers.
They restrict the supply and it's a pretty dirty business.
And the way that they do it is all of us
talk about blood diamonds is a way for them
to ensure their monopoly.
So if you're part of the monopoly of diamond producers,
then it doesn't matter how many people get killed
producing your diamonds.
If you're out of the monopoly,
then human rights organizations descend on you
and call for shutting you down for selling blood diamonds.
And they're also restricting
the production of artificial diamonds.
This is the other thing.
You can make artificial diamond,
you can't make artificial gold.
So they restrict the production of artificial diamond
and they try and insist that you shouldn't
take artificial diamonds,
but they're indistinguishable from real diamonds.
So it's an artificial scarcity
and I think there's gonna come a point at some point
that this monopoly is gonna break
and a lot of people are gonna be left with
essentially highly devalued jewelry.
I'm gonna take this segment of the podcast.
When I'm getting married, when the sun did,
and then instead you're getting water or Bitcoin.
Yes, water and Bitcoin is all you need.
So marginal analysis, focusing on the margin
is the thing that allows you
to most accurately capture human nature,
the actual day-to-day decisions that we humans make.
Yeah, that's really revolutionized economics, so 1870.
And that was Manger's work.
And then he had a student, Eugen Bomberg,
who developed capital theory.
And then he had a student, Ludwig von Mises,
who is arguably the most important economist ever.
And he developed a theory of money
and he wrote a book in 1912
called The Theory of Money and Credit.
And then in the 40s, he wrote Human Action,
which is a big treatise on economics.
And I think this is the correct tradition of economics.
And before World War I, this was just known as economics.
And then after what happened in World War I,
and I discussed this in detail in the fiat standard,
is that the Bank of England essentially went off gold
and tried to pass off their own credit
as being as good as gold in order to finance the war.
And incidentally here,
this is part of the history that is not discussed often.
You know, this is presented as an innovation.
Later on, they needed essentially a propaganda school
that would justify what they did.
And later on, it's presented as,
oh, hey, we realized that gold was not good.
And now look, we've built this thing
that is better than gold,
where now the government can just print money
whenever it wants,
and now gold money is not an issue anymore,
which is extremely idiotic
because the whole point of money is that it's not easy to make.
If it's easy to make, it's not money anymore.
It's just destroying the entire function of money.
And we've seen that happen extensively in the 20th century
after countries went off the gold standard.
So essentially, Keynesian economics
is just inflation apologia.
It's just propaganda to justify inflationism.
And it's profoundly nonsensical.
It's built on the idea that if you just make more money,
you can stimulate economic production.
And of course, this is very self-serving
to the central banks and to the banks
and to the governments who promote this nonsense.
And this is also very pervasive.
If you've had the misfortune of studying at a university
over the last century,
you were taught Keynesian garbage economics.
You were taught that if there's a problem in the economy,
the way to fix it is that the government prints money,
the government lowers the interest rate,
and then that leads to more economic production,
which is completely nonsensical.
So you're, again, for the listener,
you're using strong words and I will push back
just to please devil's advocate
to hopefully one day arrive at the truth.
So just because it's in the interest
of the central banks and the government,
the interests and the models of Keynesian economics
and the government are aligned doesn't mean they're wrong.
So let's give them a chance.
So the conventional wisdom, perhaps economics wisdom
is that inflation is good in moderation
as it encourages spending, but too much is bad
because it completely devalues, destroys people's savings.
So a little bit of inflation is good to stimulate spending.
And I mean, I suppose this is one of the things
that's supported by Keynesian economics.
Why is that wrong?
This is basically the whole point of Keynesian economics,
is to try and find an endless array of explanations
to explain why inflation is a good thing.
Well, the chicken and egg.
So that's the cynical take.
This is a propaganda machine
to sell the government's narrative.
The less cynical take is this a bunch of economists
who figured out this thing
and it happens to be good for banks and governments
and just because it's good for them doesn't mean.
And it justifies the existence of government
and your basic, I don't think it's your basic assumption
but a foundational principle of your thought
is that a lot of government is not a good thing.
Your first gut instinct, government bad.
Like I mentioned, I live next door in Michael Malus
who probably beats you on the intensity
and how quickly he says government bad.
So there's a potential argument for government good.
Some government is good, maybe a lot of government is good.
Maybe we need a lot of centralized management
for resource allocation and so on
because we humans specialize, we're too busy and so on.
So there's an argument for that that exists.
You probably disagree with any possible argument on that side
but anyway, so why is that idea of Kenzen economics wrong?
I'm gonna focus for this on the money idea,
the idea that a little bit of inflation is good.
The idea here, I mean, the criticism is that
without inflation people wouldn't spend
and then the economy would come to a grinding halt.
And that's nonsensical because people spend
not because they wanna keep this magical monster
called the economy going,
people spend because they need to consume
because that's how we live, that's how we survive.
You need to eat, you need shelter,
you need clothes to keep you warm.
And as technology advances,
the capabilities of the things that we can do
with our time increases and so we wanna buy more things.
So people buy things because people want to consume.
There's a limitless desire to consume.
That there's no shortage of reasons for people to consume
whether it's food or Ferraris or private jets,
people just always wanna buy more.
Can I interrupt just really quick?
What about the fear about the uncertainty of the future
where they might want to buy things
but they're really afraid because it seems like
there's a lot like a pandemic going on or whatever it is.
Yeah, that's good.
So fear of uncertainty is good.
Can you have too much fear of uncertainty?
Here's the thing.
What I was saying is I was making the point
that we don't need to be motivated to consume.
We have the insatiable desire to consume.
Everybody would like to have more of all kinds of things.
Everybody would like to have a bigger house.
Well, not everybody, some people have a big enough house
but everybody would like a house.
Everybody would like a car, jet, all kinds of things,
electronics, machines.
So we don't need a desire to consume.
But of course, the limit on how much we consume
is opportunity cost.
Why don't you buy a Ferrari?
Well, because that's really expensive
and it would mean that, well, maybe you do have a Ferrari
but I mean, most people don't buy a Ferrari
because it's too expensive, they can't afford it.
They'd have to work too hard to get it.
And if they do get it, it might mean
that they can't afford their house anymore.
So we have to economize.
That's a good thing.
And we have to also think of the future.
And so humans consume, we don't need more motivation
to consume, we have to deal with the economic reality
of the things that limit us from consuming more.
So what Keynesians present is that
when there is a problem in the economy,
like there was after World War I,
the problem is always caused by the inflation.
And what the Keynesian Huxters do
is that they look at the consequences of inflation
and blame it on people not spending enough.
When people are doing the rational thing,
the money is, so there was inflation,
caused an unsustainable boom, it caused a recession
and now a lot of people lost their jobs
and they don't have enough money to go out
and spend frivolously, so they save for the future.
The future is uncertain.
That's a good thing.
That's how you fix things.
You begin the recovery by, well, you lost some wealth
so you spend less, like if your business goes bust,
if you lose your job, it's natural and smart
that you stop spending money
on the frivolous thing that you used to spend
and you save it for the future and you invest
in something else, you get a new job
and then once you've recovered, you start spending more.
This is very sane and very good
and it's the way to recovery.
But essentially the Keynesians have used this
as a justification for more inflation
because inflation is an addiction.
Once the government gets down the path
of spending money to solve its problems,
then every problem looks like it can be solved
by more inflation and so this is where Keynesian economics
comes in and of course the Keynesian economics
is based on the work of Keynes which came in the 1930s
and this is the key point, like it's portrayed
in the textbook as if it's just the scientific breakthrough
that somebody in the 1930s, this genius came about
and realized that, oh, we don't actually need gold,
we don't need hard money,
we can actually just print all the money
and in reality, of course, it was just the very thin,
flimsy, idiotic justification
for what governments were already doing for 20 years.
They'd already gone off the gold standard
and they'd gone through 20 years
in which they were lying to their population,
telling their population we're still on a gold standard
but that our problems caused by various random things
but don't worry, we're gonna be going back
on the gold standard.
20 years later, after they went off the gold standard,
they come up with this justification for why,
oh, actually, the gold standard was bad
and this is a really pernicious thing about it is,
the problems that were caused by us going off the gold standard
were caused by the gold standard
and we're going to fix them
by going off the gold standard even more.
Just because government is lying and it's shady
and it does these kinds of things
doesn't mean Kenzian economics is wrong.
So just, because I wanted to separate a few things you said,
it could very well be very wrong
and they could indeed be hucksters.
All of these, such colorful language,
I love you deeply for this, this is fun.
Yeah, but I mean, it's not like somebody like Krugman
doesn't use this kind of language when discussing Austrians.
It's just that when actors like him use it,
it's presented as if it is legitimate
because he's part of the major shows.
So the case they make,
and the criticism Kenzians make of Austrian economics,
and the case they make for Kenzian economics
is it's based on empirical evidence.
So Austrian economists are pie-in-the-sky theorists
about how human nature works
and it's just all theory.
And just like you said, Kenzian economics
kind of sell it as a science, data-driven science.
And so where's the data, bro, on the Austrian?
So one way of saying it is,
how do you know if we get rid of inflation?
How do you know if we get rid of central banks?
If we push towards that direction,
we will have a better world, a better functioning economy,
better functioning markets, better functioning society.
This is another inaccurate way
in which they present the economics.
They present as if it's just theory
and the data doesn't matter, but that's not the case.
What the Austrians say is that without guiding theory,
data is mute, data is dumb, data can't say anything.
So theory first, and then you have to have models
to provide context for interpretation of data.
Exactly, and it's a sign of just
how little self-awareness they have
that they think that they're just being led by the data
when they're being led by Kenz's moronic theories.
And they use the data to justify those theories
and to stick by them.
And in fact, they are the ones
whose theories cannot be refuted
because it's just government mandated religion.
So according to Kenz's nonsense,
so the way that they justify the inflationism is this,
and I'm just using this to give an example
of what you're talking about in terms of theory,
the way they justify the inflationism
to tie it back to the original point,
they justify, all right, we need the money to spend.
And then the level of spending in the economy
is what determines the state of the economy.
And I've taught macroeconomics at university level for a while.
So I know Kenzian nonsense better than most Kenzians,
no Austrians, if not all of them, I guarantee you.
And so the way they see it is the level of spending
in the economy is what determines the state of the economy.
There's a level of output and there's a level of spending.
So there's like the factories on the one side
that are churning out goods,
and those goods have a certain quantity and value,
market value is completely nonsensical, of course,
because how can the value of the goods produced
be different from the value of the spending?
But let's put that aside for a second.
So the amount of spending that happens in the economy
determines the state of the economy.
If the value of the production, which they call Y,
is higher than the aggregate expenditure,
so this is the production and the aggregate expenditure
is lower, then we don't have enough spending
to buy all the goods, and then that causes a recession,
the factories start laying off workers,
and then the laid off workers start spending less,
and then that leads to aggregate expenditure
dropping even further, and so it's a vicious cycle
where the economy gets into recession,
and the only way out is for Keynes's Bankster buddies
and government buddies to print a lot of money
to give to themselves, and then that will...
That's one interpreter, so to print more money,
to increase the expenditure, to match the supply...
To match the level of output.
Sounds pretty good to me, I'm sold.
All right.
Even though you're saying Huckster, so...
Yes.
I just...
The way...
I love you very much, but just for people who are listening,
I think it's...
I love the way you talk, and it's great,
and keep doing it, but just for context,
like I don't know anything that involves human nature
deserves this level of certainty.
I, at least my position is that
we don't know what the hell we're doing
on basically anything, and...
Perhaps.
And there's a lot, like certainty can get us in trouble,
is my worry.
I don't know much about economics.
I don't even know financial systems, monetary systems,
but I just seen us get in trouble with human psychology,
certainty, certainty of ideologies in general.
You mentioned Marxism and so on.
I came from the Soviet Union.
There's a lot of people that are very certain
throughout the history of the 20th century
that communism is the utopia
that humanity should strive for.
So I'm nervous around certainty.
I could be wrong, but you ask me for my opinion.
Yes, yes.
Sorry, so that little bit of a caveat.
So to go back to the idea, then on the other hand,
you have the level of...
If the other situation is when the level of spending
is higher than the amount of aggregate output.
In that situation, you have too much spending,
so therefore what ends up happening is inflation.
So according to the Keynesian worldview,
this is really important because this is a way
that I'm gonna get to your point about empirical data
and to show you why they're not correct.
Yeah, they're not correct about what they say
about empirical data.
So then what this means is that there's a level of output
and there's a level of aggregate expenditure.
The aggregate expenditure can either be higher
or lower than the output or equal to it.
If it's higher, we get inflation.
If it's lower, we get recessions.
Okay, so is there any universe in this model?
Is there any potential universe in which you can have
both inflation and a recession?
According to the Keynesian model, you can't, right?
Because aggregate expenditure cannot be both higher
and lower than output.
So therefore, if you were truly being an empirical person,
if you were looking at evidence and trying to analyze data,
you'd look at this and say, one example,
you just need one example of high inflation
and high unemployment to refute this entire model, right?
And of course, the world is full of examples
of high inflation and high unemployment.
And that's what happened in the 19th, and of course,
they ignored it when it happens in poor countries
because poor countries don't really matter.
But then in the 1970s, that happened in the US
and in the Western economies
and the most advanced industrial economies.
So historically, before then, you had all these Keynesian
central bankers talking about this model and saying,
well, aggregate expenditure is too low now
and that's why we have unemployment,
so we need to print more money.
And then they print more money, inflation goes up,
but also unemployment goes up because this model is broken.
That's not how the world works.
That's not, the level of aggregate spending in the economy
is not a lever with which you can control inflation
and unemployment.
So what would a scientist do?
What would a non-huckster do in this case?
Admit the theories wrong
and find another way to reformulate it.
Have the Keynesians done that?
No, still the same garbage in the textbook
that is being taught until today.
So is it possible to have a non-Keynesian model,
well, one that still supports moderate amount of inflation
is good for the economy?
I mean, since the 1970s, since this has happened,
yeah, this is what basically most fiat economists
as I like to call them,
essentially anybody at a university financed by governments,
which is financed by central banks,
which is financed by fiat.
We'll talk about that.
The effect of fiat money on our life,
as you write about in your book, fiat standard,
one of them is education.
I'm sure we'll disagree there too.
Not smart enough to disagree, but I'll disagree anyway.
So yeah, so a whole bunch of other models came up,
but basically it's such an example of motivated reasoning.
Like anybody who's got a familiarity
with the scientific method,
or who's got an engineering background
who comes into economics,
immediately has a lot of red flags.
And I remember when I used to teach macroeconomics,
I used to teach introductory macroeconomics,
and then it's a course that would be taken
by econ majors as well as engineers.
A lot of engineers would take it as an elective.
And every time I'd explain,
and I would just teach the Keynesian basic stuff,
and every time I'd explain it,
there's always that smart engineering kid
who just looks at me and says,
sir, this doesn't make any sense
because this and this and that.
And I'm always like, you get it, exactly, you're correct.
Because if you have any kind of shred
of scientific thinking,
you see that this is all motivated reasoning.
Like the answer is government needs to print money.
And here's a whole bunch of models
brought up by people
for why government printing money is good.
And the reason they're coming up to this conclusion
is that you only get funded if you come up
with this conclusion.
If you come up with a conclusion
that we need to shut down the central bank,
you don't get funded by the central bank.
You don't get published in the journals.
You don't get a job at the prestigious universities.
You don't get quoted by fiat publications
like the New York Times and CNN.
They don't invite you on as an expert.
Well, that's a fundamental flaw
with a lot of institutions we have today,
and throughout human history.
Let me zoom out for just a second to the big question.
What is economics in general?
What's the goal?
You said there's a bunch of models.
Is any economist basically trying to throw a bunch of models
about human behavior on the table
and try to generalize it to the global scale?
So both dance between micro and macro somehow
in order to determine public policy
and explain the past, predict the future,
prescribe policies that can control the future,
those kinds of things.
That's the big, basic, ridiculous question.
What is economics?
Economics is the study,
the way the Austrians define it
is the study of how humans make choices
under the condition of scarcity.
And we begin with the starting point of economics
as the fact that scarcity exists.
And why does scarcity exist?
Well, because it's easier to want things
than it is to make them.
It's much easier to want a Ferrari than it is to make one.
And so because we have wants
and we have limited means to meet those wants,
we need to economize.
It's a permanent marker of the human condition.
We are always economizing at all times.
And so how people make those decisions
under the conditions of scarcity
is what economists study.
So to go back to your point on empiricism
in Austrian school,
so it isn't that the Austrians don't believe in data.
On the contrary, it's that theory has to inform data.
And in fact, if you think about it
as the example of the stagflation of the 1970s shows,
if you have stagflation,
that just completely refutes the Keynesian model.
The Austrian way of thinking,
which is think from first principles,
understand how the world actually works,
think about how humans act,
and understand that economics is really all about human action.
So it's not about aggregates of goods.
This is really the key distinction
in terms of methodology.
For the Keynesians, it's physics envy.
They look at the market economy,
they look at individuals in the market economy,
and they think that they can understand the market economy
by looking at aggregates.
This is really the key point
of what I think makes the certain branch
of economics pseudoscientific,
is the introduction of aggregates.
When you introduce those aggregates,
you know, how much production takes place,
how many people are unemployed,
the percentage of the inflation rate,
and then you think that you can establish
scientific relationship between those aggregates.
It's purely physics envy.
You know, in physics, for instance, or in chemistry,
you put, let's say, a container with, contains a gas,
and you have the ideal gas law, PV equals to NRT.
Calculate the pressure, calculate the volume,
and then the temperature.
You can, if you have the pressure and volume,
you can calculate the temperature
because you have the NRT constants.
So there's a clear relationship
that has been demonstrated in a laboratory,
and that can, you know, we can do it right now.
We can measure it, and we can see it,
and it's continuous to hold.
And all it takes is one scientist
to show that this relationship does not hold,
to do an experiment that shows that this does not hold,
and it stops being a law of chemistry,
and it's broken.
Whereas in economics, what they've done
is they've copied the superficial shape of this
without any of the scientific rigor
that was used to build it.
There's no experiments.
You can't experiment on economies.
We don't have the ability to establish laws,
and all the laws that we establish
are just models that get people published
and get them on the media to say,
my model says we need to print more money,
but it's never subject to actual scientific scrutiny.
If it were, they would all be rejected in 15 minutes
because the world is full of examples that contradict them.
Was it possible to do scientific scrutiny
when it's human nature, when you can't,
when there's a nearly infant number of variables,
and you can't control them?
Is it possible?
So what's the best thing you could possibly do?
You do thought experiments.
But the problem with thought experiments,
you know, Freud thinks everybody wants to have sex
with their mother.
Is he right?
That's the problem with Freud.
I don't know, maybe he's right.
Well, obviously I'm joking on that front,
but the Freud is probably under the canes.
Well, no, I think there's power to the thought experiment.
Just like Einstein, you know,
a lot of general relativity, special relativity,
that's a thought experiment.
It originates in a thought experiment.
Now, is it true, you know,
in nice thing about physics,
you can't eventually have experiment to validation.
The downside of economics is you really can't have
experimental, like definitive experimental,
scientific rigor of validation of a theory.
So a thought experiment is just a thought experiment
using your intuition.
It's the power of reasoning together about human nature.
And that's why economics cannot make the claims
that physics can make.
So with physics, you can predict that if you get this gas
at this pressure, at this volume,
the temperature will be that much.
And you can make that prediction
and test it a million times
and you'll always get the precisely correct answer.
With economics, we can't make quantitative predictions.
But still, on Twitter, and even today,
you're very certain about the statements you're making.
Do you?
Yeah, but I don't make quantitatively certain statements.
That's the thing.
In economics, we don't make quantitative predictions.
We cannot do that because we don't have experiments.
But we can understand how the world actually works
with humility.
This is really the key difference,
that the Keynesians think they just want to copy
the methods of physics,
and then that's just gonna give them the certainty
of the results of physics.
Which is like me saying,
I'm just gonna put a red blanket on my back
and jump from the fourth floor because I'm Superman.
Well, it's not the red blanket that's gonna make me Superman.
It does a lot more to it.
So humility manifests itself in economics
as the belief in a free market.
Meaning like, I can't centralize,
I can't do centralized control on this thing.
We're going to minimize the friction of the free exchange
of goods.
So Austrian economics puts priority in the market.
Yes, and you could arrive at it through two paths.
The more practical path,
which most scientific-minded people arrive at,
and I came from an engineering background.
So I initially had this idea
that what is lacking in economics is mathematicization.
We need to have better math models.
We need to get all of those tools from engineering,
apply them to economics,
and then we'll be able to plan the world economy
and make it work better.
And then you start actually trying to solve problems,
trying to actually calculate them.
And you realize nobody can have that ability
because the difference ultimately comes down to the fact,
we can't have experiments.
And the reason we can't have experiments
is that you can experiment on particles of a gas.
You can't experiment on human beings and entire economies.
And because particles of a gas are just dumb matter.
And so you kick matter in a certain way.
You can calculate exactly how much is going to fly.
Human beings are much more complex.
They have a will inside them.
And this is really,
this is the humility to understand
that you are a human being
and other people are also human being just like you.
And that the, you know, every person wakes up every morning
and they have a million things in their mind,
a million things they care about,
a million things they want to do.
And you will never be able to make the decisions
for somebody else,
let alone for millions of other people.
So this is one path by which you arrive
at the conclusion that free markets are better
because you realize that all of the people
that think that they can centrally plan markets
can't actually do that.
And that there's really nothing scientific about them,
except essentially the rituals they ape
of the scientific process.
And the other path I think that makes you arrive
at the Austrian perspective
or at the libertarian perspective I should say
is simply the notion of individuals
as having their own inalienable right
to decide what they want to do with themselves.
If you, I mean, the only way that you can give yourself
the idea that you get to be planner
is ultimately you think you're better than other people.
You think your choice, your judgment overrides mine.
And I don't think that's a defensible position.
I think I'm in no position to want to force anybody ever.
I will never want to force anybody
to do anything they don't want.
The Keynesian perspective,
the central planning perspective is unlike physics,
which is let's force a bunch of particles
to sit in the lab so that we can study them.
In economics, you're forcing people to do things.
Let's stop these people from doing this job
because it's bad for the economy
and let's get them to do that job.
Let's force them to pay this price.
Let's tax them this much.
Let's prevent them from using gold as money
and force them to use our credit as money.
So it has to rely on coercion.
There's no central planning without coercion.
And coercion is a crime in my opinion.
There's no way that it is justifiable morally
or anything.
So from a politics, from an ethical perspective,
your view is the, I mean, perhaps broadly speaking,
the libertarian view is coercion is the unethical.
Freedom is essential.
What is, what are the pros and cons
of government intervention in the economy?
So can you steal, can you provide pros?
You just kind of provided arguments against,
is there any arguments to be made for government intervention
for the role of government in society?
Speaking from a political or from an economics perspective,
what is the positive role of government
that you can imagine you can speak to?
I can repeat many other cases,
but I don't find any of them compelling
for the reason that I mentioned,
which is that ultimately they all rely on
putting a gun to somebody's head
and using the threat of force.
So that's for me, it can never be justifiable.
Whatever the ends are, if the means are violence
and the threat of violence, then the ends aren't justified.
Everything that's good,
governments will use as an excuse
to justify coercion.
So, what do you like, you like motherhood and apple pie?
Well, government needs to ensure
that motherhood works well
and we need government central planning of birth.
We need regulations on birth, for instance,
we need regulations on how people give birth.
We need to ban people from giving birth
in traditional ways that have been tried
for thousands of years.
We need to force people to do things
in the modern scientific way.
Well, so what about things like
that all of us use infrastructure, for example,
or education, or well, the economy too, right?
Can you make a case for the role
of some large-scale centralized systems,
whether it's government or not,
that do this kind of management?
I guess perhaps you could say
there's the economies of scale argument
that some things must exist at a very large scale
and therefore you would want political accountability
of the people who manage them.
This is kind of the argument
that's given for infrastructure monopolies,
for instance, roads or electricity.
Let's say we live in a country, we need one power plant,
the bigger the power plant, the better off we will all be
and there's a natural monopoly in the power plant business.
So we're gonna have to have one power plant
and since it's only one power plant,
then we can't just let anybody own it
because then they're gonna make it too expensive.
So we need to have the government own it
so it can make it too expensive.
And you don't find that case compelling?
Not at all.
I used to believe in it.
I was pretty much a Keynesian
when I first started my graduate studies at Columbia.
And no, I don't find that compelling at all
because I think all these examples
that they mentioned of natural monopolies
or economies of scale that can only fit
at a scale of government, it's always,
it's always, government bans people
from opening power plants
and then there's only one power plant
and they need to be in charge of it.
But in reality, no, in reality,
power plants can exist at all kinds of manners
of scales of operation.
And yes, of course, there are benefits to centralization
in power plants in particular
because there's efficiency in generation.
One big power plant is more efficient
than 10 equivalent smaller power plants
but there's also inefficiencies in centralization
because the more centralized and the bigger the plant is,
the further away a lot of the population is going to be
so you're gonna be losing a lot of the electricity
and transmission.
And you believe the free market is best in managing
that balance of how centralization.
Exactly, and if we do end up in a situation
where there's one power plant for an area,
then if the market ends up centralizing all of it
into one power plant, I don't see that as a problem.
There are places, there's a small town
with only one barbershop.
Is that a catastrophe?
No, because they don't need two barbershops.
Now, if that barbershop started to take advantage of people,
started to charge higher price,
well, then that's just an opportunity
for others to step in and put them in their place.
And that's the same thing with power plants,
it's the same thing with everything.
Ultimately, I think the key thing is this,
from the central planning perspective,
they'll present you the problem as it is
and they'll tell you, well, this is bad.
So the fix, and what we can do is better.
So let's stop what's bad and do what is better.
Two problems here, usually the reason
that the thing is bad in the first place
is because it is a government monopoly,
it's because of government intervention.
But the second thing is that this notion
that we could just pass a law and fix what's wrong
and make it better, it ignores the fundamental
underlying reality, which is that what you're doing is
you're offering only one way for this problem to be solved
and making all other solutions practically illegal.
You're taking taxpayer money,
you're putting guns to people's heads,
to take their money, to use it to build, say,
this one solution for a power plant,
but you're preventing the free market process
from providing us with other alternatives.
Well, so you phrased it from that perspective,
but in theory, there is a feedback accountability mechanism
for the solution that you propose and enforce
by, as you're saying, placing a gun to people's head,
you're accountable for that choice,
for the quality of that solution by being voted out
if the solution is actually bad.
So it's just a different selection mechanism.
And I think I personally believe
it is a selection mechanism that has worked in the past.
It just often does not work nearly as well as a free market.
And the question is, are there domains
in which the free market gets itself into trouble?
So this theoretical view is that
that's the point of a free market,
is it doesn't, if there's trouble, that's a signal
and it will respond to that signal
and it will respond appropriately
to make you try to maximize happiness.
The question is, is there a local optima
that free markets get stuck in and need governments
to represent the broader scale of the people
to get outside of that?
I think the fundamental problem here
is the idea that there is a feedback mechanism
when there is coercion in one party,
when one party can employ coercion
and the other one cannot.
So in other words, I'm gonna put a gun to your head,
I'm gonna take your money,
and I'm gonna use it to buy more guns for me
to put against your head.
But somehow, you're gonna put a paper in a box
and that's going to deactivate my guns.
Well, love requires a push and pull,
a little bit of tension, a little spice in a relationship,
I think.
Yeah, I mean.
A little gun to the head,
not sometimes.
Good luck to anybody who's gonna be dating you
if you think you're putting a gun to people's head,
it's comparable to a relationship.
All jokes.
But yes, I mean, the people don't often think of it
as gun to the head, as government and the military
as gun to the head.
But that is sort of a libertarian perspective
because ultimately when you, turtles all the way down
and at the bottom, there's guns.
Yeah, so at the bottom, if you don't wanna pay,
if you don't wanna, all right,
I don't wanna be part of your power plant,
I wanna get my own generator, I don't wanna do it,
and I don't wanna pay for it.
You go to jail, you can't not pay for it.
That's really the asymmetry,
which the market doesn't have,
which is why in my opinion,
it's not as if I'm being stubborn
and stuck on the idea that I want a market
and that the government can't work.
It's presented as if we're choosing
between two different machines.
Should we use an Apple or a PC?
And I'm just constantly choosing one of them
and saying that the other government can't work.
It's not equivalent, it's not two machines.
We're comparing between a machine and a gun to the head.
And we're comparing between a situation in which
anybody anywhere is free to provide the service
or the good and anybody anywhere is free to buy it from them
or reject to buy it from them.
So anyone can build a power plant.
Anyone can succeed, anybody can fail at it.
Anybody can build it in a way that I can choose
to take part in or not take part in.
I can build my own.
So we have a situation in which 10 million people,
let's say, they each can freely choose
to provide the good or to buy the good.
That cannot be considered an alternative
on an equal footing to a situation where one person
or one entity gets to decide for everybody
and those who disagree go to jail.
So the problem is that the alternative to governments
is other large successful entities
that have humans in them and human nature is such
that there's corruption manipulation and so on.
I think free market depends on the honest communication
of information as widely as possible
so people can make great rational decisions.
But sort of my fear is that like the proposal
is that in general there's manipulation
whether it's government, whether it's companies,
they're going to manipulate,
they're going to try to do propaganda,
they're going to try to manipulate you, deceive you,
shut down competition by playing games,
human games of different kinds.
And sometimes even meaning well,
it's not like everybody thinks they're doing good
and they're actually doing evil.
So how do we prevent the worst of human nature coming out
in a free market as well?
By not giving the worst of human nature a monopoly
on violence in the institution of governments.
That little inkling of coercion,
that little bit of asymmetry creates a gigantic,
like ripple effect of asymmetry in your view.
Yes, and it ends up just being the place where,
you know, corporations, individuals, free markets,
they can't coerce without the resort to government.
So, you know, you think about all the examples
of corrupt corporations doing bad things,
it's always because they have certain privileges
from governments because, you know, as it exists,
you know, Coca-Cola, McDonald's,
all of these giant corporations,
they can't do anything to me without government.
They can't take any of my money
and they can't force me to buy their stuff.
And so doesn't matter to me, you know,
so if Coca-Cola is corrupted,
that's a problem for Coca-Cola customers,
that's a problem for Coca-Cola shareholders,
that's a problem for anybody who deals with Coca-Cola,
but as somebody who doesn't drink their stuff
and isn't a shareholder,
I have absolutely no interest in what happens.
They could all go bust tomorrow and I don't care.
I don't buy their product and I'm not a shareholder.
So in this situation where you choose to voluntarily
associate with people and you only give your money
to people you want to voluntarily give the money to,
so you either buy their product
or invest in their production, in that situation,
the only way that a company can get my money
is if they build the product that I value
or if they convince me that they are going to use it
in a way that's profitable.
And I may be wrong, you know,
I may invest in a company that fails
or I may invest in a company that turns out to be fraudulent,
but that's my fault, you know?
And it's my fault that I gave them my money
and then it turned out to be scoundrels,
but it's a totally different problem
when we make it mandatory, you know?
It's violence, it's a crime to put a gun to my head
and force me to subsidize companies
and force me to come at certain conclusions.
Do you find an interesting distinction,
Mr. Michael Malis, between anarchism and libertarianism?
So this particular use of violence, this like last resort,
this policing force that libertarianism is okay with
and anarchism is not okay with.
So basically nation states that keep you safe
from the worst of war.
Yeah, I think to be more accurate,
the distinction between anarchism and monarchism,
I think libertarianism is kind of a vague term
that can encompass both.
It means a lot of things, okay.
Yeah, but- On the Karl Marx to Michael Malis spectrum,
where do you- No, no, I'm full anarchist.
You're full anarchist.
Yeah, full anarchist.
I mean, I don't find any justification
for the use of force.
And I think recently, perhaps, maybe I'm getting old,
maybe I'm getting senile, maybe I'm getting wise.
Who knows?
But I'm beginning to become more sympathetic to monarchy.
So I'm an anarchist, monarchy.
Which, what is that?
Kings.
Oh, monarchy.
Yeah.
And I think- Wait, are you joking or not?
No, I'm not joking.
And I think, I mean, I think, you know,
morally and intellectually, I'm an anarchist,
but it's what the reality is we find ourselves
in a world in which a lot of people are not.
And the question is, what is the thing that is going
to provide you with more freedom?
And I think I'm recently coming around to the idea
that monarchy might be the best way
to provide people with the largest amount of freedom
because to have a free society,
you need a majority, perhaps, or a plurality of people
to have a very strong understanding of libertarian ideas,
to have a low time preference,
to have a preference for the future.
So you need a majority of the population
to not decide to go and do something insane
in order to continue to have a free society.
You know, when a respiratory illness comes along,
unfortunately, you know, the last couple of years
showed that we, the vast majority of people
are gonna freak out and lose their mind
and support whatever their stupid TV tells them to support.
And, you know, there's always a current thing
and the media is always telling you
that we need this current thing as an excuse
for more and more government power
and more and more government coercion.
What's the role of kings and queens
in that case of a monarchy?
What's the role of a leader?
I think there might be a case that,
so as I was saying, you need a majority of the population
to get together and decide, nope, whatever is the case,
you know, the answer is voluntary.
No matter how bad the disease is,
it doesn't justify forcing people to stay home.
You wanna stay home, stay home.
You wanna wear a mask, take a vaccine,
do whatever you want, but you can't force others to do that.
So you need a majority of the people
to strongly believe in this principle
in order to get it in a democracy.
Whereas in a monarchy, you just need the king to get it.
And I think the reason kings are more likely to get it
is that kings have a low time preference
where they think about things for many generations,
whereas in a democratic system,
your president is likely only going to be there
for four years or eight years or 10 years
or five years or whatever it is.
So the only way that, you know,
all humans are self-interested.
So the only way that your president in a democracy
can provide for themselves is to maximize
the amount of exploitation that they can do
of the population during their brief stint.
And then when he's out, you get a new one
and then that one wants to start all over again.
So every four years, you get a new robber.
With monarchy, you sign up for a multi-generational
subscription to the same family.
And when they have the security of knowing that, you know,
his great grandson is going to be taking money
from your great grandson,
suddenly his interest in yours align
because they both want your great grandson
to be prosperous and have enough money
for his great grandson to take.
So it's a monarchy with a tiny government.
So anything required to really provide
for a free market.
So for maximizing individual freedom
and the freedom of the economy.
Yeah. And if I were a king,
which is highly unlikely to ever happen,
but I think, you know, if you look historically,
the dynasties that have succeeded
at lasting for a long time,
the key thing that they managed to do
is to basically be libertarian.
The key to being a good king is to just leave people alone,
let them do whatever they want,
don't rob them too much or rob them as little as possible
or maybe even don't rob them.
And, you know, as a king, use your power only
to punish people who aggress against others.
Don't use your power to enrich yourself
and enrich your friends.
And that's really, like if you look at smart kings,
this is what they do, this is what they teach their children.
And the cycle of kingdoms is that, you know,
the first king understands this, builds the empire
and the first couple of generations, they get this
and the society is free, the economy is free.
And because of that, you know, there's peace and prosperity,
but then over time, the next generation of kids
become a lot more high-time preference.
They haven't worked hard,
they don't understand the meaning of hard work,
so they become more likely to engage in destructive behavior.
So raise taxes, pass laws that require people to do things,
even when they're not hurting anybody.
And that ends up basically eventually destroying the kingdom.
Of course, power corrupts.
So you have to kind of create human institutions
that prevent you as a king or any kind of leader from expand.
So going back on the original promises
and the purposes of your position,
and then distracting, using tools of technology
and communication to distract the populace
while you expand the power.
Exactly.
All right, you wrote the fiat standard.
I think we danced around it quite a bit,
but I don't know if we actually defined it.
So what is fiat money?
What is the history of how it came to be?
The fascinating history of the birth of the fiat monetary system
is something that really only got uncovered in 2017.
This is extremely, extremely interesting.
In 1914, Britain joined World War I.
And if you remember your history books, it's famous
that this was called the August Bank Holiday.
It was just going to be a few weeks where the British troops
were going to go and kick European ass and come back triumphant.
And most European countries believed that.
But then the war kept on dragging on.
And of course, to finance the war,
the government, this is what they used to do
under the old standard, governments would issue bonds.
So you'd issue the bonds, people would buy the bonds,
the money would be used to finance the military,
and then the government would pay off the bond
over the next five or 10 or 20 years.
So for World War I, the British government,
the British treasury issued bonds for financing the war.
And this only came to light in 2017.
Only a third of the bonds were actually subscribed.
So people, British people, and this is perhaps
the greatest thing that they've ever done,
they decided fighting a war in Europe
is just not my ideal way of investing my capital.
It's a stupid thing.
Why should I go and fight? Because the Austrians
and the Germans and the Serbians are at each other's throats.
I'd rather invest in something else.
So they only bought a third of the bond issue.
And then the astonishing thing that happened,
which really set the tone for the next century
of war, murder, Keynesianism and theft and inflation,
was that the Bank of England went and got
two of the high ranking officials in the Bank of England
to buy the other remaining outstanding
two-third of the bonds under their own name
with a line of credit from the Bank of England.
So it wasn't their own money.
But they took money essentially from the Bank of England,
bought two-thirds of the bonds that financed the war.
And that was how England was able to keep going into the war.
So that's essentially what they did,
is what we today know as quantitative easing.
Back then, they just got,
they printed money from the Bank of England,
or credit, printed credit, gave it to those two employees.
They bought the bonds.
The government could fight the war.
Sounds like it's a nice idea.
And Keynes, of course, being a huckster himself,
he himself said this was,
he wrote a letter to the Bank of England
that was uncovered recently.
And he said, I congratulate you on this masterly manipulation.
I quote it in the book.
Masterly manipulation is what he called it,
that they basically managed to buy the bonds
using the money of the government.
And of course, he never had an idea of how economics works
because he never could ask the question of, okay, and then what?
All right.
So we just printed money to buy two-thirds
of these government bonds.
What's going to happen next?
What could go wrong?
Not a question Keynes is going to ask themselves,
because their jobs depend on not thinking
about what's going to go wrong.
Yeah. So just a quick question about war.
And somebody's been nonstop reading and thinking
about the wars of the 20th century
and thinking that most of those wars
were unjust, unethical, and destructive.
How else do you find, how would you finance a war?
So ideally you don't.
No, but I mean, of course, there are sometimes,
you know, you want to fight for self-defense.
Yeah, you finance it, taxation, or bonds.
See, the people really need to want to war,
not just with their voices, their thoughts, their tweets,
or their actual financial investment.
They put up the bullets and the cost of the bullets
and the bodies.
So their life and their financial well-being.
That's how it was under the gold standard mostly,
because under the gold standard,
the government couldn't print gold.
And so they had a budget and they had a certain amount of gold.
And that wasn't just, you know, that they couldn't infinitely increase it.
They couldn't tax their population at will.
And it's very difficult to take money from people.
You know, you go knock on doors and search everybody's home,
see where they're hiding their gold.
It's very complicated.
On the other hand, when you gave them paper money,
which is what the case was in 1914,
you could take their wealth just by printing the money.
And that's what changed everything when it comes to war.
That's why the 20th century was the century of total war.
Because under the gold standard,
governments fought until they ran out of their own gold.
Under the fiat standard, with paper money, with credit money,
governments fought until they ran out of liquid wealth
in the hands of all of their citizens.
So let's find flaws in this thinking if there's any.
Okay. There's a lot of pacifist type of thinking in World War II,
as Hitler was expanding and expanding, Hitler framed himself as a victim
of the past of history.
He never attacked anybody.
Everyone's always threatening to attack him.
That's kind of the narrative.
And he keeps expanding.
He keeps sweet talking with his charisma,
all the countries around him into sort of embracing pacifism.
Stay out of the war until the war is at your doorstep.
So France did just very suboptimal military strategy from the perspective
of the many European nations in response to Hitler.
They were basically hoodwinked by his words.
So then there's Churchill, Winston Churchill, who stepped up and says,
perhaps irrationally, from some kind of economics perspective,
saying, we're not going to back down.
We're going to fight Germany.
And perhaps that step alone is one of the biggest reasons that Hitler
failed in his expansion.
That decision to fight back,
how, what's the right way to do that?
If you're Winston Churchill, what's the right way to do that?
If you're to fight back evil when violence is required.
Now, you could argue that no war is just,
but there are such a thing as a just war index.
And a lot of people argue, if there is a just war in the 20th century,
it's World War II.
So how would you fund if you were Britain, the war?
Would you require Winston Churchill to convince the populace?
Like don't fight until they're fully convinced that this is the right thing to do.
You can't just make a decision for them.
You have to convince them fully so that they give their life
and that give their money to support the war.
Is that the right way to do it?
I think so.
And I think when you have a true threat and a true evil and a true force that people
really do think is genuine, you don't need to convince them.
I mean, when it's real, people will want to fight
and people will want to pay to fight.
And I mean, I think though on this particular example,
I think the best way to fight Hitler is to have not fought World War I,
not take out the Kaiser of Germany.
If Britain and the US had not gotten involved in World War I,
which really is the senseless war about nothing, what was in it?
And what was the goal from anybody fighting that war?
If you look at it, after World War I,
there were very minor adjustments in the borders of the countries that were participating.
So Germany lost some land, Austria lost some land,
but really it wasn't all that massive.
And it wasn't like Britain wanted to take over Germany
and move their people into Germany and kick the Germans out.
So there was no real value from that war.
And that's why the British people didn't want to take part in it.
And that's why if they hadn't done this enormously criminal manipulation of printing money to buy the bonds,
Britain wouldn't have gotten into the war.
Germany would still be a kingdom and Hitler wouldn't rise.
And yeah, there'd be small changes in the borders of various European countries.
I struggled to see how it could have been worse.
I mean, I struggled to see who benefited from four years of carnage in Europe.
And then this came at the height of civilization.
You know, before that, the people of Europe had the golden era,
under the gold standard, they were trading with one another,
they traveled and technology was advancing.
And they did not expect this war to last this long.
And you know, my favorite story from World War I is the Christmas truce football game,
which I mentioned in my book, British and German soldiers at the height of the conflict.
They stopped on Christmas Day and they played a football game against each other.
I mean, this is not a real war where it's a war for survival.
Britain didn't want to end Germany.
Germany didn't want to end Britain.
It was just kings who were emboldened by the fact that they had a printing press
playing with the lives of the people.
And take that away, take away the printing press,
take away their ability to print money.
I think we'd have had a much, much, much better 20th century.
Yeah, the counterfactual history in Neil Ferguson is a historian who gets quite a bit of a trouble.
Basically, well, he's a Brit suggesting that if Britain stayed out of World War I,
there would be no Hitler, there would be no World War II.
Yep, I agree entirely.
But fiat money.
Yeah, so how fiat money was born.
Yeah, let's get back to that.
So they finance the war with that money.
So what could go wrong?
That's where we left off.
Well, what could go wrong when you've just printed an enormous amount of credit
and used it to buy bonds?
What goes wrong is that the value of the currency is going to go down.
Or in other words, prices of things are going to go up.
So during the war, prices keep going up.
And this is, of course, it's going to sound very familiar to victims of the 20th century.
Government tells you it's because of the war.
It's not our fault.
It's because of the Germans.
It's because of the foreigners.
It's because of Putin.
It's because of this.
It's because of that.
This has always been the case.
There's always, war is a very good cover for inflation, which is caused by monetary phenomena.
So then the war ends.
And inflation, prices have more than doubled over the past four years,
over the four years of World War I.
Prices have more than doubled.
And then the British economy is in bad trouble, obviously.
You know, lost a lot of the labor force for four years that was out there fighting.
Now those workers come back, you've got prices are up.
And so people are demanding that the government control prices.
And the government is trying to fix the problem of inflation by doing price controls,
which is what they always do, which is catastrophic because it makes things worse.
When you implement price controls, you, when you make, you know, you say,
all right, well, bread can't be sold for more than X price.
Well, that's just preventing bread producers from producing a lot of bread.
And that's just making the problem worse.
If you let the price rise, the extra price, first of all, it makes people
economize so people will only buy what they need.
And it provides the money for the bread producers to acquire the capital and the resources they
need to produce more bread, which then brings the price of bread down.
But price controls destroy that.
And then they also implement wage controls.
So you want to also make sure that people have high wages.
So you raise people's wages artificially, you lower prices artificially,
and you cause an economic problem.
And this, this is basically, you know, I use this historical example,
because it's the birth of Fiat, because the Bank of England was the most important
monetary system in the world at that time.
And because it's the prototype that basically the entire planet copied over the last 100 years.
We've had this same thing happen.
The government prints money because of a stupid reason,
because somebody in power decided this was worth destroying everybody's
livelihood and savings for.
And then the consequences come in and then they start covering up with price controls,
wage controls, and then that makes things worse.
And then they, and of course, throughout all of that,
they're promising that we're going to go, oh, and also the other thing that they did,
which I mentioned in the chapter is they stopped people from using physical gold
and they confiscated the, well, they didn't confiscate it,
but they took the physical gold and they gave people paper.
So I call it the Fiat white paper, you know,
on Bitcoin, we have the white paper. The Fiat white paper was that the Bank of England
announced to all of its banks and post offices.
And from now on, you should not make payment in gold and you should take
payment in gold and you should encourage all your customers to turn in all of their gold
and give them paper instead.
Is there an actual document?
Oh, yeah, yeah, yeah.
Nice.
Yeah, this is all new stuff.
Obviously, nobody really likes to talk about this stuff because, you know,
they're Fiat economists, so they don't want to talk about the original sin.
Well, you should like republish it as the Fiat white paper or something like that.
There's a fascinating book by a guy called John Osborne.
So in the 1920s, I think his name was Montagu.
He was the chief of the Bank of England.
He commissioned one of his secretaries, John Osborne,
to study what the bank did during World War I.
And it was a study that was kept under wraps, confidential, in the Bank of England,
only released in 2017, almost a century later.
What was special about 2017, by the way, was a year, which was a year on which
some of this information was released.
Yeah, a bunch of people got into parts of the basements of the Bank of England
and found this and published it.
And now you can download it as a PDF and find all of the amazing details.
So they confiscated the gold and they forced people to use the paper
and they promised people that as soon as the war is going to be over,
this is temporary, we're going to be back to using gold.
And of course, you know, if you told people in Britain,
this is the real scam about fiat, if you told people in Britain 1914,
hey, we're going to go off the gold standard because it's better.
I mean, there might have been lynchings of government officials
because the British pound at that point, it had been the global currency
of the whole world and the fact that the date managed,
the Bank of England had kept the British pound at a fixed rate next to gold
for, since Newton, you know, the exchange rate,
the value of the British pound was set by Isaac Newton himself.
He was the warden of the Mint and he made the pound a specific amount of gold.
And since then, up until World War I, it was 4.25 pounds per ounce of gold.
I think I might be wrong, but I have it in the book.
So he'd set that price and it was a matter of national pride for people in England.
You know, the sterling is as good as gold because for two centuries,
it had been stuck to gold.
There was the exception of the Napoleonic Wars,
but for two centuries, mostly it was stuck to that.
And so they went off that and then they couldn't go back
because if they wanted to go back, they didn't have enough gold.
They shipped their gold to the US to finance the war
and they had printed a whole bunch of money that was out there.
So this begins the problem for England and that begins
the end of England as the world's superpower.
And the way they tried to fight that was to get more and more countries
around the world to establish central banks and have unhauled British pounds.
So they'd hold, you know, basically dumping their bags,
like just any other shit coin.
You just get, if you get people to buy your shit coin,
you know, that raises the value of your shit coin.
So can you define shit coin?
Shit coin is, in my definition of a shit coin,
is that it's any form of money where somebody can produce it.
To soft money?
Not necessarily, I guess.
I think the difference, so there's easy money,
but the shit coin is something that someone can produce
at a rate that is at a cost that is different from the market cost.
So gold, nobody can make gold except that they dig for it.
And the cost of mining gold is generally in the range
of the price of gold.
Seems true for Bitcoin.
So gold is not a shit coin.
Gold is not a shit coin.
The copper is.
Copper.
I'm not so sure.
I wouldn't call copper a shit coin as much as it is easy money,
but I think government currencies and other alt coins,
I think are shit coins because somebody could click a button
and make 10 times the supply.
Would it be fair to say that this began with the will for war in World War I?
So the march towards fiat began with a global desire for war
in the 20th century.
Did war start this or was war a result?
It's difficult to say really.
I think it goes both ways.
I think you can't have permanent war without fiat.
And I also think there's a case to be made
that you can't really have fiat without war.
It's some kind of weird dynamical system with a chicken and egg situation
and they build it on top of each other.
And there's a few individuals that figured out
there's a way to manipulate this to play this kind of game.
And it escalates and nothing gives you the ability
to manipulate money quite like war.
When you have a war, you can declare an emergency.
You can call all the people who oppose you traitors.
You can get people to support you not because what you're doing is good,
but because you play on their sense of tribalism.
In your book, you do cost-benefit analysis.
So you do acknowledge or think about the pros of fiat currency.
Can you do just that?
Look at the benefit and look at the cost just broadly at the highest level.
So the way that I write the fiat standard
is that I try and analyze it as an engineering system
in the same way that I wrote the Bitcoin standard.
So with the Bitcoin standard,
I looked at Bitcoin from first principles
and tried to explain how it works for a reader
that doesn't really have much of a background
in computer science, networks, or economics.
And I thought I'll do the same with the fiat.
Let's just ignore the official stories
and look at how this thing actually works.
And I think it does have value in the fact that it...
The reason that they were able to pull it off
is because it was not possible for people
who don't want to be part of it
to use gold independently of governments.
This is really the key thing.
Gold is just very expensive to move around
and the fact that it is expensive to move around
means that there's inevitably going to emerge
institutions where it is centralized in physical location.
And then these institutions trade liabilities for the gold.
So really the gold standard
intrinsically must involve credit
as becoming part of the monetary system.
It has to be the credit
and because it gets centralized, it can easily be captured by the government.
So to be fair, the benefit of the fiat system
is that it saves us on the cost of moving gold around,
which is pretty significant.
Generally, moving a bar of gold across the Atlantic
is going to cost somewhere between 0.1 to 1%
of the cost of the gold bar.
So you move it 100 times back and forth between the Atlantic.
You need to pay the whole gold bar,
the cost of the whole gold bar to move it 100 times across.
Well, with fiat money, it's essentially government credit
and so it's just sending a message from one central bank to another
and you can move it halfway around the world.
Is there also something to be said about the cost in time?
So you're reducing the friction with the communication as well?
Exactly.
Or the transactions as well?
Exactly, it's faster.
How big is that benefit?
Because wouldn't you argue that that potential
is the thing that enables modern economy,
both the speed and the low cost, so increasing the scale
and the frequency, the speed of the transactions?
Yeah, arguably it does help in that regard.
However, it isn't as if you couldn't have
fast transactions built on top of gold.
So you could have gold being used for final settlement
and you could have banks settling with one another,
essentially using credit settlement.
Can you define settlement just for people who are outside of this world?
Because we'll mention that word quite a bit probably.
Good question.
So the way that it works is let's say right now
I'm going to pay you $10 over PayPal or credit card.
So it shows up in your PayPal or credit card
within a few seconds that I've sent you the money
and then that's yours.
But it didn't also happen in those 10 seconds
that my bank, which could be in another country,
sent the money to your bank into your account.
It's, there's a lot of infrastructure underneath that.
So what actually happened is that I have an account
with my bank and you have an account with your bank
and when the message is communicated from my app to yours,
my bank crosses out the money and your bank credits you with the money.
And then at the end of the day, week or month,
you know, banks in the same city will settle with one another.
Banks in the same country will settle with one another
and banks from different countries
will settle with one another.
So they won't, you know, they won't move the $10
from my account to yours at the end of the day
or week or month, they'll tally all of the money
that was sent from one bank to the other
and then just settle the difference.
So it turns out at the end of the month,
my bank had sent $15 million to your bank
and your bank had sent $14 million to my bank.
So they give them $1 million and that settles it.
That finalizes the transaction.
So final settlement 3D is like the,
you can think about it as the infrastructure of the system.
And then you can think of these things
as being the higher layer levels.
And you had a wonderful discussion about that
with the Michael Saylor.
So the final settlement is like the moment when you paper
and ideas connect to physical reality.
Yeah.
Or to some representation of physical reality.
Yeah.
And under gold, everything was tethered to physical reality
because there was a market commodity
at the bottom of all of this
and nobody could print that market commodity.
And so at the end of the month,
if your bank made too many payments,
if you made too many payments, there was a reckoning.
If you were reckless, if you were insolvent,
you went out of business.
So there was no way to fool that.
But then we moved to the fiat century
and everything is credit.
At the end of the day, the final layer is government credit.
And so as long as you're friends with the government,
basically, you never go bankrupt.
And so all kinds of hucksters managed to find their way
into getting into a position where they don't get bankrupt.
So in part two of the fiat standard called fiat life,
you describe the effects of fiat money
and a bunch of things like life, food, science, education.
What is the most pernicious effect of fiat money?
On our world, on our life, so it's taking a step outside
of the monetary system, actually,
like how that affects our life from this book.
I mean, there's a whole bunch of things,
and I won't be able to go over them,
and I highly recommend reading the book.
But if I were to pick one, I would say it's the impact
that it has on our time preference,
on our valuation of the future.
So remember when we started the discussion,
I said that the key function of money
is that it serves as a store of value.
And the harder the money is, the better it is
at providing us with a way for providing for our future.
And so the harder the money is,
the less we discount the future.
We always discount the future compared to the present.
So if I told you, I'm going to give you something today
versus giving it to you 10 years from now,
the same thing, you would prefer to take it now
because then you'd get to enjoy it over the next 10 years.
So we always prefer the present to the future.
There's always a discount on the future,
and that discount is called time preference,
the degree to which we prefer the present
to the future is called our time preference.
So the higher our time preference,
the less we care about the future.
And the process of civilization is the process
of lowering our time preference,
where we start caring more for the future,
we start prioritizing the present less and less,
so we start being able to not consume everything
that we have and store it.
And so money is essential for that.
And under the gold standard,
everyone in the world had the ability
to provide for their future by simply using
the same money that they use, you know, you would work a day
and you would get paid in a gold coin,
and you could take that gold coin and keep it safe
for 10 years and know that at the end of those 10 years,
that gold coin would buy you slightly more
than what it bought you the day that you earned it.
So anybody could provide for their future
and anybody could have very high degree of certainty
that whatever they're saving is going to be there
when they want it in the future.
Because the money supply was only increasing at 1.5%,
whereas the production of goods and services
was increasing for most cases,
for most periods, at a higher rate than that.
So you could buy more apples and oranges and houses and cars
at the end of the 10 years
than you could at the beginning of the 10 years.
So everybody had a way of providing for the future
and with that, people lower their time preference.
And that is reflected across all aspects of life.
I think it's not just an economic thing.
You see it in the savings rate, you know,
the ability to deny yourself gratification today.
I could take the money that I have
and throw a giant party, buy a sports car, buy a yacht.
And yet you decided,
I'm not going to do that, I'm going to keep it
so that tomorrow I can throw a bigger party
or buy a better yacht or have a better life
or give my children a better life.
So all of human civilization really
is the process of us lowering our time preference
and finding harder monies that allow us
to provide better for the future
is how we really technologically we do that.
I think of the hardness of money
as being the control knob for our time preference.
And you can see this reflected in the 20th century
where we go from the money supply increases
at around 1.5% under gold
to this current situation where over the last 60 years
around the numbers on money supply and fiat,
the global fiat supply has increased
at around 14% per year.
So we've done a 10x in the increase
in the supply of money annually.
And 14% is a weighted average.
So if you take a basic numerical average
for all fiat currencies, you get something like 30%.
The average fiat currency increases by 30%.
But if you value it by the volume of each currency
so that you're not giving equal weight
to the Venezuelan Bolivar increasing at 500% a year
and the dollar increasing at 8% a year,
if you do it by value of the currencies
so that you get the total supply fiat, it's something like 14%.
Unweighted is 30% you said?
Yeah, 30%. It's insane.
I'd like to see the worst ones, the people that are dragging
that average up.
But 14% is still an incredibly high, high number.
So you're saying that, sorry, that's the average
over the century or the past 100 years?
Over the past 60 years, 1960s to 2020,
we get World Bank data on that, pretty reliable data
on World Bank and European Union OECD data.
I ran the numbers on that, weighted average,
something like 14%.
And what effect that has on time preference?
The effect is now it's much, much, much harder
for everybody to provide for their future.
Everywhere in the world it's much harder.
How do I get the equivalent of the old gold coin
that I could just put under my mattress
and expect it to be there 10 years from now?
Well, gold itself isn't cutting it.
Gold can't keep up with inflation.
And the reason for that is that gold is not being used
as a money anymore in that you can't send it internationally.
You can't use it to settle trade internationally.
Which therefore means demand for it monetarily is limited.
And so it's becoming more and more an industrial metal.
And as a result of the fact that its value
doesn't keep up with inflation,
it becomes economical to use it in industry.
So we're seeing gold become like silver
in that it gets used in industry.
So the stock pile declines.
And so the stock to flow ratio declines as well.
And it becomes more and more of an industrial metal.
And it can't protect your wealth over time very well.
So what do you do?
Well, you could invest.
And this is kind of the obvious answer
that Keynesian will give you is,
well, you just put your money in an investment.
But investment is different from saving.
The whole point of saving is that the thing is liquid
and that the thing carries little uncertainty.
You just held the gold coin and it just sat there.
It did nothing.
It didn't take risk.
You knew that it was going to be there in 10 years.
Investment means you give the gold coin to somebody
to go and do something with it.
And it could work.
It could not work.
If it works, you get a positive return.
You get more gold back.
If it fails, you might not get any of your gold back.
So taking on risk is something very different from saving.
Saving is just a way of buying the future.
Investing is taking on a risk and you could lose everything with it.
So what ends up happening, and this is, you know,
the Keynesian objection I think is very wrong and bad
because investment is a job in itself to figure out
what to do with your money in order to beat inflation
is something that, you know,
there are professionals out there on Wall Street
that have PhDs in finance, that have enormous computers,
and they have enormous staffs of PhDs and master's degrees
and math nerds that are crunching numbers and figuring out
how to allocate your portfolio so that you can beat inflation.
And guess what?
The majority of them don't beat inflation.
The majority of them can't beat inflation.
Not as measured by CPI, which is completely fraudulent,
but if you remember... 14%.
Yeah, that 14%.
Or even, you know, the 7%.
Like if you look at just the increase in the money supply,
which I think is a much better metric,
and this is what's reflected on the desirable goods.
Like if you look at the price of real estate in Miami Beach,
as Michael Saylor mentioned in your example,
it goes up at around 6%, 7% per year,
on average over the last century.
So that's, you know, if you want to live in a nice area,
that's what's happening to real estate.
If you want to go to the good universities, that's what's going up.
It's going up at a rate that's similar to the increase in the money supply.
And you can beat CPI,
but, you know, CPI is designed so you can beat it,
but you can't really beat the appreciation in the things
that you actually want to buy.
The price of good food, the price of good real estate.
So, and, you know, most investment professionals fail at doing that.
So what hope does a doctor or an engineer or a scientist
or an athlete have in doing those things?
Investment is hard and saving should be easy.
Exactly.
Saving is essential for us as a civilization
and what Fiat did is it took that away from us
and then it forced everybody to become an investor
or more accurately a gambler
because you're not just even,
because the money itself is broken,
because the money itself is constantly changing in value,
investing is becoming more of a crapshoot.
I mean, value investing is completely underperforming
compared to market analysis, you know, you listen to the Fed
and you, you know, what matters to the price of individual companies
is monetary policy much more than it is their own performance.
So basically you need to be a junkie watching the Fed
and following all of the world's central banks
and you need to learn macroeconomics
and you need to learn what all the central banks are doing
and you need to understand how commodity markets work
and you need to understand how equity markets work
and bond markets and real estate markets.
You need to do all of those things
just in order to be able to save and earn the,
and keep the money that you've already earned.
That's the criminal thing about it.
Like I've already earned that money
being a doctor, being a dentist, being an athlete,
being an engineer, I built a house for somebody
and I got that money and all I want to do
is just make sure that I can have it 10 years from now.
The only way to do so is to become a crappy engineer
because you have to spend half your time not doing engineering
and instead spend half of that time
learning about Japanese central bank monetary policy
and commodity markets and what's going to happen to copper
and what's going to happen to oil
and what's happening in the wars
and what's happening with foreign policy
and Russia and the US and all of those things.
Under the gold standard, you didn't care about any of that stuff.
Your gold coin worked regardless of all of those things.
So what this means is the future,
so first of all, we have all of the problems I mentioned,
but also it means that the future becomes much more uncertain.
So you're far less likely to provide for yourself 10 years from now,
far less likely to find an easy way to give yourself value 10 years from now
and so you become more short termist
and that is reflected economically in a lower savings rate
and we see savings rates decline
but it is also reflected in all manners of decision making
and I think if you really want to see what it is,
take a look at a society that goes through hyperinflation
and look at what happens there.
How do people change under hyperinflation
and compare that to essentially what we see in the 20th century all over
under not hyperinflation but under low inflation.
10, 15% that you see across the board most of the time
is just slow motion hyperinflation.
So what happens in hyperinflation?
Everybody gets their paychecks, they run straight to the supermarket,
they spend all of their money.
Nobody thinks about savings, nobody thinks about the future.
Survival until the end of this month is highly uncertain.
How likely are you to be planning for what you're going to be doing 5 years from now?
Very unlikely.
But also it's reflected not just economically,
it's also reflected in all aspects of morality
and all the way in which we deal with each other as human beings.
When your survival is precarious,
how much are you invested in the notion of being a good citizen
caring about your reputation,
on caring about not getting caught in a crime?
All of these things become harder to value.
So people start committing crime,
people start caring less and less about the future
and we see it reflected in everything.
And I argue you see it reflected in architecture.
We used to build houses in the 19th century that last until today
and then in the 20th century we build essentially disposable cardboard boxes
that get scrapped in 20 years.
So what can you say about potential positive effects of lower time preferences?
So I mean it's a balance,
basically you're talking about an average kind of time preference,
but there's some things in life where low time preference can be a negative thing.
So if I want to take on risk,
not for investment or a kind of investment,
but say I want to start a business,
I want to take something crazy,
take a leap into the unknown, be an entrepreneur.
What can you say about that kind of leap?
Taking on debt,
what's the value of that within the current system?
What's the right approach to that within the current system?
What's the right approach overall from an economics perspective?
So it's not saving for the future,
it's doing something wild,
taking the money from your mattress,
taking on debt and having a dream in your heart
that you somehow just want to do.
Maybe it's not the wisest investment decision, but it's something as being human.
It's taking a leap into the unknown
because something in your heart says to do it.
I think you're more likely to be taking the leap in the unknown
when you have a little bit of gold in the mattress than when you don't.
I think this is the thing,
if you look at the late 19th century,
and I discussed this in the Bitcoin Standard,
that was arguably the most innovative period in human history.
There's qualitative evidence,
you look at the world around you today,
pretty much everything that we use was invented in that period.
The car, the airplane, the telegraph, the telephone, the camera,
pretty much modern life as late 19th century.
The period between 1870 and 1914,
because the whole world was practically on a gold standard,
the whole world was using the same money,
and the whole world could save in the same currency.
That meant that a bicycle shop owner, two bicycle shop owning brothers
in North Carolina could go and try and fly,
even as all the scientific experts in 1903 were confirming
that the possibility of flight has been debunked as unscientific.
Lord Kelvin said,
not in a million years we're going to be flying.
Thomas Edison said it's never going to happen.
No, I think it was Edison who said a million years,
but Kelvin also said it's never going to happen.
The New York Times said it's never going to happen
the same month in which the Wright Brothers did it,
and they continued to deny that it was going to happen
even two years after they did it.
But why could they do that?
Because they had savings in gold.
They had the security with something that you know is going to be there,
and then you can take a risk with the stuff that is extra.
I have, say, three years' expenditures in gold under my mattress,
and I know that I could take a risk with everything else
because whatever bad things happen with all of my dreams,
like even flying, think about how insane that is,
I still can go back to the three years of gold that I have saved.
It's still okay to take on debt,
given the stuff, the gold under the mattress.
Well, this is the thing.
Under the gold standard,
the way that people finance things was predominantly with capital,
with equity.
Because you had gold savings, I had gold savings,
everybody had gold savings,
when you wanted to start a business,
you could use your own savings or somebody else's savings.
So you didn't need to get into debt.
Well, you could get equity from others,
and you could also get debt from others.
But it's directly mapped to physical reality.
Yeah, it's directly mapped to economic reality
and that there's a hard money out there,
that what you're spending money,
you want to build your airplane factory,
you need to get actual resources,
so you get actual gold, either yours or somebody else's.
You borrow it or you give them equity,
but there's real resources.
Now, what happened with the fiat system,
and this is the first part of the book,
where I look at it from an engineering kind of perspective,
is essentially, and I think this is like the breakthrough inside of the book,
what fiat does is that it replaces gold mining with credit creation.
The way that we make fiat money,
the way that fiat is mined into existence,
is through credit creation.
Most people think of fiat money as being something
that the government prints money,
and we still use the term government's printing money,
but the vast majority of fiat is not physical,
and in fact, fiat is not created when it is printed physically.
It's created when it is lent.
So when you go to a bank to get a $1 million loan to buy a house,
that bank is not going to give you a million dollars
from their own money or from their depositors' money.
They're going to make a fresh new million dollars.
When you walk out of that bank,
the money supply has increased by $1 million
to finance your home.
So what fiat does is, I mean,
it was basically born out of government credit
and the credit of banks that are backed by the central bank
and the government.
So if you're part of the institutions that are allowed fiat privilege,
where you can just issue loans backed by the central bank,
backed by the currency,
you are effectively creating new currency, new money,
every time you issue the loan.
That's fiat mining is credit creation.
I love it.
Can you say something?
I mean, you can't really have credit without a demand for credit.
You can't really have an increase in supply without a demand for it.
Is there any value you place in the humans wanting it?
Basically, people wanting to do something with that credit,
wanting to take big leaps, big risks, big entrepreneurial decisions.
So is it all credit bad?
No, I think what's bad is,
in my opinion, anything that is consensual,
I want to borrow money from you and we agree the terms,
I can't object to that.
As long as you and I both agree, I can't object to that.
But in the case of the fiat system,
it's not just you and the bank who come to an agreement.
Everybody who uses the currency is forced to be part of that agreement
because if you default,
effectively what's protecting the bank from you
is the fact that the government can just print a bunch of money
and make the bank hold.
So effectively...
That's interesting.
So that little agreement between the bank and you
is actually an agreement between the bank you and the entire populace
that's using the currency.
Exactly.
They're forced to provide the safety net for you and me
to go and make that loan.
And that safety net is the devaluation of the currency.
That's how the whole thing actually works.
So this is why I wrote the Bitcoin Standard explaining Bitcoin
and basically the takeaway message of the Bitcoin Standard
is you need to stack as much Bitcoin as you can
because this is the best money that has ever been invented.
And we'll talk about that why Bitcoin is the hardest money.
But with fiat, the conclusion of the fiat standard,
and again, this is not financial advice on a lowly academic.
You shouldn't listen to me on issues of money,
but I think theoretically and intellectually,
the conclusion of the fiat system is you need to be short fiat as much as you can.
That's the smart winning move.
Human wisdom over thousands of years is to save,
try and not borrow as much as you can,
try and accumulate as much savings as you can.
That's reversed under fiat.
If you're saving money, you're just subsidizing everybody else taking on loans.
If you're taking on loans, you're benefiting from all the people that are borrowing.
So the winning move under the fiat system,
and this is what rich people do, is you borrow.
Rich people under the fiat monetary system, they don't hold assets.
If you're worth a billion dollars today,
you don't have a billion dollars in a checking account.
You've got maybe a hundred thousand, a million, five million or something like that.
A tiny fraction of your money is held in cash.
The majority is going to be held in all kinds of other hard assets,
and you're going to be borrowing.
The richest people in the world are the biggest borrowers in the world.
The most powerful entities in the world, the governments,
are the biggest borrowers in the world.
And that's how they are the richest and the most powerful,
because every time you're borrowing, you're giving the bank an excuse to print new money.
So you're devaluing everybody else's money and you're getting a bit of the cut.
If you're going to buy a house with your savings,
you're accumulating the savings and they're losing value,
and if I were to go to buy the same house with credit,
I'm getting the bank to print money for me.
So obviously they can cut me in on that deal,
and that's why it's much cheaper for everybody to buy with credit.
That's why everybody buys everything on credit.
So when we look at the global monetary system,
the thing you want to do as a government is be the sexiest currency out there.
So the main currency, like the dollar currently,
is the one that has the most power in that kind of context.
So if you were to try to summarize what is the global monetary system as it is today,
is a bunch of fiat currencies battling for position,
for use outside their nation,
and so doing trying to gain power in the geopolitical sense.
If we just zoom out, what is the global monetary system?
What is it currently?
So outside the United States, the whole thing.
Yeah, you could say that, but I think it's more realistic looking at
how it has actually evolved over the past few decades.
It's really a dollar system.
It's not a system of currencies vying with one another.
It's a dollar system, and all other currencies are just basically,
I like to call them dollar plus country risk.
It always returns home to the dollar.
Yeah, there is no competition.
There is no second best, as Michael Saylor would say.
And money is like that.
Gold was a winner-take-all by the end of the 19th century.
The global monetary market is effectively a winner-take-all for the dollar.
And if we get it to Bitcoin, you'll know I also think
digital currencies are also going to be a winner-take-all situation.
So money wants to be won.
In fact, there is no such thing as multiple currencies.
Multiple currencies is just a step back to barter.
Money is won.
If you go back to a system of several currencies,
you're just reinventing barter.
So in the case of the dollar system, the global dollar system
is built around the dollar because all central banks have dollar reserves
and because all central banks use the dollar's clearing mechanisms.
So that's why you're basically playing in the dollar system.
This seems to have changed over the last couple of months
with the sanctions on Russia and the confiscation of Russian reserves.
It remains to be seen what that's going to do and how that's going to change.
But it is looking like this dollar system is clearly unsustainable.
It's not sustainable for the US. It's not sustainable for anybody.
Speaking of which, you do an amazing podcast called the Bitcoin Standard Podcast.
Episode 108 of that podcast is about the very thing you just mentioned.
Allow me please to read the description of that
and then I ask you a couple of questions about your thoughts in general.
The description reads, after the Russian invasion of Ukraine,
the US confiscated the Russian central bank's significant monetary reserves
and banned some Russian banks from the Swift network.
Serious questions are being asked about the survival of the post-war dollar-based world monetary order.
Will Russia, China, and other countries actually build an alternative international settlement system
after years of threatening to do so?
Mark, will global central banks stop accumulating US Treasury bonds
and replace them with gold and commodities?
Will we witness the birth of a new commodity of gold-based monetary order?
In this seminar, we use the insights from the Bitcoin Standard
and the Fiat Standard on temporal and spatial salability
to explain why reports of the death of the dollar
and the emergence of a new gold standard may be exaggerated.
So, I would love to get your analysis on this situation.
What are the fundamentals of it? What is Swift?
What are the possible future evolutions of the global monetary system?
Swift is the network that the US Federal Reserve uses for moving money around the world.
So, basically, the US government can sanction you off of Swift
as they've done with Russian banks, as they've done with Iran,
and as they've done with Afghanistan.
So, effectively, this is really the catastrophe of the current monetary system
is that in order to be able to trade as a member, as a citizen of your country,
you need your monopoly local central bank to be on good terms with the US government
so that they would let them operate it.
And this is really like on top of the aspect of the hardness of money.
This is the other really powerful thing about Bitcoin,
which is that it's just purely a technological thing.
It doesn't matter if you're Russian, if you're Iranian, if you're American, if you're Chinese.
It's a technology and so it's like a spoon or a knife or a car.
You operate it properly and it works.
So, with Bitcoin, it's the same thing. It doesn't care about your passport.
If you have the private key, you click send and the money goes, well, it doesn't really go,
but effectively, it does go anywhere at once and the money can move
without having to abide by political situations.
And the point here is not to bash US foreign policy much as that might be deserved.
I'm just going to discuss it from a kind of technical perspective.
It has to be a political system with fiat because ultimately it relies on credit
and then the government is the one that has the guns
and the government is going to decide who gets to pay their loans anyway
and the government's going to have to make its own rules about who gets to play and who doesn't.
And so it has to be political as this kind of fiat system.
And when I wrote the Bitcoin standard, initially I used to be much more of a gold bug
and in my mind, gold bugs have spent the last 50 years
saying the global monetary system is going to collapse next week
and we're going to go back to a gold standard.
And writing the fiat standard gave me a very good appreciation for why this hasn't happened
and why it's not very likely to happen.
I think the reason is, as I said earlier, just gold is very expensive to move around
and perhaps more importantly, it's very expensive to verify.
That's really the problem with it.
It's very expensive to verify that the gold that you're receiving is original gold.
So the only way to do this properly is to melt the gold bars down
and recast them, which is pretty expensive.
So we have this situation now where Russia, which is one of the biggest economies in the world
has been kicked off to varying degrees off of the global monetary system
and the US has confiscated their reserves and I don't have political opinions about the war.
It's not something I'm very familiar with.
It's outside of my area of expertise.
I'm just analyzing the monetary aspects of it.
It is on the one hand, whether you think the war is justified or the sanctions are justified
is not something I can opine on.
But the implication of this is that effectively the US might be shooting itself in the foot
because it's telling everybody in the world,
your money in our system is not really your money.
It's just a token to play in our arcade.
At any point in time, if you misbehave, we kick you out of the arcade and we take your tokens.
And so, I mean, this is something that China, Russia, Iran and many countries
have made a lot of noise about over the past decades.
It got real this year.
But it's been decades of China, Iran and Russia to some extent saying
we want to build an alternative to the US dollar-based system.
And yet they haven't.
And I think there's very good reasons they haven't.
And the reason is, what do you do it based on?
How do you build it?
So you can do a credit-based system based on...
But then, who's going to be the big boss?
Is it going to be China?
Is it going to be Russia?
Is it going to be Iran?
Is it going to be India?
None of these countries wants to be...
They don't want to jump out of the US-based system to get into somebody else's based system.
So China doesn't want to use a Russian system.
Russia doesn't want to use a Chinese system.
And so therefore you can't use their own central bank's currencies.
Don't you think they have enough leverage?
India, China, Russia combined with several other nations have enough leverage
and incentive to create their own system.
So any one player, yes, but if they collaborate...
Yeah, but then, okay, so what are you based on?
Who's going to be the boss?
Who's going to be the one who can...
In this case, China, right?
Because China is becoming increasingly an economic power in the world.
Yeah.
That's hard to deny.
Yes, it's true.
And it's the most likely scenario, perhaps, if we were to witness something like this is
going to be a Chinese-based system.
So is it possible to have like a split in what is the driving currency of the world?
It's possible, but I don't think it's sustainable.
Again, money wants to be one.
And that's the kind of thing that I argue in that seminar.
So we could see this emerge based around the Yuan.
And likely, I mean, Russia is obviously going to hurt economically from what happened,
from the confiscation of the reserves and from the sanctions.
So it's not going to be in a position.
And of course, because it's outside of the US-based system,
it's not in the strongest negotiating position with the Chinese.
So the Chinese might be able to get them to join their Yuan-based system.
But I don't think that's sustainable in the long run because these governments can issue
their laws and make their designs and then make their monetary systems.
But ultimately, there are billions of Chinese people and billions of dollar-based people,
and they're going to want to trade with one another.
And the power to want to trade with one another is too strong.
We can't just split the world economy into two monetary systems that don't trade with one another.
So then they're going to want to trade with one another.
Or the dark possibility is the inability to trade as opposed to being a forcing function for trade.
It will become a forcing function for conflict in cyberspace and potentially hot war.
Yes. This is the scary part of it.
And this is basically how World War II happened.
Because there's an old historian who used to say when, I think his name is Otto Mallory,
he wrote him in the Bitcoin Standard, if goods don't cross borders, then bombs will.
If people trade with one another, they have an incentive for each other's well-being,
and then they have less of an incentive to fight.
And it was the death of global trade in the 1930s because of the failure of the fiat system
that brought about the rise of the populism, the rise of all those leaders that hated each other
and helped finance the war and bring it about.
So that is the scary possibility.
Obviously, you can't discount that with all of the escalation that you see.
That is a possibility that it could turn into a real war.
But then even so, I think ultimately you can't fight wars forever.
It's going to end at some point.
And we're going to be back at square one, or well, not square one.
We're going to be back at the same dilemma of who's going to have the global monetary system.
And so one alternative is that what the Chinese and the Russians could do is they could base it on a commodity.
So a lot of people are now saying, well, they're going to base it on copper and corn and agricultural commodities.
And that's the analysis of salability that we discuss in the Bitcoin Standard and the fiat Standard.
I don't think that's workable.
If you end up basing the monetary system on copper, as we said earlier,
it doesn't matter how many governments say that we're going to make a new monetary system based on copper grains
and nickel and iron and so on, it doesn't matter.
You're going to have to stockpile those things in order to make a market in them.
And then if you stockpile those things, you're just raising their value, inviting the producers to make more flood the market.
I hope they don't try this because it's going to be a devastating, devastating impact on the world economy.
You're going to have central banks bidding up the price of essential commodities that people need for real uses
in order to back their currencies with them and then just incentivizing the producers to make more and more and more of it.
And then bringing the price back down.
So it's going to be a very expensive mistake where we raise the price of copper, destroy a lot of industries dependent on copper.
It's not just copper, but also food, and then increase the supply beyond what we need.
And the end result is copper miners make out well, governments go broke,
and we end up with a lot of rusting copper in government warehouses.
That's why I don't think it works to use commodities that are not monetary commodities.
Then the question is maybe gold.
Can we go back on another gold standard?
And I mean, Russia seems to have done that.
I'm not so sure.
It's very difficult to get reliable information.
I'm trying to look into this more, but they seem to have said that they're fixing the price of gold in rubles.
So they will buy and sell gold at a fixed rubble rate, which effectively means you're on a gold standard.
Now, I'm not sure how serious this is, how they've managed to stick to it, but it seems to have stabilized the rubble
and in fact brought it back to its pre-war level, which I found absolutely astonishing considering all the sanctions going on.
But in the short run, it's obviously much better than having your currency pegged to nothing.
But in the long run, I also don't think gold is going to cut it in the 21st century.
Do you think there's any chance they go full gangster move and go into the digital space on the blockchain and go with Bitcoin?
I think the point of this discussion is that we run through all these other options.
A Chinese-based system, why it probably won't work, a commodity-based system, why it won't work, and a gold-based system, why it won't work.
I think they might have to learn this the wrong way, the hard way.
But eventually, I don't see them doing it now, but eventually I think the winning move is going to be to go on a Bitcoin-based monetary system.
I don't know if everything always has to be the hard way.
I'd love it not to be, but it doesn't look like there is any kind of desire in China or in Russia to switch to a Bitcoin basis.
To take a leap to Bitcoin.
Unfortunately, I think we're going to go through a few years, maybe many years of learning the lesson the hard way of trying to accumulate these commodities
and seeing the limitations that make them unsuitable as money today.
One of the things I'm really concerned about is the tension, the amount, the increasing amount of hate in the world,
and the increasing amount of power centers in the world between which hate is making a regular appearance.
And because the weapons of war are becoming more and more powerful as they have been in the past many decades, I'm really concerned about nuclear war.
So let us see if Bitcoin can fix this.
Yes, Bitcoin fixes all of this.
The first rule of Bitcoin is if it's a problem, Bitcoin fixes it.
Alright, well, I have some personal questions for Bitcoin then because I have some.
My life is pretty fucked up, so I'll have to try to see.
Quick pause for bathroom baking.
Sure.
Let's return to the basics.
What is Bitcoin?
We started with what is money, what is Bitcoin?
The hard money, inflation, fiat, the history of money, the history of war in the 20th century.
And that takes us into the 21st century.
What is Bitcoin?
Bitcoin is a software and it's a distributed software to operate peer-to-peer network between members who are all equal on the network.
They're all peers.
And what this software does is that it allows you to operate a payment network between those peers and the payment network has its own currency.
And that seems like, you know, just a simple software game.
But the reason this is such a big deal is I believe Bitcoin is the most advanced form of money ever invented.
And the reason for that comes from two properties that this network has.
The first one is that the currency is the hardest money ever invented.
It's the money whose supply is the most resistant to inflation.
It's the first monetary asset that we've ever invented that is guaranteed to be fixed in its supply that cannot be increased beyond a certain number.
So there's only ever going to be 21 million Bitcoins.
And that's a qualitative leap forward in our technologies of money.
All of our money's leak, essentially, because people can always make more and more and more of them.
You know, the best money is the one that leaks the least, which is gold, because it only leaks one and a half percent.
In other words, your share of the gold stock is diluted by one and a half percent every year.
Ideally, you'd like it to be zero.
Bitcoin is currently at around 1.8 percent headed towards zero.
So it's the first money that we've ever had that goes to zero in terms of terminal supply.
So there will never be more than 21 million Bitcoin.
And I think that's a huge deal because, you know, as I said earlier, money is always whatever is the hardest to make.
And now Bitcoin is the hardest thing to make.
And then the second property, which is extremely important as well, is the fact that it operates without the need to trust in anybody.
It doesn't have a party that is in charge of it.
It doesn't have a central authority that can, you know, as I said, it's peer to peer.
So it only has users. It doesn't have any admins.
There's no authority in charge of Bitcoin that can take your Bitcoin, that can stop you from using Bitcoin, that can change the rules of Bitcoin.
They can't make more of it.
So it's fixed. It's available for anybody in the world.
It's the hardest money ever invented.
And it is absolutely, I think, an enormously, enormously significant invention.
Because if you read the fiat standard and the Bitcoin standard as well, you'll see my perspective for why I think a very large number of problems in the world are caused by easy money, are caused by inflation,
and caused by government having access to essentially an infinite recourse to people's wealth.
And I think Bitcoin fixes this because it allows us to have money that has the salability of gold across time, meaning it holds its value across time, like gold, but much better than gold.
But also it is similar to fiat and that fiat can travel quickly, but Bitcoin can travel even faster than fiat.
So it combines gold's salability across time with fiat's salability across space in one immutable package that nobody can change and nobody can control.
Can you define the word salability?
Salability is the essential property of money.
It's the ability of a good to be sold easily on the market, specifically to be sold without much loss in its value.
So houses are great for living in, but they're not very salable. If you want to sell a house, you can just click a button and sell a house and have a giant market of people buying houses from you.
You need to find somebody who wants the exact house that you have with the exact specifications that you have.
And because houses are not identical, there's no liquid giant market for people to just buy and sell identical houses from.
So gold, for instance, has good salability as money because it's a liquid good, it's uniform and people are always buying it.
Fiat dollars have great salability because everybody's always buying and exchanging dollars for other goods.
So if you have a $100 bill, you can easily get rid of it and you'll get $100 worth of stuff for it.
If you have $100 worth of stuff, it's harder to get rid of it.
If you have $100 worth of phone, it's not as easy to spend it as a $100 bill. That's salability.
What do you mean that Bitcoin, I understand that Bitcoin has the salability of gold across time.
Better, even, yeah.
Better, yes, like on the order or whatever. And then it has the salability of fiat across space. What does that mean?
So if you remember when you asked me, what is the advantage of fiat?
What is the advantage that offers us? It's cheaper to move fiat across space than it is to move gold.
With a current fiat monetary system for all of its flaws, you can send money.
I could send money from my bank account in the US to a bank account in China in a couple of days or in Britain, in France, in a day or two,
which is much faster than you could do with gold and much cheaper than you could do with gold.
But in reality, with fiat, the reason Bitcoin improves on that is that with Bitcoin, you're actually selling, you're sending final settlement in a couple of hours.
So you send the Bitcoin transaction, you get six confirmations in an hour, you get about 12 confirmations in two hours on average.
With 12 confirmations, you're pretty definitely, clearly safe on this.
So within a couple of hours, you could send a billion dollars across the ocean and have final settlement on them.
It's not just that you've sent a credit obligation that's going to need weeks and months to settle, which is the case with fiat.
So it is faster than fiat, effectively. So it's harder than gold and faster than fiat. That's a good way of putting it.
One other aspect of Bitcoin, I have to ask to me on a human level, it's fascinating, is it was founded by Satoshi Nakamoto.
An anonymous founder, there's no leader. So that's another aspect of the decentralization. It's leaderless.
Yeah.
So unfortunately, it's not a monarchy.
Fortunately.
Or fortunately, yes. Who is Satoshi Nakamoto, do you think? And first of all, is it you?
It definitely is not me. I don't know who it is.
If it was, would you tell me?
That's a trick question.
I know, a trick question. But I mean, everybody who knows me knows I can't read the code. So you would say that even if you could.
That's true.
But do you think it's one person? Do you think it's multiple people? Is it interesting to you? Do you think it's fundamental to the coin itself?
To not the coin, the entirety of the concept that it's founders, anonymous, and how much guts do you think it takes if it's one person to just walk away from so much money?
I've considered all these questions many times. It's very hard to formulate a definitive answer to all of them.
I don't know who it is. And I don't know why he or them or she are not spending the coins that they most likely have.
I think what really matters in Bitcoin about Satoshi is the fact that he's not there.
And this is what's truly astonishing about it. The fact, the most important fact in Bitcoin is the fact that the creators disappeared.
And the thing has continued to operate now for almost 12 years without him being there or 11 years, I think, since he's left.
And this is really the most important thing. And maybe he died or she died or they got into an accident on a road trip or whatever.
And that's why they haven't accessed their coins. Maybe they are incapacitated for some reason.
But whatever reason it is, I really think it's fate or serendipity that is giving us this very vital, very, very, very vital building ingredient in Bitcoin,
which no other digital currency would ever recreate, which is that because it was the first, it was the one that was able to establish the first mover advantage
and get all of the people who are interested in the technology to get into it. And so that's an enormous advantage.
But, you know, the cherry on top or what made the whole thing really function well is the fact that the guy who made it disappeared
and that it continued to operate, which is just a clear illustration that this is a network with no admins.
And I'm tempted to think that they're incapacitated in some way, probably dead or gone because I can't believe the...
I don't believe any human being would have this level of self-control to not get into, not want to meddle with their invention so much.
Even if they, you know, they might have had the self-control to like mine the first million coins to get the network going and then throw away the coins
or send them to an address that they don't have the key to because they really just wanted the network to take off.
They may have no access to the coins and that's why they can't move them. I could see that happening.
But I find it harder to believe that they would resist the temptation to mess with the network.
You know, it's funny. I find that the founders of ideas are often principled and have the integrity that the eventual users of those ideas don't fully have.
I tend to, you know, we have the kind of cynical view, power corrupts, absolute power corrupts, absolutely.
And we tend to, in our mind, generalize that all humans are corruptible.
And perhaps that's true to some degree, but I think that some people are more corruptible than others.
And I find that there is, I mean, I like to think that Satoshi Nakamoto is out there and, you know, just like George Washington chose to walk away.
And it's a principle. And the principle is more powerful than the financial reward or any of those kinds of things.
It's a principle that stands for freedom. And there's a lot of people throughout history, even recent history, that are willing to die for these principles
or live a life full of suffering and sacrifice because they're still living a life of principle and choosing that day after day after day.
So, I mean, there's power to that money. What's the worth of money in the end in terms of just personal financial gain versus knowing how much positive impact there is.
So the person that chooses to walk away like that, I think is the same kind of person that chooses to live by that principle.
You have people like that, you know, in Gregori Grisha Perlman in Mathematics who turned down the Fields Medal because he was...
Yeah, that's a medal, not $50 billion of Bitcoin.
Well, that's... I know, I know, I'm joking.
Well, that's actually an interesting, just a brief comment. You know, when people talk about Bitcoin in the cryptocurrency space, it's often mixed up financial interest and ideas.
And I think those are often correlated, but that good feeling you get when you win or the number go up or you just...
Just somebody, you know, I found $20 on the street the other day and just that feeling of just like, ooh, like more money.
That positive feeling, that's correlated, but it is distinct from the power of the idea to change the world, to change the world for the better.
To alleviate, it's like Alex Gladstein, in the case of Bitcoin, the decreased the amount of suffering in the world because of authoritarian regimes.
And just because your number goes up, like that gambling feeling of like, yes, yes, this is good.
And I mean, short-term number go up.
There's a long-term number go up, that's more like investment and so on.
And there's a short-term number go up, this is a good feeling that you can't, you have to, in your mind, keep those distinct from the power of the idea to transform the world.
And if you focus on the power of the idea, maybe a billion or billions of dollars don't matter as much.
At least that's what I would like to believe.
Perhaps, but what matters ultimately is that the thing works without him. The thing's worked for 11 years without him.
And I think this is the really important thing. If they had stuck around for whatever reason, and they had continued to meddle with it,
it's not clear to me how decentralized it could have been.
This is the problem with the other currencies. It's like, how do you lose control of the Frankenstein that you've created?
The only way that this Frankenstein continues to survive is if the person in charge of it continues to feed it.
And so it continues to be yours.
And that's the problem with all the other digital currencies.
If you've heard about any of the other 16,000 digital currencies out there, you've only heard about it
because there's a small group of people behind it that are working on it, that are promoting it.
And that's why, and I think Michael Saylor's discussion with you was a magnificent illustration of the difference between Bitcoin and altcoins in that.
They are securities. And I think he makes a very compelling, brilliant case for why this makes them categorically different from Bitcoin.
You're buying property.
I think he mentioned he's a huge fan of Dogecoin, but I might be misremembering.
You are misremembering.
Maybe I'm quoting him out of context.
Okay. Let me just ask you about some possible criticisms of Bitcoin.
So on centralization, so there's a criticism on the mining and on the node side, or the node is not really the criticism,
but Bitcoin mining is not fully decentralized because a small number of miners control a majority of the hashing power.
I looked it up as 10,000, 15,000, whatever the number is, of computers that are full nodes that are actively connected to the network.
So you could argue that's decentralized because it's global, it's all across the world, but the miners, they're still, it's more centralized.
So if you're thinking of making a case for Bitcoin being decentralized, do you worry about the miners being somewhat centralized?
Is the nodes the important thing to think about?
And what number of nodes counts are centralized and not?
The nodes are what matters because the nodes are what determines Bitcoin's consensus parameters.
I think the best way to think about it is that miners simply sell a commodity to the nodes.
And that commodity is Bitcoin blocks.
So what a miner does is they solve the proof of work problem, so they keep operating their computers until they can get a solution to the problem.
And then they attach that to a bunch of transactions and present it to the nodes for the nodes to ratify and approve it.
So therefore, this is, and this is, I strongly recommend people learn about the 2017 block size war to understand why miners don't control Bitcoin.
I discussed this briefly in my Bitcoin standard, but there's a recent book that discusses this in detail called The Block Size War by Jonathan Beer.
It's a great description of, in 2017, essentially the miners thought that they could control Bitcoin.
There was one mining company that produced the majority of the machines that were on the network, and their allies had control of the machines that were out there.
And they controlled the majority of the hash rate.
And they thought that they could change Bitcoin's supply, not supply, sorry, they could change Bitcoin's block size, which is a tiny little detail, technical parameters.
It's not even all that big of a deal for the economics of it.
But they thought that they could pass this change, they could force this change on the network.
And the members of the network rejected it and they weren't able to do it.
So the nodes are what is sovereign, the nodes are what determine the rules of the game.
The miners are a service provider, the miners invest capital upfront.
They buy the machines, they buy the electricity, they buy the storage, they buy the locations, they pay the rent, and they invest all of that money based on the idea that if they behave according to what the nodes want, the nodes will reward them with Bitcoin.
So the miners are in no position to dictate terms for anyone.
They've put up their capital upfront and they will only recoup it if they do what the nodes want.
So therefore, what really matters is the decentralization of the nodes.
So you want to have as many nodes as possible, you want to have a system where there's a large number of nodes.
And this is, of course, the biggest problem with other digital currencies is that, you know, because basically Bitcoin has cornered the market on a digital currency,
the only way that you can really get traction is to generate a whole bunch of buzzwords about, you know, we're doing this and we're doing that.
And so other digital currencies are optimized for bells and whistles and buzzwords.
And that means adding a computational load, which makes the nodes bigger, harder to operate, and therefore you have a very small number of nodes.
In fact, very few digital currencies are keen to publicize how many nodes there are, and they don't have full nodes in the true sense.
And it doesn't even matter how many nodes they have because, de facto, you know, you can spin up a million nodes tomorrow on AWS.
It doesn't really matter. What matters is de facto do the nodes dictate the rules of consensus.
And the fact that with most digital currencies, you can have hard forks very frequently and they can change the supply all the time,
means that there's a small group of people who agree amongst themselves how to move forward.
Yeah, so you threw in a few criticisms of all coins there, but so one is the small group.
That one we could talk about, it's a tricky one, and we talked about that with Satoshi Nakamoto.
But the other one is a small number of nodes.
To push back on that, as computational power increases, you can argue that that enables more and more cheap computers to serve as nodes.
So at least it paints a future where nodes are always increasing because computational power is always increasing and getting cheaper and cheaper and cheaper.
So at least there's a hope for the future for greater and greater decentralization on the node front.
Yeah, but I mean, ultimately, again, it doesn't really matter how many nodes you have if the way that the currency is run is that you're going to have a hard fork every few months,
which is the case with most other currencies. Bitcoin is the only one that's not have hard fork.
Basically, the unique thing about Bitcoin in a technical sense is that you could get the original software that Satoshi himself ran in 2009 to start the network.
And you could run it today, and it would sync with the blockchain.
There's one bug you need to fix, one mistake that would have only appeared, I think, in around 2013 or 2014 or something like that, so that he wasn't aware of back then.
So you just need to fix this one tiny little bug, and then the consensus parameters are still the same, so you're able to sync to it.
This is not true for most other digital currencies, I'd say probably all of them, because they've all had many hard forks, which they think of as upgrades.
They market this thing as, well, Bitcoin can't upgrade, but we upgrade all the time.
Well, yeah, you know what else upgrades all the time? Facebook, Apple, Amazon, anything that centralizes is very easy to upgrade.
And that's precisely why, as Michael Saylor says, these things are somebody's liability, they are security.
You're carrying on somebody's technical and economic liability. They can hard fork, they can 10x the supply tomorrow.
Yeah, they can fall victim to the same corrupting forces that governments fall victim to, sure.
And for people who don't know, yeah, hard fork is a reverse incompatible change to the underlying function of a cryptocurrency.
Of course, there is hard forks of Bitcoin as well, I'm sure all of which you love dearly. Anyway, but that doesn't matter.
The original Bitcoin, for the most part, has not undergone any changes, and that's one of its...
I mean, it has undergone changes, but none in the important parameters of the network.
So another criticism is about energy. So the proof-of-work consensus mechanism uses a lot of energy.
What's the response to that criticism of Bitcoin?
Yes, because it's worth it. The airplane uses a lot more energy than a kayak.
You know, when you're going to cross the Atlantic next time, what are you going to take?
A kayak that is environmentally friendly, according to this insane definition?
Or are you going to take an airplane that consumes a lot of energy?
So the cost-benefit analysis here is such where you have to consider both the cost and the benefit.
Exactly. And I think it's an astonishing testament to just how far backward people's scientific and technological thinking has devolved to the point where we think of energy consumption as a bad thing.
I think it's just... And in the fiat standard, I discussed the whole hysteria around energy, and I think it's a product of fiat inflation because it's a way of trying to covering up the fact that energy fuels that are reliable and necessary for the current world are becoming more and more expensive because of inflation.
And so governments are always looking for excuses for why you should not be using those things, and so they promote all kinds of stupid pseudosciences that tell you about why these things are bad.
But really, all technology is... Well, not all, but the vast majority of technological innovations involve economizing on human time and judgment and replacing it with machines, with reliable machines that spend a lot of energy.
So that's what a telephone does. Instead of having to send somebody across the world to tell somebody something else or send a letter, a telephone allows you to do it.
The car is like that. You could walk, but a car consumes a lot more energy, but it allows you to travel much faster and safer and more reliably.
An airplane is like that. Modern telecommunication. Human prosperity is an increase in the consumption of energy.
And I think it is an absolutely criminal thing. I mean, genuinely mean the word criminal to portray energy consumption as a bad thing because it is truly depriving people of the chance to live a life that makes life better.
It's truly criminal to tell poor countries that they should not consume the same energy sources that are being used in rich countries on which our modern infrastructure and modern life relies.
That's what life is. If you reduce the consumption of energy in the U.S. to the levels that you have in poor countries today, the U.S. would become desperately poor. A lot of people would die. Cities would collapse.
The quality of life would decrease significantly. A high quality of life often requires, given the current technology, a high expenditure of energy.
I should be clear. It's not a quality of life in the sense that many people think of this as taking needless flights for vacations. These are the cherries on top of the cake, but the substance of the cake and the real benefits of energy is the fact that children, premature babies, survive in countries that have reliable 24-hour cheap electricity.
If your child is born premature, that you put in an incubator, put him in an incubator or her, they're highly likely to survive. If you don't have 24-hour electricity, that child is not going to make it.
You see it. The level of energy consumption per capita has highly correlated not just to income, but also to health outcomes, to infant mortality, to all of the things that you care about.
Bitcoin is just another technology. It does consume a lot more energy than central banks. A lot of Bitcoiners like to take a cop out of this by saying, well, you know, central banks consume money and ATMs consume a lot of energy.
And I think if you calculate how much central banks and banks consume, I think it's a rounding error next to what Bitcoin consumes. I think Bitcoin is just maybe not a rounding error, but Bitcoin is, I think, is going to consume a lot more, and that's a good thing.
You know what's humbling is to look, because even just looking into this forces me to look at the energy expenditures for many of the things we take for granted. Obviously, computers and our digital lives at just Bitcoin becomes a rounding error relative to how much energy is spent on all the computers in our world.
But also like things like home appliances, microwaves, and hair dryers and stuff. Yeah. Yeah, I mean, this is just being hilarious. It's like, oh, these things that are just part of our modern life, they're either the same order, at least the same order of magnitude as Bitcoin, and they seem like trivial parts of life.
Yeah. And this is the thing. All of the people that complain about Bitcoin's energy consumption, I presume they use washing machines. Now, why should their desire for clean and dry clothes get to consume energy?
And I mean, I used to live in Lebanon. Lebanon had hyperinflation. I escaped from hyperinflation. I escaped. It prevented. My life could have been ruined by hyperinflation. And the reason that it wasn't ruined is because I have Bitcoin.
So I don't know, am I allowed to swear on your podcast? Yes, please. So fuck your washing machine. Given the choice between my washing machine and my Bitcoin, I'll choose Bitcoin. It's a technology that has already saved my life, and I think it's going to save the lives of many, many, many, many more people.
But of course, I don't have to choose between my Bitcoin and my washing machine, because this is, you know, we're just constantly consuming more energy, and we're going to continue to consume more energy in this world.
And that's just what progress is. And a small remark. So in principle, I don't think this is a problem. But the other thing about Bitcoin, where it is different from washing machines, Bitcoin is truly unique in this.
It's the only thing whose energy consumption can be produced absolutely anywhere. Your washing machine needs to be in your house where you live, and you live in a city surrounded by 10 million people, and they all have their washing machines, and they're all connected to the grid.
And they generally tend to do their laundry around the same time. And so you have to put the load of the washing machine on the grid at the same time.
There needs to be one power plant, and all of the infrastructure needs to work at the same time. And the electricity is pretty expensive because it's being done in a place with high demand.
Bitcoin does not need to buy electricity from places where it has high demand, because it can buy electricity from anywhere. This is what's truly mind blowing about it.
You can buy what electricity you need for mining can be done anywhere. So you can have a waterfall in the north of Canada 300 miles away from any population center.
There's water falling, there's energy. You can put a hydroelectric dam there, and then you can use that energy to operate the miners.
And then the miners just need a satellite internet connection. And effectively, you're selling that energy that is isolated to the grid.
And because of the way that Bitcoin functions, because of the difficulty adjustment, the only profitable miners are the ones who can get cheap electricity.
Basically, if you're mining at grid cost, if you're mining at around the average electricity price in the world is around 14 cents, if you're mining at 14 cents in Bitcoin, you're most likely not going to make it.
If you're running your miners at 14 cents, because everybody could mine at 14 cents. And so what happens is if everybody's mining at 14 cents, 14 cents stops being profitable.
And then only the people mining at a lower price are profitable. So that's why Bitcoin mining is not competing with your washing machine.
This is the absurd thing about this kind of energy scarcity viewpoint where, oh no, it's a catastrophe, Bitcoin is taking all the electricity, as if the electricity is just one fixed pie that we all have to share and fight over.
And this is how I keep making fun of these stupid headlines they put out where Bitcoin is consuming more electricity than Portugal.
All right, well, maybe we should shut down Portugal then. What the hell is Portugal giving us? Obviously, it's not...
He doesn't mean that I've gotten so much criticism for saying Cristiano Ronaldo is not in the top five.
I apologize. I love Portugal.
That's another discussion we should get into.
Because you posted a few soccer things. I realized how passionate people are about this. Listen, it was a joke.
He doesn't have to be potential in the top five.
Yeah, I love Portugal. And even though I'm a Liverpool fan, I still respect Cristiano Ronaldo a lot.
In fact, I hold a very unpopular opinion where I think Cristiano Ronaldo is the greatest football player ever.
Number one, over Pellea Maradona, Messi, better than Messi.
Yes, he's been doing it for 20 years at the top. Nobody's ever done that. He's won everything everywhere. Everywhere he goes at the top, at the Champions League.
Really strong argument to be made for him. And Messi's never done anything outside of Barcelona. That's the thing.
So you appreciate performance long-term versus the genius of the actual play on the field.
I mean, the genius is Ronaldo's the top scorer of all time. He scored four goals.
So the genius is in the scoring, not the actual dance of the play, the creativity.
Well, I mean, I don't know. Messi's been absolutely mediocre since he's left Barcelona.
These are strong words.
He scored two goals in PSG season this year. They're out of the Champions League.
What about Muhammad Saleh? You posted...
Oh yeah, he's my boy.
Is he climbing up to be...
I think he should win the Ballon d'Or this year. He probably should have won it last year as well.
He's been absolutely outstanding. But I mean, just people are so crazy about Messi, they keep giving him accolades.
He hasn't deserved, I think, Messi in the last couple of Ballon d'Ors that he got.
I mean, he's a great player and everything, but no, he did not deserve it last year.
We can agree to disagree.
You're a Barça fan or a Messi fan?
I would say... No, I wouldn't say I'm a Barça fan, but Barça fan because of Messi.
And I just... I think it's like, there's certain things...
So when I was growing up in the Soviet Union, Russia, I remember Maradona.
He was the first person I saw that I was like,
oh, wow, this could be... This is greatness in sport, not just football and sport, right?
And for some reason, I mean, it's something about, like, Diego Armando Maradona,
the way they were commentating the genius of his play, the mix of ego, and again, the performance,
but being able to carry a team on his shoulders, that I just fell in love with whatever he represented.
And then by that, Argentina.
And then Messi, I saw when he was like 16, 17, when he was just like right in the early days.
And when you first see a person and you see the genius and you notice that,
and then it turns out to be actually a great player for some reason, you're invested.
You're emotionally invested, you're... I don't know.
So you kind of just fall in love and then you get... You pick sides.
I mean, that's the thing about football. Part of the fun things about football soccer is like,
you pick a guy, you pick a team, and fuck everyone else and you just have fun talking shit.
I mean, there's part of it, you know?
It's great because I think, you know, obviously it's a very stupid thing to do,
but I think if you don't do it in football, you're going to do it in real life.
Elsewhere. That's right.
That's why it's very good.
Like, just that I, you know, instead of hating people for their religion and for their skin color,
hate them because they support Manchester United.
Exactly.
So you're a Liverpool fan.
Yes, yes, hardcore long term.
But yeah, so to go back to the original point on Portugal...
Energy.
Yeah, energy.
Bitcoin is not competing with Portugal because Bitcoin is buying energy from places where we can't buy it
because all the places where we can buy energy for our washing machines,
we're bidding up the price enough to make it non-viable for Bitcoin.
That's why, you know, you'll see those headlines about Bitcoin consuming more energy than Portugal.
Well, if you look at Portugal, I mean, they've got giant power plants in Portugal.
They've got millions of people and they've got enormous amounts of infrastructure.
Where are all of these infrastructure for Bitcoin mining?
You don't see it in the cities.
It's all isolated.
It's all out away from the cities or it's connected to grids that have serious overcapacity.
So Bitcoin is not out there buying the expensive energy,
taking energy away from people who can't afford it.
It's out there buying its own energy because it doesn't need to buy the expensive energy that people really need.
So one other criticism from an investment perspective,
from a gambling perspective that people see is the volatility of Bitcoin.
Of course, that's been somewhat decreasing over time,
but what's your answer to the sort of criticism that Bitcoin is too volatile?
I want to stay away.
It doesn't seem like a safe place for me to invest either short term or long term.
There's no denying there's a volatility and there's a high oscillation in the value in the short term.
So I think the safe way to approach that is in terms of position sizing.
If the volatility bothers you, then you're over invested perhaps.
So maybe you should reduce the size of your position so that the volatility doesn't bother you.
This is the short answer. Stack as much as your conviction will allow you to tolerate the volatility.
And of course, the reason you should try and consider tolerating the volatility more is
the options are you hold fiat assets which only go down stable, relatively stable,
not a lot of volatility day to day.
The value of your dollar doesn't change 40% overnight, 20% overnight or something like that.
But it does go down reliably. It's going to go down 40%.
You can count on it. It might take a year, two years, five years, ten years.
Compared to the things that you want to buy, it's going to go down by 40%.
And it's not going to come back and it's going to go down another 40% and then another 40%.
So the option really is relatively short term stability with long term decline
or short term volatility with long term rise.
And so that's another way in which Bitcoin teaches people to have a low time preference
and think about the long term.
So stack, accumulate and think of it in the long term.
It's a function of the fact that Bitcoin is new.
Bitcoin is currently less than 1% of the global money market.
So there's about $100 trillion of money out there in the world, $100 trillion roughly of fiat
and about $10 trillion of gold, and Bitcoin is less than $1 trillion.
So one rich guy decides to get into Bitcoin, that's going to show up on the Bitcoin chart.
You look at it, Elon Musk decides to buy Bitcoin, you see the buy.
You see the news, it happens and you see the pump.
Elon Musk decides that he doesn't like Bitcoin, you see the drop.
But a few years ago, it used to be that one random millionaire would cause that pump.
Now you have to be the richest guy in the world to do that.
In a few years, you're going to have to be the richest country in the world
to be able to do that to the Bitcoin price, maybe many years, maybe not a few years.
But as Bitcoin grows, think about it as a liquid pool of money.
Currently, it's a small pool next to a much larger ocean, which is the entire money market.
And so one person jumps from that to this small pool, they can make a big splash.
As the pool grows, essentially the salability increases
and the likelihood of one individual purchase affecting the price so violently increases, decreases.
And so over time, as the size of the market increases,
I think we're going to see the volatility decline more and more.
Ultimately, if you look at gold, historically gold has been very, very stable.
It did not achieve its stability because the central bank was in charge of gold supply
or because there was a gold committee that decided how much gold gets produced.
It achieved that stability because it became the most salable good
and so therefore became the good that contains the most cash balances in the world.
And the end of the 19th century, everybody held cash balances in gold
and new production was a tiny little addition to global production to the supply.
So that's what made gold the most relatively, I shouldn't say stable
because nothing is stable in economics, but relatively it holds on to its value
and it's much less volatile than national currencies.
That's because it has the highest stock-to-flow ratio
and that's because its supply is a tiny fraction of the liquid market.
And as the liquid market grows, as the size of cash balances grows
and trades in Bitcoin cancel each other out, you get only slight changes in value.
So I think as Bitcoin matures, that's going to decline.
So effectively, I think the end game is Bitcoin is huge.
Bitcoin is worth something like, I think the total addressable market for Bitcoin
is not just national currencies and gold's addressable market, but also government bonds.
That's the really big one.
So how do banks compare to gold? So you're saying it'll surpass gold with the $10 trillion?
Yeah.
What's bonds? Where does bonds stand?
So then there's also national currencies, which are about $100 trillion
and there's government bonds, which are around $120 billion.
Sorry, trillion dollars. Trillion.
Trillion, sorry.
If we were saying billion, we meant trillion.
So you think bonds can move to Bitcoin?
I've always held, this is the prize. This is the main dish.
Gold is the appetizer. Bonds are the main dish because bonds have replaced gold.
Yeah. I mean, bonds have replaced gold in people's portfolio.
People remember when we were saying gold was, you'd hold it as a saving
as the secure part of your portfolio and then you take risk with the equity.
Currently, people do that by holding part of their portfolio in bonds.
That's the part that they treat as their saving account and then the rest they use for
not speculation for investment in which they take risk.
Yeah, speculation. And that's stocks and equity and other high risk assets.
I think Bitcoin is not going to replace equity.
There will always be equity.
There will always be companies and people who want to have equity.
But it'll probably replace a big chunk of current equity markets
because right now, if you want to save, it used to be that you hold bonds.
Now, if you want to save, you go into stock indexes.
So I think Bitcoin likely eats a big chunk of equity markets
because currently people are using it as saving.
And I think it eats all the bonds. That's my most ambitious statement.
Well, the question is the scale of time that happens across.
But the most important statement you're making is about trend.
Yeah. And also, I mean, let's also remember
that currently bonds nominally don't beat inflation and in real terms,
they don't come close to beating inflation.
So currently, you know, with bonds, you're taking on credit default risk
to buy a bond and also getting less money back in real terms.
Well, Bitcoin doesn't offer you returns, but in real terms,
it appreciates much more and it has, I believe,
a lot less risk associated with it than any company or government.
So let's make things spicy and ask if Bitcoin fails in the long-term future.
As Alt, you just said, economics, volatility, things happen in this world.
Well, the human civilization might end in this century.
I hope it doesn't, but it might.
There could be catastrophic events.
If Bitcoin fails, it goes to zero, loses its number one spot.
What would be the reason?
If you're an alien visiting Earth 100 years from now
and just were to analyze the situation,
Bitcoin is a pretty new thing.
So the possible trajectories of how the world evolves together
with this new monetary technology is nearly infinite.
So if it fails, one of those trajectories surely involves Bitcoin failing.
What would be the reason?
I think the most likely reason that it could fail,
I don't think this is likely in general,
but I think it is the most likely of all the unlikely things
that could destroy Bitcoin is governments go back on a gold standard.
Oh, interesting.
So they make, in your view, a better decision than the current system,
just not the best decision.
Yeah.
I thought you would go much darker.
So that's, okay, interesting.
So maybe because of Russia, because of China and so on,
because of the current war,
they might reconsider the power that America holds
because of the monetary,
because of being the primary currency,
and they'll start thinking about going on a gold standard.
Yeah, but it would also require the US and the Europeans
and everybody to want to join in this system
and sing kumbaya and play nice with each other
around the gold standard.
I think, you know, given that gold already is about 10 times larger than Bitcoin,
so it has a first mover advantage.
Yes.
If governments were to go and peg their currencies to gold again,
the price of gold would shoot up 5, 10x,
and it would rise in value a lot more.
Of course, that doesn't necessarily kill Bitcoin.
No, again, I'm not saying it's likely to happen.
I'm saying it's, I imagine, less unlikely than all the other unlikely scenarios,
because, you know, even with a nuclear war,
like 90% of the planet is destroyed,
the 10% continue to run Bitcoin.
That's a quote.
Okay, there's a movement.
A community of people referred to as Bitcoin maximalists.
I've seen you referred, at least in the past, as the leader of the Bitcoin maximalists,
probably because of your book, you know, Bitcoin Standard,
Consider the Bible, in general, you're one of the leaders in this space.
Do you regret any of the toxicity and derision that often,
or perhaps, sometimes originates from this community?
Definitely not.
I'm not in the position to regret other people's actions.
So let's just be clear.
I think the rhetoric of community is,
I reject this rhetoric because I think it's a way for kind of political manipulation
and subversion to try and portray people as part of a community
and hold people responsible for other people's actions,
which I think is ridiculous.
So, you know, some guy on the Internet said something mean to somebody,
and then this is very common,
and I always try and not get involved in these things.
So some guy who identifies as a Bitcoiner says something to somebody that's very wrong.
Of course, it happens.
Tens of millions of people use Bitcoin around the world.
And a lot of these, I'd say, parasites,
you know, people who don't have anything productive to do with their life,
you know, outrage merchants,
they'll come out and say something along the lines of, you know,
the Bitcoin maximalists are toxic, they're holding Bitcoin back,
and they need, and of course, it's manipulative.
The point behind it is they want to get to you,
they want to get people who are, you know,
not that nobody with 300 followers who said something silly,
they want to get the notable people to basically change their message.
So the idea is, you know, I'm supposed to apologize
because somebody with 300 followers I've never met in my life
who calls themselves a Bitcoiner said a mean word,
and then I need to apologize,
and I also need to cut down on my rhetoric about other digital currencies,
and I need to do that.
So I'm only responsible for my own actions,
and I don't recall regretting anything.
Okay, but let me push back or push further into that direction.
Fine, let's do community aside.
Labels suck for sure.
But you have a spicy way about you on Twitter.
Even in this conversation, you know, you had some good strong words to say about...
I've always believed life is too short to mean words.
One day I'm going to be dead,
and on my deathbed I'm not going to look back and say,
I wish I was a little bit more circumspect in expressing my opinions.
I'm far more likely to think, you know what,
I wish I said what I really think.
Yes, life is too short to hold back your opinion.
The question is, what is really your opinion?
Because you're many people in one.
So there's a person that loves, there's kindness for their human beings,
there's a person that gets annoyed,
there's a person that enjoys this agreement,
there's a person that enjoys collaboration.
And you can emphasize all of those different things,
each of those different things,
weigh it differently in your online interaction.
There are some aspects of online interaction
that encourages in different communities.
Online interaction is one community that encourages
kind of derision and mockery and so on.
So you can choose if you want to engage that part of yourself
or some other part of yourself.
Online communication is another community
that enjoys being very straightforward about their disagreements.
It's pretty harsh.
It's fun to watch because it feels like you arrive at the truth much faster
because you tear each other apart.
But that's a choice, that's a deliberate choice.
I don't want to label an entire community of people by its extremes.
I don't think you should do that.
The characteristics you start to notice.
When you go to France, that's a certain way.
When you go to Britain, London is different than rural Britain
and New York is different than Iowa.
You start to notice things.
I mean, you don't want to generalize there's all kinds of people everywhere,
but there's a certain way of communication on crypto, Twitter in general,
but also Bitcoin Maximus that I even early on received a bunch of heat.
What the hell?
Listen, there's definitely a difference when I go to the computer science community,
machine learning community.
It's way friendlier than the cryptocurrency community.
I have much more freedom to actually be what I enjoy being,
which is asking simple dumb questions.
Even when I've already spent years, sometimes decades with an idea,
I like asking dumb questions anyway.
Crypto folks punish you for this, for curiosity, for exploration.
I understand the mechanism because so many other people come into that community
and they might masquerade as curious, but really they're trying to sell some kind of altcoin.
There's some scheme to make money.
I understand maybe that's just the dynamics of the community by nature.
It's not like you respond appropriately to the amount of charlatans in the community.
If the fraction of charlatans is low, maybe you can afford to be more loving and kind and so on.
When the fraction of charlatans is high, you have to be harsher.
Perhaps, perhaps.
I think also the stakes are extremely high in this situation.
I think if you don't like Bitcoiners, if you think Bitcoiners are toxic,
wait till you meet fiaters.
The fiat community has financed world wars and genocides and tyrants and the mass death and destruction.
The fiat community, if you want to use that term, I don't believe you should.
Fiat has destroyed the savings of pretty much anybody who's lived through the last 20th century.
Pretty much anybody who's lived through the 20th century,
no matter where you lived, Switzerland, US, Ethiopia, Russia, you've gone through fiat problems.
You've had hyperinflation, you've had bank confiscation.
There isn't a family in the world today that hasn't had its wealth destroyed over the last century.
They all have a story about the inflation and the hyperinflation.
Bitcoin offers us a way out of this.
Shitcoins, altcoins are essentially fiat world's last gasp attempt to try and salvage fiat,
to try and salvage the idea that some people will continue to be able to print money
and other people will have to use that money.
This is Twitter, it's a free market, it's the internet.
You don't have to follow anybody, that's the thing.
What I find really objectionable about the people who are so butt-hurt always about Bitcoin Maximus is,
you don't have to click follow on people you don't like.
There are 300 million Twitter accounts.
If you choose to follow the accounts that say things that annoy you
and then complain about the fact that they say things that annoy you,
I'm sorry about you're an idiot and you don't know how to use Twitter.
Just follow the accounts that you like.
You don't have to be part of this.
You don't have to listen to those people.
There are a lot of Bitcoiners that don't act like this.
You can just unfollow the ones that you don't like.
Since in the past year, man, Time Flies, I've met a lot of them.
I enjoy them a lot and you build that community of people that you enjoy.
They're less the communicating the way you enjoy.
It's become a meme at this point that I block would love, I think.
Because I did not...
I block very prolifically and I strongly recommend people continue to block.
I think Twitter is...
You're not going to get to interact with 300 million accounts anyway.
So you want to be constantly curating the experience by getting rid of people you don't like
and following people that you like.
After 10 years of using Twitter, you accumulate a block list,
which is very big, which I'm very happy for.
I'm going to pass on to my children.
On your deathbed, your grandchildren will gather around
and your grandfather can finally share the full list.
Again, it's just a Twitter account.
If it bothers you so much, ask yourself why it bothers you that some people are so...
I'm not referring to you, obviously, but the people that are constantly aggravated about this,
I don't get bothered by anything on Twitter.
I just block immediately and I get to curate the experience that I enjoy.
I recommend people do that.
It's really a lot less pathetic than complaining about strangers saying things you don't like, which a lot of...
And of course, the reason for it is...
I mean, when I say it's stupid, it's not really stupid.
There's an ulterior motive there, and the ulterior motive is,
hey, I have this shitcoin that I made with five other friends of mine,
and I'd like to ride your coattails, Bitcoiners,
and I'd like you to please help me promote this shitcoin.
I get this practically every week, whether through email or through Twitter,
where, hey, this is our shitcoin.
It's just like Bitcoin, but it's better because it does this and this and that,
and basically, how can we get you to promote this shitcoin for us?
And being straightforward and forthright is a great productivity hack,
because you just tell those people, no, I'm not interested.
It's a stupid shitcoin, and I wish you a quick and swift failure
before you take a lot of people's money.
And that's what I genuinely think.
Well, but I'll just be upfront with the fact, at least for my taste,
just labeling everything as a shitcoin worries me.
So this is just my own preference. It's not a judgment on you.
It's just my own preference that I'm afraid I'll miss good ideas.
I think when you're... Me personally, when I'm too certain about things,
when I'm too tribal about things, I'll miss actually really strong ideas,
outlier ideas, totally new ideas. So that worries me.
One of the downsides of the way Bitcoin is, how much is at stake financially,
is that it's less open to good... Actually, by design, that it's not changing,
like with the hard forks and so on, that there's not a kind of curiosity
about exploration of ideas.
Of course, in some way, that curiosity can start getting injected
when you start talking about other layers built on top of Bitcoin.
You start talking about applications or different things like lightning network.
That's where the curiosity can emerge.
But still, that's why with cryptocurrency in general, I just tried to keep an open mind.
And just the shitcoin as a term is just a statement that I'm going to close my mind to.
That's the way I hear it.
But coming out of your mouth, because you say a lot of other edgy stuff,
it's just more you having fun. That's the way I hear it.
But if I said something like that, I would feel like I'm closing my mind.
Let me give you the counter argument to that.
How much time do you spend emailing back all of these Nigerian Prince email scams
that email you tell you, send me $5,000 and I'll send you $15 million?
None.
None? Why are you being closed-minded to all of these great ideas?
No, but I'm also...
Maybe one of them will actually send you $15 million.
I don't know if I know the difference between the Nigerian Prince and many other people I do talk to
who are colleagues and so on that are also emailing me.
And they're also offering me things, but they don't sound as ridiculously spammy.
Yeah, but the moment that somebody tells you,
hey, I'm going to give you $15 million for nothing, just if you send me $5,000,
you're getting something for nothing.
And essentially, with all of the digital currencies, it's the same pitch.
Hey, come use this thing that will allow you to do things that...
All of the things that they pretend that they can do,
they can be done with computers without having digital currencies.
We already have AWS that does cloud computing,
that does everything that shitcoins pretend to do.
The only difference is AWS doesn't have its own monetary system tacked on top of it
to allow Jeff Bezos to basically print his own money.
But don't you think there's some gray area?
So let me go for the historical record.
You've changed as a philosopher, economist, human being.
You tweeted three years ago.
Oh, well.
Anyone who believes proof of stake can work is either one completely clueless
at how and why Bitcoin works at all,
or two, a con artist using it as a buzzword to promote a worthless scam like Ethereum.
Do you still believe that Ethereum is a scam and in general proof of stake?
Are you either clueless if you think it's interesting?
Yeah, no, I still stand by that.
Would you classify Ethereum as a shitcoin?
For sure.
It's the mother asshole from which the shitcoins spring.
The royal, the king, the shitcoin?
Yeah.
I think the key thing is...
The way to think about this is another tweet from a couple of years ago,
which is essentially proof of work was like the invention of flight.
We've gotten this machine and we managed to get it to fly off the ground.
And proof of stake is, hey, we found a great way to make airplanes cheaper and faster
by not making them fly, by keeping them on the ground.
The invention of proof of work, the reason the entire digital currency space exists
is because Bitcoin operates based on proof of work.
If Bitcoin was based on proof of stake, it would have died or been shut down from day one.
But that's a hypothesis and a lot of people believe that and I think they have a lot of strong support.
But basically, proof of work is grounded in physics in the real world.
The proof of stake is more about...
It's politics.
It's the Federal Reserve.
It's exactly what we have.
It's exactly what we have.
It's just a group of people who get to decide the rules.
And it's essentially a system that is...
It's a security.
It's a company.
It's not an innovation in any sense, it's a step backward to what we already had,
which is you get a bunch of people in charge of the money.
Now, the only reason it survives in this...
And the reason I call these things a scam and I have no problem with calling them a scam
is because they fraudulently present themselves as being decentralized.
They present themselves as just being a different way of doing decentralization than Bitcoin when it's not.
It's just they're writing Bitcoin's code tales and they're writing the fact that most people don't quite understand
what Bitcoin is and how it works to portray themselves as a cheaper, better,
more efficient way of doing what Bitcoin does.
It's not.
It's a less legally accountable way of doing what central banks do.
Right.
So, and the basic criticism is that there's a group of people, sometimes a very small group of people
that can control the parameters of the operation of the system.
Over time, you can't trust it's not gold under the mattress.
It doesn't have that kind of heart.
It's not property.
And I really very strongly recommend your discussion with Sailor for people who want to elaborate more on this.
There's a bunch of people in charge, which means that legally they should be doing this under securities law.
But even as an anarchist, if I don't want to care about that, the technical implication of it is this is never going to be
adopted as a neutral way of transferring value on the internet because you need something that enemies can trade with one another.
You can't have something that has a small group of people in charge because A, the small group of people themselves can be corrupted.
And B, they can be coerced.
You can put a bunch of people in a room, put a gun to their head and you can change everything in any of these digital currencies.
And that's why I think you'll find a lot more sympathy among fiaters to shitcoins.
The Keynesian economist to Ethereum fanboy pipeline is a very strong one because it's the same thing.
You like the idea of people being in charge of money and you think you're going to be the one who's going to be in charge of money.
So you see a lot of this phenomena and you see the same people that want gold and don't like central banking, they get into Bitcoin.
So just to actually push back on a couple of things.
One is fiatar.
It sounds like I'm trying to be a sophisticated Brit talking about theater, but for many reasons it's not making me feel good about that.
So day by day things change.
You used to be one of those.
So people evolve, people learn.
People that are supporters of Bitcoin might eventually become supporters of Ethereum or go back to supporting fiat.
We don't know.
People evolve for different reasons.
You grow up, you mature, or you become enlightened.
So I think every single person sort of, as this technology is evolving, as this world is evolving, as wars break out, as geopolitics change, as the monetary system is constantly put under stress, people will evolve.
So we're trying to all figure it out together.
That's why open-mindedness here, I think, for people like me at least, seems essential.
I know.
So I expect you to be answering all of the spam emails you get.
I will, prince by prince by prince.
But no, I don't have a clear understanding.
What is the good investment in my time?
What is the good investment in my money?
That doesn't seem clear because things are good at promoting themselves.
I'm not talking about the different kinds of things like Ethereum, altcoins, and so on.
I just mean life, like dating, jobs, friendships.
Like everybody's advertising themselves as a great investment, right?
But you don't know, and you have to keep an open mind and be sort of self-introspective about how biases I operate under and ways I delude myself, like hallucinations that I'm living under is breaking out of all these hallucinations.
It's very hard to introspect, thinking like, what are the assumptions under which I lived my entire life that might be actually false assumptions?
That's a really difficult thought process to take.
It's a dangerous one.
The Nietzsche, if you gaze along into the abyss, the abyss gaze into you.
It's like Alex Jones talks about this.
I mean, he's living, he's got demons in his head.
So he has all these conspiracy theories that it holds in his head, but it begins to really destroy him.
So it's a psychological burden to carry.
So if you question authority, if you question government, if you question culture, the way things have been done, it's really difficult.
And the biases you operate under, it's really difficult to question them.
So I think being constantly open-minded and self-critical, not constantly, but a little bit every day is important, I think.
Yeah, but I mean, you're talking to somebody.
I grew up in Ramallah in Palestine in the West Bank.
I've changed my mind on all kinds of different things.
The fact that I was even open to the idea of Bitcoin has required an enormous amount of, it's a heck of a journey.
So I'd much rather appreciate direct arguments rather than these kind of general fluffy, you know, you should be, oh, of course, yes, you should be open-minded.
But also you come up with conclusions and you delete spam emails sometimes when you know that it is spam because you have to move on with your life.
There's an opportunity cost to considering every spam email.
Well, to me, okay, so I'll just say from my relatively sort of shallow perspective, almost like a technical person mostly.
My understanding of economics is weak.
Proof of stake is not obviously a weak consensus mechanism relative to proof of work.
So that's not obvious to me that there goes wrong and it becomes corrupted in the way that governments get corrupted because it still seems decentralized.
Now, your criticism of governance is an interesting one.
But if you put that aside, it still is a decentralized mechanism and it's more transparent than the mechanism that governments operate on.
It isn't. It's exactly what the Federal Reserve is.
The Federal Reserve is a proof of stake system.
The Federal Reserve is owned by its constituent banks.
And so the rules of the Federal Reserve and the regulations are determined by the ownership, which is the banks.
So it's exactly what the Federal Reserve is.
But it's too backdoor.
The agreements between the banks and the Federal Reserve, it feels like a lot of those agreements are made between individuals that are sort of behind the scenes.
It's not hard to, it's opaque.
Yes, but the only way that a proof of stake system will take off is if you have a military to force people to use it.
That's the thing.
Ultimately, there's no way that it's going to take off on a free market.
And that's why, you know, for all of the bluster about wanting to move to a proof of stake system, Ethereum have been saying this since 2014.
It's not been eight years, you know, that they've been talking about it.
We still haven't seen the proof of stake system operational in the wild.
It's vaporware for all practical intents.
Oh, Ardano's proof of stake.
It's potential.
I mean, you can do it in a centralized way.
But like, can it survive?
Can it last for a long time?
I don't think so.
And I think, you know, it can last perhaps initially with marketing, with centralized marketing, you can promote it.
But ultimately, user demand.
The people that are not interested in speculating because they want to get rich on this, the people that are going to use it, they're going to want to use it because they can trust that it is not going to be messed with.
Yes.
But there's also applications on top, so lightning network, but there's applications on top.
Like, well, the reason I'm interested in things like Ethereum is you might think it's ridiculous.
I thought it was ridiculous, but NFTs.
So what's the, you can have NFTs probably on top of Bitcoin.
But you don't because there's no marketing on it, Bitcoin, because all of these ideas get promoted on proprietary shitcoins because.
Yes.
But there's the network effects of ideas of applications.
So they just take off for some reason and human civilization is such that you get excited about stuff and large amounts of people believe a thing and they start to get excited and actually has impact.
Like, the fact that NFTs can have an impact on the art world or the world in general is wild to me.
But it worked.
So the question is, David Rothko has an impact on the art world.
I didn't say much.
What I'm saying is ideas have, you know, we're collective intelligent beings and we can believe a thing and that has power that has led to major wars and all those kinds of things.
So it's interesting to me that NFTs took hold.
And the question is, is there distributed, you know, DApps, is there distributed apps built on top of different blockchains that might somehow transform the world?
You have to kind of keep an open mind to that.
Because right now it's like, I'm the same place with that as I am with like virtual reality.
It's like, all right.
This seems like a really intellectually promising set of ideas here, but there's something either technically or socially not quite taking hold.
Why?
And I don't know what the right answer is.
So with virtual reality, what's the right answer?
Is it just technically the latency is too high?
Or the games are not good enough?
Or is it a fundamentally flawed idea that you can live in a virtual world and enjoy it?
That the physical world is just orders of magnitude better?
Or a two-dimensional display is just as good as a three-dimensional world?
I don't know.
Why is virtual reality not taken off?
It's been since the 80s, right?
I don't have strong opinions on it, on the prospects of the technology.
Personally, I don't want to ever imagine myself having something on my eyes.
I'd rather just go out into the real world.
But I don't have strong opinions on virtual reality.
I do have on dApps and NFTs.
Yeah.
What's your criticism of dApps and NFTs?
Is this a distraction?
It's a way to sell a flawed technology?
The problem with dApps is, I mean, it's just the economics of it makes no sense in the sense that currently,
if you wanted to run an application, whatever the application is, you want to run it on AWS.
You pay a specific amount of money.
You want to run it on your own laptop.
You pay a specific amount of money per kilobyte of data.
If you wanted to run the same thing on a distributed ledger,
where you're distributing the data over thousands of computers worldwide,
it's infinitely more expensive.
And that's why we haven't seen any of these dApps take off.
That's why I've said this many years ago, the only working application of blockchain technology is Bitcoin.
Because with Bitcoin, with a few hundred bytes of data,
with a few bytes of data, you could move a billion dollars worth of economic value from here to China and move it safely and reliably.
So that power, I can't see it being justified for anything that is not as mission critical as moving large amounts of value,
which require very little amount of information.
So when you look at all of the buzzwords that Ethereum and other altcoin marketing people like to use,
and if you want to wonder really why we come to this kind of aggression is because we've heard all of this.
I've had all of these hucksters come to me for years.
I've had people in 2016 talk to me about how Ethereum blockchain technology is going to revolutionize real estate deeds in India.
I remember this guy, I'm not going to mention his name.
But this guy was 2016 and he sold a lot of shitcoins and he made a lot of money off of shitcoins.
Based on all these silly ideas, we can have blackjack on a distributed ledger.
We're going to have Indian real estate on a distributed ledger.
And it's just, it's concern trolling marketing.
Oh, there's a problem with real estate in India, real estate deeds.
Blockchain fixes this by my shitcoin.
And then people buy the shitcoin, Indian real estate isn't fixed, and the guy gets rich and they move on.
But I mean, I'm still waiting for a DAP to actually emerge.
The promise that we keep hearing is something completely world changing, world transforming.
And the reality is not one app.
Like there's one of my good friends, Jimmy Song, eventually they refused to go ahead with the bet.
He wanted to bet with one of the Ethereum people about these DAPs.
The Ethereum people are constantly saying those DAPs are going to grow and they're going to have so many applications and they're going to have so many ideas.
And the reality is all the apps that work are centralized apps.
So there is no Uber on the blockchain.
There is no Twitter on the blockchain.
There is no social media on the blockchain because these are businesses and businesses require centralized authority to make decisions.
You can't have it be decentralized.
Listen, you're frustrated and I could see it over a few years of just having dealt with the humongous influx of charlatans.
I wouldn't say frustrated. I'm amused.
It's water off my back.
No, but a man they use this in a community, they use the word shitcoin, is a little bit...
You call it amusement and I think amusement is the way to deal with the frustration.
It's a channeling of frustration.
Sometimes when you have to deal with bullshit, the best way is just to laugh at the absurdity of it all.
And that's what you mean by amusement.
But the fact is there's things like artificial intelligence for how many decades?
Seven decades has been often on promising to change everything.
And it has failed time and time again to deliver to the promise.
But that doesn't mean there's something fundamental and really powerful about both the small and the big things going on within the actual research and development within those communities.
There's a lot of exciting developments and the scale at which those developments might actually have a transformative impact.
The time scale is unclear.
It seems like we certainly over-promise it. We dream too big and too aggressively in the AI community.
Yeah, and I'm happy to give people the benefit of the doubt when they're over-promising, but not when they're making their own money.
When you start making your own currency, then you don't get the benefit of the doubt.
Because if your idea needs you to have a new currency that you print when Bitcoin is out there, then I'm going to go ahead and assume that you're doing this for the money.
Yeah, I have to mention that I am actually launching my coin called Lex coin.
You mean shit coin?
Yes.
Oh, God. I'm going to have to block you with love.
Okay, one thing I wanted to ask you about is the Feds, this paper they released in January 20th on the potential central bank digital currency, CBDC.
What are your thoughts about that?
Is there pros and cons to this? Is it all interesting to you that they're even considering this kind of thing?
I used to think that it's just basically waffle. It's meaningless.
Because as it exists, the dollar is a central bank digital currency.
The vast majority of dollars are digital.
But I think the way that over the last couple of years I've changed my mind on this, I think there's some serious substance behind these ideas.
And what they mean effectively is the disintermediation of the banking system and giving everybody an account at the Federal Reserve.
This is kind of the really dangerous idea.
And I think this is enormously significant.
Effectively, as somebody who's lived in the Soviet Union, what this is, is the return of the Goss Bank on a global scale with modern technology.
So under the Soviet Union, there was something called the Goss Bank or People's Bank, and that was the only bank in the country.
And you had an account with the National Bank, and if you said something wrong, your money got terminated from the Goss Bank.
Now imagine that combined with the power of digital technology.
And you can see that this could be an enormously powerful technology, really, because if banks are out of the picture,
then we changed the fundamental reality of fiat as being the creation of money through lending.
And then it becomes the creation of money truly by fiat, by government fiat.
So we moved to a system in which money is just basically, it's like we have money that is pieces of paper.
And every time we've had money, we've had fiat money that was just pieces of paper, it collapsed very quickly.
With the current system, money is credit, and the creation of credit is restricted to some point, and the creation of credit is self-correcting.
I discussed this in the fiat standard.
If the central bank allows banks to create too much credit, that creates a bubble, and then there's a collapse in the money supply,
which prevents hyperinflation from happening because the money creation is self-destructive, it's self-correcting.
So you end up with an average of like 7% per year increase because you have 10% for five years, and then you get negative 20% for one year,
and it's correct.
But now if you get rid of the credit creation mechanism, and it's just assigning money directly, we're likely going to get much faster inflation.
And I think that's obviously a huge problem, and perhaps an even bigger problem is the enormous amount of power that it gives to governments.
It allows them to create an awful dystopia where you've got your money on your phone, and anything you do is completely supervised and controlled through your spending.
So they want to introduce a new lockdown, then they'll just make your money not work.
Your money is broken today, you can't spend money, or you can only spend money in your local supermarket for the next three months because you can't leave your neighborhood.
Your money stops working outside of your neighborhood.
You know, this Chinese social credit score system is an example of this.
And I think, I don't know, I don't have a crystal ball, so I don't know what the likelihood is of implementing something like this in the US.
I've discussed it with Michael Saylor.
He thinks it's highly unlikely, he thinks, you know, the people who've been pushing this are very far from the position of power,
and the traditional monetary and financial system is going to survive intact.
I certainly hope so.
I think this would be a terrible thing if it comes to pass.
But I don't think, many people think that it is something that would undermine Bitcoin.
A lot of common objection to Bitcoin is, well, governments are just going to launch their own digital currencies and then Bitcoin is going to die.
And I think this is completely missing the point.
People think Bitcoin is important because it's digital.
It's not. National currencies can be digital.
Bitcoin is important because it's not inflationary and because nobody controls it.
Central bank digital currencies are likely to be very inflationary and they're likely to have very strong control at the top.
So if anything, they are an advertisement for Bitcoin rather than a replacement for it.
If it's Bitcoin, if it's gold, it's a way for multiple nations to partake.
So if you were to imagine a future where we move from the fiat standard back to the gold standard and then to the Bitcoin standard,
or skipping that, going directly to the Bitcoin standard, what would it take?
Is it gradual, is it immediate?
What are possible trajectories that take us, well, basically where the final sort of empirical observation is that you overtake Bitcoin,
overtakes first gold and then bonds in terms of its monetary power in the world.
But like just specifically from a government perspective, how do we move the United States, China, Russia, India, European Union to Bitcoin standard?
I'm not entirely concerned about whether governments move or not.
In fact, I'd be very happy for them not to move as long as possible so that individuals can accumulate more and more Bitcoin while it's still cheap.
So the people will move and the governments will catch up?
Yeah, and I think this is kind of what I alluded to.
I mean, the point of the fiat standard, the fiat standard is really a Bitcoin book.
It talks about fiat most of the time, but it does so to analyze Bitcoin and the rise of Bitcoin.
In the final chapter, I discuss how I think this relationship plays out.
The way that I tend to think of it is that most likely what's going to happen is we're going to have kind of financial apartheid where there's going to be two monetary systems.
One is government controlled and it comes with increasing amounts of surveillance and inflation.
And then if you want, you can just opt out of that and get into Bitcoin and it's likely going to be difficult for governments to stop people from getting into Bitcoin for all of the technical reasons that make it very hard to stop Bitcoin.
So then we have this alternative that is Bitcoin, which is not inflationary and does not have a central authority that can censor it.
I think gradually is my hope and I also think my most likely scenario, but maybe I am biased because everybody thinks what they want is what's going to happen.
I think we're just going to witness the same relationship because governments make their currency so that they can devalue them and Bitcoin thrives on that.
And more and more people are going to learn, more and more people are going to find out, and whether it's through curiosity or self-interest or through the destruction of their national currency, all roads lead to Bitcoin.
So more and more people are going to buy Bitcoin, the price of Bitcoin is going to go up, and as it goes up, Bitcoin becomes a more significant part of the world economy.
This is something the skeptics don't get, like a lot of the academic skeptics to Bitcoin, they offer up all these theories about why they think Bitcoin can't work and then they present it and they think they've delivered the knockout blow as if Bitcoin needs their permission or the word is going to need their permission.
Well, the reality is people are going to join Bitcoin out of greed, out of self-interest.
Number go up technology is really what's going to get everybody in, and that's really the Trojan horse for fixing the world.
Come for the greed and stay for the revolution.
It's going to keep going up because people don't like to be poor, except for most economists and academics.
People don't like to be poor, people don't enjoy getting their wealth destroyed, and they care more about their self-interest than they care about economic theories about whether this works as money or not.
They see their cousin escaped hyperinflation and managed to get a bigger house because they bought Bitcoin five years ago.
They realized maybe I should stop mocking my cousin and start buying more Bitcoin.
And this is, I think, an indomitable force that's going to continue.
And one thing, most Bitcoiners tend to lean toward an apocalyptic transition.
Fiat's going to collapse, we're going to get hyperinflation, everything's going to be terrible, and then we're going to move to Bitcoin.
And I present the case for why I think maybe that might not be the case.
Maybe we won't get this kind of apocalyptic scenario.
And this was like the conclusion of the fiat standard, which is once you realize that mining fiat is creating debt.
And Bitcoin is allowing, so in order to have fiat money, we need to have people borrow.
We need to have people make loans.
And the problem that fiat money runs into today is that if you want to save money, if you want to hold savings, you have a problem.
Where do you put your savings?
So you put your savings in debt in the creation of more bonds.
Wherever you take your savings, you create a bubble in those things.
And this is why we see a bubble in the stock market, a bubble in the bond market, a bubble in housing.
It's because people are looking for savings, looking for a place where they can save.
All of those things are crappy saving instruments because they're like copper in that there's nothing to stop the people behind them to make more of them.
House builders can build more houses, governments can issue more bonds, crappy fraudulent companies can list on the stock market and make more stocks.
Well, Bitcoin finally offers us an outlet.
We don't need to keep creating more debt.
We can invest in this asset that is hard and that is internationally liquid and that nobody can make more of.
So there is no bubble in it.
There is no mechanism for somebody to increase the supply and bring the price crashing down, like with copper and real estate and bonds.
So Bitcoin is the way out.
And this is why I think there's a good case to be made for why the fiat authorities might embrace Bitcoin because they'll see it is their way out of this enormous debt bubble that everybody is stuck in.
Particularly, the richest and most powerful people in the world and the richest and most powerful governments in the world are the world's biggest borrowers.
They're the ones in a lot of debt.
So a continuous, slow devaluation of the value of that debt.
As people upgrade and move on to a hard asset that continues to appreciate is the way that we, is the peaceful way that we wind down the fiat bonds, I think.
You can see it being like a political, part of a political platform for future people that run for president, those kinds of things to address.
Obviously, it's not just for the powerful and the rich.
The people are bothered by the debt.
The people are bothered by everything that you describe with fiat.
And if you want to sell yourself in a democracy as a good leader, you might want to make that part of the platform.
You mentioned, you know, Michael Malus.
He just texted me asking me to ask you, what do you like best about Michael Malus?
If you can spend 5 to 10 to 20 to an hour talking about the genius of Michael Malus, what do you like?
Where does one even start?
Well, obviously the haircut first.
Yeah, he just gets sexier with age.
That's for sure.
That's good.
Do, you know, his ideas, his trolling and humor, have you gotten a chance to interact with him?
Yes, yes, I've met Michael maybe 10, 12 years ago in New York.
I used to live in New York when he used to live in New York.
I met him a couple of times.
There was a bunch of anarchists in New York used to throw a happy hour once a month.
It was called the high time preference, a happy hour in honor of Hans Hermann Hoppe.
So I met him there a couple of times and we followed each other on Twitter for a while.
Is there interesting that you're aware of philosophical differences in your world views?
No, I think we pretty much see eye to eye.
I think the difference is mainly that he spends a lot of time focusing on American politics and American pop culture,
which I don't pay much attention to, I guess.
So you look more at the monetary system, the economics of it all and just the history and just looking at it, zooming out at the big picture of it all.
Although recently he's working on a book called The White Pill and he's been, every time I see him, I mean, he's in some dark aspect of the 20th century.
He's just like, I just finished writing about Hall or Moore. As you might imagine, he's not taking much, I believe, of a monetary perspective on things.
His book is writing at least for time, his kind of philosophical ideology perspective outside of the monetary system.
But you argue that those are actually inextricably linked.
Yeah, and I don't think he would disagree, but a book can only be so long, I suppose.
It can only focus on so many things.
If you can put on your wise sage hat and give some advice to young people, I mean, the past four hours have been a kind of advice.
But if you can focus and if somebody in high school or college is thinking about what to do with their career, can have a successful career or to have a life they can be proud of, what would you tell them?
I'd say probably the most important advice that I would give is to find a way to give value to other people.
This is really the key thing. You need to wake up every morning and figure out how to serve others.
This is the key to everything you want in life. Everything that you want is on the other side of you serving others.
So figure out how you can serve others in a good way, how you can do it in a way that they value, and you've got an incredible mechanism for figuring that out, which is the market.
Go out there and do things for other people.
The market will tell you.
Exactly. If you're young, you have the enormous advantage of being able to make mistakes, essentially, and learn from them.
So go out there, do things of value for others, figuring out how you can do something that contributes.
What is it that you can do that contributes the most value to other people's lives?
Increasingly, I think, with modern technology, this is increasingly becoming online. I think you should consider how you can create value online, because that scales beyond anything that you can do in the physical world.
Well, maybe not beyond, obviously. There are profitable businesses in the physical world.
But I think online is enormous potential, and coding, I think, is enormously powerful. I'm not a coder myself, but I strongly recommend people get into learning how to code.
And I think it's probably the thing that carries the most power.
So initially, we were working with our hands. We started working with machines. Machines are much more productive.
Well, code is an even higher level of productivity, where you basically program the machines to produce things. So a few clicks of a keyboard, and you can move millions of machines around the world in certain ways.
So it carries an enormous amount of value. I think I always tell all young people to learn to code. It's the best thing.
I used to tell it to my students when I was at university. Tell them to drop out and go learn to code. It's probably a better use of their time and money.
We could probably do both.
Yeah.
The university has an interesting function. I mean, probably you and I have different perspective on this. Probably has to do with a little bit of a different journey in terms of fields, because I've stayed engineering focused for a long time.
And there's less some of the troubles you might highlight in the education system. There's less troubles of that kind in engineering, because math hasn't changed for a long time.
So a lot of it is just doing hard things, being forced to do hard things, and becoming a bit of a journalist while on the side, you're also becoming a specialist based on your own passion, driven by your own passion.
So school, at least high school, I don't know about the university, but high school has a really nice, one of the only times in your life, at least in my life, I was forced, but now I see, given the opportunity to spend my entire day learning broadly.
And that's something, I don't know, the way time works, it just runs away from you and you never really get a chance to do, learn quite that broadly. Again, that's the curse of specialization is you kind of never get a chance to study biology, chemistry, if you're a physicist, time runs away from you.
So it's enjoy the broad education. But yeah, like you said, find the things that valued by the market. And on the other side of it, you said all the good stuff. So that's also a way to get happiness.
Yeah. And I also add the horse that I like to whip all the time is the low time preference aspect of things, saving with Bitcoin. So I think my advice to young people is, you know, when you're young, you think of the world in a very short term generally, you're focused on the present and you think that everything that's happening in the
present is the most important thing that's ever going to happen in the history of humanity. Lower your time preference, think about the future, think about, think further down the line, think about the consequences of the things you do, and then what, you know.
And so you do this now, it feels good today, but then what happens tomorrow, you know, you go out, you drink, you enjoy yourself, think about the hangover. But more in long term, think about the implication of living this kind of life.
Think about every decision that you make, the long term implication of it. And part of that is Bitcoin. Part of that is save in Bitcoin. I urge everybody to put savings in Bitcoin for the long term.
Don't buy Bitcoin for the short term. You know, don't buy Bitcoin today so that you can sell it. You know, don't put your savings in Bitcoin today so that you can sell it all next month and buy a house.
Save in Bitcoin that you expect to keep in Bitcoin for another five, 10 years or so, at least four years is what I recommend for people. So keep a low time preference, focus on the future and save in Bitcoin.
And learn about how to buy Bitcoin, how to learn about all this technology. Part of this is this conversation, but there's so much awesome material out there. And thank you, by the way, for this gift of a hardware wallet.
So you should definitely invest in it yourself. And what would you call this? These are open dimes.
Open dimes. Yeah. So this is like USB that you can, like a hardware device that stores Bitcoin.
Yeah. So you don't have to worry about us knowing the password. It contains the password within it and it's tamper proof. So you can save the Bitcoin on it.
And so when the apocalypse comes, you need the value to be stored, an actual thing that you can have in your physical possession. Yeah, that's exactly what this is.
You've had a heck of a life. You've been in a bunch of places in this world. A lot of places. Life is not easy in some of those places.
What has been, if you can take a step to maybe a bit of a dark step for a short time, what has been maybe darkest time, period, place you have gone in your mind, a dark period of your life, a struggle, they had to overcome it to survive?
Well, I'm Palestinian. So that is the tragedy of my life. I'm Palestinian, Jordanian. My family's suffered a lot because of this historically.
I grew up in Ramallah in the West Bank. It wasn't ideal to see that. People like to think of it as this intractable conflict between two bitter enemies.
But the reality of the matter is that it's not a foreign ideology came in with the idea that this country needs to be occupied by people from only one religion.
And the existing population, which, you know, I mean, Jews had always lived in Palestine historically. And at the turn of the 20th century, they were only 10% of the population.
But then with the birth of fiat money, incidentally, you know, the link with all of this is that when the Bank of England went off gold, big reason why they were able to pull that off was that the Rothschild banking family supported them.
And in exchange, the Rothschilds got Palestine. And the Balfour Declaration was written by the government of Britain to the Rothschild family, telling them that they'd like to make Palestine a homeland for Jews.
So obviously, that's not very convenient for people who are not Jewish, for whom that is a homeland. And the past 80 years has been a very painful struggle if you happen to not be Jewish.
And obviously, you know, obviously, Palestinians have done all kinds of things trying to fight back and they've done all kinds of wrong things.
But I don't think you can escape the fundamental reality underlying this, which is that if you're not Jewish, you are being moved out of the land. And so it's happened in 1947-48.
It happened in 1976, 1967. Moreland was taken over by Israel. Now you see it with the settlements.
You know, if you ignore the day-to-day headlines and you ignore the media propaganda and you ignore all of this, there's a very clear thing that is happening, which is more land owned by an exclusive ideology that believes this land needs to be owned by people from one religion and everybody else is being kicked out.
And so that is the tragedy of my life. And my wife is also a Palestinian refugee from Lebanon and her family was evicted from Yaffa, which is today on the outskirts of Tel Aviv.
They still have their homes in Yaffa. Their homes are being lived. They got kicked out of their homes and their lands and their property. They became refugees in Lebanon.
So my children, you know, it's an ongoing tragedy. It's not something that is a lot of the people that think of it as, you know, they think Palestinians are just out there to get Israelis because they hate them.
But it's an inescapable tragedy. I don't have a home anywhere.
It's an escape from this tragedy in the future that you see. If you zoom out across the scale of decades, will we see, I hesitate to say peace, but a significant decrease in human suffering in this part of the region?
I certainly hope so. And I think, you know, my interest in Bitcoin comes from came from a place of desperation with the situation there.
Traditional politics is a dead end. I don't see what I can be doing to make things better there using traditional politics.
And I think a good friend of mine, Pierre Rochard, you may know him on Twitter, one of the brightest minds in Bitcoin, in my opinion, he told me his theory is that Bitcoin is going to bring peace to the Middle East because land is a shitcoin.
Land is a shitcoin. I love it.
And I think he's got a very good point there that this fixation with land and the bitterness with which people have land is likely to decline when people are going to have a form of property that they can keep.
And so hopefully that will help in one way. And of course, the more obvious way is that this is a conflict of governments and it's a conflict that is financed by fiat.
And from day one, you know, the entirely insane notion that you could build a national and ethnic homeland. And of course, you know, this is the early 20th century.
So the idea behind Zionism is coming from the same place where all these other ethnic nationalisms of Europe were emerging.
You know, we saw how well, how horribly these worked out. But the idea that you could, you know, it's one thing to say we want to build a homeland for Germans in Germany.
It's one thing to say we want to build a homeland for Germans somewhere else. And that was, that was Palestine, that was Zionism.
And that was only possible thanks to fiat, thanks to the ability of the British government and all these other governments to continue to finance this colonialist effort over time.
And, you know, it continues to finance war. And it continues, you know, we see war all over the world continue to escalate because the people who'd make the decision to escalate the war are not the ones who are paying for it.
And they're not the ones who are fighting. They're the ones who sit in offices. And in the case of, you know, most of Middle Eastern conflict, it's, it's people who live abroad.
Are not part of it who just are emotionally charged to it because they watch it on TV. So, you know, you have billions of Muslims around the world and Jews around the world who feel extremely emotionally attached to it.
They're not the ones fighting. They're not the ones paying their own money. They're just getting governments to send money and to send weapons and to take part.
And it's, it's fun as a spectator sport for most of these people because they don't get to live in it. But I got to live in it. I saw it. I grew up there.
I saw, I saw the settlement expansion. And, you know, recently, a few weeks ago, I went back to Ramallah and it's just, it's amazing.
Every time you go, the, the settlements are just growing in an astonishing way.
Like it's, it's, it's not just housing units that are going up. It's an entire attempt to build, to basically suffocate Palestinian areas and force Palestinians to leave or keep them living in horrific conditions.
And if I may, just because I have family in Ukraine, I have family in Russia, since this war echoes of similar things are happening in that part of the world too. And I shudder to think about the decades to come of the hate that is brewing, the suffering that is brewing
based on decisions and pressures and from not always people directly impacted by this. So again, it feels like that military conflict is not just a creation of like people on the ground.
It's a creation of leaders, power centers. And, and perhaps, again, I'm not smart enough, but even the monetary system probably has a role to play.
I absolutely think it does. Monetary system is what allows, is what allows people to just continue to treat war as a spectator sport.
That's, that's really what it comes down to. And it starts with World War One and it's continued. And this is why I really, I think I've said this before.
I've tweeted this before and it was a pretty popular tweet, but it also got a lot of people to dismiss the idea with mockery of course.
But I really think Bitcoin is the only technology that's going to end World War One. Once World War One started, we got into this endless conflict.
It's been going on going since then. If you look at all the world's conflicts today, pretty much they all trace back to World War One.
And it's because when that Pandora's box of government control of money was opened, there was no longer a real restraint on war except complete defeat and complete destruction and complete death.
The war had to be total. Before that, you know, under the gold standard, kings would send professional armies to fight each other in battlefields.
And as soon as it became clear that one side was establishing an advantage, the fighting would stop and the king would, the kings would settle, you know, would agree to new terms.
Because it was extremely expensive to build a professional army and you ran out of money. So it was always the smartest thing to do is to just stop fighting whenever you could.
And wars would take place, you know, countries would fight each other in the battlefield. But in the cities, life went on as normal.
And people within the same cities, within the cities of the two countries would be trading with one another. Life would go on, but the war would be there.
It was just an independent part of politics that, all right, we have a problem over this piece of land. Let's do, you know, let's take it outside.
We don't fight in the civilian areas. We go to the battlefield. We fight with professional armies. And in fact, sometimes the conflicts would be, you know, the armies would line up and they would just have a small contingent of the two armies fight with one another.
And as soon as one of them establishes an advantage then, all right, well, you won. Let's move on with it.
Governments were far, far, far more careful about their monetary policy and their, sorry, their war policy when they couldn't print their money.
And that has changed with Fiat and that has allowed this new emergence of this class of what I like to call chicken hawks, of people who sit in office like the entire foreign policy establishment in Washington D.C.
People who have never fought a war, whose children will never fight a war, who will never pay to fight a war, who will never suffer a broken window in their house because of war.
Sitting there and based on these fucking moronic garbage that they teach at moronic Fiat universities about politics and geopolitics, making decisions about, you know, we need to invade that country and we need to send war there.
And they can do that because they have this endless money printer where, and that's why, you know, back under gold, if you wear a warrior, you know, you went and actually joined the war.
And that, you know, the people who pontificated about war, where the people who had experience with war, the people who were sending their own children to war, the people who were fighting with their own money.
Now you have all these fat parasitics come sitting in Washington D.C. deciding, and Washington's just an example, but all over the world this exists.
People who have never fought will never carry the consequences. We're going to devalue the world's money in order to go and have other people's children fight each other because of stupid garbage they learned about politics in university.
You said you value low time preference, but I have news for you that one day you will die. As far as we know, you're a mortal being.
Do you think about your death? Do you think about your mortality? Are you afraid of it?
I've spent a lot of time introspecting and thinking about these things, and I value life a lot. I value my time on earth a lot, and you'll see this in my dealings with people, you know, go back to Twitter.
Why am I so brash and straightforward? It really is because life is short because I don't want to waste, I think, you know, on my, I've said this before, on my tombstone, let it be written.
He never let anyone waste his time twice in his life.
His life is short.
Yeah, you can waste my time once. You can get me to do something and then I realize that was a waste of time. You will never get me to waste my time twice.
And so you show up in my Twitter with something stupid, you're never showing up in my Twitter.
So you're a fast learner. You give people a chance, but you're a fast learner.
Yeah, so I try and use my time very wisely, and I'm unapologetic about it. My time is the most precious thing, and the way to get on my shit list forever is to try and take away my time and to abuse my time.
If you do that, it's the one unforgivable sin for me. And I think that's really, I think that's my way of coming to terms with mortality.
We're all going to die, and so let's make the most out of it while we're still here.
And of course, the other way you come to terms with mortality is you have children.
Given what you just said, doubly so, it's a huge honor that you will spend your valuable time with me.
This is the first time you did it, so you probably regret all of it, so we'll probably never see each other again.
But I'm glad you at least took the chance to do it. It's a huge honor, man. I've been a huge fan of yours.
Thank you, sir.
I think you have impact on the world that you probably are not even aware of. It's tremendous, and a lot of people love you, and your work is important.
Even, you know, I disagree with some things you say. There's people that disagree with you, but everybody respects you, and thank you so much for spending your really valuable time with me today, brother.
Thank you, sir. I really appreciate it. This was not a waste of time, and I'd be happy to do it again.
Thanks for listening to this conversation with Savedina Moose. To support this podcast, please check out our sponsors in the description.
And now, let me leave you with some words from the Austrian economist Friedrich Hayek.
Economic control is not merely control of a sector of human life which can be separated from the rest. It is the control of the means for all our ends.
Thank you for listening, and hope to see you next time.