Saifedean Ammous, author of the Bitcoin Standard and the upcoming book, The Fiat standard rejoins me on the show for an illuminating episode where we explore various ideas: 

• What bitcoin really replaces
• Thinking about inflationary costs
• infinity/21M – is it wrong? 
• Cultural impacts of fiat money
• Malinvestments and where the biggest ones lie
• The hyperbitcoinized world

Saifedean Links:

• Twitter: @saifedean
• Site: Saifedean.com

Sponsors: 

• Swan Bitcoin
• Hodl Hodl Lend
• Compass Mining
• Unchained Capital (code LIVERA)
• CypherSafe (code LIVERA)
• CoinKite.com (code LIVERA)

Stephan Livera links:

• Show notes and website
• Follow me on Twitter @stephanlivera
• Subscribe to the podcast
• Patreon @stephanlivera

Podcast Transcript:

Stephan Livera:

Saifedean welcome back to the show.

Saifedean:

Thank you for having me, Stephan, always a pleasure.

Stephan Livera:

So Saif I’ve been reading your new book, the Fiat standard, which I highly recommend my listeners go and get it. So today we’re going to talk a little bit about some of the ideas from there, as well as just your thoughts on the fiat standard today in the world. So maybe let’s just start with a little bit of your thoughts around how has the fiat standard evolved and your thinking on the Fiat standard evolved over the last few months?

Saifedean:

I’d say maybe the most significant change in the way that I see Fiat over the last couple of years since writing the Bitcoin standard was thinking really hard about how Fiat works and why it works and what it does has given me, at the expense of pissing off some Bitcoiners, it’s given me some appreciation of the fact that there is some kind of advantage to utilizing it, and I used to be a gold bug and I’m a fan of hard money. And so traditionally I’ve always thought it was just a terrible idea. And I still think it’s a terrible idea, but I can sort of see why it has come around. So I think the book starts with the story of Chesterton’s Fence — C.K. Chesterton or was it G.K. Chesterton.

Saifedean:

He tells the story of two men who are walking down the field and then they see a fence and one of them thinks, this fence is not serving any purpose. I don’t understand why the fence is here. I’m just going to remove it. And the other one says, no, if you don’t understand why it’s here, then you shouldn’t remove it. First, try and figure out why it is there. And then see if you should remove it or not, if you don’t know why it’s there, if you don’t know why it was put there, then you can’t really tell whether it serves a purpose or not. And so I had that kind of idea trying to look into Fiat and to be fair, I think the best case that I would make for Fiat is that if you remember in the Bitcoin standard, my focus was on saleability across time that gold was money and Bitcoin is becoming money because its supply increases at a very slow rate of increase, which means that it holds onto its value well across time.

Saifedean:

So it has great saleability across time, which makes it a a good store of value. But thinking about looking at the Genesis of Fiat, looking at the Fiat white paper, as I describe it, when the Bank of England decided to go off gold and looking at the circumstances back then. It’s obviously it was very devious the way that Fiat was installed. And it wasn’t a good thing by any stretch of the imagination for the world, but you could see that when it happened, gold did have a problem of saleability across space. So sending gold from a to B entails a significant loss in its value. And it’s usually something in the range of 0.5% or 1%. And in a sense, that’s a serious defect, really, because it’s good that your money holds onto its value across time, but you also want it to hold on to its value across space as you send it across.

Saifedean:

And so sending a gold bar across the Atlantic leads to a loss of somewhere between 0.1 to 1%, depending on what time and what location and how it was done. There was the risk that also the ship that it was carrying, it could be sunk and that has happened, the ships carrying gold. So it’s not like it’s something that’s very convenient to send across space. And in a sense, it’s the same kind of defect that Fiat and easy monies have when sending a value across time. I don’t think you can make a case that this one is that losing value across time is just a fatal flaw in money. Whereas losing value across space is something that’s acceptable and that’s just the normal part. And so as governments started using their own credit to settle their own bills with one another, it became easier for them to just use fake credit rather than using gold because it entails less loss of value.

Saifedean:

So if it’s all just digital entries in ledgers at the governments banks or central banks, then you can cross the Atlantic a million times and it costs the cost of a telegram or a phone call or an internet connection that’s operating to continue to debit accounts between one and the other. So I’d say to think about why that fence is there and in Chesterton’s terms, or to think about why this Fiat exists. You can’t really deny the fact that it’s just very expensive to settle gold across space, and that makes it easy for governments to capture money. I obviously, I agree it would be ideal if they would offer a free market in money and banking. And then if there is a free market in money and banking, then the hardest money would be chosen. If there was a free market, then bank in any money they want, but most likely the hardest money is going to win.

Saifedean:

But the alternative, which is if governments prevent a free market in money from emerging while the alternative is that you can’t just take your gold and settle it outside of the government, it’s very hard to take gold and run a financial system. I mean, you could maybe smuggle a few ounces or maybe even a few kilograms of gold here and there, but you can’t really run a global settlement network between banks and financial institutions across national borders, without the government finding out. If you’re running a banking system, they’re going to find out then if you try and send the gold without them, it’s going to be very expensive, very uncertain. The risk of getting caught is very high. So that’s, I think just a failure of gold. It compromised, it’s saleability across space and that leads to it. It becomes possible for governments to implement their Fiat’s systems with catastrophic consequences.

Stephan Livera:

Yeah. And it’s funny in some ways, because sometimes when we’re out here trying to teach people about Bitcoin, oftentimes they have the wrong comparative in their mind that they think it’s like a PayPal or that it’s going to be a day to day transactions. Whereas as you rightly point out in the book and our great friend, Pierre Rochard also loves to call it savings technology. And so I think it really is it’s savings technology and international money transfer. That’s what Bitcoin uniquely does that is it’s in business school parlance, the unique, the USP, their unique selling point. That is the USP of Bitcoin. It’s not this idea that you are just going to have a PayPal or that you could just do away with the Royal and just have stable coins. Well, that’s not exactly what we’re trying to solve here, is it?

Saifedean:

Yeah. Because all of these things, stable coins or bank accounts, they’re going to have to run on a monetary settlement network. And that’s really the, a challenge or what do you settle with? And either you’re going to be using central banks and banks and their financial instruments and their settlement networks, or the only alternative that exists is Bitcoin. It’s the only thing that’s actually independent. And this is why I think, you know, the Fiat standard gave me an appreciation of why fiat works, but it also gave me an even bigger appreciation of why Bitcoin fixes this because not only does it have gold’s great saleability across time, it also has better scalability across space than both gold and Fiat.

Stephan Livera:

Yeah, It seems to me that oftentimes with government things come in and then the institutions just build up around that. And so sometimes it just exists because that was what was there before, right. It’s for a legacy reason. And sometimes it’s obviously, while you and I have our criticisms of the government, both of which we are quite strong quite critical of the government. It’s not necessarily that all the people in the government are evil and intending to do these things. It’s more that as a system, it just drives these bad incentives and it just drives this bad outcome. Wouldn’t you say?

Saifedean:

Yeah. It’s kind of inevitable. Once global trade became such an important part of the world economy in the 19th century because the entire world was trading with one another because everybody was using the same currency, which is the gold standard, but also more importantly because of the new technologies that made transportation possible. When we had trains and airplanes and cars and modern steamships. It became much cheaper to move things from Europe to the US and so not only did people move, but also goods started moving more and more frequently. And so as goods started to move internationally, much more money had to move internationally as well. And that was the limitation of golden. It, in a sense you can be ideological about it and say that they should have done this and they should have done that, which I’m sympathetic to, but why could they get away with what they did?

Saifedean:

Well, the reason they got away with it is from an engineering perspective taking emotions out of it, once trade became such an important part of the global economy than being able to provide the payment rails that would allow people to settle payments with people in other countries. Being able to provide those payment rails became as important as the actual monetary medium itself in a sense, the gold standard, the medium of exchange in the gold standard was not just gold. Or the monetary asset underlying the gold standard was not just gold, it was gold and the banks that make Gold’s movement possible, the fact that you needed the banks is a function of golds properties. It was just not easy to send an ounce of gold halfway around the world. It’s very expensive. If you wanted to do it with an ounce of gold to pay somebody to send it, there’ll be a significant cost.

Saifedean:

And so if somebody manages to build a settlement network that settles periodically you have a bank in England and a bank in New York, and they perform one settlement transaction at the end of the year or at the end of the month, that’s just enormously cheaper for people who trade in the US England to open an account with that bank and have their payments settled once a month. That way you could get a hundred thousand trades between people in England and Britain for every physical movement of a coin between England and the US. So it’s just natural that as trade grew and the scale of economic transactions grew and the size and the importance and the distance started to increase gold, just couldn’t keep up. It just was not able to be sent in a way that allowed people to hold on to its value.

Saifedean:

And we can romanticize the gold coin and the way that the gold coin holds onto its value. But the reality is you can’t send the gold coin halfway around the world, but your government if it strikes a deal with the other government, it will allow a central bank that operates in its territory to settle with a Central Bank that operates in the other territory. And then that’s just an infinitely cheaper way of conducting trade and transactions. So that’s why it won, because people need to settle trades in the present by the 20th century. By the early 20th century, the modern technology that we had, the modern life that we had was not possible without globalization. There was there was nowhere in the world that was industrialized, that had modern machinery that could survive and continue to thrive, and to have all of these modern technologies without trading significantly with the rest of the planet, you had to trade. The division of labor had grown so much that you needed to be trading with other people all across the world in order to be able to have all of the nice things that you have the car and the electronics and all the heavy machinery and the engines that was a highly sophisticated division of labor that was involved in all of those things.

Saifedean:

And if you wanted to live in an isolated island, you couldn’t have them basically.

Stephan Livera:

Yeah. And so really what we have to do then is comparatively assess these different things like gold versus Fiat versus Bitcoin transactions, right? So when we’re transacting gold, as you were saying, it could be the 1% per transfer and the Bitcoin land it’s more like you could be paying today at today’s rates on chain. You might be paying a couple dollars now that we expect that to rise over time. If you bang on lightning, you might literally be paying a few cents for a transaction, but when we’re using Fiat, we have to, I think that’s the important comparative is to understand what are the true costs of the Fiat overarching system. And of course, this comes into the energy conversation as well because people say, oh, look, you’re using as much, you Bitcoin people are using as much energy as a whole country. What a waste. And then people sort of argue back and say, oh, but look how much the financial system is using. But it maybe even that is not the right comparative, because as you rightly point out, people could build a financial system up on top of Bitcoin. And there would be Bitcoin companies who in turn have staff and offices and printers and all of that. And the like, but what is the true comparative when we’re talking about Bitcoin versus fiat and the costs of fiat.

Saifedean:

Yeah. Exactly. And that’s what I try and focus on in the book. And that it makes sense when you think about it as a cheap way of settling payments, but then one century later, we look at all the drawbacks of having an easy money that governments can control. And then you see that the cost is enormous. And that as Mises used to say about the gold standard when you had people like Keynes and other clueless people would say that gold is useless because it costs a lot of money and it’s a very expensive monetary system. Mises would rightly point out it’s very cheap when you compare it to the cost of inflation. And that’s what Mises used to say, this is the thing with Fiat. So initially it makes settling the payments quickly, but then it makes suddenly the payments quick and cheap, but then the bill comes in later and the bill is very expensive because it involves destroying the capital stock of society, because first of all, your money’s losing value.

Saifedean:

So people start losing the incentive to save. And then without real savings, you need to rely on credit expansion in order to finance investments. And so that then causes the business cycle and it causes all of the problems that we saw in the 20th century, which most people today think it’s just that’s what capitalism does. Capitalism has crises and financial panics, and that’s the price to pay to not be a communist country. You know, either we have a communist system or we have to have capitalism, which involves a lot of crashes. And of course that’s nonsense, that’s Fiat that does those things. It’s not capitalism that does it. And then I think my favorite hobby horse is time preference. I think the most important thing that Fiat has done is that it has raised the human time preference over the last 100 years enormously.

Saifedean:

If you look at the world, but till the 20th century, all over the world, we had a process where everybody was constantly moving toward harder money. People used primitive forms of money. And then whenever I heard him, when he showed up in their town destroyed the easy money and they had the most of the hard money, and everybody went on constantly hardening their money and therefore having a better mechanism for transferring value to the future and therefore becoming less uncertain about the future. So as your uncertainty about the future declines, because you can provide for your future, then you see that it becomes likely that you’re discounting the future less and less. In other words, your time preference begins to drop. So you start thinking about the future more, you start thinking about providing for your future more, and you see this as a natural process in human society.

Saifedean:

We’re constantly saving more alarm thinking more about the future. It’s just like a millennia long journey. And if you look at there’s a book called 5,000 years of, or a history of interest rates, and they’ve got data for for 5,000 years of interest rates, essentially, and you see that interest rates have been declining basically for all of human history. The long-term trend is that they decline. And then occasionally you get wars and famines and the empire collapses and bad things happen. And during those periods, interest rates spike up and then they crash, but the long-term trend is in declined. We’re constantly lowering on interest rates because we’re saving more capitals becoming more available. And therefore it’s becoming cheaper to borrow capital from its owners because they have more and more capital. So this is the process that is constantly going on.

Saifedean:

And then you look at the 20th century and you can see that it’s reversed. Interest rates start rising in the 20th century. And they continue to rise up until the 1970s when interest rates become manipulated by governments and are manipulated to drop constantly. Well, I mean they rise until the eighties, and then they begin to decline from the 1980s till now. Now that we’ve hit zero, but it’s, I don’t think interest rates now are an accurate reflection of time preference because they’re essentially a centrally planned market signal. It’s been a century of people having something that is quite unheard of historically, which is the long-term use of a form of money that continuously gets easier over time. It doesn’t get harder, it doesn’t get better at storing value. It just keeps getting easier and easier, and it just keeps as a store of value.

Saifedean:

And so you see, as the 20th century goes on, I think our time preference all over the world begins to rise more and more people start discounting the future more. And you see it. I think in everything you see it in the fact that people don’t save anymore. You see it in the fact that you see it in art, you see it in music, you see it in architecture. One, I think is an, a very interesting one. In the 20th century, we have the technology that makes construction cheaper than it has ever been. We have machines that make moving heavy things around, much cheaper in the 18th and 19th century we had to rely extensively on a lot of backbreaking human labor, which is very expensive compared to machines. You get a machine to move things around and you pay once for the machine and you pay a little bit of cost for the fuel, and it can do the work of a thousand workers every day.

Saifedean:

So making houses has never been cheaper than it is now. And yet we look at the houses that we make, and we see that instead of taking advantage of this vast ecology to build better houses and more durable houses, we’re making cheaper houses that are shorter lived. I think this is quite interesting that the houses that are being built today don’t live long. And that I have an interesting example that I use the two buildings for the Boston public library. The first one was built in the 1890s or 1880s. And it is the McKim building and that building costs something like I think it was $70 million in today’s money to build it back in the 1880. So it was $2 million back then. And then you look at the I think it’s called the Johnson building the second Boston library building, which was built in 1970, that building well it’s built in 1970s style.

Saifedean:

So it’s nicknamed the mausoleum, the essentially, the graveyard because it looks it’s a big ugly box of concrete with tiny windows. And the old building, the McKim building is one of the nicest buildings in Boston. It’s one of the main tourist attractions of Boston. And the new one is an ugly box. You would think, well, now we can make these buildings so much cheaper. So that’s why we’re using we’re economizing. We can have more libraries now because we can make them cheaper, but that doesn’t hold up because the ugly building that is short-lived, that needs constant maintenance is not cheaper. In fact, in 2010, I think it was the newer building. The one that was built in the seventies needed a massive overhaul that cost something like $70 million. So for $70 million in 2010 or so, I may be off a little bit on the dates, but $70 million back then you renovated the building that was built in the 1970s and for the same amount of money in real terms, not in nominal terms for the same amount of money in the 1890s, you built the most beautiful building in Boston. Something doesn’t add up here why didn’t they, instead of, instead of just re renovating the old, the new ugly building, 1970s building, why don’t they just replace it with a nice one?

Saifedean:

Like the one that was built in the 1890s, why don’t they make it? Why don’t they make these anymore? It’s a very interesting question. And I think it’s because of time preference, because they don’t want to build something that will last. So they’ll build something that is as cheap as possible, but they justify the cheapness effectively because of the fact that you don’t care about the long term, you discount the long term heavily under fear. And that’s why in the 19th century, they built buildings. So they could last a hundred years today 20 years tops is what people really care about. They don’t care about building them in the long term. And if you think about it, if your time preference arises, you’re discounting the future rises. And then small increases in the discounting of the future, they add up, they compound.

Saifedean:

And so things that are taking place in your life more than 20 years from now. They have a value of zero. So the architecture is optimized for impressing people in the present. It’s optimized for making a statement and for winning awards and for looking interesting. The kind of novelty and shock value is what they spend their money on, but they heavily discount what’s going to happen to the building in 50 years time because they don’t care about 50 years because everybody’s time preferences risen, everybody’s discounting the future more and more.

Stephan Livera:

Yeah, very interesting way to put it. And I think there might be different contributing factors to this. And I think as correctly, as you say, the Fiat money is the underlying driver of so much of this in terms of economics, cultural, social elements of this, where people are now not thinking as much about the future. And also to the point that you were making around interest rates over 5,000 years. Now, it’s true, historically as society and as Hoppe points this out as society advances it’s because of capital accumulation and over time, people were able to lower their time preference in a genuine sense. But I think what we’re talking about here, just for listeners who are unclear it’s this idea that because of Fiat and central banking and all the rest of it, legal tender laws, capital gains, tax laws, lender of last resort, all of that, because of those interventions, it artificially pushes the interest rates lower, but our actual time preference is not that low.

Stephan Livera:

And so there’s like a mismatch there. And so from an Austrian perspective, we would say, well, there’s consumer goods and capital goods are what we use to create the consumer goods, but there are multiple stages to this. And so we talk about stages of production. And so this production structure. And so I guess the point we’re getting to here is that because of central banking and because of that creation of money without having underlying savings, people are sort of reaching there. They think they can make this project profitable when really it won’t be. And so this is kind of getting into that idea of how fiat money is causing this boom bust cycle in the Austrian understanding of economics. Do you have anything you’d like to add there?

Saifedean:

Yeah. I think I agree with you entirely. It’s ultimately when the money itself has manipulated, when the money is supply itself can be manipulated, then all prices are suspect and interest rates is one of these. But I think the effect that this distortion has, I mean it’s like when you have a centrally planned economy and then the government says, you know, the potatoes are going to be priced at this price. I mean, yeah, if you look at the statistics, then potatoes are cheap and affordable and communism works, but in practice, you go and you find that there’s no potatoes on the shelves. And in fact, if you actually want potatoes you have to have a connection to somebody in the underground potato farming industry, and you have to pay a lot more. And it’s kind of like this.

Saifedean:

And I think the when you put them together and the second part of my book looks at all of the impact, well not all, obviously you can’t look at all the impacts in one book because money is extremely pervasive. Money is one half of every transaction in society. But I look at several of the costs, and I think you reach a conclusion, which is we’d have been better off paying the expensive transaction fees on gold than having to destroy all of society, basically in order to make these payments go through. It’s just effectively the way that the Fiat standard works when I describe it in kind of engineering terms is that you’re compromising savings. You’re compromising the ability to accumulate capital. You’re compromising increases in productivity.

Saifedean:

You’re giving up on the integrity of the monetary system and you’re giving an enormous amount of money and wealth and power to governments, to centrally plan and manipulate and control markets and control people’s lives. That’s causing an enormous amount of destruction in the economy. And I discussed the impact that it has on energy markets, on food markets and in all kinds of aspects effectively what the Fiat standard comes down to in engineering terms is let’s save up on gold transaction fees. And in order to save up on that, let’s will incur enormous costs in the long run in terms of really civilizational destruction. I mean, it’s breaking apart at the fundamental building block of civilization, which is lowering time preference, accumulating capital, and investing in the future and increasing productivity. Fiat literally reverses that process. It pushes us backward in the human evolution and advancement process. And it’s just not a price worth paying in my opinion for for saving up on transaction fees. Just pay your transaction fees kids.

Stephan Livera:

Yeah, That’s right. Sometimes you’ve got to pay up front sometimes it’s short-term loss for long-term gain. Whereas the Fiat world and the world we live in today is very much like a, I want to minimize my short-term costs and I don’t care about the long-term pain that we’re all going to feel because of that very short-sighted desire. And another way to think of it for listeners who might not be quite clear, what’s going on one way to think of it is like, think like an animal in the, in the Safari somewhere, they have an extremely high time they’re thinking about survival. They’re thinking where’s my next meal coming from and how do I not be eaten? Right. That’s literally the level that they are at. And we as humans have the capacity to go, the other end of the spectrum, we can plan and build things that will be around even literally once we are dead, that is the, like the difference, but the time preference is what can shift that and money.

Stephan Livera:

The money we use has a big impact on that. I think it’s probably also fair to say that and I think you and I have been quite vocal on this is the idea of cultural impacts that nowadays people are all about short term attention span. They want to watch these little five second TikTok videos instead of the one hour lecture or better yet read an actual book, spend 10 hours reading a book instead of these little five second clips and potentially it’s impacted on all of us in some ways into our attention span. Wouldn’t you say?

Saifedean:

Absolutely. I think obviously technology probably has a role to play in that, but I think people underestimate how differently we could be using all of these technologies. The fact that we can make houses much cheaper. It doesn’t mean that we need to make crappy houses. We could use that to make better houses. And I think also the fact that we have such an abundance of media doesn’t necessarily need to distract us to have such a low time preference, such a high time preference, and to lose our focus. It could be used more productively and some people managed to use it more productively. And for a lot of people, the fact that there’s a lot of media out there it doesn’t turn your attention span low. It’s just your focus and the extra technology allows you to get access to better media and better materials.

Saifedean:

But I think culturally, I don’t think you can really deny that. Then the more you think about it, the more you start seeing it, the more it’s the more pervasive it is. Another way that I like to think of it, the way I illustrated it in the book is look at the example of a country that’s going through hyperinflation and then look at how people act under hyperinflation. And then just realize that low inflation is just the same thing, but at a much lower scale. If you look at people in Lebanon today, or in Venezuela or Zimbabwe or previously in Weimar Germany, when there was hyperinflation, you see a lot of regularities in the way that people behave when their money is broken. You see, for instance, one of the most obvious ones is that as soon as you get paid, any amount of money, you automatically rush to consume it as fast as you can.

Saifedean:

So you get paid your salary on the first day of the month, on the first day of the month, everybody’s at the supermarket and everybody’s trying to buy things. This is, I lived in Brazil for a couple of years when I was a kid. And this isn’t a memory that I remember, which is why was it that and they’d show this on TV and you’d see that on the first day of the month, the supermarkets would be a war zone because everybody’s jumping in to try and sell to try and sell their fiat and to gain as much stuff as possible. Because within a few days when everybody has their paychecks, everybody has spent them in a few days, prices are going to be up. And so you go and you buy all of your goods for the month today, or you get half if you buy them in two weeks.

Saifedean:

And so in that kind of world, everybody wants to spend their money as fast as they can, but also you see you see it happening in other aspects of life as well. People are constantly fighting with each other because, and you can understand why they would do that. You don’t understand why crime increases, obviously not justifying it, but you can understand why the same people that were peaceful. And with very little crime when they had money that held onto its value would be becoming more rabid and violent because they’re discounting the future more because they need survival today. They need to figure out how to feed my family for the rest of the month. I’ve spent all my paycheck in the first day, and it’s now the third week of the month and we’ve run out of food and I’ve got one more week of hungry kids at home.

Saifedean:

And that’s just that’s a very pressing thing today that would make you do things that you otherwise wouldn’t, you’d consider breaking into your neighbor’s home and stealing some of their money or some of their food you’d consider breaking into a bank or into a supermarket, and to do things like that, because it’s very pressing and because, well okay, maybe you get caught, but not that’s a very high cost, but you’re discounting that very heavily because if you don’t get caught, if you don’t steal, you might die, you might starve, your kids might die. So when you’re constantly becoming less secure in the present, and in the future, when the present is constantly becoming less and less certain then people discounted more and more and people focus more and more on the day to day, people start discounting.

Saifedean:

And so people will social bonds that tie people together become less and less significant. This guy’s your cousin or your business partner, or your friend. Usually you really care about maintaining a relationship with them because, for 20-30 years you’ve been family, friends and you in under normal situations that you’d want to remain on good terms for many years. But if he’s trusting you to look out for his stuff, or if you find a way where you can go into his house, you can risk that friendship because you having another 20, 30 years of friendship or a good relationship with this person, a business partner or a family member is far more difficult. It is far less, it’s far as valuable when you’re present is hunger, you’re hungry today. You might die this week. So who cares about what he can do to you in 20 years time? So you’re willing to sacrifice the trust and the relationship that has been built over 20, 30 years in order to get a quick meal for your kids today. So it’s you see this constantly across societies that are witnessing hyperinflation the future is very heavily discounted because it’s highly uncertain. We can’t provide for it. We don’t have a mechanism for providing for our future. And so we start discounting heavily.

Stephan Livera:

Yeah. And so it essentially causes people to go and do things that they would not have if they had access to a good savings technology, because then they would have actually had a cash balance and they would have been able to all the people in that society could have their own little buffer or a safety net. If say they lost their job, they’ve got enough cash and savings to be able to tide them over and tide the family over until they find a new job or start up a new business or something. And so it really changes society and it changes all of these aspects. And I think the inflation is one of those things where it’s hard to explain because for a lot of people, they just think more money is good. Less money is bad. They’re not thinking about the underlying value of that money going away over time. So how should we think about like, what kind of percent inflation in the book you mentioned a few numbers? So I think you said averaging across all Fiat’s, it’s something like 32%, but that’s an equal weighting. So perhaps, you know, well, let’s say I think you said 10% for the average Fiat user and say seven and a half percent for the US user. Could you elaborate on these different numbers and why most people are thinking about it wrong?

Saifedean:

Yeah. I think Bitcoin shows us empirically speaking. It shows us that you don’t need the money supply to increase as much as the economy grows in order for the money to work. I mean, this is just something that’s obvious to anybody who can think about the issue for 15 minutes with clarity. It’s very simple. You don’t need inches to be expanded in order for people to grow taller and you don’t need the money supply to expand in order for the economy to grow. We can run the entire world economy on a $100 trillion or $100 billion, or $100. As long as the unit itself can be divided into smaller units. And of course in the case of Fiat, it’s all Fiat. So it’s all entries on a ledger. So we couldn’t have, we could have spent the entirety of the last 100 years on the supply.

Saifedean:

Let’s say if in 1914, the whole world went onto a Fiat standard. Like if you really wanted to make it so that it is the best possible Fiat standard for the users and not for the government, you would have said like, if you really wanted to take Keynes’s ideas about the cost of gold serious, they all right. Gold is too expensive. All right. So let’s move on to a Fiat money where we replace the current gold stock. The current number of Fiat notes that we have that are backed by gold well that’s the amount of money that we have. And we’re just going to keep it fixed. And we’re not going to print any more money, like in 1914, the amount of money that was available, that was gold-backed, if you want it to read it on the same fiat standard, do you just say, all right, so we have say 1 billion US dollars.

Saifedean:

That’s the only billion US dollars that will ever exist. There will only ever be 1 billion us dollars, and you could make them so that they’re all trackable on the Fiat centralized blockchain at the central bank. So everybody has a share of those $1 billion, and we could have run the entire world economy on those $1 billion up until today. And what would have happened is that prices would have continued to fall for the last century. This is how you would have run a proper Fiat standard, and there’s no reason for the money supply to increase at all. So goods would have continued to be produced at increasing rates and the amount of money that is used is constant. And so prices would have been increasing every day. And so today I think we would be living in a world in which a house would probably cost something like $5 and an annual salary would be 50 cents.

Saifedean:

And that’s fine. We would have found names for units that are sub-cents and like your coffee would be worth something like a millionth of a dollar. But that’s fine. There’d be a name for it. And there’d be a Fiat piece of paper that is issued by the central bank that is for that amount. And the economy would function. And if you saved up a million coffees, you could trade them for a house. If you saved up the cost of million coffees. And I think everybody in that kind of world, everybody would have had large cash balances of savings that they would have accumulated. So really we know because of Bitcoin that you don’t need the money supply to increase. We’ve seen how the Bitcoin economy grows on average at around 200% per year nominal face value in Fiat terms.

Saifedean:

But the Bitcoin supply now is growing at less than 2% and before it was at four, and then it was a around 10 or so. So the growth in the economy can be many, many times larger than the growth in the money supply. And I don’t see why it would be a problem with the growth in the money supply was 0%. So effectively all of the inflation that we’ve had over the last century has been just unnecessary waste, taking money from money holders, taking economic value from holders of money and putting it and giving it to governments and allowing governments to essentially run crazy with it. And so trying to estimate how much that is, I think the best estimate would be to look at the growth, the supply growth rate of the M2 money supply. And if you look at the the most consistent and comparable measure we have is the world bank’s measure of money, M2.

Saifedean:

And you look at the average growth rate has been around 29%. It has for the past 55 years. So from 1965, until 2020, it averages at 29%. That’s the average performance. That’s the average increase in the supply of each Fiat currency over the past 50 years. But this is probably over stated a little bit, because for two reasons, first of all, this doesn’t include the Euro economies and the European economies have had something closer to 7% annual increase of the supply. And also this gives each currency equal weight. So we’re looking at, this is the numerical average, which puts the Lebanese Lira and the Venezuelan Boulevard. They’re all equal to they all count as much as the us dollar, but of course that’s not really very fair on Fiat because the US dollar is used by far more people.

Saifedean:

So if you look at the better currencies, the better Fiat currencies, they’re averaging something like 7% per year over this period. So the supply is increasing at around 7%. So I’m still struggling to figure out a good way of making the weighing of the all of the currencies together. But basically if you want it to weigh it by market gap, in terms of how much each currency’s worth, you’ll end up with something in the range of 10 to 15%. So basically the average Fiat user is losing something like 10 to 15% of their wealth and Fiat every year because of inflation. And even if the prices aren’t rising by 10%, that doesn’t really matter because prices are dropping for many goods because of increases in economic productivity. But if there was no inflation, all of that drop in prices would be reflected in essentially a negative inflation rate, a negative price inflation rate.

Saifedean:

So we’re missing out on you’re missing out on an average of 10%. And even if your inflation shows up as 5%, it could have been that we had 5% price deflation we’d have had a 5% decline in prices in a world like that. And of course I discussed how it’s not possible to think of inflation as a scalar metric. I’m with Michael Saylor on thinking of it as a vector, inflation depends on the goods that you’re looking at. And so for the more valuable and more desirable goods, inflation is always much higher than the CPI because the CPI includes a lot of industrial stuff that is very cheap to produce at scale. And so it doesn’t suffer as much from inflation and because people substitute away from good things into buying cheaper things, that severely undermines severely understates, the extent of inflation. If everybody was still eating, if everybody would eat the good food inflation would show up at a much higher price, but people have to make do because they can’t afford the better food.

Saifedean:

So they eat the cheaper foods. And then the ma the basket of good looks like it is not rising in price as much, but you could think of it as something conservatively, we’ll say 10% per year as a metric and then money Fiat money is roughly a quarter of the world’s financial wealth. So people keep money and financial assets, a lot of more. There’s a lot more money in financial assets than there is in fiat money. And that’s because Fiat money is broken, but so that’s basically 10% of 25% every year. So 2.5% of the world’s wealth is basically conservatively speaking, 2.5% of the world’s wealth every year is being destroyed through fiat. And that’s a very conservative estimate. And it’s enormous when you think about a 2.5% of the world’s wealth, and that’s a really conservative estimate of it.

Saifedean:

It’s an enormous amount, but what’s even worse about it is if you really think of it who holds the majority or who is being affected by it the most. If you were to think about who holds the majority of the cash, the majority of the cash is held by rich people who don’t for which it doesn’t constitute a major problem. Most rich people don’t have most of their wealth in fiat money. We’re not in physical cash and not in checking accounts. They have it in real estate, they have it in stocks and bonds and all kinds of fiat financial instruments, but they don’t keep cash on hand. Then they they’ll obviously have a lot more cash than poor people, but it’ll be a much smaller percentage of their savings or their wealth. But for the vast majority of people in the world, the vast majority of their wealth is in cash.

Saifedean:

So the poorest people in the world they’re the people who have $50 in and they’re in cash, it could be in dollars or it could be in their local currency. And these are the people that are losing the most rich people can protect themselves from inflation by buying financial assets, but poor people can’t buy assets and poor people can’t buy gold and sit on gold and pay all the costs of maintaining and moving gold around. They can’t buy stocks, they can’t afford to buy hard assets. And so their only hope of saving into the future is cash. Their only hope is just holding on to money, and then that’s constantly being destroyed. And it’s constantly being destroyed to pump the numbers for stocks and bonds government. And all the instruments that are held by the richest people.

Saifedean:

So it’s absolutely staggering. You see so many Fiat people constantly prancing on about inequalities, bad inequality is bad, and yet nobody ever mentions this. Nobody ever mentioned the fact that government money, which usually to be fair to these people that are always on about inequality, fiat economists that talk about inequality. They’re paid by Fiat and they’re effectively parasites who don’t have real jobs that could exist on the market. They’re paid by government agencies that print money and hand them that money. So when you see people like Piketty or Krugman, or all of these fake Fiat socialist economists going on about the problems of inequality, they’re not going to point out at the, they’re not going to your finger at the mechanism at the root, at the mechanism that is every year punishing, the world’s poorest people. But with something like, if they’re lucky, 10% inflation, and the majority of the world’s poorest people don’t have access to the world’s best currencies. They’re having to save in their local shitcoins. And so they’re losing 10, 20, 30, 40, maybe 90% a year of their wealth. And on the other hand, that inflation is going to pump the bags of rich people and to pay the salaries of Fiat parasites, like Fiat economists. But they don’t talk about that.

Stephan Livera:

Yeah. So to summarize then of course talking about the people who are hurt by the Fiat standard, these are people who are poor people who are saving into cash. You’re losing, if you’re a later comer in terms of the new money. Now, the people who are winning out of the fiat standard is government because they have a lot of debt. The people who get a lot of debt, the people who get that new debt first people who are able to maneuver the system well, such that they can play the debt game very well. They are all massively benefiting and profiting. And even this effect is if anything amplified during this COVID hysteria era over the last year or so, we’ve seen some of them just absolutely kill it in terms of how much profit they’ve made. I also wanted to touch on just those total figures, as well as you were saying, the total money stock the world.

Stephan Livera:

So I guess just some rough numbers just to throw them out there. So people have a concept of what’s going on. If we were to look at something like broad money, US M3 globally would be something in that kind of 90 trillion range. And then global wealth on some of the recent credit Swiss estimates is around 400 trillion. So, and I think they rightly say part of that is because US dollar has gone down a little bit relative to two years ago. Obviously there’s been a lot of inflation. So I think that’s an interesting question as well, because some people in the Bitcoin world, there’s this kind of meme of infinity divided by 21 million, but I’m actually starting to think that’s not quite right, because the global stock of money in the world is something like 90 trillion. And the global wealth is like 400 trillion. So I’m wondering what you think as an example, I’ll let me give it to you this way. Let’s say let’s just for a hypothetical, say 21 million Bitcoins have been issued. Could it be the case that global wealth is actually 80 million Bitcoins? You get what I’m saying?

Saifedean:

I think that’s a yeah, I think so. I think that would likely be the case. I think global wealth will be larger than the supply of Bitcoin, just because you’re not storing all of the wealth in Bitcoin. A lot of that wealth is stored in actual capital that is outside of Bitcoin. And then if you measured, the prevalent market price for that in the mark to market, yeah. You could take this factory and sell it for a hundred Bitcoin today, but you’re not. And so somebody else has the hundred Bitcoin, you have the factory and the factory is worth a hundred Bitcoins. So if you measure the value of all the capital, all the stocks out there it’ll be worth more than the amount of Bitcoin that is stored. Yeah, for sure. I think we’re not going to have everything going to Bitcoin.

Saifedean:

It’s not all of the world’s financial assets, because I think there will still be stocks. There will still be equity, but I think we’re going to eat pretty much everything. There will still be real estate, a lot of real estate, but it won’t be used as a store of value. And I think it will go back to a world in which people buy houses that they need to live in. And the consideration that, and then people go back to thinking about houses as a consumer good, which I think is something the Bitcoiners have. And it’s something that I’ve tweeted. Once I tweeted it almost as an afterthought, as a response to somebody. And if somebody was saying, well, a house is a capital good. No, a house is like a washing machine or a computer that’s long lived that durable goods, it’s a something that you use up and you need to maintain.

Saifedean:

And it doesn’t pay you cash. Obviously if you rent out a house, there is a capital good. But that is an investment. You’re paying money and it’s producing a cashflow, but people holding their house as an asset is as a saving account effectively is I think a phenomenon that is just Fiat. It’s just because of Fiat. And once you upgrade to the Fiat to the Bitcoin standard, you have no use for that. You don’t need a house, you don’t need to buy a house as a saving account. You buy the house that you need. And if you don’t want to be tied down to a place, you don’t have to buy a house and you move around. So I think this is, what’s likely to happen in my mind is that Bitcoin is going to eat the cash portion of global wealth and the cash substitutes.

Saifedean:

So all these crappy substitutes for cash that people use. So all the monetary premium on real estate is likely to be eaten up by Bitcoin. All the monetary premium on art is likely to be eaten up by Bitcoin. But I think the really big one, and of course all I would imagine government monies are going to be eaten up by Bitcoin. So the bond market and government monies would like to be either eaten up by Bitcoin or backed by Bitcoin. But I think the main course, and the big one is the bond market. I’m making the argument in this book that Bitcoin obsoletes bonds. I have a couple of pages of why I think we wouldn’t have bonds in this world. And I think that would be a wonderful thing. I’d like to think of myself as a bond abolitionist. I hope a hundred years from now, people look at me and say one of the people who fought the bond market and destroyed it.

Stephan Livera:

You’ll be like the George Soros, you know?

Saifedean:

Well, yeah, exactly. Like I think that the bonds are just a terrible idea. I don’t see. And I think the demand for bonds is driven by the fact that people need a store of value because cash is a shitty store of value. And so in a world in which you had good cash, why would you want to hold a bond and take on the credit risk? In a world in which you have no good cash, you have to do that. And you can’t hold equity. And the reason people hold bonds is because bonds are, they’re senior to equity in terms of repayments. So if your company goes bankrupt, you’ll pay the bond holders first, and then whatever’s left, you’ll pay the equity holders. So that makes equity dangerous to have in your balance sheet, as a cash reserve asset. It makes bonds more secure because you’re more likely to get paid back a bigger fraction of your investment. If you have significant, if it’s in bonds, but then if you replace, if you put us in a world in which everybody has access to a form of cash, that is a present good, that doesn’t require anybody to fulfill any obligation that has no credit risk attached to it.

Saifedean:

And it appreciates at say 5% a year. Imagine we’re in a world in which Bitcoin has eaten everything. Why would anybody want to hold a government bond or even a private company bond? I think in that kind of world everybody just holds Bitcoin. And then if you want to take on risk, you get equity. I don’t see why you would need, I don’t see how bonds fit in. I think bonds are just a make-do solution that is thriving because of the because of the peculiarities of the Fiat. And I think even under the gold standard the gold is kind of a proto-shitcoin in a sense because yes, it has great saleability across time, but it has crappy sensibilities across space. And so financial institutions as I was saying earlier, their financial infrastructure is a part of the monetary system. And so financial institutions and governments are able to monetize that into bonds perhaps, but hopefully Bitcoin fixes this.

Stephan Livera:

Yeah. Interesting stuff. And obviously I’m with you on the idea that we are going to be living in a much more equity based society as opposed to debt. But I’m curious, wouldn’t see some possibilities, therefore, other forms of debt then maybe even loans like just traditional loans or maybe more like corporate loans or corporate bonds, but maybe they would charge a higher interest rate. And it would be a much smaller market than what we see today. Wouldn’t you see a possibility for something like that?

Saifedean:

I think you might, but I see many reasons why you wouldn’t. I think on the demand side, why would anybody want to hold this kind of assets where you have unlimited downside, but you have limited upside, so you get paid 5% back or 10% back or whatever. If the company makes a profit, but if they go bankrupt, you lose 100%. So limiting that upside is something that I imagine is done in the fiat system because of the lack of a good alternative. If you had if you had a hard money that would appreciate at 5% in real terms, then your downside is capped to zero. There’s no way that you’re going to lose if you just hold on. So when your money is a melting ice cube, then yeah, you’re willing to take on this crappy risk because the alternative is equity, which has even more of a downside risk.

Saifedean:

So bonds are like, what has the least downside risk in a fiat system? This is how the Fiat scam really works and that the government destroys the currency in order to by issuing bonds. And by destroying the currency, it drives the demands for its bonds. So the inflation happens through bond creation and which is inflationary. And then that leads to governments that leads to people having to want to put their money in bonds, which subsidizes governments to continue to destroy the currency. If you think about it. I think perhaps the biggest malinvestment in history is the bond market. I should add this to the book. It just occurred to me right now, but I’m going to go add it right now. Get off the call.

Stephan Livera:

We’ll title this episode, the biggest malinvestment in history.

Saifedean:

Yeah. I think that’s probably a good way of thinking about it, because what’s happens when the government has the money printer? Is that they are able to borrow, and I remember your episode with Greg Foss when you were discussing, if somebody looked at the balance sheet of a government and ignoring the romanticism of the fact that it is a government and ignoring the fact that it has a money printer. If you just looked at receipts and the expenditures you would, they would be borrowing at 10x, the current interest rates that they have. And so the bond market thinks this is the bond market and the existence of the Fiat money printers has just been a massive subsidy to governments to allow them to borrow at much lower rate than they otherwise would. And the result of that is you have all these terrible incompetent governments being given endless amounts of money by investors, because look, they’re managing to pay it off.

Saifedean:

You look at Lebanon. They had about 200% of GDP in debt up until a couple of years ago out on. and that money was being invested in the government that had a train authority that spent a lot of money, but had no trains, there was not a single operating train in the entire country. And yet you had a train authority in the government. So you’re investing literally in a company that has fake trains and the Phantom trains. You’re investing in an electricity company that loses $2 billion a year and employs thousands of employees who don’t even show up to work. They just get their paychecks because the politician, they’re just basically the mafias of the politicians and they get their paychecks from the electricity company. Like nobody would invest in this kind of mess in the real world, but because of the Fiat money printer, you get a lot of people putting their money in there.

Saifedean:

And then of course, it seems to work and they’re constantly. All of the Fiat people are constantly telling you, well, it’s working in government that you don’t understand because governments can make money. No, you don’t understand. Governments are able to make money. So therefore they can’t go bankrupt. And then of course they do. And then the government collapses and the currency collapses. And then of course that same time the same idiots, the same inflationists who are saying, no, this can’t be a problem. They’ll use that as an excuse to promote even more idiotic and socialist methods of economic and central planning. So it’s been a huge malinvestment in my opinion. And I think I can’t see it surviving in the long run because if you really wanted cash with low downside, you just hold cash. And if you want it to take on risk for returns, you’d want all of the upside. And so you’d get the equity.

Stephan Livera:

Yeah. Interesting way to put it. And another way to put it another way to frame it, just to summarize as well. It’s just like fiat privilege. Bonds have existed become such a huge market because of fiat privilege. So because of regulatory reasons, so governments might mandate “Oh see bank XYZ, or insurance company. You must hold X, Y, and Z percentage of bonds.” Or there might be some financial plumbing system reason as discussed with Nick Bhatia on that episode where he was saying kind of, again, it’s an institutional setup thing that because people who want a certain level of safety or security in the bond, like I’m using air quotes here in the bond, in the government context, of safety that, because of this regulatory reason, and perhaps there is some inertia reasons. So there’s a lot of financial advisors who will go out there and tell their customers with a straight face, go 60, 40 stocks and bonds.

Stephan Livera:

And they’ll be sitting there in bonds, just losing money, hand over fist, instead of buying Bitcoin, when they could have just told them you could have done this. And so I guess bringing it back to the point you were saying, which is that we are going to be moving into a world that is more equity based, and I’m a hundred percent with you on this. As an example, let’s try if I were to try to paint out, I’m speculating a little bit, but I’m trying to paint out a scenario. What I think it might look like. We would be living in a growth deflationary world. We would be seeing something let’s just for, to pick a number, let’s say 5% growth in your purchasing power. So you might hold how many, like one Bitcoin or whatever, and the purchasing power of that in one year’s time would be 1.05 Bitcoin just making easy numbers.

Saifedean:

In last year’s Bitcoins.

Stephan Livera:

Yeah, In purchasing power terms. So you’d still obviously hold only one Bitcoin. And so then the question is, okay, so let’s say we’re in a steady state, hyperbitcoinised world. The world is transacting in Bitcoin and we’re using the lightning network and all of this, then the question is, someone comes to you and says, oh, Hey safety, would you like to buy it? My bond I’m going to pay you 5%. And then at that point, you’ve got to be thinking, well, Stephan, you dodgy bond salesman. How much are you offering me as a premium for this? And you might rightly say, look, Stephan, before I buy your bond off you. You’re gonna have to offer me a very significant premium, maybe 40%, 50%. It might have to be, It’s just a crazy punitive rate such that it just, the market is so small. And it’s almost non-existent or just a very small market relative to the bond market of today. What do you think?

Saifedean:

Yeah, perhaps, but I think the other aspect of the situation is, and I flesh out the argument in more detail in the book and I urge you to you can read the book now anybody who pre-orders, the book will be out in December, but you can pre-order it now. And you’ll get the draft of the book, which is almost finals. It’s going to get a little, few edits. Don’t do it over the next week or so before it’s shipped off to the printers. But I flesh out this argument in more detail there. I think another aspect of it is yeah. Another, the other aspect to keep in mind here is that when we have a form of money that is appreciating at 5% and nobody needs to do crazy financial wizardry in order to just save their money into the future. You would expect the saving would be far more prevalent.

Saifedean:

So I think we need to think bigger about the kind of transformative impact that it would have on capital markets. We would not be living in a world in which everybody is in debt, for many multiples of their yearly income. We’d be living in a world in which everybody has multiples of their yearly income in savings. I think this is the thing that if we imagine, if we, in the last 100 years, we didn’t have any of this Fiat bullshit and people just had kept on witnessing their money, get harder and better over the last century. Think about everybody of the listeners here, and I’m sure you have listeners from all over the world. So they’ve experienced all kinds of different episodes of inflation in their family over the last four generations. Now look back at your family and the last four generations, and think if all of these people in your family, in the last four generations on both sides of your family, if they all had a hard money to save into, think about how much wealth you would have today, if there wasn’t, if your country didn’t experience the hyperinflation it did in the 1970s, and then again in 2005, and then all of the inflation that took place before and after that, all of the high inflation and hyperinflation, if that wasn’t happening, if your grandparents didn’t have their business destroyed by hyperinflation, and if your parents didn’t have to move from one country to another, to start over again, because of inflation if all of that was happening.

Saifedean:

If all of that wasn’t happening to your family over the last four generations. And even if you, I don’t care if you’re from the poorest parts of the world, you would today have a lot more capital in your name. So think about a world in which everybody has a lot more capital saved up in Bitcoin, and then think about what’s going to happen to the cost of capital in that kind of world as saving increases, there’s an enormous amount of capital. So the interest rate is likely to be very low. In fact, the way that I see this happening is I essentially see that the market interest rate is going to drop towards zero. And if you read the Austrian economists from Mises perspective time preferences, obviously time preference is with creates interest rates, but time preference is not reflected on the market interest rates, time preference is reflected on originary interest rate, and then market conditions and adjustments for other things will lead to the market interest rates.

Saifedean:

So I think as people accumulate more and more capital, the originary interest rate could drop so much that it becomes indistinguishable from zero effectively or a close. It doesn’t become zero. Actually it becomes a little bit higher than zero, but then I flesh this out in more detail in the book, the interest rate is closer to zero. The originary interest is closer to zero, but then you’ve taken into account the cost of carrying the money. So the cost of saving and storing the money and the risk of losing it. And then you get to a point where effectively it’s a wash, you’re willing to lend out your money for 0% interest rate, as long as you trust the borrower. So that’s why I think we’ll move towards something that’s closer to Islamic finance in a Bitcoin world, because I don’t see anybody wanting to charge an interest rate because there’s an enormous amount of capital out there.

Saifedean:

And so if you can get capital, if you’re trustworthy enough to be able to get capital, you’ll get capital from people at zero interest rate. If they trust you and they like your cousin sees that you’re in trouble, you need some money because there was an earthquake and your house got destroyed and you want to rebuild whether your cousin has got 10 years, income of savings, and he’s going to be working for another 10 years. So he doesn’t really need these. So he could give you two years and come to rebuild your house. And then you pay him over the next few years. I can see that happening much more frequently. I can see that in a trustworthy individual in a clear situation around people that they trust you’d get the loan at 0%. And the lender would effectively be gaining, even though the nominal interest rate that they’re getting is 0%, they’re still getting the real interest rate on their money without having to pay for the storage of the money.

Saifedean:

And without having to take on the risk of it getting lost and stolen. And that’s never a zero risk. There’s always a risk that it could get lost or stolen, whatever you’re doing. If you’re holding your own keys or if you’re storing it with somebody else, risks will always exist. So when you borrow from him, you’re taking on that risk. If you lose the coins, he’s still going to, you still owe him. So I see that in this situation, I think anybody who needs a credit for a situation where you actually need credit, there’s going to be such an abundance of capital that you’ll be able to get it as long as you’re credit worthy. Whereas anybody who needs credit for a business, I don’t see why anybody would want to part with their precious satoshis give for your business. Unless they could share with all of the upside, because here’s the other thing, the only way that we can manufacture these crazy instruments like checking accounts and savings accounts and bonds, which promise you no downside, which tells you, yeah, we’ll give you a fixed upside of 3% a year, for instance, but whatever happens, you’re going to get your money back.

Saifedean:

The only way we can have this fiction is because of the magic money printer. The magic money printer is what makes this possible because every business has a risk. Every business can get wiped up. There are earthquakes that happen that are crazy global pandemic hysterias that break out and they can shut down your business. And you could have zero cashflow for a few years, and you might only be able to pay back your investors or your lenders, your creditors at 5 cents to the dollar. It can happen to the best business in the world. Things can happen like this so nobody can promise you risk-free return. It’s impossible. And the only reason that some entities can provide that is fiat privilege as you put it, they have the printer, and then they tell you, well, don’t worry.

Saifedean:

If my business goes bad, I’m connected to the printers and the printers will make good. Well, when you break away the printer, nobody can make you that offer. So they’re telling you, I’m giving you a 5% upside and they’re lying when they’re telling you that they’re protecting you from the downside. If they run out of Satoshis, they don’t have a satoshi printer that can bail them out. I think it will exist in the sense that some people will try it and some people will do it. But I think in the long run, the people who try it are going to get wrecked. If you do it eventually, there’s going to be that pandemic, that earthquake, that wipes out the business, and doesn’t give you the return. And in the case of the equity investor.They’re also going to go through that risk, but they will have been compensated in that on the good years they get the upside. They weren’t just getting the 3% they made the 20% and the 50% on the occasional great year.

Stephan Livera:

Yeah. Excellent explanation. I love that. And it’s really that we are moving into a world where in the future, like assuming the hyperbitcoinised world, people will just buy equity in a company that they know or they’re advising or things like that, where they know the industry, they know they’re a technical expert in that field. And they’re like these guys are going to make money because I know it. And like, even though I would’ve got my normal call, it 5% growth deflation level, this company, I think they’re going to go 30% per year. So I think I can, you know, it’s worth it, you know?

Saifedean:

Yeah, absolutely. I think basically holding onto cash is the equivalent of index fund in that world because you’re benefiting from everybody’s increase in productivity. Now, if you have a very good reason to suspect that this particular company is going to outperform the market is going to outperform my cash index fund, then you would invest in it. But I could imagine it in that kind of world for most people, investment is going to be more like a marriage you spend years getting to know the company and you get to know them really well. And then you invest in them. And it’s not something that you put the allocation there and you wait for a very long time and you don’t, you’re not you’re not doing short-term trading. You’re not doing technical analysis on the day-to-day movements. It’s there’s an enormous amount of capital in the market.

Saifedean:

And that capital is accruing value just because of economic growth. And then the only people that risk their capital are the ones that have very good reasons to do it. And I think we’d have a lot less malinvestment in that world. We would have zero bonds and we’d have no casino in the stock market. I can imagine the stock market being something very boring, where a company introduces a new technology or a new product. We witnessed, you could look at the stock price of the company and you could see this is when rumors started to circulate that they’re going to introduce their new product X. This is when they put out the prototype. This is when the competitors or somebody from the industry issued a report saying this isn’t going to work.

Saifedean:

So you could see that some people here was a little bit of a decline in the price of the stock. Then they launched the product and it exceeds expectations. So you see the price rise, like you could see a rational movement in the product was opposed to today, when essentially all stocks, monetary policy, all stocks. Well, they’re random noise around M2 basically you just project M2 and they’re just their own circumstances are why they are overvalued or compared to M2 or undervalued compared to M2. But the trend is, everything goes up with them too.

Stephan Livera:

Yeah. Excellent. And so it’s over the last year or two, we’ve seen some of the crazy excesses of that. We saw random couples on TikTok talking about how they would just buy things based on momentum, thinking they had invented some grand new strategy when really they were just, as you said, riding the M2 growth without knowing, without understanding what was going on. And so this whole idea of Robin hood trade around the little stocks, it’s not really going to be like in the future, that is not, this is very much a Fiat thing, and it may be Guido Hulsmann. I think watching one of his lectures, or maybe a book he’s written, he spoke about this idea. And I think you will relate to this as well as he has spoken about how in hard money societies, eventually people run out of things that they could invest into. And so then potentially they start seeing more patronage. And so, as an example, you might be like a rich guy in the Citadel with a lot of sats and you might be like, Hey, I’m going to build a cathedral for the Citadel, or I’m going to build some grand project. And maybe that’s the way it might operate in the citadels of the future. What do you think?

Saifedean:

I think so. Yeah. And I discussed this in the Bitcoin standard as well. And back then people had a lot of savings and the savings were hard money, and they were expecting those savings to maintain their value for hundreds of years. And so if you were going to spend money on something you’re taking away from your great-grandkids and if you’re going to buy something, you think of it as having to last so that your great grandkids could benefit from it. So you look at how people financed art back then they financed things that they thought would live forever. And a lot of them have you look at the Sistine Chapel today, it was financed with gold and it’s survived like gold. It has been a good investment for the people who put up the money for Michelangelo to build it because it’s maintained its value.

Saifedean:

So you had to offer real value for people in order to get their money. And I think, yeah, as that amount of saving increase, I think this is really what I’m trying to get the reader to imagine, which is in a world, in which we don’t have to constantly destroy our currency by 10% every year in order to make our payment system work in a world in which the payment system just has Bitcoin transaction fees, which the advantage of the Bitcoin transaction fees is that as the value of the transaction scales the value of the transaction feed does not necessarily scale. So currently you’re paying $2 but you could move a billion dollars with it, which is a negligible percentage is almost zero basically. And so even if Bitcoin transactions go up to $2,000, it’ll still be the negligible compared to moving around $2 billion you’re still moving it.

Saifedean:

It’s still one in a million if you’re paying a thousand dollars per billion dollars. So in a world in which we’re paying 1 millionth of the transaction value was a transaction fee. We don’t have to put up with all of the Fiat and in that kind of world, I think dare to dream, but yeah, we’d have a world in which everybody has savings. Everybody has a ton of savings or you’d have to. And I think we’d have a world in which people think of the future and the long-term much more. So people save more people take care of their families much more than so most people get born into the world with a lot of wealth that is just sitting there safely stored, available for them at any moment.

Saifedean:

So in case there’s an emergency, they always have enough money to take care of themselves. And if they ever want to invest in something, they always have ready cash. And so if you find an astonishing artist, or if you find an astonishing cause, or if you live in a town that doesn’t have a cathedral and you think this town could really use a giant cathedral in the middle something that my descendants 10 generations from now will remember me for. And you find a good cathedral builder. I think you’d do it. It’s not really much of an option today because for most people I think even rich people they need to continuously take their chips back into the casino in order to stay rich. You can’t just get rich in Fiat and go home and keep your wealth and be rich. No, you have to constantly take your chips back into the casino, run them again, or put them on red or black and hope that you get it. You have to always be investing. You have to always be following up on the bond market and the stock market and all kinds of different things, because otherwise you just witness your money, lose weight.

Stephan Livera:

Yeah. So it has huge implications for financial planning, family offices, financial institutions, all of these will have to dramatically shift their model as opposed to the model today, where as you’re saying, these rich families might have a family office or some wealth advisor tax planner, everything doing all of these things. And of course, I mean, some of that will still exist of course, but it’s just the way they operate will be so different. It won’t be, oh, here’s your 60, 40 stocks and bonds portfolio, or it’ll be more like, okay, here’s your Bitcoin allocation. And here’s how we’re sorting out your generational trust and these aspects. And it might be helping them manage their multisig keys and things like that for the longterm. And also an interesting point as well, as you rightly said we anticipate fees will rise.

Stephan Livera:

Of course, right now the block space market is quite cheap, but we anticipate a bull market, both in the price of Bitcoin and in the block space aspect of it. And hopefully with other improvements like lightning and potentially channel factories, all of these aspects could even give us even extra credit. Like even if we didn’t have lightning and channel factories and all these fantastical magical things, even Bitcoin alone would have been enough, but with this lightning network and all of these other layers and not just lightning, but other aspects of it, it really, you know, if we play our cards correctly, humanity could really do some good here. I think.

Saifedean:

So I think there’s a story in which people constantly think, well Fiat is going to collapse and then the world’s going to fall apart. And I think the last century might have been the world falling apart. I think two world wars and hundreds of smaller wars and the endless amount of genocides and government central planning and communism and all of that. Maybe we’ve already experienced the worst of it. Maybe this was the damnation that we had to go through for our ancestors sins. And maybe we’re now ready to switch. Maybe the world is going to change. And maybe we found the technical solution for the problem of money that is just going to improve life enormously. I’m quite optimistic that this is the case.

Stephan Livera:

So perhaps that is the white pill to finish up this episode. So listeners make sure you go to safety.com, buy the book, sign up with safety and scores. I, bought the book as well. And I definitely encourage my listeners also to do that safety in anywhere else. You would like them to follow you or find you online?

Saifedean:

Well, I’m on Twitter @saifedean. So I’m always very active on Twitter as are you usually and my website is Saifedean.com You can get my online courses and you can pre-order the Fiat standards. What does my other book principles of economics, if you pre-order it. Now, if you order a pre-order the Fiat standard. Now you’ll get the full draft of the book. And in December you’ll be able to get the audio book and the physical book and the digital book. And you can also, pre-order a hardcover signed copy. And if you do so in the next week or two, you, if you order the hardcover signed copy, you’ll be listed in the book as one of my supporters. So I’m self publishing the book and rather than selling the rights to a publisher so that I could get an advance, I decided I’m just going to sell a hard cover, signed copies for supporters. So if you want to be one of my supporters, go to my website and order the hardcover sign to copy.

Stephan Livera:

Fantastic. Well, thank you, Saifedean . And it was a pleasure chatting with you.

Saifedean:

Thank you, Stephan, always fun talking to you.