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Welcome to Bitcoin Study Sessions, Episode 34.

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Grant and I continue our discussion of the Satoshi Papers with Chapter 4, The Treasury Standard.

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I just wanted to take a moment to say thank you for everyone.

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When Grant and I started this, we were just doing it in order to have something to talk about and keep ourselves accountable.

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And now we're coming up on 500 subscribers.

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So if you would, please like, subscribe, comment, comment.

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That's what I was trying to say.

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Comment on the content.

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And we just really appreciate it.

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We're all in this together.

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Consider us your friends and reach out if you have any questions.

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Thank you.

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Hey, welcome back to another episode of what do we call it?

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Bitcoin study session.

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Bitcoin study session, the Bitcoin reader.

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I was trying to think deeply about what we should be called, but we've already determined that, Bitcoin study session.

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So that's what we're studying is Bitcoin via the Satoshi Papers, Reflections on Political Economy After Bitcoin, edited by Natalie Smolenski.

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This is a collection of essays, and we made our way to the fourth – well, rather the fifth essay.

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The first one was the unnumbered introductory essay that kind of gave an umbrella framework for this entire collection.

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That framework being what if Bitcoin is a refounding of our nation?

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We're doing this podcast on July 5th, so that should maybe resonate a bit.

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What does the future of the American project look like after Bitcoin?

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This essay is called The Treasury Standard Causes and Consequences by Joshua R. Hendrickson,

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who is a professor of economics at University of Mississippi,

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on Twitter at RebelEconProf.

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I'm also doing this in the morning.

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We're inverted.

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Usually I'm in the evening and Lucas in Malaysia is doing the morning,

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so I'm navigating this through my second cup of coffee,

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which barely penetrates the veil, the fog.

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But the Treasury standards.

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So we're going to today get into the weeds a bit on kind of the macroeconomic or rather monetary theory behind what makes something a global reserve currency, global reserve asset.

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In our previous essays, we kind of looked at Bitcoin or rather the environment that Bitcoin has created through the lens of anthropology, through the lens of philosophy, and through a lens of kind of, you might say, foreign policy.

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When we looked at easy money, easy wars, how Bitcoin can maybe lead to a lasting peace.

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This one, the Treasury Standard Causes and Consequences.

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so I'll do what we usually do

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give a short summary

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and then Lucas and I will discuss this

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but

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kind of an overarching idea here

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is that the state has been with us

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for a long time

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and nearly as long as it has been with us

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it has exercised two monopolies

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the monopoly on violence

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and the monopoly on currency

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and this article, this essay

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is really about the relationship

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between these two monopolies

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and how the monopoly on violence, the monopoly on currency determines, in a way, the type of monetary regime that we have.

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Our current monetary regime is kind of what is named in the title of this essay the Treasury Standard.

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In this regime, the dollar is the global reserve currency, and the U.S. Treasury is the global reserve asset.

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So how did this come about?

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Now, at the theoretical heart of this essay, Professor Hendrickson proposes an evolutionary theory, and there's kind of this theory about adoption of monetary regimes that guides the logic of this essay.

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The evolutionary theory is evolutionary in that monetary regimes are essentially selected by war.

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War is a selection mechanism. If a society is to survive war, it needs to be able to successfully generate emergency financing for war.

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When war hits, you need a lot of money fast, and you're likely going to need it in a sort of sustained way, unless you're going to win the war on day one, which usually doesn't happen.

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If you don't, then you get beat, and those who lose wars are discarded in the dustbin of history, and they simply don't speak further about what our monetary regime should be.

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War selects out failures.

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This is an evolutionary process of survival of the fittest.

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It selects for those states that can secure financing.

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In this way, states need to provide a core function of a state, of course, is a strong monopoly of violence.

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and this has led it to assert over time a monopoly on currency

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because if a state controls a currency, it has a source of emergency revenue generation.

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It can create more currency as a source of emergency funding.

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So that is the primary constraint or driver of the evolution of the monetary system

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is that money has to be able to serve as an emergency source of war financing

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if it is to propagate into the future on the back of the states that survive.

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But there are two constraints on this monopoly of money as emergency financing

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driving the evolution of the monetary regime.

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The monetary regime not only needs to provide emergency funding,

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but it needs to anchor long-term demand in order to maintain itself as a source of emergency financing.

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If you survive the war but then immediately collapse afterwards in an inflationary or deflationary spiral, then the monetary regime also does not survive.

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And the source of emergency funding also needs to prevent kind of potential revolutionaries from having similar capabilities.

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If you can win a war through emergency financing, but then internal parties are able to take that emergency financing and cause a revolution, then this society or state also disappears and the monetary regime suffers.

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So we get this evolutionary theory that money is essentially – the monetary regime is determined by what could provide an emergency source of financing in the case of war in a way that anchors to long-term demand and also prevents potential kind of upstarts from having the ability to use those capacities.

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So this evolutionary theory is kind of applied to history, and we get this general account.

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So we begin with money as a medium of account more than a medium of exchange.

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Early in the history or prehistory, we see kind of historical documents or references to like cattle or oxen being used to nominate exchanges.

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Something is worth X number of cattle or oxen.

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And we see the centrality of cattle in the etymology of words we use to talk about kind of payments.

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Pecuniary, fee, rupee, these are all words that in some way descend etymologically from cattle.

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Metals then emerge after this because they can serve as both a unit of account and a medium of exchange.

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It's very hard to – cattle aren't divisible.

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If something is worth a quarter of a cow, you can't maintain the integrity of the cow, obviously, and cut off a quarter of it.

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Metals, though, do allow for this divisibility.

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So they begin to – they kind of take the next – kind of are the next evolutionary stage of money on this cow.

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But what is a cow?

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It provides an easy unit of a cow.

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One cow is one cow.

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But what is a precious metal?

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It's not one metal.

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weight then has to emerge as a way to determine to delineate precious metals as a unit of account

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but then this also requires further things like a definition of weight and even more importantly

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a party a third party some trusted party to be the scale master to be the one that weighs and

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verifies the weight we then have the rise of coinage of these standard units of precious metals

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that have been verified by some third party via a seal to say this is one coin and some verified

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weight of a precious metal. The next stage is a very important one. This is where the monopoly

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of violence begins to intertwine with monopoly on currency. The state takes over the minting

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capacity, operates a mint, and becomes the party that says this coin is verified to be this way

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and is worth the specific thing that the seal on the coin indicates it's worth.

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Then this intertwining of the monopoly of violence, monopoly of currency,

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develops further throughout history with the kind of interaction with other technologies and advances.

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Banking and financing is a big one.

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Coins are heavy, difficult to transfer, and they kind of differ in value across different jurisdictions.

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A coin from one area is different than a coin from another area, and people don't know how to interchange these.

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So you get the rise of a specialized class of money changers to help people change money, but also to develop another capacity.

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capacity, money changers begin to store money and kind of hold, create accounts.

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People have accounts with them.

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People deposit money with them.

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And money changers are able to resolve transactions among account holders without actually having

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to do cumbersome transactions.

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And as we saw in more detail when we reviewed and discussed Lynn Alden's broken money, this

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leads to the rise of banking and financing, banking and finance, where you begin to get

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things like bank notes and bills of exchange where credit begins to be exchanged in lieu of

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the actual coins themselves. This then begins to diminish the use of coinage because coins are

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cumbersome, reduces transaction costs to simply pass a note to somebody else. So banking and

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finance is one technological advance that begins to disrupt the state's monopoly on money through

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the operation of a mint. Another thing that interacts with this is the military revolution,

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specifically gunpowder, which really revolutionizes and changes the way that wars are fought,

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making them much more expensive and leading to more open-ended conflicts, which are going to

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create a greater demand for a more sustained form of emergency finance. So the new monetary regime

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that emerges that kind of takes us from just a government-operated mint

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as a form of a monopoly on the currency is the Bank of England.

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It's going to take into account banking and finance

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as well as the new military paradigm and demonstrate –

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well, when I said Bank of England, I really kind of mean the gold standard

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as administered by the Bank of England,

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which is able to use the gold standard to successfully fight wars.

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The Bank of England, in Professor Hendricks' estimation, demonstrates how the convertibility – so one way to use the gold standard to also have a source of emergency financing in times of war is to simply suspend the convertibility of banknotes into gold during a crisis.

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So usually you can't print more gold, and so the ability to have emergency financing if you're constrained by gold in the event of an emergency is not great.

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You're kind of stuck with the amount of gold you have.

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But if a central bank can simply say this note that says it's good for one gold coin, you can't actually redeem it now because we're at war.

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the state can then print more money, give more banknotes, and in the short run has a source of emergency financing for war.

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As I mentioned, there's constraints on this.

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You have to anchor this to long-term demand and also prevent upstarts from utilizing the same source of revenue

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if you actually want to not only survive the war but survive the time after the war.

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The Bank of England is able to do this because it can, as a central bank, suspend the redemption for gold during the war but then also promise, hey, after this war is over, we're going to actually take these notes back at parity with what they were worth before the war.

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So people are then kind of like, OK, we'll go along with this, and money is able to retain its value despite kind of more monetary creation, more money being created.

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And as a central bank too, Professor Hendrickson notes that it operates kind of like a poison pill such that revolutionaries, they couldn't say, ah, if you go along with our revolution, then we will forgive all the debts because there's now this central bank that a lot of people are creditors to.

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And if you abolish all that debt, there's going to be kind of widespread financial crisis.

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The central bank is now systemically important in a way that prevents upstarts and revolutionaries from undermining the state from within.

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So in this way, through the paradigm kind of pioneered by the Bank of England of suspending gold convertibility during war, but promising after the war to reestablish parity, the gold standard becomes the source of emergency financing for war that is able to anchor long-term demand but also prevent potential upstarts.

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The gold standard, though, continues evolving, and that's what this article is about, about the treasury standard, causes and consequences.

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The treasury standard is going to show itself to be superior as – again, this is Professor Hendricks' theory – superior as an emergency source of war financing that anchors long-term demand and prevents upstarts.

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The gold standard, this is a story that if you've kind of read about Bitcoin or economic history, you've heard this story, including on this podcast, that the gold standard is suspended.

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So here's the telling here.

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So the gold standard is suspended in World War I.

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Again, this is how the gold standard operates.

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During war, you suspend the standard.

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You suspend the redemption.

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And then after the war, you reestablish.

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But then after World War I, the countries were now in kind of a really global economic system. The countries couldn't cooperate on restoring parity to anchor long-term demand, and so we get the Great Depression, rising prices, and eventually another world war.

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Bretton Woods, the Bretton Woods Accord

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is an attempt then

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to coordinate nations

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after the Second World War

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around a hybrid gold standard

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with the US dollar as the global

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reserve currency redeemable for gold

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but this attempt

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fails essentially because

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the US refuses to give up

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its own domestic and foreign policy

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objectives including forever wars

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in places like Vietnam

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in order to finance these US

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engages in policy interventions that lead to the evolution from the Bretton Woods arrangement to

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the treasury standard, which is now the prevailing monetary regime. So this process is notably

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evolutionary and bottom-up based on trial and error, but also has a top-down or conscious element.

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The bottom-up element in this story is that people are incentivized to remove transaction costs,

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which spurs innovation in the type of money used in the monetary regime. This is how we get to

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banking from coins by the desire to remove the transaction costs from having to transport around

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heavy coins. The top-down element is how I began this summary. It's how the state steers money

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to better secure its own monopoly on violence. So I'll quote Professor Hendrickson here.

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Across the many centuries of the human written record, many state monopolies have come and gone.

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Only two state monopolies seem to persist across those centuries, the monopoly over money and the monopoly over violence.

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It stands to reason that one might begin the inquiry by examining whether these two monopolies are related.

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So this top-down element of the state influencing the direction of monetary regime in order to secure financing for war also has an evolutionary angle.

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So the monopoly on money allows the state to have a source of emergency war financing and so to survive and propagate as a victor in a military conflict We see this in the U this top element to secure emergency war financing through the monetary regime

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in U.S. policy interventions after World War II, in which we move out of the Bretton Woods system into the Treasury system.

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So I'll quote Professor Hendrickson again.

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Throughout the post-Bretton Woods era, the U.S.'s commitment to its desired policies was a constant.

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At no point did the U.S. reverse course on policy as a result of the fiscal pressure presented by the mass redemption of dollars.

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Instead, U.S. policymakers constructed various international agreements and attempted to use international institutions to underwrite the continuation of their policies.

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Once it became evident that these solutions were not going to work, the U.S. abandoned the Bretton Woods system entirely.

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So the underlying theory, again, is that the monetary regime wins when it allows for securing emergency war financing while also satisfying the two constraints of anchoring long-term demand and preventing competitors.

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The evolutionary framework overall is that states are better able to have emergency financing over the long term and better able to survive when they can also provide that long-term price stability and survive military encounters.

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To quote Hendrickson, the primary claim – and this kind of summarizes it nicely, so I've kind of tried to reiterate it multiple times because I want to get the central point where I'm at home, but here's Hendrickson really stating it nicely.

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The primary claim of this hypothesis that the state monopoly over money is driven by the desire to provide open-ended funding during wars and perhaps other national emergencies.

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To maximize the revenue that the state can generate, it must commit to overall price stability in order to anchor money demand.

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Along these lines, the state must also prevent competitive monetary alternatives.

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So at the end of the day, the Treasury Reserve Standard emerges out of the failure of Bretton Woods. The U.S. would not coordinate with other nations in a way that required it to give up emergency funding for its own national domestic projects or to end its endless foreign wars.

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Instead, again to quote Hendrickson, the Treasury Standard, which followed the Bretton Woods systems, was in some sense the natural evolutionary outcome of this process.

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It replaced the neutral reserve asset of the past, gold, with the debt security issued by the world's most powerful sovereign.

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In doing so, the Treasury Standard replaced the commitment to redemption with a more moderate commitment to relative price stability.

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Just to conclude the summary, Hendrickson notes that the Treasury standard has problems, as kind of if you're listening to this podcast or simply are unaware Americans, you probably know.

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Historically, financial cost of war was a restraint on war making, but the U.S. Treasury Reserve system has lowered that cost and so lower the incentive to avoid war.

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And the second, fragility is built into the system because the reserve asset, U.S. Treasury, is a debt instrument.

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So that concludes the summary.

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As usual in the summary, I had to leave out a lot of the – specifically the historical detail that backs up a lot of the assertions and that drives this evolutionary narrative and shows how monetary regimes have evolved as four sources of emergency war financing.

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by satisfying the constraints of anchoring long-term demand and also preventing competitors.

203
00:21:02,348 --> 00:21:06,588
So definitely, as with all these essays, give it a read so you can really fill out the pictures.

204
00:21:07,668 --> 00:21:13,548
But Lucas, I was curious then what you – I mean just generally first I'll throw it over to you for your thoughts.

205
00:21:13,688 --> 00:21:20,328
I mean what you think about this evolutionary framework, an evolutionary framework that has bottom-up elements.

206
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People are incentivized to choose a money based on the reduction of transaction costs.

207
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but also the top-down elements where it's chosen by states in order to maximize their ability to win wars, essentially.

208
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The saying, always assume incompetence before malice comes to mind,

209
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because he talks about the assumption he carries is that this is not intentional,

210
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that we got here by trial and error, simply by governments trying out different things

211
00:21:58,608 --> 00:22:04,508
and whatever seemed to be the, I would say probably politically,

212
00:22:04,748 --> 00:22:12,108
it was probably whatever politically you could get away with kind of at the time.

213
00:22:12,308 --> 00:22:15,208
I know that kind of makes it sound more like malice,

214
00:22:15,208 --> 00:22:22,028
but basically like whatever you could politically do that's not going to hinder your chances of remaining in power.

215
00:22:22,348 --> 00:22:50,768
And so I think we all would like to feel as though there is something to fight, that there is the evil supervillain hiding in the lair with the concocted Austin Powers scheme.

216
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yeah the creature from Jekyll Island

217
00:22:53,028 --> 00:22:53,828
exactly

218
00:22:53,828 --> 00:22:57,308
by the way I'm getting to that too

219
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so it's

220
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it's kind of to me

221
00:23:01,048 --> 00:23:03,428
it is I think it started

222
00:23:03,428 --> 00:23:05,328
I think he's very right in acknowledging

223
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that it started by trial and error

224
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but you have a feedback

225
00:23:09,428 --> 00:23:10,728
loop and

226
00:23:10,728 --> 00:23:13,068
you try something and it works

227
00:23:13,068 --> 00:23:14,828
and then you try something else and it works

228
00:23:14,828 --> 00:23:17,148
and then you kind of stumble onto this thing where

229
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it's like hey

230
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we've got this mechanism that somehow we were able to sell people on the idea that we're going to take this thing, gold,

231
00:23:31,628 --> 00:23:40,808
and we're going to use it to back currency, and we're going to say the gold is always going to be there in exchange for the currency,

232
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except when you actually need it.

233
00:23:44,408 --> 00:23:55,488
And when you actually need it during war, when it's actually skyrocketing in value because we're printing money like crazy, you can't have it.

234
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So it's kind of like a parachute that only opens when you're on the ground.

235
00:24:04,708 --> 00:24:06,708
And then you're like, oh, it's perfect.

236
00:24:06,908 --> 00:24:07,968
Like it's absolutely perfect.

237
00:24:08,008 --> 00:24:10,408
Then you take it up in the plane, you jump out, and you just go splat.

238
00:24:10,408 --> 00:24:16,388
Yeah, but even on that though, it's like the state has a monopoly on violence for a reason.

239
00:24:16,568 --> 00:24:18,608
Like it means people want the state to have that.

240
00:24:18,708 --> 00:24:21,148
They want an army in order to defend from invasion.

241
00:24:21,148 --> 00:24:35,068
So it's not like it's a bad thing that money is used as emergency war financing and the fact that the redemption of like the banknote for gold, that the fact that that happens during war, if it's a just war, people probably don't care.

242
00:24:35,348 --> 00:24:38,788
And if it's a war for the survival of the nation, that's a good thing, right?

243
00:24:38,788 --> 00:24:40,788
I mean –

244
00:24:40,788 --> 00:24:43,428
I feel like you're setting me up.

245
00:24:44,608 --> 00:24:46,628
If it's a just war, I don't know.

246
00:24:46,708 --> 00:24:51,928
I don't really know what a just war is because the –

247
00:24:51,928 --> 00:24:53,448
The last time we had a just war, right?

248
00:24:53,788 --> 00:24:54,028
Yeah.

249
00:24:54,428 --> 00:24:57,548
The wars we see in Hollywood movies, not the wars that actually occur.

250
00:24:57,648 --> 00:24:58,388
That's a just war.

251
00:24:59,108 --> 00:24:59,328
Yeah.

252
00:24:59,328 --> 00:25:18,128
So I think what I'm trying to get at here is that the, you know, so you stumble on, blind man just kicking rocks all of a sudden stumbles on to a gold mine and then realizes how to make that work to the advantage.

253
00:25:18,428 --> 00:25:18,588
Yeah.

254
00:25:18,588 --> 00:25:23,788
you're able to have this money that's used for emergency funding.

255
00:25:24,488 --> 00:25:29,608
But then my question becomes, who's making the emergencies?

256
00:25:31,008 --> 00:25:36,568
I think that's the really interesting question there, too.

257
00:25:36,568 --> 00:25:41,208
It's like, yeah, everything's a just war if you sell it as one.

258
00:25:42,548 --> 00:25:43,648
We've got to go here.

259
00:25:43,728 --> 00:25:45,128
We've got the global war on terror.

260
00:25:45,288 --> 00:25:46,688
We've got to go to Iraq.

261
00:25:46,688 --> 00:25:49,348
that makes a lot of sense

262
00:25:49,348 --> 00:25:53,108
we've got to go to Afghanistan

263
00:25:53,108 --> 00:25:54,888
now we've got to go to Ukraine

264
00:25:54,888 --> 00:25:56,008
now we've got to go to

265
00:25:56,008 --> 00:25:58,848
everything

266
00:25:58,848 --> 00:25:59,968
everything

267
00:25:59,968 --> 00:26:01,148
here's the thing

268
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it's

269
00:26:01,728 --> 00:26:08,768
they realize

270
00:26:08,768 --> 00:26:10,588
that

271
00:26:10,588 --> 00:26:13,128
every time they throw their hands up

272
00:26:13,128 --> 00:26:14,228
they, who's they?

273
00:26:14,888 --> 00:26:16,488
capital T they

274
00:26:16,488 --> 00:26:17,648
The they

275
00:26:17,648 --> 00:26:19,868
And by this point

276
00:26:19,868 --> 00:26:20,728
Now I am

277
00:26:20,728 --> 00:26:23,428
Onto the evil superhero part

278
00:26:23,428 --> 00:26:24,008
Where I'm like

279
00:26:24,008 --> 00:26:26,248
We've gotten to this point

280
00:26:26,248 --> 00:26:30,648
They stumbled onto this perfect recipe

281
00:26:30,648 --> 00:26:31,168
Where

282
00:26:31,168 --> 00:26:34,668
They realize that every time they declare an emergency

283
00:26:34,668 --> 00:26:36,548
They get to make all this money

284
00:26:36,548 --> 00:26:38,808
And they also

285
00:26:38,808 --> 00:26:41,188
Are tied to all of the industries

286
00:26:41,188 --> 00:26:43,288
That benefit from the creation of that money

287
00:26:43,288 --> 00:26:44,608
And they're tied to the industries

288
00:26:44,608 --> 00:26:46,968
that benefit from the creation of war.

289
00:26:48,768 --> 00:26:53,348
And so all of a sudden now, there's just emergencies all the time.

290
00:26:54,808 --> 00:26:55,728
Everything's an emergency.

291
00:26:55,728 --> 00:27:01,708
So anyways, that's kind of like the, you know, you want to call it the conspiracy view.

292
00:27:01,848 --> 00:27:06,248
But I also think it's like a very logical, reasonable way to look at it.

293
00:27:06,428 --> 00:27:11,388
Like if you were a dude and you could never get a date

294
00:27:11,388 --> 00:27:14,108
and you were just trying out pickup lines

295
00:27:14,108 --> 00:27:16,408
and none of them worked and none of them worked

296
00:27:16,408 --> 00:27:18,548
and none of them worked and then all of a sudden there was this one

297
00:27:18,548 --> 00:27:22,068
and you said it and literally every time you said it

298
00:27:22,068 --> 00:27:25,068
the clothes just blew off of this gal

299
00:27:25,068 --> 00:27:30,268
and now all of a sudden Pamela Anderson or whatever the modern version is

300
00:27:30,268 --> 00:27:32,528
Yeah, you need to update your examples

301
00:27:32,528 --> 00:27:35,368
Yeah, she's like 60 now

302
00:27:35,368 --> 00:27:39,108
But, you know, if all of a sudden you're like

303
00:27:39,108 --> 00:27:48,068
oh, if I just utter these little incantations, you know, emergency, patriotism, justice, community,

304
00:27:48,408 --> 00:27:52,968
for all, rising up, not falling down, then I can get what I want.

305
00:27:53,048 --> 00:27:54,428
Then you just do it.

306
00:27:54,888 --> 00:28:01,128
However, so that's the, like, that's the whatever you call it, the conspiracy view.

307
00:28:01,588 --> 00:28:06,548
What I found really interesting in this was, like, I'd never stopped to consider, like, wait.

308
00:28:06,968 --> 00:28:09,028
Like, why did wait come about?

309
00:28:09,108 --> 00:28:19,088
Like that was probably the most interesting thing to me in this essay was that we had – the saying now is one Bitcoin is one Bitcoin.

310
00:28:19,328 --> 00:28:28,328
But the original saying was one cow is one cow, which actually wasn't – one cow wasn't equal to another cow.

311
00:28:28,448 --> 00:28:32,528
All cows are different and some are older, some are bigger, some are smaller, et cetera, et cetera.

312
00:28:32,528 --> 00:28:38,168
But at least it was a reasonable unit that had some homogeneity.

313
00:28:39,108 --> 00:28:46,968
But then, yeah, you go to, well, we can't just split up a cow because when you split up a cow, it's not a cow anymore.

314
00:28:47,128 --> 00:28:47,868
Now it's supper.

315
00:28:48,668 --> 00:28:51,988
And you can't take supper and put it back together and make it a cow.

316
00:28:52,628 --> 00:28:57,408
So let's move on to something else, on to metals.

317
00:28:57,408 --> 00:28:59,608
And so, you know, they try bronze and they try iron.

318
00:28:59,708 --> 00:29:04,628
And that kind of makes sense because most of those things were in the form of tools.

319
00:29:04,628 --> 00:29:07,308
and those tools were somewhat standard

320
00:29:07,308 --> 00:29:11,588
and you're just basically trading an axe for another...

321
00:29:11,588 --> 00:29:15,768
This axe is basically as good as that axe and it's fine

322
00:29:15,768 --> 00:29:18,868
and you have a unit of account, basically.

323
00:29:19,428 --> 00:29:22,528
But then you go to these metals

324
00:29:22,528 --> 00:29:29,748
that are primarily used for adornment and jewelry and stuff

325
00:29:29,748 --> 00:29:31,868
and it's like there's not really a unit of account.

326
00:29:31,868 --> 00:29:35,328
So how do you have this consistent thing?

327
00:29:35,428 --> 00:29:40,568
And it's fascinating to think about that because there was no scale.

328
00:29:40,848 --> 00:29:46,088
You didn't step on and it told you what you weighed because weight wasn't really a thing.

329
00:29:46,188 --> 00:29:47,268
There was just comparison.

330
00:29:47,888 --> 00:29:49,928
This is equal to this much.

331
00:29:50,968 --> 00:29:53,328
This much gold is equal to this much gold.

332
00:29:53,428 --> 00:29:56,488
Therefore, these two amounts of gold are the same.

333
00:29:57,048 --> 00:29:59,568
And then you just keep going on down the line, right?

334
00:29:59,568 --> 00:30:00,968
Now it's this piece of gold.

335
00:30:01,048 --> 00:30:01,688
Now it's this one.

336
00:30:01,868 --> 00:30:30,968
And so I think that's just really fascinating how the transition away from cows as money to metal as money is what gave us the concept of weight and developed this idea of a system of measurement for mass that had a, you know, had units to it that we, you know, hadn't really explored before.

337
00:30:30,968 --> 00:30:34,428
Yeah, I found that really fascinating.

338
00:30:34,428 --> 00:30:41,628
No, I mean that's an interesting part of this essay is that it gives us an evolutionary account of money.

339
00:30:41,888 --> 00:30:55,968
And so like Professor Hendrickson does do a really good job of tracing not just those very interesting anecdotal tidbits like you mentioned there about weight as a way to determine the unit of account for a precious metal.

340
00:30:55,968 --> 00:31:16,468
But also his really interesting thesis about the intertwining of monopoly of violence and the monopoly over money, how – I mean he suggests in parts I think that like tyranny as a political kind of concept evolves in conjunction with like coinage and the operation of the mint.

341
00:31:16,468 --> 00:31:20,628
Like you get the tyrant because you get somebody who begins to control money.

342
00:31:20,828 --> 00:31:37,328
And then this then has the evolutionary surviving power because once you have like the monopoly of violence wedded to monopoly over the money, you have something that's able to survive with the fittest.

343
00:31:37,328 --> 00:31:45,748
You have a unit, in this case a tyrannical city-state or other political unit, that's able to beat other ones and so propagate.

344
00:31:46,528 --> 00:31:51,148
And so you have an evolutionary story that unites a lot of interesting things.

345
00:31:51,688 --> 00:32:01,968
And just to draw back – to kind of go back to your other point, there is conspiratorial thinking that people are given to when they look at the way that the monetary system operates, how we got to this point.

346
00:32:01,968 --> 00:32:07,908
And I think Professor Hendrickson does a good job of not capitulating to conspiratorial thinking.

347
00:32:08,108 --> 00:32:13,028
He has a general theory of kind of the evolution of money and the transition between different monetary regimes.

348
00:32:13,288 --> 00:32:16,748
But he does note that it is both bottom up.

349
00:32:16,888 --> 00:32:23,768
It is both driven by kind of technology, driven by the incentives that people have to reduce transaction costs.

350
00:32:23,908 --> 00:32:25,308
But there is a top-down element.

351
00:32:25,448 --> 00:32:30,588
It has been driven by states making – kind of doing specific policy interventions.

352
00:32:30,588 --> 00:32:41,848
It's not conspiratorial because it's kind of trial and error. States are like trying to increase their emergency funding capacities and they're just trying different things.

353
00:32:41,848 --> 00:32:59,428
But, you know, there is an intentional element as to how we got to the U.S. Treasury system monetary regime, even if that intentionality was kind of a stumbling forward in search of the best system to provide the U.S. with this kind of radical emergency funding power.

354
00:33:00,588 --> 00:33:14,928
Okay, so, yeah, we're kind of on the same page a little bit. So what I'm saying is that it didn't begin conspiratorial, but it became that way.

355
00:33:14,928 --> 00:33:15,668
Yeah, yeah.

356
00:33:16,268 --> 00:33:17,048
That's enough.

357
00:33:17,288 --> 00:33:17,468
Right.

358
00:33:17,788 --> 00:33:19,948
I think that's legitimate.

359
00:33:20,288 --> 00:33:24,748
I do believe that that is legitimate, that what is a conspiracy?

360
00:33:25,828 --> 00:33:37,528
Conspiracy is just a – it's basically a plan that other people don't know about that you can use to do something that's in your best interest, not theirs or whatever.

361
00:33:38,428 --> 00:33:40,448
That absolutely occurs.

362
00:33:40,448 --> 00:33:45,828
and so I think that that's always just been the case

363
00:33:45,828 --> 00:33:47,548
whenever you have representative leadership

364
00:33:47,548 --> 00:33:52,588
that there's always this quid pro quo thing going on in the back room

365
00:33:52,588 --> 00:33:56,288
and it can be limited

366
00:33:56,288 --> 00:33:59,888
when the money is tied to something that is redeemable

367
00:33:59,888 --> 00:34:03,768
and that redemption is able to stand

368
00:34:03,768 --> 00:34:07,488
and there's a physical element that's holding it back

369
00:34:07,488 --> 00:34:10,968
only this much gold, only this much Bitcoin,

370
00:34:11,228 --> 00:34:13,648
but when there's no element back.

371
00:34:14,528 --> 00:34:17,488
One of the things that I want to talk about was the...

372
00:34:17,488 --> 00:34:23,388
So the monopoly on power,

373
00:34:24,668 --> 00:34:25,808
you know, monopoly on violence,

374
00:34:26,848 --> 00:34:31,248
and the monopoly on money going hand in hand,

375
00:34:33,308 --> 00:34:36,328
is that the premise that...

376
00:34:36,328 --> 00:34:39,928
I feel like, you correct me if I'm reading into this wrong,

377
00:34:40,048 --> 00:34:43,768
but I feel like what the author is stating is that

378
00:34:43,768 --> 00:34:51,868
the money is understandably needed to be expandable in this way

379
00:34:51,868 --> 00:34:57,188
to provide for emergency funding in order to fight wars that come upon.

380
00:34:57,188 --> 00:35:12,677
My impression of history is that half the wars are started by somebody else and half the wars are started by you basically

381
00:35:12,677 --> 00:35:13,416
Yeah, yeah.

382
00:35:13,416 --> 00:35:29,496
So, I think, and I think that a lot of times you can look at the reason for war and you can go, oh, well, what is, we learned this from Jason, like, so, okay, so what's the definition of war?

383
00:35:29,496 --> 00:35:39,876
It's a power projection competition between two or more competitors, and they're competing over the access to and the ability to deny access to resources.

384
00:35:40,816 --> 00:35:52,376
And let's say you're just a nice little peaceful country, but you do have a government that has the ability to feed itself a little kicker by making its own money.

385
00:35:52,996 --> 00:35:57,696
And then that goes on and it goes on and it goes on, and eventually it gets a little out of hand.

386
00:35:57,696 --> 00:36:05,496
And now all of a sudden you've got an inflated system where people can't afford stuff.

387
00:36:05,816 --> 00:36:10,096
And really what you need is more gold to back that money.

388
00:36:10,316 --> 00:36:11,876
And where can you get more gold?

389
00:36:11,976 --> 00:36:13,936
Well, you can go take it from someone else.

390
00:36:14,276 --> 00:36:16,276
And so you can go Star Wars.

391
00:36:16,276 --> 00:36:21,716
So basically what I'm saying is that I don't necessarily agree.

392
00:36:21,716 --> 00:36:31,896
I agree with half of what he's saying, where he's saying that the money is needed to be expandable in order to fight these wars.

393
00:36:32,496 --> 00:36:38,856
But I would also put forth the idea that the wars are fought because the money is expandable.

394
00:36:39,096 --> 00:36:39,356
Yeah.

395
00:36:39,856 --> 00:36:42,476
It is a cause as well as a symptom.

396
00:36:42,716 --> 00:36:43,096
Yes.

397
00:36:43,236 --> 00:36:44,657
And he agrees with you here.

398
00:36:44,657 --> 00:36:46,016
So I described it badly.

399
00:36:46,016 --> 00:36:51,956
So first of all, on the evolutionary theory, war is simply a selection mechanism.

400
00:36:52,177 --> 00:37:05,177
War is neither good nor bad, but it's inarguably the case that the winner of the war is the one who survives in the future and that the winner of the war therefore determines what the future monetary regime is going to look like.

401
00:37:05,256 --> 00:37:09,036
Whether it's a just war or an unjust war, it's not the case.

402
00:37:09,036 --> 00:37:23,256
For example, if a country gains a monopoly over its currency and becomes suddenly very belligerent and invades all of its neighbors who don't have monopolies over their currency and wins those wars, those are wars of aggression.

403
00:37:23,436 --> 00:37:30,677
Maybe they're unjust wars. That's irrelevant. It's simply the case that it has propagated its conception of the monetary regime.

404
00:37:30,677 --> 00:37:42,016
It has spread its own monetary technology. It determines what the future will be because that which survives determines what is going to be the case in the future.

405
00:37:42,496 --> 00:37:52,496
That's how evolution survived the fittest. The fittest is not the most just, not the one that prosecutes the nicest or the most just wars.

406
00:37:52,496 --> 00:38:09,117
It's those who win the wars and emergency war financing, whether a just war and unjust war, emergency war financing helps people win and so helps people convert the future into like their vision of what the future is going to be or like just to propagate into the future.

407
00:38:10,796 --> 00:38:11,836
Does that make sense?

408
00:38:12,696 --> 00:38:13,016
Yeah.

409
00:38:13,196 --> 00:38:18,936
Well, it's a system that once one person adopts it, everybody else has to, right?

410
00:38:19,177 --> 00:38:21,516
This is my – I think we've talked about this before.

411
00:38:21,516 --> 00:38:29,976
This is like one of the few things that I don't really understand about what's going to happen.

412
00:38:30,216 --> 00:38:32,356
I mean, there's a lot I don't understand about what's going to happen.

413
00:38:32,677 --> 00:38:43,516
But I don't have a clear picture in my mind of what the world looks like if a country goes on, let's say the United States goes on a pure Bitcoin standard.

414
00:38:44,216 --> 00:38:44,596
Yes.

415
00:38:44,596 --> 00:39:11,896
And China does not. Then there will be a reasonable amount of time, years, maybe even decades, probably a decade or so, where the one country, the United States, would be actually kind of limited.

416
00:39:11,896 --> 00:39:19,756
because they wouldn't be able to start throwing all kinds of money out at war,

417
00:39:19,756 --> 00:39:25,036
and China would still have enough legitimacy to create a ton of debt

418
00:39:25,036 --> 00:39:28,916
and go out and maybe attack and fight at war.

419
00:39:30,117 --> 00:39:36,756
I know the author addresses this a little bit where he talks about one of the –

420
00:39:36,756 --> 00:39:46,456
You have to, looking at money, one of the things that makes the money useful is that you have to back figure.

421
00:39:46,896 --> 00:39:52,157
If it's not going to be worth something in the future, why would it be worth anything now?

422
00:39:54,016 --> 00:40:00,236
And that's like how somebody who thinks about things thinks, but a lot of people don't think about things.

423
00:40:00,296 --> 00:40:02,096
A lot of people feel about things.

424
00:40:02,096 --> 00:40:09,296
and so I could see the scenario where it's like yeah the U.S. is going to adopt Bitcoin as a

425
00:40:09,296 --> 00:40:15,336
treasury standard that's awesome China is going to keep inflating fiat awesome in five years the

426
00:40:15,336 --> 00:40:21,096
U.S. is going to be 20 times richer than China it's going to be the global dominant superpower

427
00:40:21,096 --> 00:40:26,776
once again and everything's going to be great but then it's like what happens for the next five years

428
00:40:26,776 --> 00:40:29,376
during that time

429
00:40:29,376 --> 00:40:31,336
because there's still going to be a lot of people

430
00:40:31,336 --> 00:40:32,216
that believe in China

431
00:40:32,216 --> 00:40:34,676
This is a question we had in the last essay

432
00:40:34,676 --> 00:40:37,376
so easy money, easy wars, the evolution of war

433
00:40:37,376 --> 00:40:39,176
finance, forever wars and the prospects

434
00:40:39,176 --> 00:40:40,376
of a Bitcoin piece

435
00:40:40,376 --> 00:40:43,296
and the author posed this question

436
00:40:43,296 --> 00:40:45,736
is it simply unilateral disarmament

437
00:40:45,736 --> 00:40:47,576
if one country

438
00:40:47,576 --> 00:40:48,856
goes on a Bitcoin standard

439
00:40:48,856 --> 00:40:51,137
and to put it in terms of Hendrickson's essay

440
00:40:51,137 --> 00:40:53,396
does a country give up

441
00:40:53,396 --> 00:40:55,476
the evolutionary advantage

442
00:40:55,476 --> 00:40:58,936
of a source of emergency war financing

443
00:40:58,936 --> 00:41:03,236
if they adopt a Bitcoin standard.

444
00:41:03,556 --> 00:41:04,896
And I think that's an open question.

445
00:41:05,056 --> 00:41:07,396
Do you hamstring yourself as a nation state?

446
00:41:07,496 --> 00:41:09,016
Maybe it's good for the people involved.

447
00:41:09,096 --> 00:41:10,216
People don't want war,

448
00:41:10,376 --> 00:41:12,456
but it's not whether you want war or not.

449
00:41:12,496 --> 00:41:13,736
It's whether you could win the war

450
00:41:13,736 --> 00:41:14,756
when war happens.

451
00:41:15,476 --> 00:41:17,856
And so that's an open question.

452
00:41:17,976 --> 00:41:18,776
I think one of the,

453
00:41:19,176 --> 00:41:21,796
there's always variables in these open questions

454
00:41:21,796 --> 00:41:23,296
because it's not just,

455
00:41:23,296 --> 00:41:34,056
will Bitcoin act like gold and constrain emergency funding in a way that in the past led us to get off the gold standard in order to better prosecute wars?

456
00:41:34,056 --> 00:41:44,176
But like Bitcoin and its attendant technologies like cryptography and just the nature of Bitcoin.

457
00:41:44,816 --> 00:41:48,996
So there's as an evolutionary theory, there's both a bottom up and a top down angle.

458
00:41:48,996 --> 00:41:58,196
The bottom-up angle is that that which reduces transaction costs is going to better serve as money, as a medium of exchange.

459
00:41:58,196 --> 00:42:06,176
And so if Bitcoin and layer twos or whatever can reduce transaction costs, there is that bottom-up force.

460
00:42:06,496 --> 00:42:09,836
It then becomes a matter of the top-down policy interventions.

461
00:42:10,536 --> 00:42:19,536
Will the state resist something that seems to reduce its ability to engage in emergency war financing?

462
00:42:20,016 --> 00:42:21,637
Yeah. You would think it would.

463
00:42:21,637 --> 00:42:27,356
I mean, just like not even thinking about this in any sort of like negative or spiritual terms.

464
00:42:27,356 --> 00:42:46,696
But I mean, the state is an organism, and if this is something that will harm that organism by limiting its freedom, limiting its ability to do whatever it wants, then it would understandably fight that.

465
00:42:46,696 --> 00:43:06,657
I wanted to ask you, do you think that, so let's assume that it is the case that adopting Bitcoin as a treasury standard is a unilateral disarmament where you're limiting your ability to create emergency funding in order to go to war.

466
00:43:06,896 --> 00:43:08,776
Let's assume that is the case.

467
00:43:08,776 --> 00:43:21,996
So does that make the case to avoid Bitcoin or does it make – I think it makes the case to accumulate in quiet and do it in secret.

468
00:43:21,996 --> 00:43:41,356
Yeah. No, no. I guess I don't think so. We've reached the point evolutionarily where the ability to have emergency financing to prosecute wars is actually making us less secure as a nation.

469
00:43:41,356 --> 00:43:55,996
These forever wars are things in the past. Maybe there were you need to have emergency financing because if the Mongol horde appears over the distant hills, you got to mobilize quickly and pay people and get things together to survive existentially.

470
00:43:56,296 --> 00:44:03,196
We no longer fight existential wars. And in fact, the wars that we do fight seem to pose existential risk to us.

471
00:44:03,196 --> 00:44:25,637
So I think just from the evolutionary angle of that which survives, propagates, and defines the new standard, if Bitcoin restrains our emergency war financing in the sense that we no longer fight forever wars, that's actually something that I think will conduce to an evolutionary success in the long term.

472
00:44:25,637 --> 00:44:41,117
So I think Bitcoin, even if it does reduce emergency war financing, in some sense will only do so – will tend to do so in relation to kind of these voluntary foreign excursions.

473
00:44:41,256 --> 00:44:52,356
I do think of an existential threat arose, things like paper Bitcoin and things will – there will be systems that arise to allow us to prosecute the just existential war.

474
00:44:52,356 --> 00:44:55,436
you had a line in there

475
00:44:55,436 --> 00:44:57,876
that kind of struck me

476
00:44:57,876 --> 00:44:59,996
and I want to talk about that for a second

477
00:44:59,996 --> 00:45:01,756
or maybe get you to go deeper into it

478
00:45:01,756 --> 00:45:02,356
which is like

479
00:45:02,356 --> 00:45:05,836
we no longer fight existential wars

480
00:45:05,836 --> 00:45:07,436
in fact the wars we fight

481
00:45:07,436 --> 00:45:09,096
are existential to us

482
00:45:09,096 --> 00:45:09,856
is that what you said?

483
00:45:09,856 --> 00:45:10,936
are threats

484
00:45:10,936 --> 00:45:13,536
are existentially threatening to us

485
00:45:13,536 --> 00:45:14,736
are existentially

486
00:45:14,736 --> 00:45:17,396
can you unpack that a little bit

487
00:45:17,396 --> 00:45:18,336
because I'm trying to understand

488
00:45:18,336 --> 00:45:19,696
it just seems like

489
00:45:19,696 --> 00:45:31,137
I mean it just seems like – so in the past perhaps there was a time – maybe this is like a kind of really general and abstract version of history.

490
00:45:31,296 --> 00:45:39,836
There was a time where if you weren't able to fight a war, your neighbor would invade you and wipe your civilization off the face of the earth.

491
00:45:40,576 --> 00:45:42,536
And your women would be taken.

492
00:45:43,157 --> 00:45:47,796
Your children would be made slaves and the men would be just brutally murdered.

493
00:45:47,796 --> 00:45:59,976
Now it seems like we don't really have those existential wars in that sense, maybe due to an uneasy detente around possession of nuclear arms.

494
00:45:59,976 --> 00:46:17,956
But it seems like the wars we do fight, like in Vietnam, Iraq, Afghanistan, are actually making us less secure and or not making us more secure enough in a way that would justify us engaging in them.

495
00:46:17,956 --> 00:46:38,556
And so like if in the past we had to have emergency war financing to preserve our very existence, it now seems like having this excess emergency war financing power is what is a threat to our existence because we begin to engage in wars indiscriminately, wars that actually make us less secure as a people.

496
00:46:38,556 --> 00:46:46,076
yeah it's almost as though if you go around the world enforcing democracy at the point of a gun

497
00:46:46,076 --> 00:46:54,657
somewhat indiscriminately you start to make enemies yeah and people don't like you as much

498
00:46:54,657 --> 00:47:01,396
and you kind of create uh you know that that's a okay i'm glad i'm glad i asked that question

499
00:47:01,396 --> 00:47:05,256
because that's a really great line and you had a really great explanation for it so

500
00:47:05,256 --> 00:47:14,836
So basically it's that we used to have a threat that if we were not able to win a war, we would literally cease to exist.

501
00:47:14,836 --> 00:47:20,016
And not just the soldiers, but the entire civilization.

502
00:47:22,096 --> 00:47:27,256
Or not civilization, but the entire culture or ethnicity or whatever.

503
00:47:27,256 --> 00:47:36,376
But now the wars that we fight, we don't face this threat of being wiped out.

504
00:47:36,556 --> 00:47:49,157
But what we do seem to be doing is by continuing to fight these wars, we are making ourselves more and more insecure against the world.

505
00:47:49,157 --> 00:48:01,416
So we go to South America and we use the CIA to help unseat someone that we don't like politically.

506
00:48:02,216 --> 00:48:05,296
And in the course of doing so, we create a drug trade.

507
00:48:05,976 --> 00:48:15,096
And then that drug trade becomes something that moves into America and the citizens start to suffer as a result.

508
00:48:15,096 --> 00:48:21,157
And then it also empowers the rise of narco cartels.

509
00:48:21,416 --> 00:48:26,776
And so that empowers those mutual enemies.

510
00:48:26,956 --> 00:48:31,356
So then you've got narco cartels that are joining forces with China.

511
00:48:31,936 --> 00:48:37,836
And so now all of the people that you've upset in the course of trying to get your way

512
00:48:37,836 --> 00:48:44,176
have chosen to maybe band together and somewhat come at you on different fronts and stuff.

513
00:48:44,176 --> 00:48:53,976
So, yeah, I think that's a really good take. It's very Nishian of you. There was a lot in that line. I'm very impressed.

514
00:48:53,976 --> 00:49:18,756
Well, and that's just one aspect of – so if we're considering like why – how we might move to a Bitcoin standard from a treasury standard if the Bitcoin standard would seem to constrain our ability to raise emergency war financing, that seems like a problem on Hendrickson's evolutionary theory and also just a problem that someone might consider if they want to say, well, how can our nation survive?

515
00:49:18,756 --> 00:49:25,916
And so the response, again, is we no longer fight existential wars, and the wars that we do fight are kind of prodding the bear to come and attack us.

516
00:49:26,416 --> 00:49:45,736
Another thing, another aspect of the treasury system that might prompt us to move to a Bitcoin standard, I'll just read Hendrickson, a quote from Hendrickson here, a paragraph, and this will get us to another one of the points as to maybe how the Bitcoin standard improves things in a way that would cause it evolutionary to supersede the treasury standard.

517
00:49:45,736 --> 00:50:15,716
Quote,

518
00:50:15,736 --> 00:50:17,796
to keep up with the growing demand for reserves.

519
00:50:18,316 --> 00:50:23,137
High levels of debt increase the likelihood that the U.S. will resort to inflation

520
00:50:23,137 --> 00:50:29,356
at some point in the future when tax revenues prove insufficient for repayment.

521
00:50:29,356 --> 00:50:34,496
The very possibility that the U.S. will resort to inflationary finance

522
00:50:34,496 --> 00:50:39,936
makes the system susceptible to a self-fulfilling prophecy among debt holders.

523
00:50:39,936 --> 00:50:48,096
And so another point then is just maybe the instability of the treasury system itself, and this actually is explained in Hendrickson's theory.

524
00:50:48,276 --> 00:51:02,796
Recall that his overall theory is that the monetary regime is that – the prevailing monetary regime will be that which allows for the best source of emergency war financing that also anchors long-term demand and protects against competitors.

525
00:51:02,796 --> 00:51:11,476
And so maybe the treasury standard is not going to successfully anchor long-term demand because people see the inflation in the cards.

526
00:51:12,076 --> 00:51:22,536
And as you noted, this idea of backward induction, if in the future you think that something is going to be worthless, you begin to get rid of it now so that you're not the person in the future who is holding the worthless thing.

527
00:51:22,536 --> 00:51:32,076
There's this argument right now that stablecoins are, I'm sure you've heard this recently, Trump and Besson, I think, talking about this.

528
00:51:32,137 --> 00:51:44,196
But there's this argument that stablecoins are basically going to save the dollar because people want stablecoins and stablecoins are backed by U.S. treasuries.

529
00:51:44,196 --> 00:51:53,137
And so the more demand there are for stable coins, the more market there is for U.S. treasuries, which right now the market is imploding.

530
00:51:53,556 --> 00:52:02,916
Like the bond market is, you know, we are on the precipice of a global bond crash.

531
00:52:03,776 --> 00:52:09,156
All of the signs are there and you're starting to see a ton of like just structural weakness.

532
00:52:09,156 --> 00:52:14,276
and Japan seems to be probably going to be the first to go off the cliff.

533
00:52:16,836 --> 00:52:27,416
But it's fascinating because the thing that kicks the can down the road and saves today

534
00:52:27,416 --> 00:52:29,776
is the thing that will eventually kill it.

535
00:52:29,836 --> 00:52:45,565
Because if you create more of a market for U Treasuries then they just going to print more money And if you just going to print more money then you just going to have to continue to play this game of we have to keep lowering interest rates in order to keep paying

536
00:52:46,805 --> 00:52:50,165
And by the way, somebody, I think this is very important to understand.

537
00:52:51,185 --> 00:52:52,465
We're not paying off debt.

538
00:52:54,185 --> 00:52:55,485
We've never paid off debt.

539
00:52:55,624 --> 00:52:56,825
We've refinanced debt.

540
00:52:57,465 --> 00:52:58,525
But we don't pay it off.

541
00:52:58,525 --> 00:53:00,585
We don't, you know, they said, you know, like,

542
00:53:00,585 --> 00:53:05,925
We need to pay down to debt, and Trump is talking about this right now, that rates should be at 1%.

543
00:53:05,925 --> 00:53:11,325
If rates were at 1%, it would save trillions of dollars because we got this debt that we got to pay off.

544
00:53:11,425 --> 00:53:12,965
It's like, we're not paying off debt.

545
00:53:13,085 --> 00:53:14,624
We are refinancing debt.

546
00:53:15,185 --> 00:53:21,604
And the only way to keep this game going is to have the money be cheaper in the future than it is in the present,

547
00:53:21,885 --> 00:53:27,225
which means to have lower interest rates, which inspires people to get rid of the money faster.

548
00:53:27,225 --> 00:53:33,765
and getting rid of the money faster is akin to exactly what you're talking about,

549
00:53:33,905 --> 00:53:38,305
which is if it's worth less in the future, why would I have it now?

550
00:53:38,305 --> 00:53:42,985
And so it merely incentivizes people, I think,

551
00:53:43,085 --> 00:53:48,665
to move even further away from and faster towards an alternative.

552
00:53:49,144 --> 00:53:50,745
And we've talked about this before.

553
00:53:50,745 --> 00:54:01,825
The second that $11 were created when there was only $10 of gold, the system was doomed to fail.

554
00:54:02,365 --> 00:54:04,365
There's no going back.

555
00:54:04,505 --> 00:54:13,124
There's literally never been a fiat currency that has existed in the past or exists.

556
00:54:13,325 --> 00:54:16,124
I mean, well, yeah, 4,000 fiat currencies.

557
00:54:16,865 --> 00:54:18,144
Almost all of them are gone.

558
00:54:18,144 --> 00:54:21,065
everyone that exists is down 99%.

559
00:54:21,065 --> 00:54:24,905
It is a system that is built for one purpose

560
00:54:24,905 --> 00:54:26,545
and it's to feed

561
00:54:26,545 --> 00:54:31,265
feed today at the expense of tomorrow

562
00:54:31,265 --> 00:54:33,144
so that you starve tomorrow.

563
00:54:33,144 --> 00:54:35,124
And you, yeah, so

564
00:54:35,124 --> 00:54:41,085
You do such a

565
00:54:41,085 --> 00:54:43,545
It's a system built not to feed

566
00:54:43,545 --> 00:54:45,325
on Hendrix's estimation

567
00:54:45,325 --> 00:54:48,085
it's a system built to feed wars

568
00:54:48,085 --> 00:54:49,725
that we might have today, right?

569
00:54:49,965 --> 00:54:51,465
It's the fiat money system.

570
00:54:51,885 --> 00:54:55,585
And it emerged like reasonably as a way to do it.

571
00:54:55,585 --> 00:54:58,665
It actually was the victor in an evolutionary selection contest

572
00:54:58,665 --> 00:55:02,265
of what is the technology that's going to help us with wars.

573
00:55:02,445 --> 00:55:07,005
I mean, it emerged as the victor because we can have $11 of value today

574
00:55:07,005 --> 00:55:09,825
and use all of that to buy gunpowder.

575
00:55:10,325 --> 00:55:12,124
That we draw out of the future.

576
00:55:12,325 --> 00:55:12,945
Right, yeah.

577
00:55:12,945 --> 00:55:16,565
And then in the future, we try to anchor long-term stability

578
00:55:16,565 --> 00:55:20,265
by promising to return to parity in the future

579
00:55:20,265 --> 00:55:24,025
and by making these commitments to restrain inflation, etc.

580
00:55:24,465 --> 00:55:29,405
Yeah, but parity is not like, yeah, parity is not parity.

581
00:55:29,405 --> 00:55:31,945
If it's, hey, we're going to give you the same amount of gold

582
00:55:31,945 --> 00:55:35,705
that you would have got when there was only a third as much money, right?

583
00:55:36,225 --> 00:55:37,885
I'm glad you said gunpowder, though.

584
00:55:38,365 --> 00:55:42,644
That, by the way, is one of the coolest things in this essay

585
00:55:42,644 --> 00:55:45,805
is this realization that...

586
00:55:45,805 --> 00:55:49,345
So when you use weapons for war

587
00:55:49,345 --> 00:55:52,345
that are one-time use only,

588
00:55:53,445 --> 00:55:55,805
then all of a sudden your cost of war skyrockets.

589
00:55:56,005 --> 00:55:58,085
When you've got a sword and a shield,

590
00:55:59,104 --> 00:56:02,205
and you've got one sword and you've got one shield,

591
00:56:02,305 --> 00:56:04,445
and you use the same damn thing for ten years.

592
00:56:05,825 --> 00:56:08,785
And then you think about a guy who's carrying an M60,

593
00:56:08,785 --> 00:56:14,765
and he's rocking in through tens of thousands of dollars of ammunition.

594
00:56:15,225 --> 00:56:18,225
It's really fascinating to think about.

595
00:56:18,225 --> 00:56:24,345
Not only did gunpowder enable a different type of warfare,

596
00:56:24,505 --> 00:56:25,745
that's obviously true,

597
00:56:26,124 --> 00:56:32,165
but it also, due to the nature of the one-time-use-only aspect

598
00:56:32,165 --> 00:56:37,285
of bullets and bombs and gunpowder itself,

599
00:56:37,285 --> 00:56:42,104
Like it rapidly and exponentially increased the cost of war.

600
00:56:42,305 --> 00:56:44,085
I never considered that.

601
00:56:44,325 --> 00:56:45,445
It was really fascinating.

602
00:56:46,045 --> 00:56:54,685
Right, and that's one of the drivers of the evolution of the monetary regime is the need to finance not just war but ever more costly wars.

603
00:56:54,925 --> 00:56:58,945
And as you know, yeah, gunpowder, it is a fascinating part of the essay.

604
00:56:58,945 --> 00:57:07,845
I mean, it's not just like it's the one-off nature of firing a bullet, but also suddenly all the fortifications we previously had, all the castles and stuff, now obsolete.

605
00:57:08,065 --> 00:57:11,644
You have to redesign your fortifications to survive the cannon.

606
00:57:12,205 --> 00:57:18,225
All of the boats we previously used, they were designed for speed, for ramming and boarding.

607
00:57:18,745 --> 00:57:24,425
Now the navy has to be redesigned for really large ships that can carry cannons.

608
00:57:24,425 --> 00:57:31,445
the infantry not only has this like one-off shot that they use and then have to reload but now they

609
00:57:31,445 --> 00:57:37,765
have to like do a bunch of drilling to learn how to like operate these weapons and it becomes more

610
00:57:37,765 --> 00:57:43,624
costly to field standing army so all of these like gunpowder revolutionizes warfare in a lot

611
00:57:43,624 --> 00:57:48,825
of different ways and all of these ways make it a lot more costly yeah and there's so much more

612
00:57:48,825 --> 00:57:54,845
ways too you know like if you if you're carrying a sword and a shield then you're not like leaving

613
00:57:54,845 --> 00:58:02,305
bullet casings laying around and there's not um you know there's not uh bomb bomb components and

614
00:58:02,305 --> 00:58:09,725
stuff like it's just really fascinating and like kudos to the guy kudos to the guy for uh for

615
00:58:09,725 --> 00:58:15,745
putting this out there because that's really cool um i love it when people make me realize something

616
00:58:15,745 --> 00:58:17,485
about history that is like,

617
00:58:17,644 --> 00:58:19,805
this was an inflection

618
00:58:19,805 --> 00:58:21,765
point, but not in the way

619
00:58:21,765 --> 00:58:22,285
you think.

620
00:58:23,185 --> 00:58:25,644
You think that gunpowder is

621
00:58:25,644 --> 00:58:27,525
this inflection point because it's like,

622
00:58:27,604 --> 00:58:29,665
oh yeah, now I can stand a long ways away

623
00:58:29,665 --> 00:58:31,725
and I can shoot you and you've got your

624
00:58:31,725 --> 00:58:33,604
stupid little sword and you're not going to get me.

625
00:58:34,144 --> 00:58:35,705
You think that that's like, oh yeah, I can

626
00:58:35,705 --> 00:58:37,245
see how that would change the face of warfare.

627
00:58:38,144 --> 00:58:39,665
But yeah, this

628
00:58:39,665 --> 00:58:41,445
aspect of the cost of it

629
00:58:41,445 --> 00:58:43,845
is really fascinating that I've never

630
00:58:43,845 --> 00:58:45,705
considered. And like all the essays

631
00:58:45,705 --> 00:58:46,624
in this anthology,

632
00:58:47,144 --> 00:58:49,005
I mean, this is a scholarly work,

633
00:58:49,165 --> 00:58:50,305
and it stands in the back

634
00:58:50,305 --> 00:58:51,505
of a lot of great scholarship.

635
00:58:51,845 --> 00:58:53,925
So these claims, like,

636
00:58:54,144 --> 00:58:55,565
about the nature of warfare,

637
00:58:55,685 --> 00:58:56,285
all these things,

638
00:58:56,345 --> 00:58:57,865
for example, footnote 62,

639
00:58:58,245 --> 00:58:59,465
it's one of those footnotes

640
00:58:59,465 --> 00:59:01,225
where it takes up more of the page

641
00:59:01,225 --> 00:59:02,925
than the text on the page.

642
00:59:03,445 --> 00:59:04,265
In a good way,

643
00:59:04,305 --> 00:59:05,005
this is not something

644
00:59:05,005 --> 00:59:05,905
where you have to, like,

645
00:59:06,045 --> 00:59:07,305
you just, like, okay,

646
00:59:07,365 --> 00:59:08,225
if I want to see

647
00:59:08,225 --> 00:59:09,925
the historical support

648
00:59:09,925 --> 00:59:12,565
for the role of war

649
00:59:12,565 --> 00:59:13,725
and the development of the state

650
00:59:13,725 --> 00:59:15,665
and kind of want to dig myself

651
00:59:15,665 --> 00:59:21,025
into this there's a bunch of i mean just like excellent citation he does a good job of in the

652
00:59:21,025 --> 00:59:25,584
main body of the text extracting the relevant arguments you don't have to dive into the footnotes

653
00:59:25,584 --> 00:59:30,965
if you don't want to but they are there for again if you really want to to see what the backing is

654
00:59:30,965 --> 00:59:38,245
and go further into the theme so he cites a he actually cites a couple people that um i'm thinking

655
00:59:38,245 --> 00:59:46,985
of Selgin, George Selgin, and David Graber, that kind of oftentimes, I would say, fall

656
00:59:46,985 --> 00:59:59,545
outside of the, that their work is not necessarily what people in the Bitcoin community are drawing

657
00:59:59,545 --> 01:00:02,705
from, or at least not directly.

658
01:00:02,705 --> 01:00:08,385
that they're, you know, like, for instance, the last one or two ago that we did,

659
01:00:08,385 --> 01:00:14,644
you know, that was literally just a argument kind of against Graeber's 5,000,

660
01:00:14,765 --> 01:00:19,285
first 5,000 years of debt book and the conclusions he came to.

661
01:00:20,885 --> 01:00:28,005
So, yeah, I think that's interesting because he, I saw, like, who he was citing.

662
01:00:28,005 --> 01:00:30,525
and I was like oh this might be

663
01:00:30,525 --> 01:00:32,685
this might not be something that

664
01:00:32,685 --> 01:00:34,725
I appreciate because I've read

665
01:00:34,725 --> 01:00:35,845
some of that other work and

666
01:00:35,845 --> 01:00:38,765
I think I got into it

667
01:00:38,765 --> 01:00:40,124
with George Selgin on Twitter

668
01:00:40,124 --> 01:00:42,345
a while back

669
01:00:42,345 --> 01:00:43,405
I think that's true

670
01:00:43,405 --> 01:00:46,965
and I didn't

671
01:00:46,965 --> 01:00:48,885
understand him I just did not

672
01:00:48,885 --> 01:00:50,565
understand what he was talking about

673
01:00:50,565 --> 01:00:52,265
yeah I mean he's a scholar

674
01:00:52,265 --> 01:00:53,604
this guy did really good

675
01:00:53,604 --> 01:00:56,604
Selgin is a scholar as I understand

676
01:00:56,604 --> 01:01:01,945
the history of private banking and has just like really has gone deep into that theme.

677
01:01:02,225 --> 01:01:05,025
Lynn Alden discusses his work as well.

678
01:01:05,505 --> 01:01:10,345
And so I think that among the Bitcoiners who really do a deep dive into kind of economic

679
01:01:10,345 --> 01:01:18,084
history, they see his discussion of private banking as very relevant to like the not like

680
01:01:18,084 --> 01:01:21,985
that money is not necessarily a product of the state.

681
01:01:21,985 --> 01:01:27,065
like the charter list will want to say money is only money if the state says it is money

682
01:01:27,065 --> 01:01:31,325
and then the person who's read Selgin could say but look at all these like the history of private

683
01:01:31,325 --> 01:01:36,604
banking there were these bank notes that were issued by these private banks and um and then

684
01:01:36,604 --> 01:01:42,545
yeah graber definitely a fascinating person this in hendrickson here he does give the deep history

685
01:01:42,545 --> 01:01:46,905
where he momentarily when he's talking about the evolutionary history of money he moves through

686
01:01:46,905 --> 01:01:48,885
that stage where perhaps money was

687
01:01:48,885 --> 01:01:50,945
simply credit or money

688
01:01:50,945 --> 01:01:53,025
originates as debt and not as barter

689
01:01:53,025 --> 01:01:54,725
kind of you know there's that debate

690
01:01:54,725 --> 01:01:56,425
is money initially

691
01:01:56,425 --> 01:01:59,045
invented or whatever to satisfy

692
01:01:59,045 --> 01:02:00,805
the double coincidence of once or is

693
01:02:00,805 --> 01:02:03,025
you know is it preceded actually by

694
01:02:03,025 --> 01:02:04,885
something like debt or social credit or

695
01:02:04,885 --> 01:02:06,885
something and so I mean Hendrickson

696
01:02:06,885 --> 01:02:08,745
definitely cites all the relevant people

697
01:02:08,745 --> 01:02:10,445
does a good job discussing them and so

698
01:02:10,445 --> 01:02:12,965
helps put the pieces together in a very cool way

699
01:02:12,965 --> 01:02:14,385
yeah

700
01:02:14,385 --> 01:02:16,785
I really enjoyed it

701
01:02:16,785 --> 01:02:39,124
Yeah, again, to kind of bring my side of it to a close, this anthology has a collection of essays that talk about money and power and government and state and debt.

702
01:02:39,124 --> 01:02:44,365
And it's all about Bitcoin and none of it's about Bitcoin.

703
01:02:44,365 --> 01:02:55,945
Like, it's unbelievable how good these people have done at breaking down from an academic standpoint.

704
01:02:56,305 --> 01:02:59,644
And maybe it's just because I'm not used to reading academic papers.

705
01:03:01,205 --> 01:03:09,845
But, you know, these are academic papers that are, they're not just stuffy.

706
01:03:09,845 --> 01:03:11,845
They're good reads.

707
01:03:12,245 --> 01:03:13,525
They're really good reads.

708
01:03:13,525 --> 01:03:15,685
and you learn a lot.

709
01:03:15,765 --> 01:03:17,025
You learn a lot about history.

710
01:03:17,644 --> 01:03:19,845
You learn a lot about the inflection points

711
01:03:19,845 --> 01:03:20,945
caused by technology.

712
01:03:21,885 --> 01:03:23,505
You learn a lot about

713
01:03:23,505 --> 01:03:25,885
basically like path dependence.

714
01:03:26,265 --> 01:03:27,765
You know, like this thing leads to another

715
01:03:27,765 --> 01:03:29,405
thing which takes you there.

716
01:03:30,825 --> 01:03:31,925
Again, kudos

717
01:03:31,925 --> 01:03:33,845
to Natalie Smolenski for putting this thing

718
01:03:33,845 --> 01:03:34,945
together and to

719
01:03:34,945 --> 01:03:38,005
rebel econ prof

720
01:03:38,005 --> 01:03:39,905
Josh Hendrickson

721
01:03:39,905 --> 01:03:41,265
or Hendrickson? Hendrickson, right?

722
01:03:41,445 --> 01:03:43,405
I've been saying Hendrickson, so I sure hope that's

723
01:03:43,405 --> 01:03:44,245
I think it's Hendrickson.

724
01:03:44,405 --> 01:03:44,705
Okay.

725
01:03:45,965 --> 01:03:46,825
Yeah, kudos to him.

726
01:03:46,825 --> 01:03:47,305
Yes, Hendrickson, yeah.

727
01:03:47,825 --> 01:03:50,084
Yeah, great, great job.

728
01:03:51,485 --> 01:03:52,644
That's about all I've got.

729
01:03:52,725 --> 01:03:53,965
What about you?

730
01:03:54,104 --> 01:03:55,545
What else would you like to talk about?

731
01:03:55,545 --> 01:04:01,624
No, I think a fascinating part of this anthology is that it's reflections on political economy after Bitcoin.

732
01:04:02,045 --> 01:04:07,225
In two of the essays, Smolensky's and now Hendrickson's really don't talk about Bitcoin at all directly.

733
01:04:07,225 --> 01:04:11,225
It is just like here is the situation of political economy.

734
01:04:12,365 --> 01:04:21,545
On Smolenski's end, like anthropologically, what does it mean to consider the nature of money now after Bitcoin?

735
01:04:22,165 --> 01:04:31,505
And then Hendrickson here, what is the current monetary regime we have and what is a viable theory to explain how we got here, the evolutionary theory he gives.

736
01:04:31,505 --> 01:04:36,665
So yeah, I love it because it's not just – I mean it's deep enough.

737
01:04:37,084 --> 01:04:43,845
It's so deep that you talk about Bitcoin without actually having to utter the name of Bitcoin, and it really does help your understanding.

738
01:04:44,065 --> 01:04:53,144
There's, I guess, two things I want to note from – there's obviously a lot of things in the essay we weren't able to touch on, and Lucas and I don't have expertise.

739
01:04:53,144 --> 01:04:58,265
We don't have academic kind of foundation in a lot of these subject matters, so we do our best.

740
01:04:58,265 --> 01:05:11,345
But read the essay for yourself. See what you think. Engage with the thoughts. Rebel Econ Prof is on Twitter. Natalie Smolinski is on Twitter. We're on Twitter. Read these things. See what you think and engage in the conversation.

741
01:05:11,345 --> 01:05:16,025
Two things I did want to note from the essay just to entice maybe to go further into it.

742
01:05:16,325 --> 01:05:19,905
There's a section called A Brief But Necessary Diversion Through Financial Bubbles.

743
01:05:20,405 --> 01:05:31,345
And so if you're interested in the history of financial bubbles, the author, Josh Hendrickson, does try to explain – like we tend to think of these things as kind of like irrational exuberance.

744
01:05:32,245 --> 01:05:37,345
Like asset prices are way out of whack for just like whatever reason, failures of human rationality.

745
01:05:38,865 --> 01:05:41,025
Prices are deviating from fundamental value.

746
01:05:41,345 --> 01:06:01,084
But Hendrickson does a good job, I think, incorporating these into his theories and showing these as kind of the trial and error failures in evolutionary history as we work our way towards the monetary regime that's best going to satisfy emergency war financing with long-term stability that prevents upstarts.

747
01:06:01,084 --> 01:06:17,065
So there's that section, which is good, and also the point which you've encountered in other things we've read that here, the monopoly of violence and the monopoly on currency is getting so and so tight with the treasury sanctions that now we have economic warfare.

748
01:06:17,065 --> 01:06:24,505
We actually wage war through financial sanctions using the system that we've built, the U.S. Treasury system.

749
01:06:24,825 --> 01:06:28,925
So violence is becoming money with the system that we have.

750
01:06:29,084 --> 01:06:40,205
And he does a really good job of talking about how we've used sanctions offensively and kind of give some historical accounting, including the most recent iteration against Russia with the war on the Ukraine.

751
01:06:40,925 --> 01:06:41,584
So that's all I got.

752
01:06:41,584 --> 01:06:50,124
The brief history on bubbles, that was talking about John Laws Bank and the South Sea Company, right?

753
01:06:50,365 --> 01:06:51,665
That's pretty fascinating.

754
01:06:52,325 --> 01:06:58,165
So just for, I mean, talking to you, talking to the people that are listening.

755
01:06:58,865 --> 01:07:09,925
So the South Sea Company was this effectively government-sponsored company that was created to bail out the government.

756
01:07:09,925 --> 01:07:16,144
that was given exclusive rights to trade in South America.

757
01:07:16,425 --> 01:07:18,604
I think one specific country, but I can't remember.

758
01:07:19,245 --> 01:07:26,624
And so basically what happens is that Bank of England goes broke

759
01:07:26,624 --> 01:07:32,084
and this company is created to buy the bank's debt

760
01:07:32,084 --> 01:07:38,365
and use the, yeah, to buy, it's not the Bank of England,

761
01:07:38,365 --> 01:07:40,405
The country is going broke.

762
01:07:40,885 --> 01:07:49,705
This company is created to buy their debt, use the debt to back shares in a newly formed company that's like a speculative thing.

763
01:07:50,104 --> 01:07:54,805
Hey, we're going to go trade in South America and we're going to bring back all kinds of wealth.

764
01:07:54,945 --> 01:07:56,905
And so you should buy shares in this company.

765
01:07:58,505 --> 01:08:04,365
And so first off, what they do is they're able to create money.

766
01:08:04,885 --> 01:08:08,325
And so they create money and they buy their own shares, driving the price up.

767
01:08:08,365 --> 01:08:10,245
and creating this bubble. That's fascinating.

768
01:08:10,445 --> 01:08:15,144
The other thing that's fascinating is that what the South Sea Company was really doing,

769
01:08:15,144 --> 01:08:20,745
this is in 1711, 1720 is when the crash happened.

770
01:08:22,005 --> 01:08:25,385
But what they're actually doing is slave trade,

771
01:08:25,944 --> 01:08:32,305
is that they had the exclusive right to take African slaves to this country

772
01:08:32,305 --> 01:08:49,065
and among limited trade capacity, which I just find interesting because there's so much talk about slavery,

773
01:08:49,065 --> 01:08:53,725
and it's always at this one specific period in the United States.

774
01:08:53,925 --> 01:09:00,065
But if you actually look through history, then slavery has occurred everywhere,

775
01:09:00,065 --> 01:09:07,865
everywhere and everyone pointing the finger is always in need of a mirror when it comes to that.

776
01:09:08,185 --> 01:09:13,565
So I thought that was pretty fascinating. I did not know that about the South Sea Company,

777
01:09:13,745 --> 01:09:19,205
so I got to learn that today. Yeah, there's a lot of, in the South Sea bubble, the Mississippi

778
01:09:19,205 --> 01:09:23,165
bubble, these experiments in consolidation of government debt, they're really interesting

779
01:09:23,165 --> 01:09:27,345
phenomena. And so yeah, if you're interested in that, give this essay a read as well.

780
01:09:27,345 --> 01:09:35,185
awesome all right well i have to go say goodbye to some boys from brazil that are throwing

781
01:09:35,185 --> 01:09:41,465
themselves a party and uh you have to go greet the morning i gotta gotta greet it here with

782
01:09:41,465 --> 01:09:46,705
four or five more cups of coffee until i've approached something like the rebirth of human

783
01:09:46,705 --> 01:09:53,205
consciousness within myself touching the black monolith to that is coffee you woke up significantly

784
01:09:53,205 --> 01:09:54,584
during the course of our talk.

785
01:09:55,065 --> 01:09:55,905
You started, man.

786
01:09:56,105 --> 01:09:58,665
You were wobbling like Rocky in the 12th round.

787
01:09:59,145 --> 01:10:01,285
Now you're ready to rock.

788
01:10:01,765 --> 01:10:03,624
Now I'm ready to do this conversation.

789
01:10:03,745 --> 01:10:04,105
Let's go.

790
01:10:05,984 --> 01:10:06,745
All right, guys.

791
01:10:06,845 --> 01:10:07,565
Thanks for being here.

792
01:10:07,725 --> 01:10:08,245
We'll talk to you later.

793
01:10:08,524 --> 01:10:08,845
All right.