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Speaker 1

01:00:00

I know how skeptical you are about the idea of creating a new university, because heaven knows, Peter and I have been discussing this idea for years, and he's always said, well, no, we thought about this, and it just isn't gonna work. But I really think we've got a responsibility to do this.

Speaker 2

01:00:15

Well, Steve's been on this podcast before. We've spoken a few times, so I'll send this to him. I hope he does actually get behind it as well.

Speaker 2

01:00:22

So I'm super excited by the ideas that we've been talking about that this effort represents and what ripple effect it has on the rest of society. So thank you, that was a time beautifully spent. And I'm really grateful for the fortune of getting a chance to talk to you at this moment in history because I've been a big fan of your work and the reason I wanted to talk to you today is about all the excellent books you've written about various aspects of history through money, war, power, pandemics, all of that. But I'm glad that we got a chance to talk about this, which is not looking at history, it's looking at the future.

Speaker 2

01:01:08

This is a beautiful little fortuitous moment. I appreciate you talking about it. In the book, Ascent of Money, you give a history of the world through the lens of money. If the financial system is evolutionary in nature, much like life on Earth, what is the origin of money on Earth?

Speaker 2

01:01:30

The origin of money

Speaker 1

01:01:33

predates coins. Most people kind of assume I'll talk about coins, but coins are relatively late developments. Back in ancient Mesopotamia, so I don't know, 5,000 years ago, there were relations between creditors and debtors.

Speaker 1

01:01:51

There are even in the simplest economy because of the way in which agriculture works. Hey, I need to plant these seeds, but I'm not going to have crops for X months. So we have clay tablets in which simple debt transactions are inscribed. I remember looking at great numbers of these in the British museum when I was writing the Ascent of Money, and that's really the beginning of money.

Speaker 1

01:02:18

The minute you start recording a relationship between a creditor and a debtor, you have something that is quasi-money. And that is probably what these clay tablets mostly denoted. From that point on, there's a great evolutionary experiment to see what the most convenient way is to record relations between creditors and debtors. And what emerges in the time of the ancient Greeks are coins, metal, tokens, sometimes a valuable metal, sometimes not, usually bearing the imprint of a state or a monarch.

Speaker 1

01:03:04

And that's the sort of more familiar form of money that we still use today for very, very small transactions. I expect coins will all be gone by the time my youngest son is my age, but they're a last remnant of a very, very old way of doing simple transactions.

Speaker 2

01:03:24

And when you say coins, you mean physical coins. I'm talking about- Because the term coins has been rebranded into digital

Speaker 1

01:03:31

space as well. Yeah, not coin-based coins, actual coin coins. You know, the ones that jangle in your in your pocket, and you kind of don't know quite what to do with once you have some.

Speaker 1

01:03:39

So that that became an incredibly pervasive form of paying for things. Money's just a crystallization of a relationship between a debtor and a creditor. And coins are just very fungible. Whereas a clay tablet relates to a specific transaction, coins are generic and fungible.

Speaker 1

01:04:00

They can be used in any transaction. So that was an important evolutionary advance. If you think of financial history, and this was the point of the ascent of money, as an evolutionary story, there are punctuated equilibria. People get by with coins for a long time, despite their defects as a means of payment, such as that they can be debased, they can be clipped.

Speaker 1

01:04:23

It's very hard to avoid a fake or debased money entering the system. But coinage is still kind of the basis of payments all the way through the Roman empire out the other end into the so-called dark ages. It's still how most things are settled in cash transactions in the early 1300s. You don't get a big shift until after the Black Death when there is such a need to monetize the economy because of chronic labor shortages and feudalism begins to unravel that you just don't have a sufficient amount of coinage and so you get bills of exchange And I'm really into bills of exchange because, and this I hope will capture your listeners and viewers' imaginations, when they start using bills of exchange, which are really just pieces of paper saying, you know, I owe you over a three-month period while goods are in transit from Florence to London, you get the first peer-to-peer payment system, which is network verified.

Speaker 1

01:05:29

Because They're not coins, they don't have a king's head on them. They're just pieces of paper. And the verification comes in the form of signatures. And you need ultimately some kind of guarantee if I write an IOU to you, Bill, James, I mean, you don't really know me that well, we only just met.

Speaker 1

01:05:49

So you might want to get endorsed by, I don't know, somebody really credit worthy like Elon. And so we actually can see in the late 14th century in Northern Italy and England and elsewhere, the evolution of a peer-to-peer network system of payment. And that's actually how world trade grows, because you just couldn't settle long oceanic transactions with coinage. It just wasn't practical.

Speaker 1

01:06:15

All those treasure chests full of doubloons, which were part of the way in which the Spanish empire worked, were really inefficient. So bills of exchange are an exciting part of the story, and they illustrate something I should have made more clear of the ascent of money, that not everything used in payment needs to be money. Classically, economists will tell you, ah, well, money, money has 3 different functions. You've heard this a zillion times, right?

Speaker 1

01:06:43

It's a unit of account, it's a store of value, and it's a medium of exchange. Now there are 3 or 4 things that are worth saying about this, and I'll just say 2. 1, it may be that those 3 things are a trilemma and it's very difficult for anything to be all of them. This point was made by my Hoover colleague, Manny Rincon Cruz, last year.

Speaker 1

01:07:03

And I still wish he would write this up as a paper because it's a great insight. The second thing that's really interesting to me is that payments don't need to be money. And if we go around, as economists love to do, saying, well, Bitcoin's not money because it doesn't fulfill these criteria. We're missing the point that you could build a system of payments, which I think is how we should think about crypto, that isn't money, doesn't need to be money.

Speaker 1

01:07:29

It's like bills of exchange. It's network-based verification, peer-to-peer transactions without third-party verification. When it hit me the other day that we actually have this precedent for crypto, I got quite excited and thought, I wish I had written that in The Ascent of money.

Speaker 2

01:07:46

Can you sort of from a first principles, like almost like a physics perspective, or maybe a human perspective, describe where does the value of money come from? Like where is it actually, where is it? So it's a sheet of paper or it's coins, but it feels like in a platonic sense, there's some kind of thing that's actually storing the value.

Speaker 2

01:08:11

Is it us, a bunch of ants are dancing around and so on.

Speaker 1

01:08:15

I come from a family of physicists. I'm the black sheep of the family. My mother's a physicist, my sister is.

Speaker 1

01:08:21

And so when you ask me to explain something in physics terms, I get a kind of, little part of me dies, because I know I'll fail. But in truth, it doesn't really matter what we decide money is going to be. And anything can record, crystallize the relationship between the creditor and the debtor. It can be a piece of paper, It can be a piece of paper, it can be a piece of metal, it can be nothing, it can just be a digital entry.

Speaker 1

01:08:51

It's trust that we're really talking about here. We are not just trusting 1 another, we may not, but we are trusting the money. So whatever we use to represent the creditor-debtor relationship, whether it's a banknote or a coin or whatever, it does depend on us both trusting it. And that doesn't always pertain.

Speaker 1

01:09:21

What we see in episodes of inflation, especially episodes of hyperinflation, is a crisis of trust, a crisis of confidence in the means of payment. And this is very traumatic for the societies to which it happens. By and large, human beings, particularly once you have a rule of law system of the sort that evolved in the West and then became generalized, are predisposed to trust 1 another, And the default setting is to trust money. Even when it depreciates at a quite steady rate as the US dollar has done pretty much uninterruptedly since the 1960s, It takes quite a big disruption for money to lose that trust.

Speaker 1

01:10:07

But I think essentially what money should be thought of as is a series of tokens that can take any form we like and can be purely digital, which represent our transactions as creditors and debtors. And the whole thing depends on our collective trust to work. I had to explain this to Stephen Colbert once in the Colbert Show, the old show that was actually funny. And it was a great moment when he said, so Neil, could I be money?

Speaker 1

01:10:41

And I said, yes, we could settle a debt with a human being that was quite common in much of history, but but it's not the most convenient form of money. Money has to be convenient, that's why when they worked out how to make payments with cell phones, the Chinese simply went straight there from bank accounts, they skipped out credit cards. You won't see credit cards in China, except in the hands of naive tourists.

Speaker 2

01:11:10

How much can this trust bear in terms of us humans with our human nature testing it. It seems, I guess the surprising thing is the thing works. A bunch of self-interested ants running around, trading in trust, and it seems to work, except for a bunch of moments in human history when there's hyperinflation like you mentioned.

Speaker 2

01:11:36

And it's just kind of amazing. It's kind of amazing that us humans, if I were to be optimistic and sort of hopeful about human nature, it gives me a sense that people want to lean on each other. They want to trust.

Speaker 1

01:11:51

That's certainly, I would say probably now, a widely shared view amongst evolutionary psychologists, network scientists. It's 1 of Nicholas Christakis' argument in a recent book. I know economic history broadly bears this out, but you have to be cautious.

Speaker 1

01:12:13

The cases where the system works are familiar to us because those are the states and the eras that produce a lot of written records. But when the system of trust collapses and the monetary system collapses with it, there is generally quite a paucity of records. I found that when I was writing Doom. And so we slightly are biased in favor of the periods when trust prevailed and the system functioned.

Speaker 1

01:12:47

It's very easy to point to a great many episodes of very, very intense monetary chaos, even in the relatively recent past. In the wake of the First World War, multiple currencies, not just the German currency, multiple currencies were completely destroyed. The Russian currency, the Polish currency, there were currency disasters all over Central and Eastern Europe in the early 1920s. And that was partly because Over the course of the 19th century, a system had evolved in which trust was based on gold and rules that were supposedly applied by central banks.

Speaker 1

01:13:28

That system, which produced relative price stability over the 19th century, fell apart as a result of the First World War. And as soon as it was gone, as soon as there was no longer a clear link between those banknotes and coins and gold, the whole thing went completely haywire. And I think we should remember that the extent of the monetary chaos from certainly 1918, all the way through to the late 1940s. I mean, the German currency was destroyed not once but twice in that period.

Speaker 1

01:14:00

And that was 1 of the most advanced economies in the world. In the United States, there were periods of intensely deep deflation, prices fell by a third in the Great Depression, and then very serious price volatility in the immediate post-World War II period. So it's a bit of an illusion. Maybe it's an illusion for people who've spent most of their lives in the last 20 years.

Speaker 1

01:14:27

We've had a period of exceptional price stability since this century began, in which a regime of central bank independence and inflation targeting appeared to generate steady below 2% inflation in much of the developed world. It was a bit too low for the central bankers liking, and that became a problem in the financial crisis. But we've avoided major price instability for the better part of 20 years in most of the world. There haven't really been that many very high inflation episodes and hardly any hyperinflationary episodes.

Speaker 1

01:15:03

Venezuela is 1 of the very few, Zimbabwe is another. But if you take a hundred year view or a 200 year view, or if you want to take a 500 year view, you realize that quite often the system doesn't work. If you go back to the 17th century, there were multiple competing systems of coinage. There had been a great inflation that had begun the previous century.

Speaker 1

01:15:23

The price revolution caused mainly by the arrival of new world silver. I think financial history is a bit messier than 1 might think. And the more 1 studies it, the more 1 realizes the need for the evolution. The reason bills of exchange came along was because the coinage systems had stopped working.

Speaker 1

01:15:44

The reason that banknotes started to become used more generally first in the American colonies in the 17th century, then more widely in the 18th century was just that they were more convenient than any other way of paying for things. We had to invent the bond market in the 18th century to cope with the problem of public debt, which up until that point had been a recurrent source of instability. And then we invented equity finance because bonds were not enough. So I would prefer to think of the financial history as a series of crises really that are resolved by innovations.

Speaker 1

01:16:20

And in the most recent episode, very exciting episode of financial history, something called Bitcoin initiated a new financial or monetary revolution in response, I think, to the growing crisis of the fiat money system.

Speaker 2

01:16:36

Can you speak to that? So what do you think about Bitcoin? What do you think it is a response to?

Speaker 2

01:16:43

What are the growing problems of the fiat system? What is this moment in human history that is full of challenges that Bitcoin and cryptocurrencies trying to overcome?

Speaker 1

01:16:55

I don't think Bitcoin was devised by Satoshi, whoever he was, for fear of a breakdown of the fiat currencies. If it was, it was a very far-sighted enterprise because certainly in 2008 when the first Bitcoin paper appeared, it wasn't very likely that a wave of inflation was coming, if anything. There was more reason to fear deflation at that point.

Speaker 1

01:17:22

I think it would be more accurate to say that with the advent of the internet, there was a need for a means of payment native to the internet. Typing your credit card number into random websites, not the way to pay for things on the internet. And I'd rather think of Bitcoin as the first iteration, the first attempt to solve the problem of how do we pay for things in what we must learn to call the metaverse, but let's just call it the internet for old time's sake. And ever since that initial innovation, the realization that you could use computing power and cryptography to create peer-to-peer payments without third-party verification, a revolution has been gathering momentum that poses a very profound threat to the existing legacy system of banks and fiat currencies.

Speaker 1

01:18:13

Most money in the world today is made by banks, not central banks, banks. That's what most money is, it's entries in bank accounts. And what Bitcoin represents is an alternative mode of payment that really ought to render banks obsolete. I think this financial revolution has got past the point at which it can be killed.

Speaker 1

01:18:37

It was vulnerable in the early years, but it now has sufficient adoption and has generated sufficient additional layers. I mean, Ethereum was in many ways the more important innovation because you can build a whole system of payments and ultimately smart contracts on top of Ether. I think we've now reached the point that it's pretty hard to imagine it all being killed and it's just survived an amazing thing, which was the Chinese shutting down mining and shutting down everything and still here we are. In fact, crypto is thriving.

Speaker 1

01:19:10

What we don't know is how much damage ill-judged regulatory interventions are going to do to this financial revolution. Left to its own devices, I think decentralized finance provides the native monetary and financial system for the Internet. And the more time we spend in the metaverse, the more use we will make of it. The next things that will happen, I think, will be that tokens in game spaces like Roblox will become fungible.

Speaker 1

01:19:43

As my nine-year-old spends a lot more time playing on computer games than I ever did, I can see that entertainment is becoming a game-driven phenomenon. And in the game space, you need skins for your avatar. The economics of the internet, it's evolving very fast. And in parallel, you can see this payments revolution happening.

Speaker 1

01:20:05

I think that all goes naturally very well and generates an enormous amount of wealth in the process. The problem is there are people in Washington with an overwhelming urge to intervene and disrupt this evolutionary process. Partly, I think, out of a muddled sense that there must be a lot of nefarious things going on. If we don't step in, many more will go on.

Speaker 1

01:20:34

This, I think, greatly exaggerates how much criminal activity is in fact going on in the space. But there's also the vested interests at work. It was odd to me, maybe not odd, perhaps it wasn't surprising, that the Bank for International Settlements earlier this year published a report, 1 chapter of which said, "'This must all go, must all stop. It's all got to be shut down, and it's got to be replaced by a central bank digital currency.'" And Martin Wolf in the Financial Times read this and said, I agree with this.

Speaker 1

01:21:04

And 1 suddenly realized that the banks are clever. They'd achieved the intellectual counter attack with almost no fingerprints on the weapon. I think central bank digital currency is a terrible idea. I can't imagine why we would want to copy a Chinese model that essentially takes all transactions and puts them directly under the surveillance of a central government institution, but that suddenly is a serious counter proposal.

Speaker 1

01:21:34

So on the 1 side, we have a relatively decentralized, technologically innovative, internet native system of payments that has the possibility to evolve, to produce a full set of smart contracts, reducing enormously the transaction costs that we currently encounter in the financial world, because it gets rid of all those middlemen who take their cut every time you take out a mortgage or whatever it is. That's 1 alternative. But on the other side, we have a highly centralized system in which transactions will by default be under the surveillance of the central bank. Seems like an easy choice to me, but hey, I have this thing about personal liberty.

Speaker 1

01:22:16

So that's where we are. I don't think that the regulators can kill Web 3. I think we're supposed to call it Web 3 because crypto is now an obsolescent term. They can't kill it, but they can definitely make it difficult and throw a lot of sand into the machine.

Speaker 1

01:22:33

And I think worst of all, they can spoil the evolutionary story by creating central bank digital currency that I don't think we really need. Or We certainly don't need it in the Chinese form.

Speaker 2

01:22:48

Do you think Bitcoin has a strong chance to take over the world? So become the primary, you mentioned the 3 things that make money, money become the primary methodology by which we store wealth, we exchange?

Speaker 1

01:23:05

No, no, I think what Bitcoin is, this was a phrase that I got from my friend, Matt McClennan, at First Eagle, an option on digital gold. So it's the gold of the system, but currently behaves like an option. That's why it's quite volatile, because we don't really know if this brave new world of crypto is going to work.

Speaker 1

01:23:29

But if it does work, then Bitcoin is the gold because of the finite supply. What role we need gold to play in the metaverse isn't quite clear.

Speaker 2

01:23:38

I love that you're using the

Speaker 1

01:23:39

term metaverse. This is great. Well, I just like the metaversity as a kind of, as the antithesis of what we're trying to do in Austin.

Speaker 1

01:23:48

But-

Speaker 2

01:23:49

I love it.

Speaker 1

01:23:50

Can you imagine I'm using it sarcastically? I come from Glasgow where all novel words have to be used sarcastically. So the metaverse sarcastic.

Speaker 2

01:23:57

But see the beauty about humor and sarcasm is that the joke becomes reality. I mean, it's like using the word Big Bang to describe the origins of the universe. It becomes like that.

Speaker 1

01:24:09

It will. After a while it's in the textbooks and nobody's laughing. Yeah, well, that's exactly right.

Speaker 2

01:24:14

Humor is sticky.

Speaker 1

01:24:16

Yeah, I'm on the side of humor, but it is a dangerous activity these days. Anyway, I think Bitcoin is the option of digital gold. The role it plays is probably not so much store of value.

Speaker 1

01:24:31

Right now, it's just nicely not very correlated asset in your portfolio. When I updated the Ascent of Money, which was in 2018, 10 years after it came out, I wrote a new chapter in which I said, Bitcoin, which had just sold off after its 2017 bubble will rise again through adoption. Because if every millionaire in the world has 0.2% of his or her wealth in Bitcoin, the price should be $15,000. If it's 1%, it's $75,000.

Speaker 1

01:25:03

And it might not even stay at 1% because I mean, look at its recent performance. If your exposure to stock, global stocks had been hedged with a significant crypto holding, you would have aced the last few months. So I think the non-correlation property is very, very important in driving adoption. And the volatility also drives adoption if you're a sophisticated investor.

Speaker 1

01:25:31

So I think the adoption drives Bitcoin up because it's the option of digital gold, but it's also just this nicely not very correlated asset that you wanna hold. In a world where the hell, I mean, the central bank is gonna tighten, We've come through this massively disruptive episode of the pandemic. Public debt soared, money printing soared. You could hang around with your bonds and wait for the euthanasia of the rentier.

Speaker 1

01:26:00

You can hang on to your tech stocks and just hope there isn't a massive correction or dot, dot, dot. Well, and it seems like a fairly obvious strategy to make sure that you have at least some crypto for the coming year, given what we likely have to face. I think what's really interesting is that on top of Ethereum, a more elaborate financial system is being built. Stable coins are the interesting puzzle for me because we need off ramps.

Speaker 1

01:26:34

Ultimately, you and I have to pay taxes in US dollars, and there's no getting away from that. The IRS is going to let us hold crypto as long as we pay our taxes. And the only question in my mind is what's the optimal off ramp to make those taxes, make those tax payments. Probably it shouldn't be a currency invented by Facebook.

Speaker 1

01:27:01

Never struck me as the best solution to this problem. Maybe it's some kind of Fed coin, or maybe 1 of the existing algorithmic stable coins does the job, but we clearly need some stable off-ramp. So you

Speaker 2

01:27:16

don't think it's possible for the IRS within the next decade to be accepting Bitcoin as tax payments?

Speaker 1

01:27:22

I doubt that. Having dealt with the IRS now since when did I first come here? 2002.

Speaker 1

01:27:30

It's hard to think of an institution less likely to leap into the 21st century when it comes to payments. No, I think we'll be tolerated. Crypto world will be tolerated as long as we pay our taxes. And it's important that we're already at that point.

Speaker 1

01:27:49

And then the next question becomes, well, does Gary Gensler define everything as a security? And do we then have to go through endless regulatory contortions to satisfy the SEC? There's a whole bunch of uncertainties that the administrative state excels at creating because that's just how the administrative state works. You'll do something new.

Speaker 1

01:28:12

I'll decide whether that's a security, but don't expect me to define it for you. I'll decide in an arbitrary way and then you'll owe me money. So all of this is going to be very annoying. And for people who are trying to run exchanges or innovate in the space, these regulations will be annoying.

Speaker 1

01:28:29

But the problem with FinTech is it's different from tech, broadly defined. When tech got into e-commerce with Amazon, when it got into social networking with Facebook, there wasn't a huge regulatory jungle to navigate, but welcome to the world of finance, which has always been a jungle of regulation because the regulation is there to basically entrench the incumbents. That's what it's for. So it'll be a much tougher fight than the fights we've seen of other aspects of the tech revolution because the incumbents are there and they see the threat.

Speaker 1

01:29:09

And in the end, Satoshi said it very explicitly, it's peer-to-peer payment without third-party verification. And all the third parties are going, wait, what? Which are the third parties?

Speaker 2

01:29:20

So there is a connection between power and money. You've mentioned World War I from the perspective of money. So Power, money, war, authoritarian regimes.

Speaker 2

01:29:35

From the perspective of money, do you have hope that cryptocurrency can help resist war, can help resist the negative effects of authoritarian regimes? Or is that a silly hope?

Speaker 1

01:29:53

Wars happen because the people who have the power to command armed forces miscalculate. That's generally what happens. And we will have a big war in the near future if both the Chinese government and the US government miscalculates and they unleash lethal force on 1 another.

Speaker 1

01:30:20

And there's nothing that any financial institution can do to stop that, any more than the Rothschilds could stop World War I. And they were then the biggest bank in the world by far with massive international financial influence. So let's accept that war is in a different domain. War would impact the financial world massively if it were a war between the United States and China, because there's still a huge China trade on.

Speaker 1

01:30:52

Wall Street is long China, Europe is long China. So the conflict that I could foresee in the future is 1 that's highly financially disruptive. Where does crypto fit in? Crypto's obvious utility in the short run is as a store of wealth, of transferable wealth for people who live in dangerous places with failing, not just failing money, but failing rule of law.

Speaker 1

01:31:21

That's why in Latin America, there's so much interest in crypto because Latin Americans have a lot of monetary history to look back on and not much of it is good. So I think that the short run problem that crypto solves is, and this goes back to the digital gold point, if you are in a dangerous place with weak rule of law and weak property rights, here is a new and better way to have portable wealth. I think the next question to ask is, would you want to be long crypto in the event of World War III? What's interesting about that question is that World War III would likely have a significant cyber dimension to it.

Speaker 1

01:32:08

And I don't want to be 100% in crypto if they crash the internet, which between them, China and Russia might be able to do. That's a fascinating question, whether you want to be holding

Speaker 2

01:32:21

physical gold or digital gold in the event of World War III.

Speaker 1

01:32:25

The smart person who studied history definitely wants a bit of both. And so let's imagine World War III has a very, very severe cyber component to it with high levels of disruption. Yeah, you'd be glad of the old shiny stuff at that point.

Speaker 1

01:32:45

So Diversification still seems like the most important truth of financial history. And what is crypto? It's just this wonderful new source of diversification. But you'd be nuts to be 100% in Bitcoin.

Speaker 1

01:33:00

I mean, I have some friends who are probably quite close to that. Close to 100%, yeah. I admire the balls of steel.

Speaker 2

01:33:11

Yeah, in whatever way that balls of steel takes form. You mentioned smart contracts. What are your thoughts about, in the context of the history of money, about Ethereum, about smart contracts, about kind of more systematic, at scale, formalization of agreements between humans?

Speaker 2

01:33:34

I think

Speaker 1

01:33:37

it must be the case that a lot of the complexity in a mortgage is redundant, That when we are confronted with pages and pages and pages and pages of small prints, we're seeing some manifestation of the late stage regulatory state. The transaction itself is quite simple. And most of the verbiage is just ass covering by regulators.

Speaker 1

01:34:09

So I think the smart contract, although I'm sure lawyers will email me and tell me I'm wrong, can deal with a lot of the plain vanilla and maybe not so plain transactions that we want to do, and eliminate yet more intermediaries. That's my kind of working assumption. And given that a lot of financial transactions have the potential at least to be simplified, automated, turned into smart contracts, That's probably where the future goes. I can't see an obvious reason why my range of different financial needs, let's think about insurance, for example, will continue to be met with instruments that, in some ways, are 100 years old.

Speaker 1

01:35:05

So I think we're still at an early stage of a financial revolution that will greatly streamline how we take care of all those financial needs that we have, mortgages and insurance leap to mind. You know, most households are penalized for being financially poorly educated and confronted with oligopolistic financial services providers. So you kind of leave college already in debt. So you start in debt servitude, and then you got to somehow lever up to buy a home if you can, because everybody's kind of telling you you should do that.

Speaker 1

01:35:48

So you and your spouse, you are getting even more leveraged and you're long 1 asset class called real estate, which is super illiquid. I mean, already I'm crying inside at the thought of describing so many households financial predicament in that way. And I'm not done with them yet because, oh, by the way, there's all this insurance you have to take out. And here are the providers that are willing to insure you.

Speaker 1

01:36:15

And here are the premiums you're gonna be paying, which are kind of presented to you. That's your car insurance, that's your home insurance. And if you're here, it's the earthquake insurance. And pretty soon you're just bleeding money in a bunch of monthly payments to the mortgage lender, to the insurer, to all the other people that lent you money.

Speaker 1

01:36:35

And let's look at your balance sheet. It sucks. There's this great big chunk of real estate and what else have you really got on there? And the other side is a bunch of debt, which is probably paying too high interest.

Speaker 1

01:36:48

The typical household in the median kind of range is at the mercy of oligopolistic financial services providers. Go down further in the social scale and people are outside the financial system altogether. Those poor folks have to rely on banknotes and informal lending with huge punitive rates. We have to do better than this.

Speaker 1

01:37:13

This has to be improved upon. I think what's exciting about our time is that technology now exists that didn't exist when I wrote The Ascent of Money to solve these problems. When I wrote The Ascent of Money, which was in 2008, you couldn't really solve the problem I've just described. Certainly you couldn't solve it with something like microfinance.

Speaker 1

01:37:32

That was obviously not viable. The interest rates were high, the transaction costs were crazy. But now we have solutions, and the solutions are extremely exciting. So fintech is this great force for good that brings people into the financial system and reduces transaction costs.

Speaker 1

01:37:50

Crypto is part of it, but it's just part of it. There's a much broader story of fintech going on here where you get, suddenly you get financial services on your phone, don't cost nearly as much as they did when there had to be a bricks and mortar building on Main Street that you kind of went humbly and beseeched to lend you money. I'm excited about that because it seems to me very socially transformative. I'll give you 1 other example of what's great.

Speaker 1

01:38:17

The people who really get scalped in our financial system are senders and receivers of remittances, which are often amongst the poorest families in the world. The people who are, Like my wife's family in East Africa, really kind of hand to mouth. And if you send money to East Africa or the Philippines or Central America, the transaction costs are awful. I'm talking to you, Western Union.

Speaker 1

01:38:48

We're going to solve that problem. So 10 years from now, the transaction costs will just be negligible and the money will go to the people who need it rather than to rent seeking financial institutions. So I'm on the side of the revolution with this because I think the incumbent financial institutions globally are doing a pretty terrible job and middle-class and lower-class families lose out. And thankfully, technology allows us to fix this.

Speaker 2

01:39:13

Yeah, so FinTech can remove a lot of inefficiencies in the system. I'm super excited myself, maybe as a machine learning person in the data oracles. So converting a lot of our physical world into data and have smart contracts on top of that.

Speaker 2

01:39:29

So that no longer is there's this fuzziness about what is the concrete nature of the agreements. You can tie your agreement to weather. You can tie your agreement to the behavior of certain kinds of financial systems. You can tie your behavior to, I don't know, I mean all kinds of things.

Speaker 2

01:39:50

You can connect it to the body in terms of human sensory information. Like you can make an agreement that if you don't lose 5 pounds in the next month, you're going to pay me a thousand dollars or something like that. I don't know. It's a stupid example, but it's not because like you can create all kinds of services on top of that.

Speaker 2

01:40:12

You can just create all kinds of interesting applications that completely revolutionize

Speaker 1

01:40:16

how humans transact. I think, of course, we don't want to create a world of Chinese-style social credit in which our behavior becomes so transparent to providers of financial services, particularly insurers, that when I try to go into the pub, I'm stopped from doing so.

Speaker 2

01:40:45

Every time you take a drink, your insurance goes up.

Speaker 1

01:40:48

Right, or my credit card won't work in certain restaurants because they serve, you know, ribeye steak. I fear that world because I see it being built in China. And we must, at all costs, make sure that the Western world has something distinctive to offer.

Speaker 1

01:41:07

It can't just be, oh, it's the same as in China, only the data go to 5 tech companies rather than to Xi Jinping. So I think that the way we need to steer this world is in the way that our data are by default vaulted on our devices and we choose when to release the data rather than the default setting being that the data are available. That's important, I think, because it was 1 of the biggest mistakes of the evolution of the internet, that in a way the default was to let our data be plundered. It's hard to undo that, but I think we can at least create a new regime that in future makes privacy default rather than open access default.

Speaker 2

01:42:04

In the book, Doom, the Politics of Catastrophe, your newest book, you describe wars, pandemics, and the terrible disasters in human history. Which stands out to you as the worst in terms of how much it shook the world and the human spirit?

Speaker 1

01:42:23

I am glad I was not around in the mid 14th century when the bubonic plague swept across Eurasia. As far as we can see, that was history's worst pandemic. Maybe there was a comparably bad 1 in the reign of the Emperor Justinian, but there's some reason to think it wasn't as bad.

Speaker 1

01:42:47

And the more we learn about the 14th century, the more we realize that it really was across Eurasia and the mortality was 30% in some places, 50% in some places higher. There were whole towns that were just emptied. And when 1 reads about the Black Death, it's an unimaginable nightmare of death and madness in the death with flagellant orders wandering from town to town, seeking to ward off divine retribution by flogging themselves, people turning on the local Jewish communities as if it's somehow their fault. That must have been a nightmarish time.

Speaker 1

01:43:32

If you ask me for an also-ran and runner-up, it would be World War II in Eastern Europe. And in many ways, it might have been worse because for a medieval peasant, the sense of being on the wrong side of divine retribution must have been overpowering. In the mid 20th century, you knew that this was man-made murder on a massive industrial scale. If 1 reads Brosman's Life and Fate, just to take 1 example, 1 enters a hellscape that it's extremely hard to imagine oneself in.

Speaker 1

01:44:21

So these are 2 of the great disasters of human history. And if we did have a time machine, if 1 really were able to transport people back and give them a glimpse of these times. I think the post-traumatic stress would be enormous. People would come back from those trips, even if it was a one-day excursion with guaranteed survival, in a state of utter shock.

Speaker 2

01:44:47

You often explore counterfactual and hypothetical history, which is a fascinating thing to do, sometimes to a controversial degree. And again, you walk through that fire gracefully. So let me ask maybe about World War II or in general, what key moments in history of the 20th century do you think if something else happened at those moments, we could have avoided some of the big atrocities, Stalin's Haldemar, Hitler's Holocaust, Mao's great Chinese famine.

Speaker 1

01:45:25

The great turning point in world history is August the 2nd, 1914, when the British cabinet decides to intervene and what would have been a European war becomes a world war and with British intervention it becomes a massively larger and more protracted conflict. So very early in my career, I became very preoccupied with the deliberations on that day and the surprising decision that a liberal cabinet took to go to war, which you might not have bet on that morning because there seemed to be a majority of cabinet members who would be disinclined and only a minority including Winston Churchill who wanted to go to war. So that's 1 turning point.

Speaker 1

01:46:16

I often wish I could get my time machine working and go back and say, wait, stop. Just think about what you're going to do. And by the way, let me show you a video of Europe in 1918. So that's 1.

Speaker 2

01:46:29

Can we linger on that 1? That 1, a lot of people push back on you on because it's so difficult. So the idea is, if I could try to summarize, and you're the first person that made me think about this very uncomfortable thought, which is the idea is in World War I, it would be a better world if Britain stayed out of the war and Germany won.

Speaker 2

01:47:00

Right. Thinking now in retrospect that the whole story of the 20th century, thinking about Stalin's rule of 30 years, thinking about Hitler's rise to power and the atrocities of the Holocaust, but also like you said on the Eastern Front, the death of tens of millions of people throughout the war. And also sort of the political prisoners and the suffering connected to communism, connected to fascism, all those kinds of things. Well, that's 1 heck of an example of why you're just like fearless in this particular style of exploring counterfactual history.

Speaker 2

01:47:44

So can you elaborate on that idea and maybe why this was such an important day in human history. This argument