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Lex Fridman Podcast
#284 – Saifedean Ammous: Bitcoin, Anarchy, and Austrian Economics
May 11, 2022
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04:21:08
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Quick takeaways
- Money facilitates trade and increases productivity through specialization.
- Hard money, like gold, is more suitable as a stable medium of exchange than soft money.
- Austrian economics emphasizes hard money, while Keynesian economics focuses on inflationary policies.
- Fiat money was born during World War I when the government used credit money instead of gold, leading to inflation and economic problems.
- Fiat money provides convenience and speed in transactions compared to using physical gold.
- Fiat money encourages higher time preferences and immediate consumption, impacting savings rates and overall quality of life.
Deep dives
The Importance of Money as a Medium of Exchange
Money allows for the division of labor and the growth of markets. It is a market good that is acquired to be exchanged for other goods, facilitating trade and increasing productivity through specialization.
Hard Money versus Soft Money
Hard money refers to a currency that is difficult to produce and has a low supply growth rate, such as gold. Soft money, on the other hand, is easier to produce and has a higher supply growth rate, making it less suitable as a monetary medium.
Austrian Economics and Keynesian Economics
Austrian economics, founded by Karl Menger and developed by Ludwig von Mises, emphasizes marginal analysis and the importance of hard money as a stable medium of exchange. Keynesian economics, on the other hand, focuses on inflationary monetary policies to stimulate spending and economic growth, but is critiqued as propaganda for government intervention and inflation.
The Birth of Fiat Money
During World War I, the Bank of England printed money to buy government bonds and finance the war. This marked the birth of fiat money, as the government used credit money instead of gold. Prices began to rise due to inflation, and the economy suffered. To combat inflation, the government implemented price and wage controls, exacerbating the problem. Additionally, they confiscated physical gold and issued paper money instead. This incident led to the global adoption of fiat money and centralized banking systems.
The Benefits of Fiat Money
Fiat money provides convenience and speed in transactions as it eliminates the need to physically move and verify gold. It enables faster and cheaper transactions, facilitating economic exchanges on a larger scale. However, these benefits could also be achieved with gold-based systems by utilizing credit settlements and allowing banks to settle with one another. The major advantage of fiat money lies in its reduced cost and time involved in transactions.
The Pernicious Impact of Fiat Money
The most significant impact of fiat money is its influence on our time preference and valuation of the future. Under a gold standard, individuals could store their wealth and maintain confidence in its future value. This encouraged lower time preferences and prioritization of future well-being. In contrast, fiat money encourages higher time preferences and a focus on immediate consumption. This shift in time preference affects various aspects of life, including savings rates, ability to delay gratification, and overall quality of life.
Bitcoin's Hardness and Saleability
Bitcoin is considered the hardest money ever invented due to its limited supply of 21 million coins. Unlike fiat currencies, Bitcoin cannot be inflated or manipulated by any central authority. It also combines the saleability of gold across time, holding its value, with the saleability of fiat currencies across space, enabling fast and secure transactions worldwide.
The Decentralization of Bitcoin
Bitcoin's decentralization is a key aspect that sets it apart from other digital currencies. While some criticize the centralized mining power, the true sovereign power lies within the nodes. Nodes determine the consensus rules of the network, while miners simply provide a service. The ability to withstand attempts at centralization, as seen during the 2017 block size war, is a testament to Bitcoin's decentralized nature.
Criticism of Bitcoin's Energy Consumption
Bitcoin's energy consumption has been a topic of debate, but it is important to consider the cost-benefit analysis. While it does require substantial energy, the benefits it offers, such as a censorship-resistant and secure monetary system, outweigh the costs. Energy consumption is a natural aspect of technological progress, and the focus should be on the positive impact Bitcoin has on global financial freedom and the alleviation of suffering under authoritarian regimes.
Bitcoin's Energy Consumption
Bitcoin's energy consumption is often a topic of debate and criticism. However, the podcast argues that Bitcoin's energy consumption is not as detrimental as some may think. Unlike appliances like washing machines that rely on electricity from a specific geographical location, Bitcoin mining can be done anywhere using energy from diverse sources. This flexibility allows Bitcoin miners to access cheaper electricity by setting up facilities in areas with excess energy or renewable sources, such as hydroelectric dams. Additionally, Bitcoin's proof-of-work consensus mechanism, although energy-intensive, incentivizes miners to seek the most cost-effective energy sources, making it less competitive with consumer appliances.
Volatility and Bitcoin's Future
Another point discussed in the podcast is the volatility of Bitcoin and its long-term outlook. While Bitcoin's volatility is undeniable, the podcast suggests that it can be managed by adjusting one's position size based on their tolerance for volatility. It highlights that Bitcoin's short-term price fluctuations are outweighed by the potential long-term gains in a world where fiat currencies constantly lose value due to inflation. Moreover, as Bitcoin continues to grow and mature, the podcast predicts a decline in volatility, as its market size increases and it becomes less susceptible to large price swings caused by individual buyers or sellers. Ultimately, the podcast argues that Bitcoin's rising dominance could replace a significant portion of both equity markets and traditional bond investments.
The Tragedy of Palestine
The speaker shares their personal experience as a Palestinian Jordanian and the ongoing tragedy faced by Palestinians due to the occupation of their land. They highlight the issue of settlements expanding, forcing Palestinians to leave and the sense of displacement experienced by Palestinian refugees.
The Potential of Bitcoin for Peace and Financial Freedom
The speaker believes that Bitcoin could bring peace to the Middle East by providing an alternative to the traditional monetary system tied to war. They discuss how fiat money has enabled governments to finance conflicts and make decisions that impact the lives of people who are not directly involved. By embracing Bitcoin, individuals can regain control over their money and opt out of the inflationary system, potentially leading to a future where governments coexist with a decentralized currency like Bitcoin.
1.
Introduction
3min
2.
Give Well From the Lex Friedman Podcast
2min
3.
Taking Out the Thinking Out of Magnesium Supplementation
3min
4.
The Importance of Money in Humanity
4min
5.
What Is a Market?
2min
6.
Capitalism in Markets Is What Allows for the Scaling of the Market Economy
4min
7.
Bitcoin Standard - The Best Way to Do Money?
4min
8.
Why Is the Stockpile of Gold Increasing?
3min
9.
What Is Money?
2min
10.
Is There a Dance Going on With Gold?
3min
11.
What Is Hard Money Versus Soft Money?
3min
12.
The Stock to Flow Ratio Is 1.5 to 2 Percent
2min
13.
Money Does Have Value, but How Much Value Does It Have?
2min
14.
Is There a Difference Between Physical Reality and the Space of Belief?
3min
15.
What Is Austrian Economics?
5min
16.
The Diamond Czar Scam
2min
17.
Keynesian Economics Is Just Propaganda to Justify Inflationism
3min
18.
Keynesian Economics and the Government
3min
19.
We Don't Need More Motivation to Consume
4min
20.
Keynesian Economics Is a Science Data Driven Science
2min
21.
Keynes' Moronic Theories - The Level of Spending Determines the State of the Economy
2min
22.
Is There Any Universe in Which You Can Have Both Inflation and Recession?
4min
23.
The Effect of Government Printing Money on the Economy
2min
24.
What Is Economics?
4min
25.
Is Freud a Keynesian?
2min
26.
Austrian Economics Puts Priority in the Market
3min
27.
The Role of Government in the Economy?
4min
28.
The Free Market Is Best in Managing That Balance
2min
29.
Are There Domains in Which the Free Market Gets Itself Into Trouble?
2min
30.
The Gun to the Head in Relationships
2min
31.
How to Prevent the Worst of Human Nature Coming Out in a Free Market
3min
32.
Are You Joking or Not?
4min
33.
The Key to Being a Good King
2min
34.
The History of the Fiat Standard
4min
35.
Why the 20th Century Was the Century of Total War
2min
36.
Is There a Just War Index?
5min
37.
What Could Go Wrong With Fiat Money?
4min
38.
Is the Bank of England a Scam?
4min
39.
Is the Gold Standard a Good Investment?
3min
40.
Final Settlement 3D
2min
41.
The Most Pernicious Effect of Fiat Money
5min
42.
How to Get the Equivalent of the Old Gold Coin
5min
43.
The Future Is Precarious
2min
44.
Is There a Positive Effect of Lower Time Preference?
5min
45.
The Bitcoin Standard Explains Bitcoin
2min
46.
The Smart Winning Move Under the Fiat System
2min
47.
What Is the Global Monetary System?
2min
48.
The Bitcoin Standard and the Fiat Standard on Time and Space
5min
49.
Is There a Divide in What Is the Driving Currency of the World?
2min
50.
The Dark Possibility Is the Inability to Trade
4min
51.
Bitcoin
2min
52.
Bitcoin Is the Most Advanced Form of Money Ever Invented
5min
53.
Bitcoin Has the Saleability of Fiat
2min
54.
The Most Important Fact About Bitcoin
3min
55.
The Principle Is More Powerful Than the Financial Reward
2min
56.
Bitcoin and the Power of the Idea to Change the World
2min
57.
Bitcoin Mining and the 2017 Block Size War
5min
58.
Bitcoin Is the Only One That's Not Hard Forked
2min
59.
Is the Proof of Work a Hard Fork of Bitcoin?
5min
60.
Is Your Washing Machine a Waste of Energy?
4min
61.
Cristiano Ronaldo vs Cristiano Messi?
2min
62.
I'm a Barsof Fan Because of Messi, Right?
3min
63.
Is Bitcoin Too Volatile?
5min
64.
Bitcoin Is Not Going to Replace Equity Markets
2min
65.
If Bitcoin Fails, What Would Be the Reason?
2min
66.
Bitcoin Maximalism
4min
67.
Is Life Too Short to Mince Words?
5min
68.
I Block With Love, You Know?
2min
69.
Is Bitcoin a Shit Coin?
2min
70.
Is Proof of Stake in Work a Scam?
2min
71.
Is There a Group of People in Charge of the Internet?
3min
72.
The Good Investment of My Time
3min
73.
Proof of Stake
2min
74.
Is Virtual Reality Taking Off?
2min
75.
DAPs and NFTs - Is This Distraction?
3min
76.
You Can't Have It Be Decentralized.
2min
77.
CBDC
5min
78.
Is Bitcoin Going to Overtake Gold?
2min
79.
Is Bitcoin the Trojan Horse for the World Economy?
4min
80.
What Do You Like Best About Michael Malice?
2min
81.
How to Create Value Online
3min
82.
Saving With Bitcoin
3min
83.
How to Buy Bitcoin - Open Dimes Hardware Wallet
4min
84.
Is Bitcoin Going to Bring Peace to the Middle East?
4min
85.
Bitcoin Is the Only Technology That Ends World War I
5min
86.
You Don't Want to Waste Your Time
3min
Saifedean Ammous is an Austrian economist and author of The Bitcoin Standard and The Fiat Standard. Please support this podcast by checking out our sponsors:
– GiveWell: https://www.givewell.org/ and use code LEX
– Scale: https://scale.com/lex
– Uncruise: https://uncruise.com/pages/lex
– BiOptimizers: http://www.magbreakthrough.com/lex to get 10% off
– Athletic Greens: https://athleticgreens.com/lex and use code LEX to get 1 month of fish oil
EPISODE LINKS:
Saifedean’s Twitter: https://twitter.com/saifedean
Saifedean’s Website: https://saifedean.com
The Bitcoin Standard podcast: https://saifedean.com/podcast
Books & resources mentioned:
The Fiat Standard (book): https://amzn.to/3FmNfsy
The Bitcoin Standard (book): https://amzn.to/3LRrcwA
The Blocksize War (book): https://amzn.to/3LORQ9o
The Theory of Money and Credit (book): https://amzn.to/3ykreZT
Human Action (book): https://amzn.to/3w9LzP4
PODCAST INFO:
Podcast website: https://lexfridman.com/podcast
Apple Podcasts: https://apple.co/2lwqZIr
Spotify: https://spoti.fi/2nEwCF8
RSS: https://lexfridman.com/feed/podcast/
YouTube Full Episodes: https://youtube.com/lexfridman
YouTube Clips: https://youtube.com/lexclips
SUPPORT & CONNECT:
– Check out the sponsors above, it’s the best way to support this podcast
– Support on Patreon: https://www.patreon.com/lexfridman
– Twitter: https://twitter.com/lexfridman
– Instagram: https://www.instagram.com/lexfridman
– LinkedIn: https://www.linkedin.com/in/lexfridman
– Facebook: https://www.facebook.com/lexfridman
– Medium: https://medium.com/@lexfridman
OUTLINE:
Here’s the timestamps for the episode. On some podcast players you should be able to click the timestamp to jump to that time.
(00:00) – Introduction
(07:53) – Money
(20:58) – Gold standard
(34:09) – Collective hallucination
(39:59) – Austrian vs Keynesian economics
(1:12:20) – Free market
(1:28:49) – Monarchy
(1:34:23) – Fiat money
(2:21:13) – SWIFT system
(2:34:03) – Bitcoin
(2:40:20) – Satoshi Nakamoto
(2:48:04) – Criticisms of Bitcoin
(3:03:16) – Football/soccer
(3:06:58) – Criticisms of Bitcoin continued
(3:17:17) – Bitcoin Maximalism
(3:29:40) – Proof of stake
(3:46:46) – Central bank digital currency
(3:57:59) – Michael Malice
(4:00:12) – Advice for young people
(4:06:21) – Palestine
(4:18:00) – Mortality
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highlights
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