105. Fiat Money and Debt Slavery with Tom Woods

February 24th 2021.

In this episode, Saifedean appears on The Tom Woods Show for a discussion of fiat money and debt slavery. Saifedean and Tom talk about the role of government debt in the creation of fiat money; the recent freezing of bank accounts in the wake of Canadian protests, and why bitcoin improves on the shortcomings of gold. They then discuss how the fiat monetary system warps societal incentives by making debt accumulation a winning strategy.

Resources:

• The Tom Woods Show official website.
• Tom’s free ebook Our Enemy The Fed
• Guido Hülsmann’s book The Ethics of Money Production 
• Saifedean’s first book, The Bitcoin Standard
• Saifedean’s second book, The Fiat Standard

Enjoyed this episode? You can take part in podcast seminars, access Saifedean’s courses and read chapters of his forthcoming books by becoming a Saifedean.com member. Find out more here.

Transcript

Tom Woods: [00:03:01] Everybody Tom Woods here. I am very happy to be joined by Saifedean Ammous whom we've talked to in the past about his book, The Bitcoin Standard. Well, he's got a new one and it is a very important book indeed. It's called The Fiat Standard, The Debt Slavery Alternative to Human Civilization. 

And it is going to take the analysis of the Fiat money regime into places where you never imagined it could go. But in this first of two episodes with Saifedean, we're going to talk about more or less purely the economic angle involved in Fiat money and what it means for us economically, of course, we're told by everybody that this is the best possible system and so on and on, but is it really?

So we're going to talk economics today and we're going to talk some other topics tomorrow, so Saifedean welcome back! 

Saifedean Ammous: Pleasure being on Tom. Thank [00:04:01] you for having me! 

Tom Woods: I have to say, because I hadn't followed the writing of the book or what you were promising would be in it, this was not the book I was expecting.

And I'm in a way glad, because I guess I thought, well okay, we've we have books on Fiat money and I guess we can always use another one, but this is not like any book on Fiat money at all. I think in some ways it really builds on some hints that Guido Hülsmann made about the cultural effects of Fiat money inflation.

But this takes that insight way beyond what he was saying. And you really could write a whole series of books on the basis of the kinds of insights you have here. So we're going to take a lot of that juicy material of how Fiat money goes beyond just the realm of economics, but into so many aspects of our lives. We will do that in the next episode.

But for now, Let's get into the economics of it and the Fiat [00:05:01] system, how it comes to be what its alleged advantages are said to be, but what its very real pitfalls are. So let's start first of all for somebody who's never given money a second thought, and I think if I hadn't gotten into this economics field, I probably would have been one of those people.

I wouldn't stop to think about the nature of the medium of exchange I'm using, who would? It sounds like only a nerd would think about that, but it seems now that I do have an economics background, that I would be not understanding the nature of the world at all if I didn't stop to think about it. First of all, how do we define what constitutes a Fiat system?

Saifedean Ammous: I think the defining characteristic of the Fiat monetary system is that it uses the credit of government as the monetary medium. I think this is really the key idea that the government uses its own credit, or forces people to accept its own credit as being [00:06:01] as good as money. And of course, as the Austrians say, there's never been a pure Fiat system that's come around, honestly come about with a government saying, hey we're going to print a bunch of money and hand it out and let's start trading with it. 

Mises makes this point and many Austrians make the point that every single instance of Fiat money was born from broken promises. Initially it was just this is money that is backed by gold and our promise is that if you use this money, you can come and get gold from us whenever you want it.

But then there comes a point where that promise is broken and it's replaced with all kinds of strange, weird pseudo-scientific promises and explanations about why actually it's better for you that we not give you gold for this paper, and it's better for you to keep using those papers. 

Well, I shouldn't say paper, I think a misconception is that the Fiat monetary system is a paper money system. It's not. The vast majority of Fiat money is digital money, just like Bitcoin. [00:07:01] The vast majority of Bitcoins are digital. Some Bitcoins are made into physical wallets and physical coins, but the vast majority are digital. 

Same with Fiat, it's really credit money, it's not paper money, it's credit. So it allows the government and anybody who's approved by the government to use future money, promises of future money, to settle payments for receiving goods today. And I think that's really the essence of how it functions.

But if you start thinking about the implications of that, as opposed to a sane monetary system, like the gold system, wherein there's a clear physical object that is used as money and they can use it. And you need to have it in your hand in order to settle trades today, as opposed to the Fiat system. 

The implications are enormous of the idea that you can always just bring in more credits from the future to settle bills for today. 

Tom Woods: Let me just [00:08:01] clarify for people who are beginners at this, when you say that most of the money is digital, what we mean is let's say you go to the bank and you borrow a million dollars to build your new business.

They don't literally have a printing press at the bank where they print out a million dollars in cash and hand you a wheelbarrow of money. They open up a checking account for you and they assume you're going to write checks on it, and then the check will go to some supplier, and then the supplier will deposit the check in his account.

Notice no money has been printed and then somebody else will wind up getting that money. But again, it's checks and things moving around. The physical cash that you envision when you think of Yosemite Sam robbing a bank is not present here. It's these different ledgers having their amounts changed in a computer somewhere.

That's generally what happens. It's not so much the physical cash. Now in your analysis, you take us through, as you say, a series of broken promises until we get to today. So that's [00:09:01] why, suppose Bitcoin had never been invented, I highly doubt your mission today would be what some people think it is, which is to return to the gold standard.

It is impossible. After seeing what Canada just did to its own people, the idea that it would stay scrupulously faithful to what it promised with regard to money is preposterous. So I don't want a government guaranteed standard. I want the separation of money and state, and I assume that's where you're coming from.

Saifedean Ammous: Yes, exactly. I think one way of thinking of it is the gold standard is like having to leave your door open and trusting in your neighbors not to come and drop your house while you sleep. Bitcoin is like installing a lock on your house and just making it much more difficult for them to enter.

It's a very different idea that I think we've had essentially where we just need to come to terms with the fact that humanity is too crooked to manage a gold standard significantly for a [00:10:01] very long amount of time. Historically, we've seen examples of the gold status surviving for a while, but it seems like it sows the seeds of its own destruction.

The cyclical nature of history is that the hard working generations that build civilization that builds capital, that accumulate capital. They understand the importance of gold as money and they use it as money, but then because they create wealth, they have rich kids and then the kids are born with a golden spoon in their mouth and they think gold grows on trees and they don't understand the amount of sacrifice and hard work that their ancestors had to do in order to build the things that they take for granted. 

And so they just start spending their past capital and their future capital and the temptation, as Mises said, the temptation to abuse the printing press has been ever-present.

So it seems very difficult to think that we could just get to a world in which one day we're going to just vote for the right guy who's going to go in and re-install the gold [00:11:01] standard and expect the government will, we'd live happily ever after they stop messing with our money and we'll get sound money.

And the interesting thing is that Bitcoin is, it's a technological solution. It's a technological solution to the problem of not having trustworthy neighbors. You just put a massive lock on your house and you make it impossible for them to break into your house and then you can sleep tight. 

Tom Woods: This COVID craziness that we've lived through. I hope if people really think things through clearly will be a shot in the arm, well so to speak, for various causes, such as the cause of sound money, cause of Bitcoin, gold, whatever, in the sense that I hope people will be more willing to be open-minded enough to look at causes that are not endorsed by the officials so-called experts.

The officials so-called experts have so disgraced themselves over the past two years and sewn so much destruction all over the world, ruining who knows how many [00:12:01] tens of millions, if not billions of lives, that maybe next time, if there's some cause that seems superficially at least to you to be plausible, you won't be dissuaded from it simply because the chair of the such-and-such department tells you you shouldn't believe it.

Those people have expended their capital with us. So the fact that it's highly unfashionable to favor some type of commodity standard or a standard other than Fiat, and all the experts are tut tutting you that you shouldn't even consider this, that won't matter as much anymore. That's my hope, I hope you have the same dream that I have.

Saifedean Ammous: Absolutely. Some of the sane, very few sane medical professionals and the epidemiologists on Twitter, people like Jay Bhattacharya and Martin Kulldorff, they're constantly tweeting about, public health will never recover from this crisis of confidence because of the COVID insanity. And they're always saying it as if it's a bad thing and I always retweeting them.

Tom Woods: I know, I keep nagging them about this, [00:13:01] saying no, this is the great silver lining of the whole thing. 

Saifedean Ammous: I know I'm always always retweeting saying, there's always a silver lining. Nobody's going to take these insane mass murderers really, the public health establishment, there's no other way of putting it other than that they're mass murderers.

Nobody's going to say, well unfortunately, some people will, but I think the average IQ of the person taking them seriously continues to decline. So I think you need to continue to become progressively stupider in order to continue to believe in the people that shut down trials on cheap, effective drugs, because they're not profitable for pharmaceutical companies.

The people who said that children need to be masked for two years now when they can really under no risk, I mean let's not get into COVID, we've spoken about it.. 

Tom Woods: We have a whole episode on it. But the parallel is certainly present of an issue where I think it's very clear what the disadvantages are of the official recommendations for what we should be [00:14:01] doing.

And yet they are endorsed by everybody in every corner of society, in terms of opinion molding, the universities are all for it, the media and the same goes for money. These are the same kinds of people who would tell us everything's fine, and only a crank would think there's anything wrong with the present system.

Saifedean Ammous: Exactly. And I think it's just becoming extremely untenable and I think, yeah I mean Canada, what has happened over the last few days has been absolutely shocking. I think the vast majority of NPCs, which is the non playable characters and video games. If you're playing a video game, there are people who you can't play them, nobody's playing them, they're just pre-programmed to do certain things and say certain lines. 

The majority of TV viewers and New York Times readers are essentially NPCs. They don't have an internal dialogue. They're just pre-programmed. I think the majority of them, it hasn't sunk into them what Canada just did, but the idea that without any trial, without any due [00:15:01] process, without any input from the judicial branch, President just went about and started confiscating the bank balances of tens of thousands of people, is going to have enormous ramifications and the less stupid among these people have already begun to think, wow why would I ever want to put any money in Canada ever? 

You want to invest in a company in Canada and then one of your employees makes a Twitter post about something. Of course, the most interesting thing here is that there's nothing illegal about the truckers convoy and donating for it was completely legal and now people are having their lives ruined because a few weeks ago they donated 50 bucks to something that was perfectly legal.

So now it's beginning to dawn on people that, wow maybe this isn't such a great idea to have the government being able to control the entire money supply and the entire monetary system. And I think that's just going to force people to start asking harder questions about why is it that our money needs the government to function?

Why is it that every time that I need to make a transaction, it needs [00:16:01] to go through the government, through the central bank, and it needs the approval of insane sociopathic criminals, like the current Canadian regime. 

Tom Woods: Earlier I used the phrase separation of money and state, and for the vast bulk of my lifetime, that has seemed like a pipe dream.

That of course I love the idea, but the possibility that would ever catch on did seem to me to be remote, because it seems so abstract and academic and not the sort of thing people would consider, but now they have to consider it. Whether they realize that's the way they're thinking or not, that is the way they're thinking. 

They're saying to themselves, now I've seen the dead end of the current system, which is that my money in these accounts can simply be shut off. Is there a way for me to have money where it can't be shut off like this? So they are asking themselves, how do we separate money and state?

And it's a tragedy that people had to come to this realization like this, but at least they reached it. [00:17:01] At least they got to this point. I think this tangent is worthwhile, even though I do want to talk a little bit more about the economics of Fiat money, but there are some people who say, well Bitcoin fixes this, but at the present time, I don't know what fraction of Bitcoin users have their money on an exchange and how many don't.

But for most people, it's not really plausible for them to pay their electric bill in Bitcoin, to keep their water on in Bitcoin. Eventually even if they have Bitcoin, it's got to be converted back into the government's money before they can do anything with it. So how is it really the case that Bitcoin fixes this?

Saifedean Ammous: I think the way that Bitcoin grows and the way that a money really grows, there's the kind of state theory of money perspective, which is that the government just declares what money is. And then everybody just goes along. Historically what actually happens, I think the monetary evolution process is that as the amount of a particular good held by people [00:18:01] increases, the good becomes more marketable as Carl Menger used to call it, it becomes more saleable. 

The more saleable a good is, the more likely you are to find somebody who wants to take it off your hand when you want to sell it. The more that increases, the more the good becomes a monetary medium in a sense. So things that are highly saleable are things that you can bring to the market and have good confidence that you can sell them in something similar to the price that you paid for them, or something close to the market value.

But like for instance, a house is not very saleable because the real estate market is complicated, you need to find somebody who wants the exact amount of bedrooms that you have, the right location, and be willing to pay the amount of money that you think it's worth. Usually it takes a few months to do something like this.

So houses aren't very saleable, but goods like gold are much more saleable. So what we're seeing with Bitcoin now is a growth in its saleability. It's gone from zero [00:19:01] to almost 1 trillion dollars in its first 12 years. So that's an enormous increase in saleability. And I think it would be nice if we had a process where we could just get this from zero to a hundred trillion overnight by decree.

But obviously that's not how markets work. It's a gradual process where the people who hold Bitcoin in their cash balances witness it appreciate in value, so they hold it more and then more people come in and then the value keeps rising. But of course it can't just increase in a linear line. It has to be very volatile along the way.

But the point is that what we're seeing is an increase in the saleability of Bitcoin. And with every passing day, it becomes more and more possible for you to pay for more and more things with Bitcoin. But at this point, I think the really powerful thing that Bitcoin allows you is maybe the biggest crime in the modern Fiat economy, which is saving.

You can still manage to pay for your water and electricity using other ways, you can liquidate your [00:20:01] Bitcoin to dollars and have somebody pay it for you, but I think the most valuable thing right now is that it allows you to save. It allows you to protect yourself from the biggest crime in the world and from the best way that the state can finance itself, and that is inflation. 

So as this increases, Bitcoin continues to offer more and more opportunities for people to trade with one another. In terms of exchanges, yes it's true, I think probably more than half of all the Bitcoins out there are stored with custodians. 

And it is in a sense concerning that all these custodians are holding onto other people's Bitcoins, and governments could just come and start confiscating them, but there's something very different between Bitcoin and gold in that regard, which is that FDR could go to the banks and confiscate everybody's gold, there was no opportunity for gold to break out of the dollar system. 

So if you decided, you know what, I don't want to give my gold to FDR, I want to take my gold and I want to [00:21:01] just trade with gold. Well, you've got a bunch of coins on your mattress and good luck being able to pay people with those physical coins, you can't cut them up into small pieces. You need either pieces of paper that are backed by the gold that are divisible into small pieces, or more importantly, you need a banking sector that is built around the gold that allows you to move this around. To pay people that you can't pay face to face, you can't hand over a gold coin to. 

So with gold, you don't have this ability to take your gold off the system and just continue to trade it with the rest of the world. If you're a business in the U. S. in the 1930s, you couldn't have decided, you know what, we don't want to play along with FDRs thing, we're just going to take our gold and continue to pay our suppliers in gold internationally and receive payment from all of our customers globally in gold. 

You couldn't do that. You have to go through the local banking system because that was the only way to move money around. Well, Bitcoin offers us a [00:22:01] realistic alternative to that where you actually can.

If we do get another FDR, you can actually take your coins off and keep sending them. You can pay your suppliers and you can get paid from your importers and you can send a billion dollars worth of Bitcoin to China in a couple of hours. So the fact that we have that fallback option, I think changes the entire dynamic. Because it means that a 6102 executive order, like what the FDR did, isn't a checkmate. 

With FDR it was a checkmate. All the people's gold was already in the banks and he just told the banks, give me the gold, I'll give you 35 bucks instead of 20 for the gold. So he basically devalued the gold by 40%. And there was nothing you could do, you have no fallback option, you have no credible alternative that you could use. 

But with Bitcoin, we currently have a credible alternative. Even if the government were to do something like this, even if the Canadian government tomorrow were to confiscate all the Bitcoin [00:23:01] that is on Canadian exchange.

Not such a big deal because Canadians can continue to trade with the rest of the world using Bitcoin. So I think this is still massively important, but of course, I think, the real jackpot here is not so much in these things. 

It's what happens as Bitcoin's marketability and saleability continues to increase, to the point where it grows into something in the range of say a hundred or $200 trillion, 100 times what it is now. And it may take, it may take another five years, 10 years, 50 years. But I think the trend is basically unbeatable. The value of the dollar is going to continue to go down.

The value of Bitcoin is likely to continue to go up, if it could be used to operate because there's only going to be 21 million, nobody can make more. And so I think that trend is going to continue. We're just going to get more and more rising value of Bitcoin, more and more saleability, and that's where Bitcoin really fixes things, when it takes away the ability of [00:24:01] governments to print money, because they hold very little value in their national currencies, and very few people hold their national currencies. 

That's when Bitcoin starts to really fix things. 

Tom Woods: Let's hit on a couple more quick economic topics before we wrap up and move into other topics in the next episode, obviously price inflation is a major problem for Fiat money. Now it's not necessarily a problem for the regime because it doesn't have to worry about that.

It can always pay its debts, at least nominally, but the rest of us suffer under Fiat money inflation. The regime benefits because it can hand out what appears to be free money to its favorite constituencies. That's a benefit for them, but it's bad for the rest of us who suffer the degradation of the money.

So the primary problem, leaving aside the problem of the business cycle, which is another major problem that Fiat brings into the equation, but inflation and indebtedness are a couple of problems identified here in your [00:25:01] texts. 

Now, inflation I think people get, you have no physical limit on the increase of the money, you can always print more so to speak, you can always create a digitally, there's no physical constraint on it the way there is with gold or numerical constraint as there is with Bitcoin. So I think people get that and that's going to push prices up where they get that. 

But you also talk about the connection that you see between the Fiat system and overall indebtedness and what you call debt slavery. What exactly is that connection? 

Saifedean Ammous: Yeah. So I think this is one of the key ideas of the book. So the way that I wrote this book, the reason that I studied Fiat is it's almost a sequel to The Bitcoin Standard, my first book which studied Bitcoin. 

And to write The Bitcoin Standard, I decided to sit down and analyze Bitcoin from scratch, from first principles and try and explain it in a way that somebody who has never learned anything about Bitcoin is able to understand. And after writing [00:26:01] that, the book was extremely successful, it's been translated to 30 languages, a lot of people from all over the world enjoyed it.

So I thought I should take this skill that I have and apply it to the Fiat monetary system. Do the same thing. Obviously most people have a better idea about how Fiat works than Bitcoin, but still I think there's a lot to be had from approaching it from first principles and getting rid of all the romance and propaganda that usually comes along with this.

So looking at Fiat through the lens of Bitcoin is an extremely powerful tool I found because Bitcoin is a software and it's an extremely efficient machine that does all the essential properties and functions of money in very clear software. So you can draw an analogy in the Fiat system with how Bitcoin works and think of it as a digital currency, Fiat as a digital currency, because it is digital, the vast majority of currencies is digital.

All right, well how does it operate? What are the parallels [00:27:01] with Bitcoin? And once you approach it this way. The first and I think the most important insight is what is the equivalent of mining in the Fiat system. So in the gold system, people dig in the ground, they get gold out and we know how that works.

And in Bitcoin there's Bitcoin mining, which I described in detail in the Bitcoin standard. But how is Fiat money mined? Well, the way that Fiat money is mined is, debt is created by financial institutions that are regulated and licensed by the government and the central bank. And that I think is an extremely powerful realization that this is basically the basic building block of the book. Because once you think of it this way, anytime you make a loan, any time you take out a loan, you go to the bank and you tell them I want a million dollars to buy a house, they're not giving you somebody else's million dollars and they're not giving you their own million dollars that are sitting there in the back. 

They make a new million [00:28:01] dollars, they issue the loan and now there's a million dollars in your checking account in that bank that was not there. So every time you issue a new loan, you are devaluing everybody else's dollars. Getting into debt in the Fiat system is the equivalent of mining gold in the gold system or mining Bitcoin in the Bitcoin system. The reason gold became money is that it's the thing that is hardest to inflate. Obviously a lot of people try and mine gold all the time, but it's very hard to find gold.

And even if you find a lot of gold, it's still a very tiny fraction of the existing stockpiles because we've been piling up stockpiles for thousands of years. And gold doesn't corrode, it doesn't rust and doesn't ruin. And so we're always just adding on to large existing stockpiles. 

No matter how much more efficient we get, every year we're adding somewhere around 1,5% to 2% to the existing gold stockpiles. So that's how gold becomes money, because it has a mechanism [00:29:01] of restricting the new supply. And I think as important is the fact that it has a mechanism of restricting people from just mining gold. 

Under a gold economy, the vast majority of people don't mine gold because it's generally a losing trade. It's far better for you to go out and do something useful with your time and produce something of value for others in order to get gold. The most efficient way to mine gold is not to go and mine gold, it's to teach or cook or drive a cab or whatever it is that gets you the most gold.

And in the case of Bitcoin, we have software that has done this in a similar way so that again, we're not increasing the supply of Bitcoin massively, it's currently increasing at around 2%, but it's going to continue to decline until it stops increasing. 

But with Fiat, there's no limits, I mean there are limits, but they're very shoddy limits on how much the supply can increase. And there's a very strong [00:30:01] incentive to get in debt. Because every time you're getting into debt, you're making new money and you're devaluing everybody else's money. And the flip side of this is that if you don't get into debt, you're just witnessing your money getting devalued by all the people that are getting into debt.

So the rational strategy under the Fiat system is to get into as much debt as you can. And I think once you understand this, almost like as a software feature, the way that the Fiat software functions is that getting into debt allows you to make more money, allows you to inflate the money supply and increase the money supply, then the 20th century starts making a lot of sense, and the 21st so far. That's why everybody is up to their eyeballs in debt. People, organizations, companies, governments, local governments, national governments, all the world's organizations basically are in debt. And life is just about getting into more and more debt, and everybody's always looking into ways of finding more [00:31:01] ways to get into debt.

If you're rich on the gold standard, the way to get rich on the gold standard was to accumulate more gold than have more money, well in fiat, the richest people in fiat don't have a lot of fiat. The richest people in fiat are the people who owe the most fiat. That's the winning strategy. So if you look at all the richest people in the world, or maybe not all, but the majority of the richest people in the world, they are also the biggest borrowers in the world.

Biggest governments, the U.S. government is the biggest borrower in the world. And the largest corporations are also some of the biggest borrowers in the world. And the richest people who own those corporations are living off of constantly rolling over their debt. 

And that turns out to be a successful strategy in spite of many thousands of years of human wisdom that tell you that debt is not good, don't get into debt, save, spend less than you earn, keep accumulating as many savings as you can. That's all very correct and very admirable. But in reality, [00:32:01] it turns out to be a pretty unsuccessful strategy in the fiat system because in the fiat system if you save, if you spend less than you earn and you save the difference, then you're just watching your money get devalued by the people getting into debt. 

And so the more you save the poorer you get. Whereas if you borrow, you are devaluing other people's money and that allows you to get ahead of the inflation game. In a sense, people generally think of The Cantillion Effect in terms of money printing. If you're the person who has the money printer, you are the one that benefits the most from printing the new money. Because when you get the new money you go and you spend it and prices have still not risen. And then after you spend it the prices begin to rise, and the people who get the money first from you will spend it after prices have risen a little bit.

So they get a little bit more, a little bit less benefit than you. And the more hops the money takes along the way, the less the benefit until you get to the people who are hurt. [00:33:01] So The Cantillion Effect is a redistribution from the people who are far from the printer to the people who are close to the printer.

The fiat system is like that but it's a redistribution to the people who are able to take on a lot of debt from the people who are saving and from the people who don't take on a lot of debt, that's really how it functions. So the incentive is there for everybody to get into as much debt as they can, and the implication is that everybody ends up being a debt slave because that's just, that's the winning strategy.

So the kind of sad thing is that in the fiat system, even if you get rich, you can't just get rich and stay rich, you can't just get rich, take your coins home and be content and happy knowing that you have your money and that you worked hard for it, and now you can just spend it and enjoy life.

You can't really do that because inflation is eating up the value of your money every year, and so you need to constantly be earning more money. [00:34:01] And more than that, you need to constantly be in debt. And so everybody has to constantly be getting into more and more debt.

And therefore everybody's insecure because you have a problem and you can't make payments for a few months, you could end up losing everything you could end up on the street, whether it's your house or your business, whether it's a small business or a large business, everybody's highly insecure in the fiat system because of the massive incentive to get into debt. Even if you're rich, the smart thing to do if you're rich is to use your money as collateral for borrowing more and more. 

And then you're taking risks with that collateral. The sad thing is because of this way of mining fiat, we end up incentivizing society to become as is the subtitle of the book, universal debt slavery. Everybody's a debt slave and that'sit's not just rich and poor, everybody has to be a debt slave. Everybody has to be worried about making [00:35:01] their debt payments at the end of the month.

Tom Woods: And incidentally, I'm sure by what is no doubt entirely coincidental, the kind of people regimes would prefer to rule over, happen to be the frightened and insecure ones. And they have those in great abundance as a result of this system. 

Saifedean Ammous: Exactly. It's a great way of generating people who are entirely dependent on government, because it's putting everybody in a precarious position. Everybody runs into hard times and their life.

You look at a family over three, four generations, you're highly likely to find somebody who gets into a bad, a rough patch. Under a hard monetary system, you keep accumulating more and more wealth, and then you get into a rough patch, you lose your wealth. You lose some of it, and then you can get back on track, but under fiat you get into debt, you lose everything. 

You could lose everything if you can't make your payments. And then it becomes [00:36:01] much harder to get back on your feet. And that works great for governments. I mean the whole thing has served governments enormously. And I think what this book helped me really understand is just that as the world became more and more interconnected and as more and more people needed to trade internationally, in the 15th century, if you lived in somewhere in Europe let's say, somewhere in Germany, the vast majority of your trading took place within your own town. And then a small amount was with the towns next door. And then very little trading took place internationally as opposed to today or the 19th century.

But by the 19th century, when the world was highly interconnected and with all of these new modern methods of communication and telecommunication allowing people to trade across oceans and across national borders and across cities, gold's saleability across space declined. Gold's saleability across space became [00:37:01] inadequate.

It was very hard to move around gold coins from, say your shop in Germany to your supplier in Russia, in the 19th century. As the world became more and more globalized, you needed to rely on these centralized clearance mechanisms for moving gold around because there's no easy way of sending two and a half ounces of gold to your supplier from the U. S. to Britain.

And so what you did is you have an account with your central bank in the U. S. and then your trading partner has an account with a central bank in England, and they debit and credit each other's accounts, the banks, at the end of the month or year or whatever, and then they settle with one another.

So instead of having to move gold across the Atlantic for each individual payment, we move one large settlement payment. I think the sad conclusion that I've arrived at from this book, which I think might upset a lot of gold bugs is that once trade [00:38:01] became globalized, it's no longer accurate to say that gold is money.

Gold plus government central banks payment rails are money. You need to use the bank of England in order for your money to work. Your gold coin is increasingly useless in a world that continues to globalize because you can't just click a button and have that gold coin travel halfway around the world.

So you became reliant on government infrastructure. You became reliant on these centralized institutions, the central banks, and you became reliant on their ability to settle trade for you across international borders in order for you to trade. And so that's just given governments an enormous amount of power over their citizens, which they then, once they abused the gold standard and got away with it, and I think this is really the sad thing, which is when governments went off the gold standard in World War I, they effectively managed to get away with it. The U. S. [00:39:01] and Britain and a few others got away with it, Germany and Austria didn't get away with it, and their currencies collapsed in World War I, and that's why they lost the war. 

But the U.S. and Britain managed to get away with it. And I think the reason they managed to get away with it was that there was no alternative for gold users to just say, you know what, no, I don't want to keep my gold with you, I'm going to take my gold and I'm going to just continue to trade by myself. 

You couldn't just have British and American people trading with one another with their gold coins without resorting to the central banks. So I think we can understand this in that think about all the power of money, all the significance of money and the ability to print money, how powerful it is, and what the 20th century did was concentrate that power in the hands of governments.

And I think that explains the enormous horrors that we saw over the last century and the increasing power of governments through all that time, because they could abuse their ability [00:40:01] to make your money work in order to finance themselves. And it's just reflected with growing power for governments and growing dependency for individuals, weakness for individuals, poverty, essentially control.

And that's why we find ourselves in a world in which governments control more and more of our lives. 

Tom Woods: Well, we're going to leave it there cause we'll return to this tomorrow and hit on some different topics. But the book we've been discussing of course, is The Fiat Standard, the Debt Slavery Alternative to Human Civilization.

I'm linking to it at tomwoods.com/2070. Saif, I appreciate your time, let's continue this tomorrow. 

Saifedean Ammous: Thank you Tom. Appreciate it!