Ep. 100 - T. Harv Eker: Secrets of the Millionaire's Mind

Transcript

The nation's favorite car buying site, Dundeele Motors, is home to the largest range of new and premium used cars from all of Ireland's trusted car dealerships. That's why you'll find Brady's Mercedes Benz on Dundeele. Visit the Brady's Mercedes Benz showroom on Dundeele to find your next car. Dundeele Motors, for confident car buying and deals to feel great about from all of Ireland's trusted car dealerships. Visit Dundeele.ie today. Today's Ask Altitude is about a topic near and dear to my heart and the hearts of pretty much everybody, which is money, particularly the history of money. Why is it important to know the history of money? Because when you understand the history of money, not only over the past 50 or 100 years, but over the past 10000 years, you really understand the points when money has enough problems with the current form of money that it needs to evolve into something else. The way bartering, you know, evolved into coins, evolved into paper money backed by metal, evolved into paper, and and maybe the next evolution might be crypto. And there's all the little mini evolutions in between. And this helps inform you of, like, what's happening in the economy now in terms of having some understanding of what inflation is, deflation, and so on. So this is part 1 of the history of money. Part 2 is gonna be more crypto focused and maybe what the future of money might look like. But I'm joined by Omid Malakhan. He's been on this podcast many times before. He was the top guy at Citigroup for all things crypto. He's written a book, rearchitecting trust, about money and crypto. Such a smart guy. Pleasure to talk to him about the history of money, and here we go. This isn't your average business podcast, and he's not your average host. This is the James Altucher Show. So today, Ask Altitude show, I'm brought Omid basically, someone in the Ask Altitude. They're like, hey. You guys should talk about the origin of cash and then link into crypto. Well, okay. It's a very interesting topic that Omid Malakhan's been on the podcast many times. Most recently discussed his latest book, rearchitecting trust, which basically is like a history of money and a history of Bitcoin. You were also really involved with Citigroup's Bitcoin decisions for a long time, and you recently retired from there. But it's a very interesting thing going all the way back because money predates recorded history. In fact, probably the first recorded history are people keeping track of IOUs in the marketplace. So they would be like sticks where you would make notches for every time Omen bought, you know, an apple for me, I would make another notch on the stick for Omen. That was the origins of basic accounting, and some of those sticks are 30,000 years old. There's also a theory that counting was originally invented for commercial transactions. I believe it because why else would you need to count? Right. So there are 2 theories on the origins of money. The more popular one is the barter theory, which was actually really popularized by Adam Smith. But the idea there was before there was money, we had barter societies. Barter societies were highly, highly inefficient, so people invented money because it was easier to trade your wheat for money and then use that money for labor down the line than to actually price everything and everything else. The other theory of money is the credit theory, and that theory, which I think is more credible, pun intended, is that barter never existed because it just would have been a nightmare. Instead, people just did favors for each other. And I was like, I'll give you some wheat today, and then next week, you'll help me with something, and we'll call it even. And that money was invented as a way to settle these favors occasionally. Well, let me ask you. You know, as societies grew, so let's say 3, 4, 5000 years ago, we started, you know, having societies that were bigger than tribes. Maybe it was even longer ago than that. So suddenly you had to deal with people you didn't know. Mhmm. Maybe if 2 tribes came together in a marketplace and each tribe was a 150 people, suddenly you have to have a little more trust involved. And, you know, if we're if it's just if it's just 15 people living in a cave, okay, you owe me next week, and I'll kill you or whatever if you don't, you know, do it. But when when they decided to get a little better, you needed a way to to an account for things in a way to maybe transact right then and there. Yes. And, actually, the anthropologists, they really believe in the credit theory because they've also observed this in more primitive societies in modern times. And, basically, that that's the idea that within the tribe, there are many forces, social, cultural, or the threat of violence, where people sort of live up to their debts and their favors, but across tribes, there isn't. You don't wanna trust each other. Now alternatively, across time, like, even within the same tribe, if you someone does you a favor and you're like, oh, you know, I don't know if this person's gonna remember that they owe me a favor 10 years from now. That's when I would wanna cash it in. If you just exchange it for money, then it becomes permanent. But then there's the question, was barter something that was very broad and general? So for instance, if I made axes and you made grains, would I trade axes for grains, or would we barter in the sense that, okay, we're both gonna trade our objects for some common thing, like, I don't know, animal skins or seashells or whatever, and then we're we're able to transact with this more common we we barter for those seashells, and then we're able to transact in seashells. Because I would think, really, the invention of money was an enormous increase in productivity. Because let's say I have an axe. I make axes. That's all I do. I've gotta find someone who's gonna use that axe. So I mean, I had to specifically find, like, a hunter or or someone who chops down trees or whatever, whatever people used axes for back then. And that would make it much slower to make a transaction because, first, I have to find someone to take my axes and then go down the chain of bartering until I could finally get someone who sells me food or whatever. Yeah. And, again, I'm I'm actually of the school of thought that that is so precarious that it never existed in the first place. Right. And the other reason, which is problematic, is just pricing things would have been a nightmare. In a in a in a world where there's no money, you have to price everything in terms of everything else, with just cognitively people can't do that. What in, economic nerd speak is called the unit of account function of money, which is it just gives you a single thing to price all other things in, including labor. That in of itself is one reason why having money makes society a lot more productive. So what do you think was the first money? I mean, there's various theories. Was it animal skins? Was it shells? When did they start making coins? The origins of money is very interesting and diverse, and different things happen all over the world, but sometimes in parallel. But, originally, yeah, people use what we call commodity money, which is anything that has some other value other than being the money. It could be grains, metals. Eventually, most societies in the east and the west settled on using metals just because they're more durable. It's easier in some ways to determine the quality of a hunk of gold than it is a bag full of grains. But then now we have a new problem, which is if you just use nonstandardized metals, gold, silver, copper, whatever, now we have a new source of inefficiency in the economy. It's like me and you are gonna do a trade for that ax, and you're like, well, here's some silver, but I have a problem, which is one, I have to judge the quality of your silver. Is it pure? Is it an alloy? Is it I don't know if there's a fool silver. There probably is, but and then I also have to judge the quantity of your silver. Like, I literally have to weigh it. This is where coins come into the picture because with coins, we have standardized quantity and quality, So, again, even more efficient money. But how do you know even when a government or a local, you know, force is minting metal coins, how do you know for for a given thing of silver there isn't, like, just a bunch of copper in the middle that you can't see? You never know for sure, unless you do your own tests, but the idea has always been that if you have some kind of a powerful figure like a sovereign, the emperor, the king, whoever, if they are the ones who, have a monopoly on minting the coins, then you at least have more of an assurance of its reliability than it was if it was just a stranger doing it. Yeah. I mean, this is a very important topic, which is and this is related to to Bitcoin later on, which is that a government lives or dies literally based on people's trust in their money. Like, you know, and we'll we'll get to this as well. The first paper currency was made by a kingdom in China around 600 BC, and it was paper money. It represented, I guess, some quantity of metal. I'm not really sure. But because it's paper, it's really worthless, technically. And so at the top of it, in the same place where we put in god we trust, they put, if you counterfeit this, you will be beheaded. That was the first kinda, like, way to build and still trust in the money. Like, we will kill you if you damage the trust in this money. Yeah. I I believe it was the bark of the mulberry tree, and it was the, I think it was the Mongols under Genghis Khan. Really? Yeah. But paper money has also always existed as a receipt for metal money. That's how it came about in the west. That's why we call them banknotes because you would go to the bank, and they would have gold, and then they would give you a paper receipt to claim some of the gold, and then you could just use that as money. But the original idea that, you know, one way to put it in modern technology terms is for money to be useful, it needs network effects. The more people are willing to accept any money, the more productivity everybody who uses that money has. So if you have a government issue the money and then have laws, like what we call legal tender laws that say, hey. If you live in my kingdom, you have to use this money. And then also governments, a lot of times, they will borrow in their own money. They will pay salaries, like, of soldiers in their money, and they will collect taxes in their money. The whole idea being that we want to get to some kind of a society wide standard because then commerce is easier for everyone, with the big trade off, of course, that now we're putting a lot of trust in the hand of the issuer of that currency. Yuval Harari brings this up where he basically says that money is just a story that we believe in. Yeah. Because the paper dollar doesn't really have any value. It's a piece of paper. But if you believe in the value of that dollar, and let's say I live 5,000 miles away and I believe in the value of the dollar, those beliefs that we share are enough for us to trust each other in a transaction, which never would have occurred if there wasn't money, for instance. But getting back to money as gold or money as silver, it seems arbitrary that it was gold or silver. Like, how did it end up gold or silver? Because it seems like arbitrary because the richest country is gonna be the one that has the most gold mines and silver mines in it. It is somewhat arbitrary, and societies have also used different metals for money. And a lot of times, it's actually had to do with what they had enough of, but not too much of for the exact reason that you say. Because there have been instances in history where, you know, like, silver was predominant in Europe, but then, once the new world was discovered and invaded and colonized, and there was a lot of silver in it, it flooded the European economy with silver, then some people are like, well, let's switch to gold. There have also been other times where you actually have a shortage. There's just not enough of whatever metal that you're using, so you can't make as many coins as the economy requires, and then you end up switching to a different metal. It's very varied, but for whatever reason, gold and silver in more recent centuries sorta, like, occupied whatever the sweet spot is. But even then, there's been controversy because silver is easier to mine, and there's more of it than gold. So whether your money, even if it is pegged to a metal standard on silver versus gold, has been a very interesting political issue. But, like, you know, you you said earlier how bartering would occur when when we would be able to trade objects that have value or or some form of money exchange. The the original money was, like, commodity money or something would have some other value other than as money. People always say gold is a a real thing. It's a hard asset. But does it really have value other than as money? I mean, yes. There are industrial uses for gold, but, actually, the same industrial uses occur for silver, which is 2% of the value of gold. So there's not really that many uses for gold. No. And and to go back to the point that you've all made about, like, money just being a myth, in a way, you don't want it to have too much utility because that almost erodes the mythology. Like, if we think of gold as this magic shiny metal that's hard to get out of the ground and, it is the thing that will preserve your wealth and, like, you know, you you give it as dowry to marry your children or something, then it holds a special place in our imagination. But if we also think of gold as, like, oh, yeah. And, also, like, you know, I can make cookware out of it. It somehow takes away from that. And and this applies to many things. Right? Like, why are diamonds valuable? Why are handmade Rolex automatic watches valuable? Like, there's almost negative correlation between the utility of something versus how much we as a society accepted as a good store of value. Right now, we've talked about how some form of barter, not pure barter like we discussed earlier, but the idea of commodity money was originally, you know, a kind of barter. And there was problems with that because one tribe might have a bunch of seashells, and another tribe might have a bunch of animal skins. And you still have to do too many conversions, and you got you know, everybody would have to trust everybody's own money. But when it all became kind of similar from country to country, it's either gold or silver or some other kind of metal, you know, there's a little bit more I can take Roman money, for instance, and exchange it for Persian money because at least it's all silver, so I can melt it down for roughly, you know, equivalent. So problems are solved with each evolution of money, and those problems ideally make society more productive, make transactions faster, make transactions more and more global. So the fact that, you know, Persia might have used silver and Greece might have used silver made it possible to do this international transactions even 1000 of years ago. I mean, the problem with that is that if you have a lot of things to buy, or let's say your town was invaded and you have to move, and you were a wealthy person, you had to carry a lot of gold around all the time, which kinda put a target on your back. Like, that's a problem with with purely if we all just use metal as a currency still, we'd be in big trouble because, Jeff Bezos wouldn't be able to move very far. He'd be sitting on, like, this mountain made out of gold. So obviously, there's a problem. So whenever there's a problem, there's some sort of evolution. We evolved into paper money, but that seems very complicated because a, there are trust issues, b, who decides now you really need a strong central authority to decide what the paper money is worth and to enforce it for anybody who doesn't believe that the paper money is worth something. So I think they kept up this illusion that you could exchange the paper money for gold whenever you want or silver or whatever. But what's the evolution of the paper money? So it started with that convenience point that you made that people, particularly, like, if you're traveling to a, a different city or something to do business, you don't wanna always be walking around with this heavy bag of gold or silver clinking in your pocket. So then what you do is you go and you store your metal money with a goldsmith or a bank or a money changer, and then they give you a receipt. Like, that's where the paper initially comes in. It's like, alright. This gives you the right to get back your 10 coins whenever you want, And receipts are a lot more flexible because you can make it for 1 coin or 10 coins, and they're lighter and they're easier to hide in your clothes or something so you don't get robbed. Right. So now I can go to the market, and I and let's say you're selling apples. I can say to you, hey. I wanna buy an apple. Look. Here's the receipt. You can now use it. We all know the money changer down the road. He's Jewish, so he's the Jewish looking guy. So I give you the receipt. That was a sort of paper money as a receipt. No. It it was, and that's what we call economic nerd speak again. That's representative money. It's not commodity money. So it it's the value is the fact that it represents something else. And in this case, it represents the right to go and claim silver coins in Europe or copper coins in China. But, eventually, you could see a situation where if everybody trusts this, at some point, like, no one's bothering to go collect the metal money unless they wanna go, you know, travel across the ocean or something. Because, like, yeah, we all know the guy down the road. He's got the coins, and now all that circulates is the paper. But that poses an interesting dilemma for the goldsmith or the bank who's issued the paper, which is if almost nobody ever shows up to collect the metal commodity money that you're holding, do you have to hold all of it? What if you just held 90% of it, and the other 10%, you invested it in a business enterprise or even loaned it out. Yeah. That's interesting. So it's that's the beginning of, like, fractional banking is what you're suggesting. Yeah. I would imagine also there were a lot more made offs back then. Possibly, but also we're talking about much more primitive societies. And a lot of times, the primary money changer or bank or goldsmith was like a very trusted, reputable family. You know, like, this is where the Medicis come from, and it's, again, social mores and pressures and the threat of violence being what it is. You know, maybe actually in a small city with, like, 50,000 people where there's one family that's trusted as the family that holds the metal and issues the paper money, maybe they're less likely to turn out to be fraudulent than a Madoff type figure. You know, that's a good point because it's not like people could escape to Switzerland or some island. You know, everybody pretty much stayed in the city that they were born in because it was unsafe to wander, you know, afar by yourself. And so in order for a family, like, let's say, the Medicis or or whatever families came before them to retain status, they have to be trusted because they have to stay in town. The only way they could be fully trusted is if they make sure, probably through their own use of military force, that their currency is that their receipts are are trusted. Right. The 2 go hand in hand, and and, of course, you have there's still governments, and, governments have been creating rules around banking and money forever. But at the end of the day, because this is all just mythology, there is something fragile, somewhat precarious about it. And I think the simplest evidence of that is there have been 1,000, probably, of different currencies throughout the ages that have, at some point, had some significant level of adoption in their local region, and none of them survive to this day. So that means something. What does it mean? It means that money is precarious and that mythology is something that can grow, but it can also shrink. And one of the ideas that I try to explore in the book is the more it grows, the more likely that whoever stands behind it ends up betraying it. And some people would even argue that we're witnessing the US and the dollar's version of that today in the sense that our currency is now the global standard and the global reserve currency, but we've used that as an opportunity to print a lot of it, which some people are not happy about. We've increasingly also weaponized it with things like sanctions, like we enforced on Russia. And there's a long history of this, of, like, some emperor's coin becomes so powerful and so universally accepted that that emperor starts doing nefarious things with it or even just, like, diluting the value of it, inflating it just because they think they can get away with it, and that leads to the demise of the myth and the currency. Well, you know, for a long time I mean, forever, basically, until very recently, all paper currency, it seems, was backed by some commodity like gold or or silver. So I guess at some point, they switched from viewing receipts as money to actually a local force, whether it's a bank or a government or whatever, issuing real money with pictures on it and a a one or a 10 or a 20 on it to represent how much it signifies, and it becomes standardized throughout that society. And then we saw in in, I guess, it was 1971 I mean, so so there's a problem with this though, which is that what if your country doesn't have any gold or silver? You can't make money that represents that gold or silver. Like, you have to start invading other countries with gold or silver or or go to the new the new land, you know, North America where there's more gold and silver. So you and you have to find this metal, but what if your what if your economy is growing faster than your supply of the metal that is backing your currency? And so this was sorta happening in the United States in the sixties. The economy was growing, but, also, we were spending an enormous amount of money on Vietnam and LBJ's, you know, great society programs, which included, you know, welfare and student loans and all these things. And so Nixon finally said, look. We're not gonna keep digging gold just to, like, match our need for money. You're gonna just have to trust purely the dollar. Yeah. So the the the metal backing of money, one way to think about it is that it becomes a constraint on anybody abusing the mythology behind it. So, like, if your currency is backed by gold, and and that that doesn't necessarily mean that you're, like, issuing gold coins. Even if you say, look. See that big fancy building with the columns over there? That's the central bank. And inside there, there's a lot of gold. And if you really wanted to, you could take your government issued paper money over there and get some gold for it. So don't worry about it. We're not gonna abuse it. We're not gonna inflate it. We can't print too much of the paper money because there's only so much gold. But as you said, that comes with its own constraints and problems. A lot of times, the most common has been things like war, where the government needs to print or borrow a lot more than it ordinarily does, and it just doesn't have the gold. There are other problems with the a metal standard or gold standard, somewhat less nefarious. And one of them is that it gives the issue of the currency less control over the money supply and the credit cycle. Well, let me ask you. What happened in Germany in the twenties when suddenly, you know, it took a trillion marks to buy a a loaf of bread? Like, were German marks backed by gold? I don't even know. I actually don't know. I have not studied that period closely. I mean, but but the things that we do know that in the aftermath of World War 1, the devastation that they suffered, plus the reparations that they had to pay to the allies, and I think they had to pay those reparations in the currency of the allies. Right. So the German economy was almost, like, constantly exporting capital to its neighbors, which then crippled its domestic economy and the currency. So one key thing which can cause hyperinflation, which is what everybody's worried about in the US, but this is not a problem we have, one problem many countries have is what Germany had in the 19 twenties, what South what most countries in South America had in the 19 eighties, and on and on. What Zimbabwe had in whenever that was, the 19 nineties, is that if you borrow money in another country's currency, you risk hyperinflation if you can't pay that money back because you have to print more of your own currency to convert into dollars, for instance, to pay the money back, and it's just a death spiral. You end up printing 1,000,000,000,000 of marks in the case of of Germany. Whereas the US doesn't have that problem. That's one key thing that helps us avoid hyperinflation, and that's why people are concerned if suddenly everybody starts transacting for oil and something other than the dollar, it could mean we might owe we might not be able to, a, lend as many dollars to people, and, b, we might owe money in currencies, not the dollar, if we're buying oil, which we do. Yeah. And I think hyperinflation is actually the wrong thing to be concerned about because hyperinflation is is fairly rare. I think the bigger problem is if you just have a sustained period of elevated inflation as we did here in the US in the seventies and and part of the eighties, that in of itself could be very devastating. That to me is a more reasonable concern about what could happen to the dollar, but it's not just the dollar. We are in this very unusual time in history where virtually all of the world's money is only backed by a promise by a government. So it's fiat money. There is almost no currency that's backed really significantly by any kind of commodity like gold or silver. Right. And some countries have currencies that are pegged to other currencies, but we can talk about this when we get into crypto. But I always think it's ironic when you hear economists and other experts say, oh, well, Bitcoin can't be money. You know, because money is something that's issued by a sovereign, and there's a central bank behind it, and they they adjust interest rates. But that's only been money for, like, 0.01% of the time that money's been a thing. The history of money has always been changed. Even in the US, I mean, a lot of in the 1800, banks local banks would issue their own currency. So if you were in Montana, you could get, like, literally a $3 bill from the bank in Montana, and it was good because that bank was supporting it. It's not like in 18:30, people would go from Montana to Chicago to buy a coat. You would have to buy everything in your local town, and you would use the local currency. So it's kind of only a recent thing that all money now is issued by governments. Yes. Not only that, but we're coming out of a period after COVID where all governments significantly increase the supply of their money at the same time. So it's not surprising then that we're going through a global period of high inflation. Just out of curiosity, like, on the subject, and there there's a lot of different directions to go on the subject of inflation. But if the price of eggs inflates and many other things like that, the big problem really is wages have to keep up with it. If wages kept up with it, no problem. But why aren't right now wages keeping up with just everyday inflation? Some wages are very sticky. So if you think about people who have contracts for what they make Mhmm. Employers are generally hesitant. They don't they don't just give raises for the sake of giving raises. There has to be some kind of a market dynamic that forces them to. Then there's the issue of automation and technology and innovation. Plus, frankly, if, like, you know, people are sometimes hesitant to ask for more, things are starting to pick up, aren't they? I don't follow the the macro data that closely. But Yeah. And inflation supposedly has been going considerably down pretty quickly right now, maybe because of the rate hikes, maybe because of the stock market's gone down and so many people are invested in the stock market, maybe just because of fear of a recession coming. But it seems like one of those things where and this is a a big debate, but and a and a different debate, but whether the federal reserve knows what they're doing, you know, or whether market forces comment. Yeah. Whether market for well, that's the whole thing with the Bitcoin is that there's no central authority that decides the value of the dollars that are in your pocket. But I remember I had a a federal reserve deputy governor on the podcast early in the pandemic, and he said the main worry the federal reserve had then was deflation because there was so much demand for the dollar around the world because the dollar was the safe and is still the safest currency that they couldn't even inflate the dollar. And inflation is not necessarily bad if your economy is growing. I mean, look. The the dollar has, quote, unquote, lost 97% of its values in the past 100 years. Like, what the dollar what used to be a dollar in 1913 is now worth 3¢ now in terms of what it can buy. But at the same time, it's the biggest period of growth and innovation in world history. I mean, we've put a man on the moon. We've created the Internet. You know, we're practically curing cancer in the next few years. So so inflation hasn't necessarily been a bad thing. It's it's healthy when people feel the growth in their country. Yeah. I think the only things we can say that are absolute is hyperinflation is bad and extreme deflation is bad. Those, I think, are universally acknowledged as being scenarios to avoid. A deflation when it's not accompanied by product increases in productivity. Like, monetary deflation. Yeah. When you get more in a in a phone this year than you got 10 years ago, like, more apps and more speed and so on, the phone in a sense has deflated. Like, the if you're paying the same price but you're getting so much more, that's kind of a deflation in the currency. But it's not like the deflation experienced, for instance, in the depression where people just hid their money in a mattress and were afraid to use it. So that was that resulted in deflation. Right. Yeah. If if people become convinced that the value of money is only gonna go up, then they don't wanna spend it. They wanna hoard it, which then diminishes economic activity. Which could be what's happening now. When interest rates go up, it means the demand for the dollar will go up, which means you don't wanna spend your dollar for other things because you're getting a higher interest rate in your savings account. That's the hope of the Fed. But the politics of this is also very interesting because there are always winners and losers. So there's certainly people who really benefit from high inflation, like debtors, for example. They get to repay their debt with diminished value, but then there are people who really lose with it, which are people who don't have a lot of debt, but earn some kind of a wage where it's gonna be difficult for them to raise prices. And and this is for anyone who's a student of history, the back and forth on this is, is always been very interesting and played a big part in US politics. Like, I'm you probably know James, the famous, I think was it William Jennings Bryan speech? The cross of gold speech, which is considered one of the greatest political speeches in American history. He was making the an argument against the gold standard. He actually wanted a bi metallic or a more silver oriented standard because it's more inflationary. And at the time, you had people who were farmers who were like, look. We got mortgages. We got a lot of debt, and our crop prices are too low. Like, we need some inflation to economically right ourselves. Right. And there there was practically no inflation back then in in the 18 100, like, almost 0. And and and having a gold standard or silver standard, to some extent, like you said earlier, controls inflation a little bit and and doesn't allow the government to control inflation, which with pure paper money that's not backed by anything, the government pretty much controls everything. And that and that's a big problem, which, again, there was an evolution of money, and we'll talk about Bitcoin in a bit. But it's interesting just the story of money, though. Like, what what you refer to as the mythology of money. Like, it's so hard. Like, you have to really be a mass hypnotist to convince people that this little piece of paper is worth 1 entire dollar. Like, if you if you really look at the US dollar, there's this beautiful calligraphy and design. So, okay, maybe you'll trust that. If you don't trust that, it's in God we trust. So if you don't trust the United States United States America is on the top. But if you don't trust the United States America, maybe you trust God because it's the God we trust. And then you have not only God, but look. The kind of the God of America is George Washington. Like, he's the 1st president. He's he was the most supposedly the most honest president. So maybe you trust George Washington. His picture's right here. He backs this dollar. And then if you don't trust that, it's like a contract. There's the signature of the treasurer of the United States and the secretary of treasury, and then there's this number, like, a 87426-0248. Like, why do we need to have that number? But it kind of signifies that this was really printed in the United States. And if you don't trust that, this there's a the words, this certificate is legal tender for all debts public and private, and then there's Washington DC and there's a seal on it with an eagle, and then you turn it over, there's if you don't believe any of that, maybe you believe in this, a pyramid with a floating I above it. Like, this is ancient history, and there's then there's, like, Latin or some other language written there. This is, like, ain't it's not just us, the the the people in Washington DC. It's it's ancient history. It's 5000 years old, these pyramids. Like, we're gonna maybe you trust that. And on and on. Like, it doesn't stop the the ways in which, you know, the the mythology of the dollar is written all over the dollar. And we can also see this in our personal lives. Like, in in, Sapiens, Yuval Harari talks about, like, the other big myths, like religion being one of them. I think the 3 are language, religion, and and money. But the funny thing is, like, there are plenty of people today that walk around, and they're like, I'm an atheist. I don't believe in religion. And you're like, yeah. Fine. You're like a perfectly sane person. But if somebody comes up and he's like, I I just don't believe in money, and I'm never gonna use it. You'd be like, wow. You've completely lost your mind. You need help. Right. That pervasive of a myth. Well and and the thing is you get in, obviously, you get in real trouble if you counterfeit money. So, again, just like the Medicis in Renaissance Italy, I mean, the US, you'll go to jail for a really long time if you counterfeit money. I mean, you probably know the Secret Service was actually originally its job was to do things like crackdown on counterfeiting of money and dollars. It just so happened. I think the story, wasn't it, that, like, their office was the closest to the White House? So when they decided that president should get additional protection, it would become something that they do too. But there know that. The original purpose. I'll I'll have to verify this, but I'm pretty sure the original purpose had to do with making sure that people are not counterfeiting money. Because people counterfeit money, then it erodes the integrity of that money. And if the integrity is erodes, then people stop using it, and then it collapses in value. I remember in the nineties, early nineties, there was this period the area where the so called Silicon Alley was created where all these web design agencies sprung up, there was more print shops. Like, you needed a poster printed. You'd go to these print shops and they had these, you know, the latest technology in copy machines. Now $100 bills always had anti counterfeiting features, and then it evolved to $20 bills. But these one group of guys, they were using their copy machines to literally print $1.5 bills and $10 bills and just using them in, you know, local delis where nobody would question if they were counterfeit enough because they were so small. So counterfeiting has been, like, a big deal. Now it's all the way down to the the dollar. I think there are anti counterfeiting features of it. Yeah. I just Googled it. The so the secret service was, according to their own website, was founded in 18/65 to stop counterfeiting because that after the civil war, the a third of all currency in circulation in the US was counterfeit. That's crazy. I knew this, one artist, J. S. G. Boggs, who he was a ingenious. He would paint dollar bills for himself, and they would always have something wrong. Like, maybe it would be, like, his picture on the $10 bill. So he would always do something where it was clear that it was not money. It was, it was fake, but he was constantly being arrested by the secret service because he was painting money. Because here's what he would do. He would go to a restaurant, and at the end of the meal, they would give him the bill, and he would say, listen. I don't have any money, but how about I give you one of my paintings? And he would take out of his pocket a painting he did of a $10 bill and use that to pay $10 worth of his meal. And so 2 people would be sitting at the tables next to him in these restaurants. 1, the secret service who would arrest him, and the other collectors who would then buy from the restaurant the $10 painting plus the receipt, and that's how they collected his art. It was a fascinating thing, though, mixing the art with the money like that. Because money's beautiful too because of all this symbolism. The door yeah. It's fascinating. But people should look up. Like, if you Google J. S. G. Boggs, he has some really beautiful paintings of of fake money. So but I so, obviously, though, paper money has its problems and needs to evolve too. Like, the one of the problem we discussed is the Federal Reserve, the central authority, which doesn't really necessarily know what they're doing. Like, the Federal Reserve does a lot of good, particularly in times like these where, you know, maybe banks need more trust behind them and and or banks could collapse. But they also control the value of the dollar without your permission. Like, they can either raise interest rates or they could print money. And, by the way, what is it can you define what does it mean actually when they print money? So I think it's time to introduce another category of money, which is that throughout history, money comes in 2 forms. There's token money, which is money that has some kind of a physical representation, like a metal coin or a paper bill, and then there's ledger money, which is money that's just balanced that's recorded on the ledger of some kind of an authority. Could be a bank, a fintech, the government itself. What does that mean? Like, it means, like, when I transfer money from, let's say, Wells Fargo to Bank of America, on some ledger in Wells Fargo for my account, money subtracted. And on Bank of America in some digital ledger in a computer, money's added, but no actual currency goes from one bank to the other. That's right. And and the vast majority of money in existence today is ledger money. Even, like, you can go on the Federal Reserve and look up the statistics. I think there's only something like $2,000,000,000,000, in physical bills and notes out there, but over $20,000,000,000,000 in dollars that are nothing more than, really, in modern times, database entries at either commercial banks like Bank of America or the Fed itself. And and this is true in every country, in every currency, in part because ledger money is a lot more convenient. If you think about, like, large transactions, you wouldn't wanna buy your house by showing up with duffle bags full of cash. Although, I I was recently told that that's standard practice in Argentina because it's dollarized. Yeah. There's a black market, a blue market, and the regular market in Argentina. And then there's the Bitcoin market to signify the different types of currency there. Right. And then leisure money is more useful across long distances. Like, you don't you wouldn't wanna ship money to another country if you're making an investment there. It's more useful for capital markets. Like, imagine if every time you traded stocks, you'd have to pay in cash. And more recently, it's really a big part of the digital economy. Like, one of the great innovations of ride share services like Uber was that they integrated credit card payments into the app. So you no longer had to do this awkward thing that you and I remember that you take a cab and it gets there, and the cab driver's like, that'll be 1850, and you're like, I only have a 50. Do you have change? And it's very cumbersome. So Right. There are many benefits to ledger money, but there's a couple of big downsides. And one of them is that you have to trust whoever is maintaining the ledger to do a good job of it. It's one of the reasons why banking and fintechs are highly regulated. Like, you wouldn't want it to be like Bank of America accidentally deleted your balance, and then your money's gone forever. And this is really a software issue. Like, how did they avoid when they started doing this? How did they avoid, like, not having major software issues where people would just lose their bank accounts and the bank would have no record of it, so they wouldn't be able to confirm or deny? It's well, one is you would have a record of it. So Hopefully. You would be I would deposit your money, and then they would give you a receipt that says, like, you have this deposit here, and they give you statements monthly that attest to that. But, really, like, auditors, controllers, government regulators, there's a very, very complex apparatus whose job it is to make sure that these ledgers maintain integrity, which is not something that you need for token money. Like, the $20 bill in your wallet is a $20 bill in your wallet. You could lose it, possibly, if you lose your wallet, but it's not like accidentally gonna suddenly disappear, nor importantly enough can a corporation or government just snap its finger and make that $20 bill go away or be worth, you know, $1. And this is an interesting segue when we get into the world of cryptocurrencies, because a lot of people, when they think about something like Bitcoin, they focus on the supply. It's decentralized. There's only ever gonna be 21,000,000 of it. There's no central bank that can print more, etcetera. But I think just as importantly, there is the integrity that the whole complicated blockchain infrastructure provides, which is that while it is a kind of ledger money, right, the blockchain is a ledger, it's a database, it has unique properties of token money, one of which is that if you have a Bitcoin in your wallet address, nobody can deny you access to your Bitcoin in the way that banks routinely actually, like, deny people access to their own money, and it's not gonna just, like, suddenly disappear because of a mistake or an accident. So we're gonna talk about crypto and Bitcoin and the next evolution of currency in part 2 of this question, the history of money. But let's just list. Up until Bitcoin, the state of money has evolved to being, you know, paper money combined with 90%, this sort of digital ledger money, like money just kind of stored in a database. And we didn't really answer the question of how do you how does one print money. I guess the idea is the Federal Reserve just Oh, sorry. Yes. It just increases what's on the ledger, but but I'm not sure why. But we'll talk about that in part 2. Okay. But what are the problems of this digital ledger money, which is most of the money we use and spend right now? So it's 2. 1 is the supply issue, which is that it's because it's trivially easy. You know, the the TLDR of it is that for the Federal Reserve to create new dollars, they just put in a number into a database. Like, at least in the old days, you had to physically print more money to a certain extent, but now it's all done electronically. And then the other thing is this question of access, which is that in with ledger money, you're trusting the preserver of the ledger, the bank, to always give you access. And there many legal reasons where banks don't. In fact, there are many legal reasons where they're obligated to deny you access, right, if law enforcement goes to them and tells them to freeze your money. And then in the geopolitical sense, you have things like economic sanctions. So those are 2 of the big downsides or risks of ledger money as controlled by governments and corporations. And then when you get into the world of a cryptocurrency like Bitcoin, there is you know, the the supply goes up, but it goes up algorithmically on a preset schedule, and nobody can suddenly be like, oh, well, there's a pandemic going on. We need to print more Bitcoins. And then your access, my access, actually, literally anybody else's access is guaranteed by the technology. So those are the 2 main problems. I would say there's a few others. But so just to to summarize, one is if suddenly the Federal Reserve quietly decided to just double the amount of money in the system, then the dollars in your pocket lose would be cut in half in value. Because unless the economy was itself doubled in innovation and productivity, there's no reason why there should be twice as many dollars in the system. And so that's what really causes inflation, which means the value of the dollars in your pocket go down, and you had no say over that. And then problem number 2 Problem number 2 is access. If the government decides it doesn't like you, they could basically shut off access to your bank account. And that happens, by the way. So Yeah. I mean, if your bank decides that that that they don't like you, they could do that, or they could deny you a bank account in the first place. Right. Which has been a a major problem in in some areas of society. So there's a variety of problems there. I would say there's additional problems. One is there's there's the possibility of human error. Like, we discussed, what if your bank just loses track of your money somehow? There's a software bug or or there's a criminal or whatever. Another is there's fees in the system. Because I have to use a bank and by the way, some people are are don't I don't have enough money to put money into a bank, and so they have their own issues. But because I have to use a bank, I have to pay fees. And let's say I was gonna wire you money. I gotta go through my bank, then the local reserve bank, then the federal reserve, then your local reserve, and and so on. There's fees along the way. So I think you, Omid, were the one who told me, like, how many how much fees are baked into the financial system worldwide? I think total of the revenues of the world's payment providers is somewhere in the vicinity of $3,000,000,000,000 a year. 3,000,000,000,000,000. And that's the fees. That's not you know, they're it's either fees. So so you send the wire, they charge you a fee, use a credit card, the store has to pay a fee. But, also, if you think about, like, forfeited interest, like, if you have money in a checking account at a big bank right now, they're not gonna pay you interest on it. You know, that 5% interest that you could be earning now goes to them. So, cumulatively, that's you can think of it as a tax on the entire economy. Right. And and with crypto, because you're avoiding all of these systems that was kind of glued together in a hodgepodge sort of way, crypto solves all these problems. Furthermore, and and this is the kind of the topic of your book, rearchitecting trust. You don't have to trust your bank with crypto. Like, your bank could go out of business, but you still have immediate access to your money. It's in a sense you bank yourself. That's right. And, you know, there's a lot we we've we've seen this. Like, for the first you know, Satoshi invented Bitcoin in around 2009 or he released it in 2009, and that was right after the financial crisis where people were worried every bank was going out of business. Fast forward 14 years, suddenly, everybody's worried once again. Every bank this is was actually the dream come true for Satoshi in 2009. Banks have actually gone out of business now again, and Bitcoin shoots up as a result because this is the problem it was meant to solve, and it actually does solve it. If you look at survey data in the US when they ask them about what kind of institutions people trust, a lot of times, the least trust trusted institutions are government and then banks and Wall Street. And one way to think about the existing fiat money system is that it is a system that is controlled by the governments and banks. When you move into the crypto domain, it is a system that's that's actually mostly controlled by no one. But to the extent that there are any decisions that have to be made, they are made by the community. And that's why there are certain people who are actually very passionate about this being a new paradigm, about how we create money and then preserve its integrity. And so in part 2, we're gonna cover a lot of this, plus, we'll cover what happens when there's central bank digital currencies because that brings up some of the old problems again in a scary way, maybe even worse even though it has a crypto sort of feel to it. So money could evolve we could see money evolve even further. But in the meantime, this is part 1, the history of money. If you have any questions about what we discussed here, just tweet out at me at jalputur or tweet out at at omid, malekanomes, m a l e k a n o m s, and we'll answer again on this podcast. But history of money part 2 written by Mel Brooks. I feel like that's it was History of Money part 2, we'll we'll be in a in a a couple weeks after this one, so we have time to you have time to ask questions, and that's gonna cover kind of all the new evolutions in money and what even might be coming down in the future. So, Omid, thanks so much for your expertise. It was so fascinating. I didn't really know a lot of these things. And that's the history of money part 1. Thanks, James.