Gene Epstein, Director of the Soho forum joins me to talk about his experiences in moderating debates in Bitcoin and Austrian Economics. We talk about some of the key points that Bitcoiners should consider from Ludwig von Mises and Murray Rothbard, and we also talk about the debate between Erik Voorhees and Peter Schiff, and the debate between George Selgin and Saifedean Ammous.

Links:

SoHo Forum: https://www.thesohoforum.org/

Gene Epstein twitter:https://twitter.com/GeneSohoForum

Sponsor links:

Ministry of Nodes Self Sovereignty Webinar:

Webinar sign up: https://www.ministryofnodes.com.au/product/self-sovereignty-webinar-2-3-november-2019/

Stephan Livera links:

Follow me on twitter: https://twitter.com/stephanlivera

Show notes and website: https://stephanlivera.com/

Subscribe to the podcast: https://plinkhq.com/i/1415720320

Podcast Transcript by GiveBitcoin.io:

Stephan Livera: Gene, welcome to the show.

Gene Epstein: It’s a pleasure to finally meet you. Is it Stephan or Stephen? Yes. Stephan. Well, Stephan. And, , here I am in New York city at six in the evening, and you’re in Australia at eight in the morning tomorrow. And that’s pretty exciting in itself.

Stephan Livera: Yes, it is. Look so Gene, I’ve listened to many of your appearances. I’m a big fan, obviously, of Tom Woods and Bob Murphy’s. I’ve listened to your appearances there. And also I’m a fan of your work, , in moderating and being the director of the Soho forum. , and I know you’ve got a lot to share in terms of Austrian economics. , and so, yeah, I’m looking forward to discussing with you. Maybe we could just start with a little bit of an intro on you and what are you working on these days with Soho forum?

Gene Epstein: Well the, the, the SoHo forum, a week from, actually say six days from today, , New York city time is going to have a debate on the war on drugs and, our, debate or, the debater for the affirmative. It’s always a one-on-one debate. The debater for the affirmative Jacob Sullum who’s written a lot about the subject in fact also included a book, a very good book about the subject, is going to defend the very extreme version of the complete legalization of drugs, that while he’s granting that, you may want to have a law governing the sale of drugs to minors. , you may want to have a law that governs the use of drugs by people driving automobiles. But beyond that, nothing, no laws against drugs at all, even including the sin taxes on drugs, which of course we do have for alcohol and regrettably for pot.

Gene Epstein: So it’s going to be a very extreme view that he’s going to defend against a former New York times, journalists, Alex Berenson. And so I think it should be an exciting confrontation. I myself, on November 5th, that’s the next debate we’re going to have. , we’ll be debating once again, socialism with perhaps the most eminent socialists in the country. Richard Wolf, who’s written many books on the subject and, numerous articles, , perhaps the leading socialist in the country. This very possibly will be my last debate with a socialist, but I definitely wanted to do, the argumentative combat with Richard Wolf. That will be in November 5th, all of it in New York city.

Stephan Livera: That’s fantastic. I really like watching some of the debates. Obviously I’m in Sydney, so I have to watch the online version, but, I really enjoy the debate. I think you get a lot of really high quality people and you really moderate them. Well, we know, , in a, in the, if those of Bitcoiners who have listened to some other debates know that there have definitely been some, let’s say poorly moderated debates and they, they just, they don’t result in a nice conversation. And I think you need little bit of that strong moderation to make sure that it is well organized and orchestrated.

Gene Epstein: Well. Thank you. That’s interesting. So we’re going to be discussing, I know you said you were interested in the two debates had on Bitcoin and one of the, one of the debates I had on fractional reserve banking. And so I gather we’re going to get your thoughts on those, a substance of those confrontations and look forward to hearing what you have to say.

Stephan Livera: So look, I think, yeah, you’re right. And let’s talk a little bit about, before we get into those, I think you, it might be nice to just discuss some of the fundamentals of Austrian economics and money from, you know, the legends mazes and Rothbard. Did you want to just give us an overview of your own thoughts on how they might apply and potentially are there any things that you believe Bitcoin as are missing or [inaudible]

Gene Epstein: yes. Uh, well, again, I’m going to assume that your readers or your listeners rather know very little and next to nothing about the subject. And really that’s okay. It’s almost preferable that you haven’t been brainwashed by the mainstream. I myself, uh, you know, sleepwalked through high school in college and, uh, I, uh, didn’t study any economics and undergraduate school almost luckily. But then, I was interested in socialism and I went to the new school and, uh, I ended up teaching mainstream economics, , to, undergraduates. And, , by pure happenstance, I picked up a copy of, Murray Rothbard, Man Economy and state. And that was a game changer for me. it was kind of a funny way to get into libertarianism, free markets, through that text, that, that two volume tome. But, because I was teaching, uh, economics and because I was interested in issues of socialism and capitalism, it was my way in.

Gene Epstein: And in fact, I have an introduction, that I was privileged to write for a collection of Murray Rothbard’s essays, but backing up for a moment, why are they, why do we call that Austrian economics? Well, it came out of Austria amazingly enough, and I can’t even quite know why. What is it about the Austrians that made them so, uh, perceptive? It’s associated with Austrian economists. Uh, with Ludwig von Mises just as you mentioned. And then also Mises was a student basically of Carl Menger another Austrian and, uh, and Eugene Bohm-Bawerk also an Austrian. Those are the three most prominent, uh, Austrian economists who were indeed, uh, from Austria. And it was, and we have Adolf Hitler to thank, uh, ironically, uh, for the fact that literally I meet his who was a Jew, uh, fled, uh, Vienna, uh, and for Switzerland, and then fled Switzerland for New York city, fled Hitler.

Gene Epstein: And, uh, a little let me just set up shop. And NYU, uh, couldn’t get a, a normal academic appointment, but he had a subsidy to do a seminar. And that seminar gradually attracted a of Americans. One of them, uh, was Murray Rothbard, who of course went on to call himself an Austrian. And even though of course, it’s just a Brooklyn Jew. I’m a Bronx Jew. He’s a Brooklyn Jew. And, uh, and Rothbard became in a way, uh, you know, Plato to Mises’, Socrates, amazingly Mises, at the age of 58, after having published many books in German, uh, began to write in English, uh, amazingly because he wrote so well in English, uh, for somebody who had been used to writing in German. And I highly recommend his book Human Action, written in English plus other books. And I, in a way, I think the best name for Austrian economics is indeed human action.

Gene Epstein: And if one were to ask, what is it that distinguishes, is there Austrian economics from mainstream economics? Well, you know, the first thing I would say is, in a way, Austrian economics is a redundancy. Uh, what did I mean by redundancy? Whenever we naturally think about economics without being prompted in here, I’m addressing people who have no background. In economics, we use the method of methodological individualism. We’ve worked from the individual and the individual’s motivations. And we see the market as a process, as a process of trial and error that we, we read about Jeff Bezos of Amazon who decided that the market was deeply mistaken, uh, to be channeling so many goods through the bricks and mortar outlet of retail bricks and mortar. He foresaw that we could buy so many goods through the internet, through the mails. And so that’s how he became the richest man in the world.

Gene Epstein: And Bezos is now continuing to tell us that the market is still deeply in error because as you’ve said, as he have said, I can’t be the merchant to the world unless I also get into food and clothing. So he said as well that all these purchases we’re making of food and clothing through bricks and mortar stores are simply inappropriate. He’s going to correct that market error. And so the market is never in equilibrium, which is the focus of the mainstream. The market is always in error and there are always people coordinating, competing in a rivalrous fashion to readjust the market, to correct that error. So that by the way, so that it better serves consumers and better serves those of us who work in the market. Cause it’s Rothbard also said there is no consumer sovereignty. There is only individual sovereignty. We individually have sovereignty over ourselves.

Gene Epstein: Just as you Stephan have decided that you’re going to pursue a certain career, nobody told you the consumer’s not your boss. You’ve said, well this is what I want to sell to the consumer. This is what I, the way I want to make my livelihood. And so you are exercising individual sovereignty, which is fundamental to Austrian economics. But now let’s narrow in, hone in on how the Austrian economics applies to Bitcoin. I think it’s interesting as a footnote that based upon what I read about Satoshi Nakamoto who was of course the the ghost, like a originator with Bitcoin, he had some familiarity with Mises and familiarity with Austrian economics. Oh, this is in a narrow fashion and this is ironic if you, if you study the mainstream than mainstream economics tells you that money has got to be managed by the government via a central bank.

Gene Epstein: They’ve suddenly decided that money has got to be dominated by a government institution. And this is never questioned, uh, by the mainstream. They, because begin from the point that money is outside the market, it, it has to be managed by government about this is an unexamined assumption. And because what’s distinguishing Ludwig von Mises especially is that in 1913, he wrote a book called the theory of money and credit and in which he basically understood that, that the origins of money precedes government, uh, and that he invented something called the regression theorem, which I think is a lovely theorem because it’s an inference about history that we use money, we value money because of what we know or can buy. But how do we know it can buy anything? What we know because they could buy things yesterday. And then how did we know yesterday they could buy things because we knew that it could buy things the day before.

Gene Epstein: And then so that regresses further and further back and then Mises ask, well, what happened at day zero? How did anybody know that money could buy things? And that’s because as Mises said, all money originates in commodity as in the case of gold, it originates in gold. And there are many who have a hangup about Bitcoin because people think that Bitcoin did not originate as a commodity, but Bitcoin was tied to the dollar. And there was a certain insight, a certain knowledge about what money could buy that made Bitcoin money. And then of course famously, those pizza pies were bought by Bitcoin and then Bitcoin became a medium of exchange. But there are now key insights that we know from the Austrians that I think are eternal. And then I wish at times, uh, the Bitcoin enthusiasts who know often far more about the technicalities of Bitcoin, and I know I wish they would take them for granted of one of those things is that money is a network commodity.

Gene Epstein: It’s the network commodity. What does that mean? It means that there is a natural tendency for money to be that thing that people most want. In the case of gold, it was a thing that people most want gold was at that point, the most suitable medium of exchange. And then once that happens, once that begins to catch on, then in terms of human action, people then want to hold the money than most other people want to hold. And then the others want to hold the most, the money that most others want to hold. And so very quickly we realized that because we want to buy them all the money that will buy the most things, uh, very rapidly. Uh, one money arises. Mises by the way, allowed for the possibility that there might’ve been two monies. He, he actually pointed out, we didn’t never got quite got the historical experiment.

Gene Epstein: Maybe money could have been gold and silver. Maybe they could have been two monies. The more valuable money, gold, less value, more money, silver. But the idea that that could even more be more than two or more than one, that’s almost questionable. So when we know that money is a network commodity, then we begin to understand that the balkanization of money is a nation state phenomenon. The reason why we have the Euro, the dollar, the Canadian dollar, the British pound, the Yen, the Aussie dollar is because we have nation States and those nation States often want to have control of their own money. That’s why we have exchange rates, one money exchanging for another. But interestingly, interestingly, 90% of the transactions internationally are made in the dollar because there’s a natural tendency for the market to gravitate toward one money and the dollar is the closest thing at hand.

Gene Epstein: And so that is a way testament to the, to the Austrian insight that money is a network commodity. But the third, the second most important insight, and just recently I heard a very knowledgeable person on your show, Stephan seemingly, uh, imply ignorance about this other fact, which is why people hold money in the first place Mises just wrote that the idea that money can ever be a store of value is only true in a world in which you don’t have stocks and bonds and a world in which you don’t have other ways of investing your money, that money is never a store value because money inert. It doesn’t earn anything. And if money is going to become, let’s, let’s say prices have fallen, which indeed what happened to Bitcoins, if prices are falling, your money’s going to become more valuable a year from now, but better to invest in stocks and bonds where can earn dividends or capital gains or interests over and above that.

Gene Epstein: And so Mises pointed out that we store value, those of us who aren’t eccentric or nuts. We in a, in an advanced industrial economy, we use, instruments like stocks and bonds of store value or cost. We speculate and commodities. We speculate in real estate, all of those are ways of storing our value. We do not use money to store value. Again, that’s for the eccentrics. You know, the [inaudible] are the ones who want to store gold in their basement because that’s obviously not the, not the most remunerative way to store value. So money is not a store of value. And I think it’s very unfortunate that this term has been used. Why do we hold money? This is the final insight. We hold money precisely because we live in a world of uncertainty because we never know when we’re going to need a bit of money to buy something with.

Gene Epstein: So we need some liquidity. But if we’re rational, we keep our liquidity to a minimum. We try to store our money in short term assets to convert it quickly into money. It’s a medium of exchange. And in an electronic marketplace, it might, this money can be used very efficiently. As Rothbard in particular pointed out if there were no uncertainty, if we knew exactly what we’re going to buy every hour of the day and every day of the week we would store all our money in short term instruments and it would immediately, uh, mature. And then in that instance we’d use it to buy something with, but because, and then we’d have a very weird world indeed. But because we live in a world of uncertainty, we do need to hold some money balances. But that’s the only reason why we hold money. And that would, now of course, obviously we are speculating in Bitcoin, we’re speculating a Bitcoin because by and large, Bitcoin has not yet become money.

Gene Epstein: But let me finish my final point in my little, uh, disquisition um, my, uh, I, I believe and I’ve been persuaded by so many people I’ve read, you as well, some things I’ve listened to from you, books like the one by Saifedean Ammous and that, Bitcoin. If I were to choose, if I were to vote, then if there is going to be a free market and money and I’m a get to a moment why that’s a possibility, then Bitcoin is probably the best candidate. It’s probably the best candidate because it does. Because while gold was good, gold had advantages, Bitcoin is a little better. And then maybe I can leave it to you to add to it, to elaborate on why it’s a bit better and, uh, it’s a bit better, uh, by a noticeable margin. And I think, I think that the fiscal crisis of the state, which we get into, which I believe is likely to happen 15 years from now, it could happen sooner, but we are in the fiscal crisis of the U S state in particular, the dominant state, uh, because it’s, Oh, because the U S state is accumulating on so much debt because 10 years from now, the mere servicing of the debt could cost $1 trillion a year.

Gene Epstein: I think there will be a fiscal crisis. There will be an unleashing of the printing presses that will be with the potential for massive inflation, not necessarily a year from now or two years from now, but 10 to 15 years from now. Cause there’s a gradual process with a very powerful, US and once that happens, then I believe Bitcoin, the value of Bitcoin could take off transactions in Bitcoin could take off. And for that reason, I think that my son Jim is right to say that it’s judicious for the conservative person to do what he does. He buys $200 worth of Bitcoin every month, uh, any buys it whatever at whatever price of Bitcoin is available at as a kind of a conservative, you know, income averaging, a price averaging, just whatever the Bitcoin is worth, buy $200 worth of it so that you develop a base, uh, and ownership of Bitcoin at a decent price. He does it through Coinbase. I pretty much exhausted my disquisition on Austrianism and Bitcoin. But, uh, so, so let’s, uh, let’s hear from you for a moment.

Stephan Livera: Yeah, I think there’s a lot of really great insights in there for my listeners. Uh, on that, uh, you touched on the regression theorem, you touched on the network economics aspect of it and, more like network effects rather. And uh, I think, um, that to me brought to my mind this fantastic essay by a Hans-Herman Hoppe and he calls it, it’s called how is fiat money possible? And in that he’s talking about how there are different, you know, uh, if you will trading zones around the world. But wouldn’t it make more sense if there was one global trading zone as opposed to, you know, each individual currency in each individual trading zone. And I think in that essay, Hans-Herman Hoppe also refers back to a quote from Mises in Theory of Money and Credit. And I think there’s a specific paragraph, but it’s something like one by one, commodities will be one by one rejected until we’re sort of left with the most saleable one. And I think that really is the, in my view, that’s the key sort of quintessential insight are. And that really for me, one of my favorite essays on this is Carl Menger’s On the origins of money. And in that as a Carl Menger is explaining how there are things that cause differences in the saleableness of different goods. And then those differences sort of self reinforce to the point that then there are some that are now more suitable to become a money compared to other goods that are not so suitable to become a money.

Gene Epstein: Yes. And indeed, you just quoted, I met, I had mentioned Menger and certainly Hans-Herman Hoppe who was a contemporary of mine is, uh, is certainly a very worthy heir. Uh, when we’re one of Rothbard’s proteges and his writings command attention, he’s, uh, he’s clearly in writes in that great tradition and deepens our insight about the, about these facts. Indeed. Uh, as Hoppe said, we’ve in a way with, with all these currencies afloat. We’ve, we’ve returned to a quasi barter situation, although again, the market, I wonder if, if it even has points out that actually the market deals with that because they don’t, because most things are priced in dollars. It’s the most convenient currency available. But indeed we have a lot of balkanization barter and almost a return to barter as a certain terminology as Hans-Herman Hoppe pointed out.

Gene Epstein: I just want to say negatively, negatively that what you’ve just said. Uh, eh means that if you ever have a guest on, and I think you might occasionally have one on who’s informed about the technicals of Bitcoin, but it was gonna say, well, isn’t it just wonderful? We have so many competing cryptocurrencies or I’d quote another “we’re finding out what money is all about”, you know, all this stuff. And again, you wish they’d read some of the people you just mentioned. Yeah. We’re not saying these people wrote the Talmud, you know, they’re not necessarily, they didn’t, this is not chiseled in stone. However, I will say that these insights are just almost self evident. That money is a network commodity. There will be no, there will indeed be if let’s say tomorrow all the nation States of the world would is just shut down them their money operations. Then there would indeed be competition out there. Gold might compete with with Bitcoin, maybe other cryptocurrencies will compete, but there will soon enough become one dominant money because that’s the way people deal with the world. We, we have short pencils, we just want one money with which to deal maybe two monies but no more than two, probably one. And I wish some of the crypto enthusiasts could recognize that.

Stephan Livera: Absolutely. I think that’s a point I’ve definitely, myself and some other Bitcoin advocates are very much, uh, against, uh, some of the altcoin gambling that goes on. And I think there’s a lot of people who sort of sell these false promises about altcoins as though you know that they’re gonna. There’s going to be this kind of as though there’s going to be all these different monies. To some extent people are learning.

Gene Epstein: Yeah. 90 moneys to choose from. Right. Anyway,

Stephan Livera: Look, I, I think it might be also really interesting to discuss some of the debates that you have moderated. So actually I think the listeners my really enjoyed discussing about, uh, the debate now. This is a couple of years, I think this is one or two years ago. It’s the debate with Eric Voorhees and Peter Schiff. And so it was sort of like a Bitcoin and gold debate. And one of the interesting, uh, points that seemed to kind of go constantly back and forward and I guess for many Bitcoiners would be sort of skeptical of Peter Schiff’s seeming inability to understand the point about there being no such thing as intrinsic value. Right. He seems to constantly kind of refer back to this need that, you know, “Oh look gold, you can make jewelry out of it or you can do space applications” and so on. And so his argument in that debate seem to be that Bitcoin, you can’t do anything like that. And so therefore it’s all just going to go back to zero someday. Yeah. But what’s your view there?

Gene Epstein: Well, yeah, it’s good, you sequentially began with the first Bitcoin debate we had in, by the way. In that case, uh, last I checked, it was probably climbed since then. Uh, that debate has had more than a half a million views on. And so perhaps a lot of people, listening to this discussion between you and me are already familiar with that debate and that just dwarfs everything else we’ve done. The recent Bitcoin debate we’ve had has been very popular as well. Maybe it’ll get up to half a million views, but that, that’s off the charts for us. In that case, as you said, it was an interesting clash, uh, between, somebody like Peter, who, who’s loyal to gold and, and actually, uh, a very smart guy who funds the SoHo form, Don Smith, uh, spoke as well that evening.

Gene Epstein: He’s a bitcoin bear and, and they can’t get past the idea that, that Bitcoin might not have had, independent uses as a commodity. And for that reason, because it’s not had independent uses as a commodity in the way that gold had, then for that reason it can’t ever become money. And I struggle with that a little bit. And, uh, I, I don’t think it’s, I, I perhaps it helped, uh, for me to hear about readbout, uh, Satoshi and recognize that he too understood that issue. Uh, and, and in particular, cause we want to add that Satoshi solved the problem that Friedrich Hayek and unwittingly raised high, wrote a book that the Austrian said was an embarrassment, the, uh, the privatization of money. Um, and that wasn’t quite the title, but that was the thought that the “Denationalisation of money” you thank you that it would have, that we could, uh, we could have private organizations bring out money.

Gene Epstein: Uh, Rothbard, uh, who was quite a joker, a Jewish guy from Brooklyn who liked to joke, said, yeah, I’m going to bring out Rothbards and everybody’s going to use them. They’re going to call them, I’m going to call them Rothbards money and is they’re going to catch on. But who’s going to trust me not to inflate the currency? Cause I could become fabulously rich if I just inflated all the Rothbards out there. And, uh, and of course, uh, Murray Rothbard had a point, uh, and prior to [inaudible] coming on the scene, I gather they did indeed bring out a cryptocurrencies at which did not have the constraint that Satoshi imposed on it. And of course, as your listeners know, there will never be more than 21 million units of Bitcoin out there. And so he solved that problem that, well, you don’t have to trust me and you don’t have to trust others.

Gene Epstein: You’ll have, you can trust this little, this absolute lock I’ve placed on the availability of Bitcoin, never more than 21 million units. And, and then he, I know that Bob Murphy, who’s an esteemed colleague of mine, maybe he’s been on your show, he’s, he’s of course, a very eminent Austrian economist. He said that, well, Bitcoin, Bitcoin just came from the dollar just like other currencies do. So it’s now built on the dollar and now it has all the advantages of being free market in money. And that’s probably a good argument. The other just part of it is that there was at least sufficient knowledge that this could be money. We’re at an advanced stage in sort of human culture and civilization. And once Bitcoin was used to buy those pizza pies, then it became money. So it wasn’t, I think, too difficult to cross that divide. And Peter, uh, who, who has a lot of virtues, but I wish, I wish he would read a little bit more of the Austrians.

Gene Epstein: I wish you would inform himself a little bit better. He certainly embarrassed himself, uh, in front of Erik Voorhees who was extremely gracious and extremely polite, uh, who said, I’ve learned a lot from you, Peter, but Peter, nothing has intrinsic value. And so for you to say gold is advantageous because it has intrinsic value, that’s ridiculous. Nothing has intrinsic value. I would put it myself to say that you might think that food and water has intrinsic value. Certainly gold doesn’t really have gold if this is going to be used as jewelry. But how about food and water? Well, food and water do not have intrinsic value until you’ve decided that your life has intrinsic value. That getting nourished, has intrinsic value. If you want to starve, if you want a hunger strike, then they have no intrinsic value. If you want to die,

Gene Epstein: they have no intrinsic value. So we have to make an earlier decision before those things have any value at all to us. And so again, nothing has intrinsic value. And Peter trotted out this naive statement. Used this term that’s offensive to Austrians because, because what we left out of it, a little disquisition on the Austrian economics is that it recognizes the inherent subjectivity of all value. Nothing has value other than the subjective value we place on those things. So therefore, the only thing that they’re hung up on is what I just mentioned, which is that gold is tangible, but gold has so many disadvantages, so much easier for the government to seize gold. It’s a physical commodity to grab it from people. Bitcoin has its problems as well, but by and large, it has advantages over gold. And I think that justifiably then, Erik Voorhees won that debate according to Oxford style voting as uh, perhaps those who, uh, uh, who aren’t familiar, where there are debates.

Gene Epstein: Don’t know. I use the classic Oxford style voting where through an electronic, uh, an app, people can vote yes, no, or undecided on the resolution before the debate begins. And then the vote of course, that you get in your favor counts against you because the only way to win the debate is to, is to score better. After the debate is over, we have a second vote and then you win the Tootsie roll. If the vote moves in your favor more than it does in relation to your predecessor. As I recall, it didn’t look it up before I started to talk to you. I think Steve, Peter lost a few votes and Eric gained, so that vote went to Peter, but did you have any special thoughts on that exchange and that debate?

Stephan Livera: Yeah, so I think, uh, yeah, I liked the way you summarized that. I think, uh, essentially amongst the Bitcoiners some of the work was written to sort of show that Mises was almost showing his work in some sense. So like it doesn’t, it’s saying that once money has already kind of the ones, people have already started using it for exchange. It doesn’t now have to keep having that, if you will, industrial use as gold has or whatever.

Gene Epstein: Oh yeah. And, yeah, and then by the way, I will say something, uh, tell a little bit of a tale out of school, when I gave Peter a hard time and he seems to forgiven me for it. But I try very hard, to, to be a neutral as a moderator, but, and indeed, I guess I a professional secret is that if I walk into a debate where I’m sort of rooting for one side or more agree with one side or the other, as not infrequently happens, then I make a point of wherever I’m aware giving a harder time to the side I’m rooting for. If I’m, if I would ask a challenging question, I always ask one of the other side. I, I try to lean a little harder on the side. I’m rooting for, uh, just to make sure that it don’t betray any bias.

Gene Epstein: I made a bit of an exception that evening when I asked, uh, Peter at this question, picking up on what you just said is gold. Gold does indeed have industrial and ornamental uses, but anybody can tell you that the price at which it trades, even then it was down only at about $1,200 an ounce the price at which it trades is way in excess of how, what it would be valued at purely for its ornamental, uh, and industrial uses. And I asked Peter, particular, don’t you agree with that? Where would, where would the price of gold be if it was not regarded as a monetary metal? And Peter said he didn’t know. He didn’t know. So I embarrassed him. I said, Peter Schiff has just told us he has no idea what the price of gold should be, and he recommends gold. So the guy is a god damn billionaire. And of course he only we were talking about taxes, he only pays a 4% tax living in Puerto Rico. So I guess he could afford a little grief and he didn’t, uh, he didn’t complain afterwards that I pay him a much harder time than I gave Erik Voorhees. Okay.

Stephan Livera: Yeah. One other point I think might be interesting to discuss now. One point that Peter Schiff was making was this idea of, Oh, what about a gold backed cryptocurrency? Now many Bitcoiners are very anti that idea because, and let me explain why I think most of them, you know, most of us would say that’s not, that’s really missing the point is that fundamentally sound money, part of that is about freedom from government interference. And Bitcoin is designed in such a way to resist that centralized control or getting co-opted. And I think as Bitcoiners, as we would recognize that there were many attempts to create private money that either got shut down or got co-opted, right? So if we can look at PayPal, Liberty reserve, e-gold, et cetera, I mean, the list goes on. What’s your view there around a theoretical gold backed cryptocurrency and whether that, you know, doesn’t make sense and really about Bitcoin’s, government resistance, if you will?

Gene Epstein: Well, that, okay, that now you’re really opening a big question and I’m probably gonna duck some of that. I, I yet, you, you, eh, what you just said is, uh, they shows that you’re more informed than I, but this idea of, uh, uh, meeting the two of others, hybrid gold backed crypto, it seems a little bit weird to me, but the point that you made sounds sensible to me. That is not the best way to go. Uh, the only thing I would want to stress is, why, we want, money, to be divorced from government. You know, the I would prefer that government dominate, uh, the production of shoes than have anything to do with money. The shoes would pinch, but we could wear sandals. We’d even be willing to wear walk barefoot. The history of money, uh, and government is really that the Kings wanted to fight their Wars.

Gene Epstein: They could tax the people to finance the Wars. They could borrow from the people to finance the Wars. But those were very awkward, difficult things to do. So it occurred to them to seize the people’s money, seize the gold, control the gold, and debase the currency and print money. And, and so really, money originated in the warfare state. And I think Murray Rothbard was correct to say that we Austrians believe that it’s no coincidence that the federal reserve was created in 1913 and the US afforded to one of this first one of its first major Wars, World War One in 1917. The, ability to print money, is underwrites our major Wars and, and world war II, whatever you might think of the worthiness of a lack of worthiness of world war two. It was indeed financed through the printing press.

Gene Epstein: And now most of course, as the welfare warfare state is developed, then, the ability to print money, finances the welfare warfare state. And that’s the reason why we believe that it’s not just about money. It’s not just about the aesthetic issue of not liking the government to be able to print money. We believe that it really has a lot to do with the abuse of government. And that we would even say to those people who are not even, conversant in these issues, uh, doesn’t it bother you to think that the government is so unanswerable to the people that it doesn’t really have to worry about taxing and borrowing to get money to, to finance this operation. It can simply print money. And so it doesn’t, in that sense, it’s insulated from the will of the people completely.

Gene Epstein: I mean, that’s of course if you’re, you know, a conventional Democrat if you’re conventional, a classical liberal or even a modern day liberal, isn’t that deeply disturbing? And so for that reason, just as you indicate, we want the money of the future, to be workable, to be possible, of course, but we want it out of the hands of government. And of course that creates a huge problem because, fighting government, governments going to fight back, there will be pushed back. And, uh, that gets into, of course, important issues about which I know something. But, uh, maybe not as much as you and not as much as others about how would, how I know that cryptocurrency, Bitcoin in particular has a better chance of becoming, a free market in money, better chance of, of staying out of the hands of government than gold does. Uh, but, uh, I’m not sure of all of the ins and outs of that, of that question.

Stephan Livera: Yeah, totally. Fair enough. One other point that I think you might be at a, a sort of, you were touching on almost earlier with the network effects point is that at one point in that debate, Peter Schiff was trying to say, Bitcoin isn’t really scarce because there’s all these other cryptocurrencies, but at the same time, would we not expect in the same way that there are differences causing, you know, varying degrees of saleableness in normal goods. We would see that amongst cryptocurrencies as well. And in our view, we would say it like Bitcoin is the most liquid one and the most decentralized one and has the best technology. But would you, would you, would you say that’s like a reasonable application of that idea that even amongst the cryptocurrencies so to speak, there’s really, there are differences amongst them and in that sense they are not the same? Yes,

Gene Epstein: Sure. I actually believe that in that case, in particular Erik Voorhees I think dealt pretty well, uh, in pairing, uh, what Peter said, uh, certainly, perhaps Eric even said that you, you could just as well say the gold isn’t really scarce because there’s also silver and indeed copper has been used as money. You know, you could say, anything’s not scarce because then you could just decide that, that those things that are similar to it but not the same, uh, are, are, uh, that it’s all the same. But in terms of subjective, votes and subjective understanding and it all gets back to human subjectivity, the fact that Bitcoin is in a class by itself, I think is obvious enough.

Stephan Livera: Excellent. Uh, I would love to talk a little bit about another debate now. A more recent one is the, George Silgan versus Saifedean Ammous debate. And so the resolution was “Bitcoin is poorly suited to the purpose of becoming any nation’s main medium of exchange”. And I guess one point that I saw a Doctor Selgin make was around basically the transaction costs and the, the amount of time that it would take for settlement of Bitcoin. And, and he was trying to say, “Well, look, they could turn to other alternative currencies before going to Bitcoin”. And then I guess if I were to just represent Saifedean’s view a little bit here, his view is more like, “Well, there could be many different central banks if you will, or Bitcoin banks and people may transact on layers above that and they’re not necessarily transacting directly on the Bitcoin blockchain”. Did you have any views around that or anything to share?

Gene Epstein: Yes, I want to, I want to address that, but, just as a, prelude, I want to say one interesting thing that, um, I, uh, I actually George Selgin as a matter of fact, has been in, done three debates at the SoHo forum. I’ve done four, but I’ve got, a monopoly lock on it, but George had done three. And, uh, and he’s, he’s very smart. I’ve learned a lot from him. But with that said, I was surprised by one thing. I known him over the years. He’s done book reviews for me when I was at Barron’s and he had told me, uh, most recently, more than once that his problem with Bitcoin was in fact that there would be no more than 21 million units of Bitcoin. And, he told me he was convinced that what this meant as indeed it does mean that not only will prices of consumer goods and capital goods decline over time because if there’s if we get to 21 million units, but if we, if we double and triple the amount of capital goods and the amount of consumer goods and services out there, then clearly as a matter of simple monetary math, those prices have got to come down over time.

Gene Epstein: And that’s already a problem by the way, even for, you know, quasi free market, people like the Chicago school, just the very fact that prices will decline, but not so much of a problem for Austrians that prices of goods and services of capital goods will decline. We are able to explain to people, people will even ask us, well, if prices are going to decline over time, how, why would any capitalist want to invest in anything then? Because he’s going to have to sell it for less in a year or two. Well, obviously the answer to that is that the capitalist work with the spreads, they’ll pay for factors of production at a lower price, factoring in their expectation of profits. They’re not stupid. But so therefore we have to get past that and go, which is not George’s hangup, George’s hang up was that labor expands over time.

Gene Epstein: We have twice as many people working and working now as we had in 1969 we’re, we will most likely have an expanding labor supply. So within 30, 40 years, let’s say Bitcoin becomes money now and then 30, 40 years, twice as many people are working, that means compensation. Labor compensation has got to be cut in half. And that’s almost unprecedented. It’s almost never happened on a sustainable basis during the late 1800’s. What happened was that prices came down, but, but wages more or less were flat. That’s how people got richer. So, but we didn’t have a cut in wages, in nominal wages. Now, that was George’s hangup. And I spoke to his colleague, Larry White, his colleague, because Larry White and George are often linked, very thoughtful people with different views about fractional reserve banking, but they bring a lot of interesting insights to the subject.

Gene Epstein: And Larry agreed with me that George was getting a little bit too hung up and that and that and that the idea that, that people are going to rebel against the cut in their wages and rebel against the situation in terms of simple math. Well yeah, you’re earning half as much as you did, you know, a number of years ago. But prices are now 90% lower of what you wanted to buy. So you’re five times richer, are people that stupid? Are we going to have labor union strikes? Well, not in the free market. So again, that, that, I thought George was a little bit daft on that subject, but he was hung up on it to my astonishment. So now I get to the denouement of this long disquisition on George’s daftness. To my astonishment when he got up there to debate Saifedean and he is going over the pluses and minuses of Bitcoin and to my astonishment.

Gene Epstein: The first thing he says is the fact that Bitcoin has a fixed supply of 21 million units for that it gets an A. For that, it’s a, it’s a plus. I said, what George, “What were you saying for months on end to me about this?” I had actually told Saifedean in advance, be prepared for that. He’s going to say that since it’s unsustainable because it’s got a fixed supply because labor compensation has come down. He didn’t say that at all. And then I began to realize George Selgin as brilliant an economist as he is, is obviously a little bit buffeted by this subject of Bitcoin. I don’t know if he can really quite make up his mind. Or quite put his mind around it. Now, I’m going to try to answer your question, but, uh, and, and this is in part something that I learned from my son Jim Epstein, who I mentioned to you, who knows a lot more about Bitcoin than I, my son Jim Epstein, who is a producer at reason TV and a scholar for reason magazine reason foundation.

Gene Epstein: This is the thing when just as you said when George said that the transaction costs of turning Bitcoin over are too great Saifedean did indeed fairly respond that George was making another naive error. He didn’t recognize that at that consumer transactions that most transactions that take place, can be simply accumulated in, over time and that the, and that the real settlement of Bitcoin can take place in very large blocks. Uh, and that and that therefore, this idea of George’s that you’re going to buy, you know, $100 worth stuff when you go to

Gene Epstein: a supermarket and that and that it’s got to actually be cleared the $100 worth of stuff in terms of Bitcoin, when you go to the supermarket. And that Bitcoin has got to be clear that $100 equivalent transaction or that two Bitcoin equivalent or one Bitcoin or half a billion equivalent Bitcoin transaction has got to be cleared in the classic sense is naive. What will happen is that that financial institutions will accumulate those transactions and then there will be clearance and settlement at a much deeper level. You know, in terms of billions of Bitcoins in the, now I shouldn’t have said said billions, thousands of Bitcoins or hundreds of Bitcoins in much larger blocks so that there will be no problem with respect to settlement in Bitcoin. So I think that, and Saifedean did indeed I think, pretty clearly parry George’s point by responding in that way.

Gene Epstein: But, but now, there is another problem and here I’m going to quote Jim Epstein. Maybe you want to have him on to explain it. I’ve asked Saifedean but I think he’s a little tone deaf about it, Saifedean then talked about, you know, but there’ll be, there could be credit cards. There could be, and he was right to some degree there could be credit cards. He said, look, you want, if you want to give your grandmother, if some people want to hold Bitcoin cash, if some people are old fashioned, they need to hold, you know, Bitcoin cash or Bitcoin coins. There would be a market for that. If there’s a market for that, if they want it, then that can be dealt with as well. There’ll be an entrepreneurial incentive to provide that. But, Jim Epstein was making a distinction in terms of the threat of government and that, that gets back to what we were talking about earlier, Jim’s argument is that the lightning network has hopes of developing a transaction mechanism for consumers, for small transactions that could stay out of the reach of government.

Gene Epstein: But that PayPal and the more conventional credit card companies are much more exposed. And maybe you could talk, speak to that issue. So Jim Epstein has hopes that cause he thinks that the lightning network has made advances and, could and could establish a mechanism whereby we can transact in Bitcoin outside the reach of government. But that, Saifedean was lumping the one with the other and not being sufficiently cognizant of the dangers of government interference. So that’s the best answer I can give. I’m curious about your, your, your thoughts.

Stephan Livera: Cool. So I’m happy to, I can just give a very quick overview there. So the lightning network, we can think of that like a way to open it. Think of it like I’m opening a tab with you and I’m settling only the final transaction. Now we can get into the technical parts. All right, so there’s a funding transaction, there’s a commitment transaction, et cetera. But we don’t need to go into that level of detail. But I think the key point to understand is that the lightning network is just as what we call trust minimized as Bitcoin. It, providing some of the, you’re, you’re able to get that transaction into the blockchain to settle out your closing, uh, closing the tab, if you will. And so the cool thing with that is it can dramatically scale Bitcoin while still keeping many of the same, if you will, trust assumptions about Bitcoin.

Stephan Livera: And so what it could theoretically do is imagine a world where we had no lightning network and we might need to be reliant on there being as Saifedean says, I think maybe whatever, 10,000 Bitcoin banks, right? Maybe lightning network helps enable there to be even more Bitcoin banks. And then there are other technologies that are coming that will allow people to have different levels of, let’s call it trust or security and by delegating certain components of that, so for example, to a side chain such as liquid. Uh, but again, although I don’t want to get too much into the technical components of it, but I think at a high level, the way we would think of that and explain that is that some of these technologies enable us to still transact denominated in Bitcoin. And you know, it’s not like fractional reserve, like lightning is fully reserved and in doing so, but still dramatically lower the cost of doing these transactions now that said,

Stephan Livera: There’s still work to be done on these things. But most of us, like I’m bullish on lightning, in case it’s not clear. Um, so I think, I think these things can be solved with additional work and yeah.

Gene Epstein: Well be fascinated to hear you exchange your, your bullishness on lightning just as my son Jim Epstein, as bullish on it as well in this sense, uh, that his argument is that the lightning w has the best potential, uh, to, to be, uh, outside the reach of government to subvert government’s power to interfere and that you feel that as well.

Stephan Livera: Yes. Because I think fundamentally, one of the, if you will, things about trying to scale Bitcoin is that every full node must maintain a record of every transaction ever in Bitcoin. And the fundamental reality is that it’s not possible to, in some sense, make every, to scale that to every person’s transactions directly on Bitcoin.

Stephan Livera: But what we can think of it like is lightning is taking some of those transactions off of Bitcoin’s blockchain by, you know, as we mentioned, sort of doing like a settlement at the end. And what it’s also doing is there’s another more complicated part which is it’s not just, I could open a channel with you, it’s, I can pay somebody. Like you might have a channel open to somebody else. Let’s say you had a channel open with Saifedean and I could, and I don’t have a direct channel with Saifedean. I can pay through my channel with you to the channel with safety. And so that’s called multi hop, right? So again, getting a little bit more into the technical components of it, but I think if I were to just summarize the key point here for you, it would just be that we are able to dramatically keep Bitcoin more decentralized and in doing so, it remains more government resistant.

Stephan Livera: Um, but yeah. But I’m also interested to discuss, I think, because you met a lot of really great comments before, and I was interested to sort of dive a little deeper into one of them is this question of the fixed money supply of Bitcoin, because it sounds like some, so obviously there are inflationists out there. I like the Keynesians and they will make these different, you know, sticky wages argument and uh, yeah. And I remember listening to a talk by Dr Guido Hülsmann and he was explaining how there is a certain wing, I think the Wieserian wing who might sort of believe in a need for inflation as well, whereas I think most of us would believe there’s no need for inflation. But I, I’m curious, do you see any similarities there between the view of Dr Selgin around the, you know, the fixed supply and, uh, the Keynesian sticky wages argument? Are they different? Are they, or are they similar?

Gene Epstein: Well, that’s a good question. As I said, there are, there seems to be two Dr Selgins, that’s the problem, right? I mean, he, he used to astonish me by completely dropping the argument, actually saying that the fixed supply is an advantage. And, so, I don’t know what to think. And as I, some, as I mentioned to you, Larry White, who was very much, in tune with George, I mean their, their work is similar. They’re both interesting guys, they’re free market oriented. They both want the Federal Reserve to be abolished. They have mixed feelings about, Bitcoin. Uh, they, uh, Larry agreed with me, that it’s, there’s so many, you know, we now just have to think in terms of human action of how people will respond. What kind of, do we think that, that people that labor is going to go on strike or quit an interesting job because the company says, that our prices and our, uh, our revenue situation is such that we’re going to have to cut your nominal wage by 4% next year.

Gene Epstein: But then we, we point out to you however, that, that prices, uh, most of what our employees are buying are down by 30%. And that therefore you’re better off, but we’re not going to be able to employ you with stay in business. If everybody objects to the 4% cut. It’s difficult to imagine what these people conjure up. What exactly is going to happen? Is everybody going to quit is it going to be a universal strike? What, I mean, do we, do we, um, I mean, are we gonna say that if labor unions dominate the economy, I will grant this. If labor unions dominate the economy and, they declare a universal strike because, because we can’t cut wages, then I guess it will be, then the economy will come to a standstill. But, we who point out that laborers actually do have a lot of power that wages do rise, real wages.

Gene Epstein: That is, rise. Because, laborers do have bargaining power. If you don’t get offered enough by company A, you’ve got company B, C, D and D to go to, then we point that out. But on the other side of it, in this case, we should point out that labor won’t have the power to object, especially if, if we get, we want to imagine this learning period where people have got to get used to a situation in which nominal wages will decline. There would be massive attempts and massive interest on the part of employers to start education, to, to post things on the internet, to train people in the situation, to make the point that with only 21 million units, of money out there, uh, revenues are necessarily going to decline. But you are going to get richer in the process.

Gene Epstein: So difficult to imagine that people are that stupid or that the transition cannot be made. But then if you then want to talk about the virtues of that, I think that Bob Murphy, again, the guy I just mentioned who’s probably, I mean, I’m sure you’re familiar with who writes a lot in the Austrian tradition. He’s pointed out that in a way there’s an advantage to the 21 million units because it means that for longterm planning for annuities, for the purchase of bonds, for figuring out where prices are going to be, that’s one element of stability in the marketplace that people can depend on. And it will probably mean then that in the long run it will be easier to make longterm calculations about where the economy is going. So, difficult for me to believe that that’s a problem. And I, although I mean, I don’t know, I mean, you tell me, maybe, maybe Satoshi could have set it up so that there could be some gradual expansion of the money supply.

Gene Epstein: But I do think that that, that the dramatic declaration that, that nobody can debase the currency because there will never be more than 21 million units is an extremely valuable thing to have said. And at the end of the day, difficult to imagine why anybody should have a problem with it. Clearly the Keynesians have a problem with it because the Keynesians worked for government, their whole livelihood is based on government. That’s why I said earlier the beginning of this discussion why they can only conceive of a world in which government dominates the money supply because that’s where their personal interests lie. And I think that’s another key aspect of mainstream economics when I digress and point out would that then mainstream economics is marred by two things. The desire to sit at the tables of power as manifested by John Maynard Keynes who clearly was a power hungry person who was infatuated with Nazi Germany and with the union.

Gene Epstein: He revealed this quite openly in his talks. And the second problem with mainstream economics is that it wants to imitate physics and wants to be esoteric, wants to be mathematical. That’s why they focus on equilibrium States or they can mathematize the economy. With that said, amazingly enough with those two handicaps, the handicap of course, wanting to sit at the tables of power is indeed that you become an inflationist, cause inflationism is good for the powerful, uh, you, you see everything from a top down perspective. You think you can manipulate the economy. Cause that is where, uh, you have the possibility of becoming chairman of the federal reserve or advisor to presidents. So that warps their viewpoint. And then on top of that, their viewpoint is warped more, by their mathematization I digress because you were initially asking me about their hangup with inflation and I believe it comes from that sort of intellectual disease, their desire to sit at the tables with power. That’s why Keynes called gold, the Barbarous Relic because indeed it was barbarous to somebody like him. It got in his way.

Stephan Livera: One point you were making there was also about entrepreneurs adjusting to the price level as it rises or folds. Right? And so traditionally, I mean in the world today, entrepreneurs who are doing longterm contracts, they may build in some kind of CPI term or some kind of inflation term. Now in if we were to live in a growth deflation world, like let’s say we lived on a gold standard or a Bitcoin standard, then entrepreneurs could simply price in the other way around. They could build it in some kind of decrease in the prices. But I suppose the point that, if I were to steel man this point against that, or they might say it someone or you might say, well, hang on, Bitcoin is too volatile. Why would anyone price in Bitcoin? Right. Uh, but I suppose the rejoinder, what would your thought be on that? Would it be that as Bitcoin grows it will be less volatile?

Gene Epstein: Well, actually, yeah, I’m glad you raised the question because, um, that had, that was indeed a problem that, uh, Larry White had. I mentioned Larry as a intellectual colleague of George Selgin. Larry’s at George Mason university. Very good place. Larry, said he’s working on a book about Bitcoin. And his problem is because of the fixed supply, it’s very volatile in price, actually, Saifedean had a very clear cut response to that. Uh, and uh, you know, that, that to elaborate on Larry’s point, its volatile in price compared to gold and gold according to Larry ,gold, has the advantage of expanding its supply because there are indeed, you know, we have all the above ground gold and then we have the mining of gold every year. So we have an increase in the supply. Uh, and uh, and really, uh, actually Saifedean didn’t put it as clearly in his debate with, with George as he did when he spoke to, my son and me, cause we met prior to that to learn a few things from him.

Gene Epstein: Uh, it’s really simply that if can imagine, that the price of Bitcoin goes to pick a number, easily $1 million an ounce, $2 million an ounce as it could. And obviously, uh, is now worth what I mean at a 10th, it’s worth far less than gold is. And but if in terms of actual value of it goes to very, a much higher price than today, which it will, if it’s going to become money, then it will gradually become less volatile. In other words, if somebody wants to buy $1 billion worth of Bitcoin today, he has vast potential to roil the price. But if he wants to buy $1 billion with a Bitcoin when Bitcoin is worth several trillion dollars because of a very high price, a very high price that it would be appropriately given because it’s going to become money, then clearly that volatility question goes away.

Gene Epstein: And then of course, Saifedean, made another very good point, which is that, that that Larry’s making far too much out of the expansion of the supply of gold, supply of gold adds like less than 1% of the year to the supply because there’s such a massive supply already there. But the truth is, the reason why gold is less volatile is again, because it’s got the high price and the huge quantity so that the capital value of all the gold in the world is such that if you’re going to buy $1 billion worth of gold, then all of that value can absorb that billion dollars. Bitcoin will get there once it rises in price. So I think that was a fairly simple answer to what seemed to be a nutty problem.

Stephan Livera: Excellent answer. I, yeah, that’s a really great insight there. Um, Gene, I normally try to keep the episodes around an hour, but, are you okay to keep talking or are you

Gene Epstein: Sure I can talk to you another few hours. I’m sure you know your readers, your listeners will go to sleep before w what else?

Stephan Livera: Actually, I was curious as well, uh, if you’ve got any thoughts around what might be a good comparative for Bitcoin. And here I’m asking about things like, base money, M2, M3, et cetera, you know, so there are different, I guess ways to conceive of the money supply. And I don’t know, Austrians also have, I think as Rothbard came up with, I think it’s called the true money supply. So I mean there are different, uh, you know, comparisons. Do you have any ideas on, you know, typically people compare Bitcoin and gold, right? Gold has, you know, if you will, a market cap of something like 8 trillion around that area, whereas Bitcoin, today is a little bit under 200 billion, what do you believe would be like a more appropriate way to think about the money supply?

Gene Epstein: Wow. Well, you used good numbers. So I want to pick up on the point and just go back to my earlier point, which is that again, Bitcoin has that low capital value because it’s low in price, but it could rise to $1 million per Bitcoin and be comparable in terms of, of its capital worth, uh, as gold is. And therefore it would not be so volatile. But the, the, the, yeah, the point, of course I’m familiar with, Rothbard’s rather agonized attempts to count up the money supply in terms of what is most liquid. And I think that’s an interesting exercise. The best answer I can give to this subject is that we’ve been talking about gold as money. We’re talking about Bitcoin as money. And then we’re even talking about, uh, the U S dollar, the Euro, the Yen, the Canuck buck as money.

Gene Epstein: And those are indeed, what we use because the US has a legal tender rule and the legal tender rule is constraining. And the constraining rule is that, is that you and I, you and I could make a contract in bananas if we want. I will pay you bananas, uh, for, uh, for services rendered, but, because bananas are not legal tender. I will have a much more difficult time getting that contract enforced and you will have a more difficult time, if there is a problem. But we, if it’s legal tender of the U S then, then, then you have a much easier time in the US courts getting that problem enforced. So, uh, but I mentioned that only because by and large, when it comes to that moment in which a transaction is made, the transaction is made in one of those currencies or the transaction is made in Bitcoin.

Gene Epstein: And the really, the only interesting part of this, this whole exercise, which I’ve been well aware of, of course I’m aware of, you know, M1 by M1, in the classical tradition of the monetary economist and one is just, you know, cash and checking accounts. And those are the immediate, I uses, we put to transactions and purchases, but, but there’s no question that you can use some other liquid things. For example, if you want to put up margin to, uh, to buy a, to speculate and commodities, then you can put up T bills, treasury bills, treasury bills, which, which are very liquid, which, uh, which you know, you can put up, you know, 30 and 90 day treasury bills which are earning interest. So there is always potential to use what is called near monies. Near money, that is very liquid.

Gene Epstein: You can convert it fairly quickly, uh, to money and uh, but it’s earning something. So there will be, a clear motivation to keep, uh, your money in something that is earning some interest for you that’s working for you. This gets into lots of different, complications having to do with fractional reserve banking. But the only simple point I want to make is that yes, we will always live in that world. We will always live in that world in which, in which it will become profitable for financial institutions to offer to people, ways of being in near money so they can earn a little bit of interest. And so that where they’re, they’re paying interest in where they were. Why would I have the motivation to do that if I, if you and I have financial institution, we want people to put their money with us and we want to offer them as many inducements to do so as possible.

Gene Epstein: This might be to, to start segwaying into discussion of fractional reserve banking, but I only wanted to make the more limited point that, that even in a world of Bitcoin and as in today’s world, we do have new monies. We will certainly not have, hopefully not have so many treasury bills out there because we have a government that’s rapacious and borrowing money and it can flood the economy with the short term treasury bills that, that are liquid in that mature quickly. And that can be used as, quasi money. But, but we will always have different sort of academic discussions about how much, how much a medium of exchange do we really have. Even in a world of Bitcoin, if we have however 21 million Bitcoin, we will have put that in the center of the universe.

Gene Epstein: And then just outside, we could have a certain instruments where you bought it with Bitcoin, but you only holding that instrument that could be converted very quickly to money. So that will always be a presence. But I don’t think in itself it’s very decisive. If we have 21 million units of Bitcoin, we will always have some near monies on the periphery around it. But I don’t think that makes a huge difference in terms of, trying to figure out what is money, what Rothbard was trying to do, was figure out what is money in this current economy? And was it savings accounts, what could be converted? Was it, you know, all of that stuff. Interesting exercise, but not really decisive for a world in which we have a free market in money.

Stephan Livera: Fantastic. And I think with that, we could also think of it like, so right now part of being a bitcoiner is that you hold your own keys and that you are verifying using your own full node. But I think the point you know, to sort of put that into the context of uh, this kind of the banking system, if you will, in a Bitcoin world, that there may be big Bitcoin providers, right? So, and in some sense they become like a Bitcoin bank, right? So the Coinbase, Xapo and other, let’s say, other big Bitcoin companies. Uh, but I think the crucial point is that there would be no legal tender laws saying that you private individuals out there, you must regard a Coinbase, Bitcoin IOU, the same as the Xapo Bitcoin IOU. The same as a Bitcoin stored on your own full node with your own keys, which are different. Right? And I think perhaps the intuition there would be, there might be a difference in the prices of these and or at least there would be some difference in the consideration of these. I would say, you know, holding Bitcoin on my own keys is obviously that’s real Bitcoin. Whereas Bitcoin held for you by Coinbase for example, is not.

Gene Epstein: Wow. And you were saying when you say it’s not not the same, you’re not saying that if you use the one you’d have to pay more in Bitcoin for the same item. Is that what you’re suggesting? You don’t mean that right?

Stephan Livera: Right. No, I mean

Stephan Livera: More sort of in this, I’m, I’m just saying in the sense that people would naturally be more, they would scrutinize harder of some of these institutions to be like, hold on. Are they doing fractional reserve here? Do they really have the Bitcoins that they claim to have. And I think that natural skepticism might drive people towards the self custody holding your own keys version of Bitcoin. Does that, does that make sense in your view?

Gene Epstein: Well certainly if I understand your drift almost all certainly Selgin and and others agree that clearly that we are naturally conservative about our money. I mean, if that’s what you’re suggesting, if I understand you. Cause most people are and that and that will be on the free market, there’ll be dominant brands that will have to establish a referee reputation for safety and soundness.

Gene Epstein: Uh, that it’s, it’s the last thing that we want, uh, to have to worry about is the availability of our money, uh, to transact with, you know, we’ve got so many other considerations in mind. Again, the main point I was trying to make earlier is that the holding of money balances, this is actually a relatively trivial thing. We don’t want to hold, we want to hold only those money, only so many money balances as we think we need to make purchases with. And that means we’re going to keep them to a minimum. And it does get back. But indeed we want to that to be perhaps the least interesting thing about what we do with our money. Even those of us who love to talk about investment and speculation, the least interesting thing because that’s simply what we have available to make purchases with. And so indeed the whole, I mean, just imagine a world in which all of those currency traders will have to look for something else to do with them.

Gene Epstein: Wouldn’t that be wonderful? Cause honestly, we were really talking about closing down about 80% of those people who are in finance who trade treasury bills. I mean, so many things will become much simpler in the world, very nicely boring. And we can get on with our lives and do other things, uh, rather than worry about such things. Such matters. But if you, a suggestion is indeed, but the free market will bring safety and soundness. Uh, that’s for sure. Although I guess I like to focus on all of the eccentricities of people and then, you know, that’s where it was Stephanie was saying, well there might indeed be a fair amount of, you know, Bitcoin cash that people want to hold, that people, you know, want to hold you know, maybe some want to hold some dollar bills. The idea that everybody’s gotta be trading Bitcoin on computer, I mean checkbooks there, it would be a pretty much obviously a response to the quirks of people when it comes to the way they want to transact in money. But your point, you’ve just made it to the extent that I understand it is, is well taken. Yeah.

Stephan Livera: Yeah. Well, I guess even to that, um, there is a product there called the opendime, right? And so people can basically send Bitcoins to an address and it kind of is like a physical Bitcoin, if you will. I mean, it’s obviously there’s different trade offs around that, but you can literally trade that around. And so to your point around having cash and coins, open dimes and similar devices may be able to fill some of that role. But look, I think I’ve kept you for a little bit longer than I –

Gene Epstein: The only thing we didn’t talk about, and in a way I’m glad we ducked it cause it’s a little good complicated is the debate that, George Selgin had with Bob Murphy about fractional reserve banking. And, there I guess, I think you have pretty strong views, but, my views are a little bit wobbly probably compared with yours, but maybe that’ll be a discussion for another day just to tantalise our listeners.

Stephan Livera: That’s right. That’s right. We’ll keep that for another episode. Gene, do you want to just make sure you tell my listeners about the Soho forum, tell them where they can find you and what’s coming up.

Gene Epstein: Yes. Well, as, as I said earlier, uh, the, uh, the, I don’t know when will this be aired? As we say in the podcast community.

Stephan Livera: Probably in a couple of days, Oh, maybe, maybe a week, a couple of days to a week.

Gene Epstein: The time you’re listening to this, we probably will have had the debate on the War on Drugs, but you can go to, thesohoforum.org or to Reason TV, Reason podcast to listen to all of the debates we’ve had. I’m actually working on a collection of transcripts of, some of them are interesting debates, which will include some commentary from me. We’ve had, uh, over 35 debates so far on different topics, mainly of interest, of course to libertarians. My big confrontation is going to happen at NYU, a much bigger hall than we usually use. We usually hold these based at the subculture theater on Bleecker street, which seats a little over 200. This debate on socialism is going to be at Kimmel hall at NYU, which sees nearly 500.

Gene Epstein: I would like to attract a lot of socialists to the debate that’s going to be, November 5th, the other big one. That’s that, that where we sold out so quickly that we’re renting a much bigger hall. This in this case uptown. Uh, it will be the debate between Scott Horton and William crystal. William Crystal is known certainly in the U S maybe in Australia as being perhaps the most prominent Neo conservative in our country on the subject of foreign policy. And so I was quite grateful to him for consenting to debate, a rebel, a brilliant genius rebel on foreign policy like Scott Horton. And as soon as I announced it, we sold 250 tickets within a couple of days. We’re now up to 500 tickets and it won’t be until next May. So that will be a big debate, that we’re going to have. And of course, you, in Australia, if you can’t make it to New York, you can always listen to our debates. And as I say, we’ve got 35 that we’ve done, and all of them I think have interest. Some of them are more interesting than others. The ones that I just though you and I just discussed, the two that have occurred on Bitcoin are available on podcast and video.

Stephan Livera: Fantastic. I’ve really enjoyed speaking with you, Gene. Thank you so much for joining me today.

Gene Epstein: We’ll do it again next time. Fractional Reserve banking. Talk to you soon. Bye. Bye.