Who really controls money, and who benefits from it? In this Doha Debates podcast, host Mohamed Hassan is joined by Levy Economics Institute president Pavlina Tcherneva, economic anthropologist Jason Hickel, and The Bitcoin Standard author Saifedean Ammous for a heated debate on fiat currency, central banks, inflation, Bitcoin, dollar dominance and monetary sovereignty. Read the full transcript below.
Introduction
MOHAMED HASSAN: (00:00:38 – 00:01:14) Today we’re asking, who controls money? I’m Mohamed Hassan, and this is the Doha Debates podcast. Before we start, tell us where you stand on today’s topic. Share your thoughts with us in the comments here on YouTube.
I’d like to welcome our guests. Pavlina Tcherneva is the president of the Levy Economics Institute. Jason Hickel is a professor at the Autonomous University of Barcelona. And Saifedean Ammous is an economist and author of The Bitcoin Standard. A very warm welcome to the three of you. Thank you for joining us. Thank you.
SAIFEDEAN AMMOUS: (00:01:14 – 00:01:15) Thank you for having us.
MOHAMED HASSAN: (00:01:15 – 00:01:44) I’m very excited about this conversation. I am going to learn a lot myself as somebody who is not an economist talking to 3 very accomplished and enlightening people talking about money in our time today. I’m going to ask you a lot of stupid questions, so please bear with me because I want to learn as much as I can from the 3 of you. And maybe towards the end, you all can help me restructure my investment portfolio, but no pressure.
What Is Money?
Saif, can we begin with you? When we talk about money, what does that word actually mean?
SAIFEDEAN AMMOUS: (00:01:46 – 00:03:41) Money is a medium of exchange. What defines it is that it is a good that is not acquired for its own sake. You don’t acquire it to consume it, and you don’t acquire it as a capital good. You don’t acquire it in order to produce other things. The first is a consumption good. The second is a capital good. Money is a different category of good, which is acquired purely to be exchanged forward. And this gives it specific properties that are different from other goods.
But I think the most important fact to understand about money is that it is just another market good, and therefore there’s a supply, there’s a demand, and then all of the rules of economics apply to it. The question then is, what succeeds as a medium of exchange? And I think history shows us there are very clear properties for what makes for a good medium of exchange or what makes for a bad medium of exchange.
And in my book, The Bitcoin Standard, I argue that the most important property is the increase in the supply of money. Ultimately, that matters more than anything because a money whose supply increases quickly will be devalued to the point where it cannot function as money. Whereas the money whose supply doesn’t increase quickly will continue to maintain the wealth that is stored in it, will continue to function as money, and will continue to reward the people who use it. So, a fast increase in the supply of money destroys the ability of money to function as money.
I think this is an enormously important thing, and this explains a lot of the world’s problems over the past century, where we went from using a money that was limited in its supply growth, which is gold, to using government money, which is much more unlimited in its supply growth. It grows at a much faster rate creates a lot of price inflation, creates a lot of funding power to give more money and power to the government at the expense of the citizens, and has financed wars, death, destruction, and devastation. All of it because of this very dangerous, very destructive, and very murderous idea that government gets to set what money is, and government is the arbiter of what money is, which is false and downright criminal, I should say.
MOHAMED HASSAN: (00:03:42 – 00:03:55) Well, there’s going to be a lot here we’re going to unpack. Pavlina, what makes money work, function in a society? What is it about the concept of money that allows us to agree on the value of anything?
PAVLINA TCHERNEVA: (00:03:57 – 00:06:34) Well, I think it’s important to distinguish between money as objects versus money as units of measure. If I were to say what money is, I would concentrate on its aspect as a social technology, if you will, that money emerges through the history of time as a way for us to track economic activity, as a way of measuring debts to each other, prices, equivalences.
So when you look at how money emerged through time, historical time, you would be hard-pressed to find a society that didn’t have some kind of standard that was established, usually with the help of some authority. How you and I decide what we owe each other, what our debts are going to be priced in, is some kind of measurement. So the first function I will stress for money would be the unit of account.
And it’s normal that most people think of money as the object that they carry in their wallets, the coins that jingle in our pockets. But really, money is just the name for financial instruments, IOUs. So think of money as a centimeter, as a foot. Think of money as just the name for debts. So when you say a dollar, it’s not really the material manifestation of dollar that is so crucial, but who sets the standard of that we are going to measure our prices and our debts in dollars or in euros.
And when you then look through time, you notice that money is not only a social technology, but it also is part of nation building. It’s part of how governments manage a polity. And so there is a reason why governments are involved in the creation of money.
So this is what we would call, for example, monetary sovereignty, where money will be created with the financial institutions that we have built, Federal Reserve, Treasuries. We issue currencies. And there is a reason why money is not fixed, because we need it to be flexible to facilitate growth and economic activity.
Money, Power and Production
MOHAMED HASSAN: (00:06:35 – 00:06:59) Now, that word sovereignty is important, and we’re going to get there because I think a lot of the conversation is about that topic, about independence and about sovereignty and about freedom ultimately, and who has it and who doesn’t have it. But I heard from the two of you two different, slightly different definitions of money, a good and a measurement, which is really interesting. And Jason, I wonder, listening to these two, what you agreed with, what you disagreed with.
JASON HICKEL: (00:07:00 – 00:10:18) That’s interesting. I mean, I suppose probably I’m closer to Pavlina’s position here. I think one of my worries about Saifedean’s position is I’m not actually sure that we want to think of money as something that should be a permanent store of value in the way that, say, Bitcoin is, that we would speculate on and things like that. We can get into that later.
But I think that the thing that I would want to add to both of these is simply to say that money is not just a neutral thing. It’s a highly politically charged thing. It’s shot through with power imbalances. And I think this is what makes money really interesting, right? The fact that the money has this incredible power. Which is the power to effectively mobilize production, right? All of us who work, we receive our wages in a particular currency. And so whoever is issuing the money therefore has power to mobilize our labor, right? Our labor, but also our resources, our collective planet’s resources. And so there’s a crucial question here, which is that who controls the money issuance and what do they mobilize to do with it? And I think this is where the rubber hits the road really, right? So it’s not necessarily neutral. There’s power relations that are at stake.
And the main thing here is that technically Pavlina is absolutely right that governments or states have a monopoly over the issuance of currency. It’s a public monopoly. However, under capitalism, they actually relinquish some of that monopoly power and they franchise it out to commercial banks. And so commercial banks then under capitalism have the rights, have the ability to create money when they make loans. And so a huge amount of money in our economy is actually created by commercial banks.
Now, when they create money and make loans, what’s the purpose for them? They’re effectively lending to capitalist enterprises with the objective of making profit. And so as a result, a massive amount of our labor and our collective productive capacities, our factories, our resources, our energy, our land is mobilized around producing things that will maximize the profits of the capitalist class.
And I think this actually leads us to very severe problems. For example, we mobilize effectively in a kind of a perverse way, right? We have massive production of things like SUVs and fast fashion and private jets because these are highly profitable to capital. But we have chronic underproduction of obviously socially necessary things like affordable housing or renewable energy or agroecology, things like that, because these are much less profitable to capital or not profitable at all.
And so I would say that the question here really is, is who controls money in any given economy? And specifically, the problem we face now, I would say, is not money as such, but rather money in a capitalist economy where production is organised around profit maximisation, not around human needs. Because, I mean, think about it. We have tonnes of productive capacity. Think about the labour that we collectively possess. Think about the resources and factories and technologies that we have. We could do anything we want. The social crises that we have, we can solve immediately. The ecological crises we have, we can solve immediately. These are not difficult things to solve.
The main problem is simply that our productive capacities are not mobilized to do those things because they’re not profitable. And instead, they’re mobilized to do other things that benefit the profits of those who control the means of production, those who own capital. And I think that’s the main problem we would need to focus on.
Is Increasing the Money Supply Theft?
MOHAMED HASSAN: (00:10:19 – 00:10:22) Saif, I can see you writing things down. Yes. I wonder what you have to say.
SAIFEDEAN AMMOUS: (00:10:22 – 00:12:19) A lot. First of all, let me begin by saying initially you said money is a unit of account and there always has to be an authority that set it. And I think this is categorically false. Gold has existed as money before any single government that exists today had existed. Gold was money. And gold continued to be money after all of the world’s governments have gone out of business and it continued. So, the Roman Empire collapsed, but the gold continued. Gold continued to be as money. So, the emergence of gold as money predates the emergence of any state. We have records of people using gold as money before any states existed.
And even more importantly to debunk this claim is the clear idea that within societies, sorry, the government can impose a specific monetary standard, this silver coin or gold coin or whatever it is, but inter-societies, between societies, there is no single authority that decides, and yet trade happens. So, how does trade happen between strangers who don’t live under the same rules, under the same authority? The answer is money that exists outside of the state, and that’s what gold is. Gold is money regardless of whether the state allows it to be money or not.
Now, the second point is you said essentially that issuing money is a way of mobilizing. Which is a wonderful Orwellianism, but it’s a very wrong way of putting it. Issuing money is theft, and a more precise way of putting it is slavery. If I own a form of money, but you have the ability to print more of that money, you are essentially stealing my purchasing power and taking it to you.
Now, if I signed up willingly to— if I was stupid enough to sign up for a form of money that is built to allow you to steal from me, then you could say that’s not stealing, that’s just me being an idiot. But in our modern world, we have no choice. Until Bitcoin came around, we had no choice. You had to sign up to the government’s money. You had to sign up to being stolen. And you had to sign up to being lectured by economists paid by that stolen money to tell you why that stolen money is for your own good.
JASON HICKEL: (00:12:19 – 00:12:23) Is it okay if I just ask a clarifying question? Are you talking about inflation when you talk about theft?
SAIFEDEAN AMMOUS: (00:12:23 – 00:12:23) Yes.
JASON HICKEL: (00:12:23 – 00:12:24) Is that what you’re referring to?
SAIFEDEAN AMMOUS: (00:12:24 – 00:12:29) Increasing the supply of money. Increasing the supply of money devalues the existing money.
JASON HICKEL: (00:12:29 – 00:12:30) Through inflation is what you’re talking about.
SAIFEDEAN AMMOUS: (00:12:30 – 00:12:33) Through the increase of the supply. Anything whose supply increases, its value declines.
MOHAMED HASSAN: (00:12:33 – 00:12:38) So this is the idea of governments having the ability to print money and circulate that into their economies. Exactly. It’s marketed as
SAIFEDEAN AMMOUS: (00:12:38 – 00:13:57) if it’s a way of mobilizing labor as if it is something that is inevitable that it has to happen. And as you said, we need to increase the supply of money. I think this is the most pernicious misunderstanding of money, and it’s extremely dangerous because you don’t actually need to increase the supply of money because money is unique among all goods in that its quantity is irrelevant to its performance of its function.
In other words, having more tables, more water, more apples, more steak is good because that allows us to meet more people’s needs for these goods. With money, it’s not the case. We don’t need a specific quantity of money for money to perform its function because money’s function is purchasing power. And purchasing power is something that is psychological that can be stacked into money without increasing the supply.
In other words, you could run the entire world economy on a money supply of $1 billion or $1 trillion or $100 trillion or $1. Doesn’t matter. You can just divide the dollar down into smaller and smaller units. You don’t need to increase the supply because the purchasing power that can be stored into every unit of supply can be increased. So, the only function that is served by increasing the supply of money is just redistribution. It’s theft. It’s theft from the vast majority of people to the government’s central banks, and let’s face it, the economists that get paid from the inflation to justify this.
Commercial Banks, Central Banks and Democracy
MOHAMED HASSAN: (00:13:58 – 00:14:19) You brought up the idea of theft, and I want to bring in Jason because I want to know what you have to say. Lots of things to say. The word Orwellian was put on the table quite early on. This idea that economists are using language to basically gaslight us as ordinary people into accepting our fate being enslaved in a system that we have no control over. That’s a lot, but how do you respond to it?
JASON HICKEL: (00:14:19 – 00:14:34) There’s so much to say here. Look, I mean, not all economists are the same, first of all. So there’s orthodox mainstream neoliberal economists. We are against them, right? Then there’s heterodox economists, there’s Marxist economists, there’s feminist economists. I mean, the idea that all economists are in on some kind of conspiracy—
SAIFEDEAN AMMOUS: (00:14:34 – 00:14:38) All the non-Austrian economists are in one conspiracy—
JASON HICKEL: (00:14:38 – 00:14:42) Some kind of conspiracy to get us all to subject ourselves to the overlords of the central banks.
SAIFEDEAN AMMOUS: (00:14:42 – 00:14:48) Just the economists who are paid by the central banks universities. If you’re a central bank economist.
JASON HICKEL: (00:14:49 – 00:15:42) It doesn’t include us. But first of all, I want to start with where we agree very strongly, which is that clearly we agree that this is a deeply undemocratic money system, right? This is my main problem with it. The money system is profoundly undemocratic, and it shouldn’t be because again, as Pavlina pointed out, money is a public good. It can and should be a public good, but it’s not in our current economy. Right.
And so in the current economy, it’s overwhelmingly controlled by the commercial banks. And effectively, I mean, it’s interesting that Saif keeps pointing to the state as the problem here. The government is the problem here. The government has effectively tied its hands, actually, and has given incredible amount of control to an independent central bank over which there’s no political influence. Or very little. Finance has major influence over the central bank. And then of course the commercial banks, that’s primarily what runs the money system, right? And
MOHAMED HASSAN: (00:15:42 – 00:15:46) that’s because these banks then have the power to issue money, to create money and put it into the system.
JASON HICKEL: (00:15:47 – 00:17:58) These are the overlords of finance, you might say. And whoever controls finance is controlling production, is determining production. And so the commercial banks are effectively determining what gets produced and what doesn’t get produced because they’re making the loans accordingly, according to what’s important to them, which is of course profit maximisation and repayability, et cetera, et cetera. So things that are, again, not profitable are not going to get produced under this arrangement.
And this, by the way, explains the fact that we are failing very profoundly in one crucial task, which is to tackle climate change. This is a dramatic civilizational failure. Our ruling classes have utterly failed us on this. The rich countries are not decarbonising nearly fast enough to meet their obligations under the Paris Agreement. Now, why is that happening? We have the technologies that we need, all the renewable energy technologies we need. We could easily decarbonize quite quickly, actually.
But there’s a problem, which is that finance is not flowing into green transition because it’s not profitable enough. And so it continues to flow into fossil fuels because fossil fuels are something like 3 to 4 times more profitable than renewables. So we produce more and more fossil fuels and inadequate quantities of renewables. And as a result, the world is burning around us. This is crazy.
And why is this happening, given the fact that, in terms of democratic support, people overwhelmingly support strong climate action and renewable transition? We want this. Nobody wants to watch our world burn around us. And yet it’s not happening. Why? Because the finance system is not under democratic control. And on this, I very strongly agree with Saif.
The only difference here is that I would say, in order to address this problem, we don’t need to abolish fiat currency and move to Bitcoin. We should talk about Bitcoin because I got problems with it. We can keep the existing money system but bring it under democratic control. And I believe this should actually address Saif’s main concerns here. And so this way, money becomes a real public good. We can democratically determine how it gets invested and what gets produced with it, right? And this way, we’re directing our collective labor and our collective resources in socially beneficial ways rather than ways that only benefit a certain small faction of our society. And of course, the economists that they pay who are bad. I wonder if you agree on that too.
Capitalism and What Gets Produced
MOHAMED HASSAN: (00:17:59 – 00:18:28) Do we agree on the fact that those economists are bad? So there are good economists and there are bad economists. I think everybody agrees. I wonder then, you said that there was a fundamental change in the way that money is controlled and who gets to issue it, and that being the source of the problem as you see it, under a capitalist society. When for you did that transition happen? When did money go from being centralized, controlled, a public good into something that is no longer serving the public interest?
JASON HICKEL: (00:18:29 – 00:19:38) I mean, again, the main problem for me here is the production system. And the production system that we live under is capitalism. And capitalism is about 500 years old. So again, under capitalism, it’s itself a very undemocratic system where basically a small faction of our society controls what gets produced. They make the decisions about what gets produced. And this is capital. This is the richest 1% who own the majority of investable assets. This is the large commercial banks and the major financial firms and the large corporations. They overwhelmingly determine what gets produced in our economy, and they determine that production around what is most profitable to them, not what is most beneficial to us. Right.
So this has been a problem under capitalism for its entire existence. And this is why, by the way, we’re in this crazy situation where we have massive aggregate production in the world economy to the point of blowing past several planetary boundaries and driving dangerous ecological breakdown. But at the same time, we have massive human deprivation that persists, right? Something like 2.2 billion people in the world live in food insecurity. This is crazy. We have cost of living crises that prevent people from accessing food.
SAIFEDEAN AMMOUS: (00:19:38 – 00:19:40) Inflation is what explains it.
JASON HICKEL: (00:19:40 – 00:20:43) We’re going to talk about this in a second. I’ll talk about inflation. But the main problem here is the fact that we’re not producing things that people need because those things are not profitable enough. Now, inflation is the problem that Saif always wants to talk about. And I think this is very important. And I also agree inflation is a major issue. But I don’t, again, I don’t believe that we have to abandon the existing money system entirely in order to solve the inflation problem.
Let’s say we have a democratic money system when we can determine we need to increase funding for renewable energy and affordable housing and hospitals. Now, there is a risk of inflation when states start doing this kind of thing, which is that if you increase the demand on your productive base beyond what the productive capacity of the economy can sustain, this will drive inflation. But that can be resolved by reducing excess demand elsewhere in the economy. So for example, well, you could, for example, tax the rich. Taxing the rich basically reduces their purchasing power. And so now we’re producing less private jets and SUVs for them so that we can produce more hospitals and renewable energy capacity for society.
MOHAMED HASSAN: (00:20:43 – 00:20:48) We’re going to have time to talk about solutions because that’s definitely why we’re here. But Saif, your thoughts?
SAIFEDEAN AMMOUS: (00:20:49 – 00:22:14) Yeah, I think so. The key point here is that you guys mentioned that essentially it’s the private sector that’s doing the robbing, not the government. I think it’s true. It is essentially private actors. I think government is categorically just made up of individual people. It is essentially the tool that people use to rob the rest of society. So, it’s kind of pointless to say, is it the private sector? Is it the government? It’s individuals and groups of people and bankers who are making money and using the politicians.
However, the discussion from the pro-fiat money side is always very, very hesitant to bring up the reason of, okay, I agree with you. Yes, these private banks are creating all these credit obligations that are in fact increasing the money supply because when a bank issues a mortgage, issues a loan, it’s generating new money. So, yes, it is private sector that is creating the new money supply.
However, it’s very important to understand that if it wasn’t for the central bank being a monopoly that has control of the currency, that can destroy the value of the currency by increasing its supply in order to bail out those banks when they get into trouble, none of this would happen. Get rid of the central bank, you get rid of that problem of the creation of money.
And this here brings us to the real fiction here is this idea that, well, okay, the system currently is bad, but that’s because it’s not democratized. So if we just democratize it, we put magic pixie dust on it, then it becomes democratic and it can do all those amazing things.
JASON HICKEL: (00:22:14 – 00:22:16) I’m sorry, we’ve never had a democratic system.
SAIFEDEAN AMMOUS: (00:22:16 – 00:22:19) No, no, no, we do. This is it. This is how it works. You can’t just keep saying this is not democracy.
JASON HICKEL: (00:22:19 – 00:22:24) I’ve just been trying to tell you, we do not live in a democratic system right now. It’s deeply undemocratic.
SAIFEDEAN AMMOUS: (00:22:24 – 00:23:42) You can’t just continue to pretend that you are some representative of some utopia that we would all have if we just voted for you. We have this system, it’s been working. This fiat money system has been in operation for 112 years all over the world. And it has always done one thing only, destroy the value of the currency to benefit the people at the top and pay the economists who promote this idea.
So, the notion that you’re going to come to me and tell me, “No, no, no, if my buddies get elected, then we’re going to just take all of that money and allocate it not to enrich ourselves, not to enrich and benefit us, but we’re going to do it to actually fix society” is just another justification for theft.
You know what would actually fix society? What would actually fix those problems that you really care about, the poverty and the homelessness and the lack of homes? Not robbing people. It’s not about finding better thieves to rob them. Not robbing them, letting them have their money, letting them have the ability to maintain the savings in their own money would allow them to solve those problems.
But that’s not the issue that economists solve for. That’s not the issue that the left solves for. That is about totalitarianism and control. And that is why the left has always been so strongly supported and financed by the central banks that create the inflation. Because you guys provide— I know, I know it sounds very shocking, but really, there would be no inflation.
The World Before Central Banks
PAVLINA TCHERNEVA: (00:23:42 – 00:23:43) It’s not historically accurate.
MOHAMED HASSAN: (00:23:44 – 00:23:45) Pavlina, come in.
PAVLINA TCHERNEVA: (00:23:45 – 00:24:31) Yeah, no, no, listen. We have had a world without central banks. We know what that world looks like. Before we figured out central banking and elastic currency, we had private money and we had fiat money, bills of credit and various IOUs that private banks issued to finance the capital development of the economy. It wasn’t the government coming in and saying, “You do this.” It was the merchants that, I mean, government supported some of these explorations, but the economy became capitalist economy because private investors took initiative and they traded and they built things. And those schemes didn’t turn out to be profitable and they collapsed. And the world without central banks was a world filled of depressions.
SAIFEDEAN AMMOUS: (00:24:31 – 00:24:39) This is propaganda. The US from 1873 to 1914 had the fastest, most steadiest growth under a deflationary system.
PAVLINA TCHERNEVA: (00:24:39 – 00:24:40) So, you’re suggesting we go back to the 1800s?
SAIFEDEAN AMMOUS: (00:24:41 – 00:24:46) I certainly would believe it is an enormous improvement on our awful monetary technology.
JASON HICKEL: (00:24:46 – 00:25:38) Look, to the extent that you’re upset about the way that central banks operate in the sense that they bail out private banks, I very strongly agree, right? That’s a major issue. And it’s very clear that the central bank has power to influence economic outcomes, and it only uses that power typically under capitalism in order to prop up commercial banks and pump up asset values massively to the detriment of the working classes and massively to the benefit of a small elite.
But here’s the crucial thing. It’s true that prior to central banks as institutions, capitalism wasn’t a crazy boom-bust cycle kind of situation, right? The Gilded Age, which you’re referring to as a great time, was actually terrible for most people. It was a time of just mass immiseration for the working classes. I mean, union organizers were being shot, massacred in the USA, right? Where is the—
MOHAMED HASSAN: (00:25:38 – 00:25:40) This is the late 19th century.
JASON HICKEL: (00:25:40 – 00:26:31) This is the— Yeah, that’s the late 19th century. Whereas the richest 1% were making out like kings. I mean, it was an era of just absolutely extreme inequality. We don’t want to go back to that.
Now, it’s true that the central bank was basically established by commercial bankers. It’s also true that the central bank can provide an important public good in stabilising the economy and directing finance in socially beneficial ways. It doesn’t tend to play that role. Again, because that is not the objective of a capitalist economy. The objective of a capitalist economy is to ensure the profits for the capitalist class, and in this case, also commercial banks. And so the point here is simply not that central banks as a thing need to be abolished, but rather they need to be democratized and aligned with democratically determined objectives.
Monetary Sovereignty and Fiat Currency
MOHAMED HASSAN: (00:26:31 – 00:26:48) I do want to stop on this point because I want to clarify something even for myself. Pavlina, 1914 is the year that you mentioned as being this fundamental shift between the way that money was working before and the way money was working after. What happens at this moment in time and why?
PAVLINA TCHERNEVA: (00:26:48 – 00:26:59) We create the Federal Reserve Act, 1913, and Congress authorizes the creation of a central bank. And this is a— England had a central bank. It’s a long historical process.
MOHAMED HASSAN: (00:27:00 – 00:27:03) And before that, who was issuing money in a society like this?
PAVLINA TCHERNEVA: (00:27:03 – 00:29:25) Look, there are— the US as a nation project has attempted to have a public bank since the beginning of its Revolutionary War. When the colonies was established, they had to use British currency and they rebelled against this. They wanted to manage the economic affairs. They needed to price debts. They needed to invest. Money is a tool. It’s just a tool to facilitate activities and it is usurped and there are all of these powered interests that we want to look at. But it is essential that you have some kind of control over that particular social technology.
So what ended up happening with the British Empire. They put in place currency laws in 1751 and ’64 preventing the colonies from issuing their own currency. How do you get the British currency? You have to export all your stuff to England to be able to get the currency to pay your taxes. If this is what Saif is calling theft, fine. Okay, the colonies realized we shouldn’t be producing our labor, our resources, shipping them to our colonial power. We should manage our own resources, build our own houses here. So we need our own currency. We don’t want to be beholden to the British currency. That was one of the reasons for the Revolutionary War, to have independence.
And look at how every colony gains its independence from its colonial power. One of the first things that happens is they change the currency. They untether slowly, sometimes, sometimes more quickly. Iraq War, the first thing that happens, change the currency. Why? Why does society that Saif doesn’t believe in choose to have a new instrument to manage its own economic affairs? Because we have this modern nation state that needs X, Y, and Z.
And I agree, bailing out banks is not a proper use of that public function. Robbing, whatever you want to call it, we have ways of thinking as a society what we need. So this is just, technology doesn’t help you to answer these questions. It is polity and it’s deliberation and it’s how we organize production that helps you answer the question. It’s not a matter of changing the currency from a paper to a Bitcoin. In fact, I think Bitcoin will make it worse. It’s about decision-making and power-making. And that is just in the service of where we invest, who gets employed, and that’s it. Money itself doesn’t create labor.
MOHAMED HASSAN: (00:29:25 – 00:29:32) So this is the, you describe it as a way for countries to exert sovereignty over their own ability to manage their economic affairs.
PAVLINA TCHERNEVA: (00:29:32 – 00:29:38) Yeah, to manage their economic affairs. Yeah, direct their public purse to what you would hope would be socially useful ends.
MOHAMED HASSAN: (00:29:38 – 00:29:40) And this is ultimately what a fiat currency is, right?
PAVLINA TCHERNEVA: (00:29:41 – 00:30:12) Yeah, I mean fiat, it’s always been fiat currency. So it makes it sound like gold was always the money of account, but it was not. It was in the history of time, gold was a very small time that it was used. Most of the time, it was virtual, it was ledgers, it was accounting, it was bills of credit, it was paper. Fiat is just that it’s not backed. There has been collateralized money by gold. Yes, there were gold coins, but that is immaterial to the function of money and how it is being used and how it is being created.
SAIFEDEAN AMMOUS: (00:30:13 – 00:30:27) Can I just say, first of all, I do believe in a thing called society. I know that it exists. I just think that the way that fiat promoters use the term is simply to just— it’s a euphemism for our banker bosses.
MOHAMED HASSAN: (00:30:28 – 00:30:28) Well, when you say—
PAVLINA TCHERNEVA: (00:30:28 – 00:30:31) It’s not my words. I don’t know, you’re putting words in our mouths.
MOHAMED HASSAN: (00:30:31 – 00:30:34) But when you say fiat promoters, what do you mean by that exactly?
SAIFEDEAN AMMOUS: (00:30:34 – 00:31:33) I mean, basically, this is really the key point to go back to your question when you said it’s absurd to say that all of these economists. No, I think it is not absurd. I think there is one test to determine whether you’re an economist or a central bank employee. Do you think the money supply should be increased? Do you think there should be an authority that increases the money supply? If you answer yes to this question, then you’re not an economist, because if you’re an economist, you should be able to understand the basics of supply and demand.
You should be able to understand that increasing the money supply just adds absolutely no functionality to money because all of the existing supply of money is enough to perform all of its functions since money’s function is purchasing power, which is independent of its quantity. So there’s no benefit from increasing the money supply, and there are only drawbacks and the benefits accrue to the people who print the money.
So if you think the money supply needs to be increased and that we need people to be managing that money supply increase and that we need to manage it with whatever nice terms you are currently told to promote in your universities, you are essentially working for central banks. There is no way around it.
Can Central Banks Increase the Money Supply?
MOHAMED HASSAN: (00:31:33 – 00:31:42) But why is that an issue? Why do you think the central bank is a destructive force in these societies as opposed to a body that is acting on behalf of people.
SAIFEDEAN AMMOUS: (00:31:42 – 00:32:39) Because it exists to solve a problem that doesn’t exist, and it creates a far bigger problem. And it continues to promote a truly criminal ideology, which wants to convince people that, “No, we are— all of the problems that we cause are still better than the alternative of us not being there.” No, actually, the world would function very well with a hard money. We don’t need the money supply to increase. We don’t need to be robbed in order for our money to work. If everybody could have a form of money that wasn’t constantly being destroyed to finance war, mass murder, theft, everybody would be a lot better off.
And I think it’s really frustrating here to try and talk to economists or to central bankers who promote these ideas because there is just so much terrible implications of inflation that they are completely incapable of even thinking about because inflation is always the last thing they think about because the whole thing is all about how we need to always keep increasing the money supply.
PAVLINA TCHERNEVA: (00:32:39 – 00:32:46) I’m sorry, it doesn’t even work this way. It doesn’t even— I’m sorry to interrupt, but it doesn’t work this way. Central banker cannot increase the money supply.
SAIFEDEAN AMMOUS: (00:32:46 – 00:32:46) How?
PAVLINA TCHERNEVA: (00:32:46 – 00:33:05) The central bank cannot increase the money supply. The only way the money supply increases is if somebody makes a loan and that creates a deposit. The central bank cannot force money on the population. They don’t print money and just drop it via helicopters. It does not work this way. Money supply is deposits in the system or cash in the hands of the public.
How Bitcoin Works
MOHAMED HASSAN: (00:33:05 – 00:33:20) I think this is a good opportunity to talk. Let’s talk about Bitcoin. Yes. You wrote The Bitcoin Standard. You are a very public advocate of Bitcoin. How do you think, first of all, how does Bitcoin essentially operate and why does it solve the problems that you’ve put on the table?
SAIFEDEAN AMMOUS: (00:33:20 – 00:33:31) Yeah, well, the short answer to this question is that Bitcoin is the first way for an individual to opt out of the central banking slavery system that everybody has to be part of.
MOHAMED HASSAN: (00:33:31 – 00:33:33) So this is why you can’t just take cash out and stuff it in your mattress because—
SAIFEDEAN AMMOUS: (00:33:34 – 00:35:07) No, because even if you take the cash out, the cash is being devalued because they’re creating more and more of the money supply. So, you can’t just opt out. Your money is there. Your bank is engaging in all kinds of financial shenanigans that might implicate you even though you just want a checking account. But Bitcoin finally allows us a way to opt out.
Bitcoin is the first technology that we have for moving money outside of the state through international borders. So, you can send $1 billion to China right now and the Chinese and the British government wouldn’t know. So, this is the first and most important thing. It’s a way of transferring money internationally without having to go through to the institutions of the government.
And the second, and for me the more important implication, is that Bitcoin is the first form of money that’s designed precisely to combat inflation. It makes the theoretical debate that we were having about the increase of the money supply no longer theoretical. Here we are now, we have a form of money whose supply cannot be increased. So the onus is on all of the people who tell us that we need to increase the money supply to explain to us why this is going to be debilitating for Bitcoin. Why is it going to stop Bitcoin from growing? It hasn’t.
Bitcoin has grown at about 50-60% per year over the last 15 years. The supply grows at around 1% or 2% over the last couple of years or so. So the size of the Bitcoin economy grows far more than the size of the Bitcoin supply, which again is another nail in the coffin of the idea that we need to increase the money supply in order to increase economic activity. Bitcoin shows you that you can just increase the purchasing power. So the value of Bitcoin goes up without the supply of Bitcoin going up. So the people who hold Bitcoin don’t get robbed. So essentially—
MOHAMED HASSAN: (00:35:07 – 00:35:11) And that’s because no one is in control of the issuing of Bitcoin. There’s no central— exactly.
SAIFEDEAN AMMOUS: (00:35:11 – 00:35:25) There’s no central authority that can decide the supply, that can increase the supply. And the supply is only created through a mining process that is open to anybody, and anybody can enter it. And the cost of mining a Bitcoin is roughly equal to the cost of a Bitcoin. So nobody can make Bitcoin for free.
Does Bitcoin Recreate Inequality?
MOHAMED HASSAN: (00:35:25 – 00:35:51) So a couple of years ago, during the COVID pandemic, a lot of people that I know, a lot of my friends started buying Bitcoin, and I didn’t. And now I’m at a point where I feel like if I go and buy Bitcoin, I’m at a disadvantage because my friends that bought it a few years ago are going to be so much more wealthy than I am. How do you see that problem, that there are early adopters and then there are also millionaires that have come in with a lot of money? Is this just recreating the same system of inequality?
SAIFEDEAN AMMOUS: (00:35:52 – 00:37:14) No, it absolutely is not. And I think the fundamental difference in the way that this is presented demonstrates a very, very serious difference in the worldview. In my worldview, the notion that somebody has more toys than after I turned 8 or so, that stopped being a massive issue. So the notion that I just go around comparing myself to others and they have more, I believe it’s an extremely toxic and destructive mentality.
What I do care about is that some people have the legal right to create money that devalues my money, whereas I do not. That to me is a crime. Somebody having more toys than me is inevitable. There will always be people that have more toys. Bitcoin does not have any authority that allows people to take the wealth of others. If some people end up with more Bitcoin, that’s because they chose to do that. Your friends chose to buy Bitcoin in 2020. You didn’t. That’s your problem. That’s not my problem. I chose to buy Bitcoin. I don’t have that problem.
And so, my advice for dealing with that problem is make sure you buy Bitcoin. If you want to continue to object to Bitcoin, if you want to continue to find ways in which it is wrong, congratulations, we’ve all been there, and that’s just going to add several zeros to the price that you’re going to pay for Bitcoin. And it’s going to just essentially mean that all of your fiat wealth is going to be transformed into Bitcoin wealth at a massive discount.
JASON HICKEL: (00:37:14 – 00:37:27) I think you’ve actually revealed quite a lot about your objectives here, which is that you believe that money, or Bitcoin in this case, should be an object for investment and speculation, and you become rich this way, right? And you accumulate this way.
SAIFEDEAN AMMOUS: (00:37:27 – 00:37:37) No, not necessarily. If you’ll allow me to just please correct this, I don’t think of money as an investment. I just think that money shouldn’t be making you poor. It’s not like you buy money and get rich.
JASON HICKEL: (00:37:37 – 00:38:50) But I agree with you. I agree with you on that. Money should not make you poorer, right? I agree with a system that is going to rob the working class is fundamentally wrong, and we have to stop that. I’m just trying to get my head around the Bitcoin situation here, because basically what you’re trying to say to me is that you’re encouraging us to invest now so that we become rich in the future, right?
Now, and you’re actually okay. You’re fundamentally okay with very extreme inequality. Which is also why you’re okay with the Gilded Age of the 19th century, which was an era of very extreme inequality and very dysfunctional societies as a result. I mean, a massively impoverished working class, which you tell us you’re against the impoverishment of the working class and you want us to have a functional society.
But I just don’t see how people accumulating Bitcoin is going to get us there because crucially, again, we need to produce things that the owners of Bitcoin are not going to want to produce. Okay. So for example, we need to be able to produce things like a railway system. We need to produce things like agroecology. We have to produce renewable energy technologies. We have to produce affordable housing. There are things we have to build to have a functional, decent society that allows working-class people to live flourishing lives that those who hoard Bitcoin are not going to be willing to make investments in. And here too, I think that in this sense, Bitcoin does not solve the fundamental problem.
SAIFEDEAN AMMOUS: (00:38:50 – 00:38:51) Oh, it does.
JASON HICKEL: (00:38:51 – 00:39:00) It does not solve the fundamental problem of a society that lives in crisis, has very high levels of inequality and fails to meet people’s basic needs. And that remains unfortunately the case.
Fiat Money, War and Empire
SAIFEDEAN AMMOUS: (00:39:00 – 00:40:31) So, if you just simply had a form of hard money that didn’t allow government to rob everybody through inflation, then government is going to be spending a lot less money on all of the criminal and stupid things that they do. They will just inevitably not be able to go and invade half the world because they can just print money. So, the cost of the Iraq War was about $8 trillion. The cost of the Iran War is likely going to be in the trillions of dollars.
If you imagine the US government going to the American people in 2002 saying, “Please, we need to collect $8 trillion, that’s tens of thousands of dollars per household, so that we can go launch a war in Iraq to bring them democracy and peace and help their daughters go to school or whatever.” Do you think Americans would’ve paid up that money in cash upfront to go and invade Iraq? No.
Fiat world is designed specifically for this. Get rid of all of these silly propaganda about it being a way to help society. All of that is just banker propaganda. The main function is to finance war, theft, destruction. And that’s why it can be done because there’s a money printer. The money printer can always pay off that stuff. So all of the romance about fixing the homeless problem or all of that stuff doesn’t matter because fundamentally it’s all about that theft for war. And if you take away that theft from war, if the American people didn’t have to spend that $8 trillion and the American government couldn’t just take it from them through inflation, there would’ve been no war. And then with those $8 trillion, you can have all the pink ponies and unicorns that you want.
JASON HICKEL: (00:40:32 – 00:40:36) Just for the record, I’ve never called for pink ponies or unicorns or magic fairy dust.
SAIFEDEAN AMMOUS: (00:40:36 – 00:40:37) Whatever it is. No, but okay.
JASON HICKEL: (00:40:37 – 00:40:42) What you keep saying is just ridiculous because there are countless other kinds of things that you should deal with in your arguments.
SAIFEDEAN AMMOUS: (00:40:42 – 00:40:52) Yeah, the point is $8 trillion spent on the Iraq War were only possible because of fiat money. Get rid of that. That means $8 trillion can go toward everything else.
JASON HICKEL: (00:40:52 – 00:40:53) This actually illustrates the key point.
SAIFEDEAN AMMOUS: (00:40:53 – 00:40:54) Because people can then decide.
JASON HICKEL: (00:40:54 – 00:43:37) I’m on the record being very strongly against the kinds of wars that the US and its allies are currently engaging in the rest of the world. I’m very strongly anti-imperialist in this sense. I strongly want to see Global South liberation from this arrangement. But the very crucial thing to understand is that this is not an automatic effect of having a fiat money system. This is actually very important to understand. It’s an effect of our capitalist world economy.
Capitalism has been around for 500 years. In the core states, Western Europe and the USA and the settler colonial offshoots, these states have always relied on a very substantial net appropriation of labor and resources from the Global South. This is their primary accumulation model for capitalism in these core states. Now, in order to enable that, they invaded the rest of the world, conducting genocide on several continents over the past 500 years, preventing sovereignty in the Global South, and organizing production in Global South regions around servicing capital accumulation in the core. This is the cause of war. This is the primary cause of war.
And to say that war started in 1914 is, I mean, a complete denial of hundreds of years of colonial war that were conducted in the name of capital accumulation, explicitly in the name of capital accumulation by the capitalist class, desperate to find cheap labor for their plantations and their mines and their sweatshops to enrich themselves. Right. So this is clearly happening before fiat money. It’s an effect not of fiat money itself, but rather of the logic of capital. Because again, the logic of capital is to maintain, is to maximize and accumulate profits. To do that, you need cheap inputs, you need cheap labor, and you need cheap nature, right? Resources. And they get that from the Global South on a massive scale.
The war in Iraq, the war against Iran, the perpetual attack on Palestinian sovereignty is all organized around the same objective, particularly in West Asia, because they understand that sovereignty in West Asia is deeply antithetical to the interests of capitalism in the West. Deeply antithetical. Because imagine a West Asia that controls its own resources, that sells its oil and its other resources in its own currencies outside the US dollar, controls their trade routes for themselves. I mean, imagine this is fundamentally antithetical to the profits of Western firms, which rely very heavily on controlling, well, first of all, on the denomination of oil in US dollars, but also on cheap labor and resources in West Asia and the rest of the world.
And so I strongly believe that that is what has to be addressed. And simply shifting from fiat to Bitcoin is not going to fundamentally solve this problem. Because again, prior to fiat, wars existed, colonial wars existed, and that will continue as long as this is the logic of our economic system.
The Petrodollar and Dollar Dominance
MOHAMED HASSAN: (00:43:37 – 00:43:48) I want to talk about something else and zoom out a little bit. You mentioned the 1970s, and there was something else that was happening during that time too, which was the United States was officially moving on from the gold standard.
SAIFEDEAN AMMOUS: (00:43:48 – 00:43:49) Exactly.
MOHAMED HASSAN: (00:43:49 – 00:43:50) And at the same time, partly because of the oil— I should have mentioned that.
SAIFEDEAN AMMOUS: (00:43:52 – 00:43:56) That’s what I meant. In 1971 is when they moved off the gold standard. That’s why the money supply increased and the prices of everything went up.
MOHAMED HASSAN: (00:43:56 – 00:44:28) And then at the same time, because of the increase in the price of oil and the oil embargo, suddenly another shift starts happening, which is the United States starts expecting people to only trade oil in the US dollar. And then all of a sudden, we start moving from gold to another standard, which is essentially the US dollar. And now you have countries around the world that are even pegging their own currencies to the dollar as a form of stability. And I wonder, Jason, what do you make of that? What do you make of the dominance of the dollar and what it has done to either create stability or instability in the global economy?
JASON HICKEL: (00:44:29 – 00:45:52) This is a crucial one, right? So with the rise of the petrodollar, we have a situation where basically the US has an incredible privilege where it’s able to basically— because oil is denominated in US dollars, everyone’s got to buy oil, they’re buying it in US dollars. There’s an incredible demand for US dollars as a result. What this means is the US has a very strong currency and as a result can effectively print money and buy imports from the rest of the world effectively for free. Right. And so the rest of the world gets drained to support consumption in the US. This is a very devastating arrangement.
And as long as oil is denominated in US dollars and as long as trade is conducted in US dollars primarily, and it’s one of the major reserve currencies then basically it gives us incredible imperial privilege to the US. The same is true actually for the European states. As long as euros are also a major core currency, they also get this imperial privilege.
And so it’s in the interest of Global South states to move away from dependence on the core currencies, the euro and the US dollar, and conduct more of their trade in national currencies. This is called de-dollarization. It’s something that a lot of Global South countries are talking about now as a way of reducing their dependence on the US dollar. One of the problems with being very dependent on the core currencies is that you’re very vulnerable to sanctions. This is a crucial one.
How Smaller Economies Can Protect Themselves
MOHAMED HASSAN: (00:45:52 – 00:46:14) And that’s also about the— we talked about opting out of the system. What sanctions does is essentially kicks somebody out of the global economy and their ability to be able to trade in their goods and services. Pavlina, what do you think these smaller countries, smaller economies can do to be able to protect themselves against being that vulnerable to the global system?
PAVLINA TCHERNEVA: (00:46:14 – 00:48:24) Yeah, I mean, the essentials, of course. You can use the domestic monetary system, the sovereign currency to employ your unemployed resources and invest in essentials. Food security would be first. There are, I mean, all sorts of power structures that too, whether you’re buying seed from Monsanto and then you have to buy another contract. So these are the real constraints. There are ways of opting out, developing sustainable agriculture domestically.
I think that countries have a lot of capacity. What is constraining them is the necessity to earn a dollar to pay the dollar-denominated debt or to accumulate the reserves against which you have pegged your own currency. So then you have to ship out your food to earn a currency you don’t really need or you want to have a sound, stable domestic currency, but you’re actually shipping out your real resources that provide for food sovereignty.
So food sovereignty would be first. Energy sovereignty will be another. And maybe moving away to sustainable sources of energy creation will be another way of opting out of this dollar system. It’s not enough. Obviously, if you want to have industrial policy and you want to import capital, there are other power structures that are going to affect you because there will be property rights and you might not be able to access that technology and the seller might be asking you for dollars, right?
But you can, as a first approximation, raise the floor by employing, strengthening your education system, strengthening your health system. And these are the things that people value anyway. So we are starting from the bottom up. We are building the kind of preconditions for wellbeing that are then preconditions for development. Because if I was an entrepreneur and I was a business person, I will not go to a community that has massive poor healthcare, right? And so you really kind of tip the paradigm of bottom-up growth by using your domestic monetary system to employ your domestic unemployed resources to provide for the very basic essentials first, and you build from there.
Closing
MOHAMED HASSAN: (00:48:25 – 00:48:57) I deeply want to thank you, Saif, Jason, Pavlina, for this incredibly illuminating conversation. Thank you for explaining very basic things to me about how the world works and, or doesn’t work in many cases. And thank you for this spirited debate. And I want to thank you as well for listening to this conversation. I want to hear what you have to say about money, about inflation, about Bitcoin, about all of these things that govern our lives in so many real ways. My name is Mohamed Hassan, and this has been the Doha Debates podcast.