Welcome to Duality Check, the podcast where two brothers embark on a thrilling journey
through the realms of scientific inquiry, the enigmatic mysteries of the past, and the uncharted
territories of spirituality. Join us as we explore the wonders of our world and beyond, all while
embracing the roles of curious bystanders rather than experts. Together, we'll unravel the intricate
tapestry of existence, blending the dichotomies of knowledge and wonder. Get ready to question.
ponder and delve into the dualities that shape our understanding of reality on Duality Check.
I'm Drew. And I'm Dean. Welcome back. We are, is this episode four now? Episode four. We're
cooking. Today, we're gonna be talking about... economics and pencils. Pencils mostly, no,
I'm just kidding, economics mostly. But I'm sure if you know anything about economics,
you probably know what we're talking about when we say pencils. Yeah, and if economics has
always been something that is like super, super boring to you, don't tune out yet. We're gonna
start out with a little short story that will hopefully be pretty interesting. And then we're
gonna cover like, some real basic stuff and talk about what is it in the first place and
different schools of thought on it. Yeah, and we'll probably say some things that might make
you question some of your established knowledge or thoughts on the way economics works maybe.
Right, and if you happen to know more about economics, if you went to school for it or
you've read up about it, chances are... You may not have heard of the school of thought
we're going to be talking about today. Yeah, and if you do and we say something that you
don't agree with, email us. Yes. Let us know your thoughts. Let's have a discussion. Yeah,
and if you like what we have to say or you don't like what we have to say, it doesn't matter.
Right. We're not here to preach. We're just here to share ideas and have an interesting
conversation. Absolutely. So what are we reading? It is called Eye Pencil. Who is the author?
Author is a guy named Leonard Reed. He was born in the late 1800s, like 1890s, died in the
1980s. Yeah, he lived a long time. Yeah. He was a founder of an organization called Foundation
for Economic Education, FEE. P5O thumb. Yeah, I'm not an expert on this too, so I'll be reacting
alongside most of you. Dean has done a lot of this research and has. I've nerded out on this
stuff for a lot of years. Doesn't mean I'll be very good at explaining it or that I know
everything, but. Yeah, and I'm going to try to ask some interesting questions and hopefully
we'll have something good to talk about with this. Cool. So yeah, this is a short essay.
It is written from the point of view of a pencil. It will be Pencil Drew talking to you here.
Pencil Drew here. Here we go. I pencil. I am a lead pencil, the ordinary wooden pencil familiar
to all boys and girls and adults who can read and write. Writing is both my vocation and
my avocation. That's all I do. You will. may wonder why I should write a genealogy. Well,
to begin with, my story is interesting, and next I am a mystery. More so than a tree or
a sunset or even a flash of lightning, but sadly I am taken for granted by those who use me,
as if I were mere incident and without background. This supercilious attitude relegates me to
the level of the commonplace. This is a Is that say species? Yes, is a species of the grievous
error in which mankind cannot too long persist without peril. For the wise GK Chesterton observed,
we are perishing for want of wonder, not for want of wonders. Perishing, gosh. It does look
like Pershing. Let me read that one more time. For the wise G.K. Chesterton observed, we are
perishing for want of wonder, not for want of wonders. I pencil, simple though I appear to
be, merit your wonder and all, a claim I shall attempt to prove. In fact, if you can understand
me, no, that's too much to ask of anyone. If you can become aware of the miraculousness
which I symbolize, you can help save the freedom mankind is so unhappily losing. I have a profound
lesson to teach, and I can teach this lesson better than can an automobile or an airplane
or a mechanical dishwasher, because, well, I am seemingly so simple. Simple, yet not a simple
person on the face of this Earth knows how to make me. Not a single person. Yeah, not a single
person on the face of this earth knows how to make me. This sounds fantastic, doesn't it?
Especially when it is realized that there are about one and a half billion of my kind produced
in the USA each year. Pick me up and look me over. What do you see? Not much meets the eye.
There's some wood, lacquer, a printed labeling. Yeah, the printed labeling, graphite lead.
bit of metal and an eraser.
innumerable antecedents. So before we get into that section, just out in this intro, I love
that quote. We are perishing not, or we are perishing for a want of wonder, not a want
of wonders. Like there's so much around us to be amazed of, and we're not perishing because
we have too few things to be amazed of. We're perishing because we don't, we're not amazed
by them. Right. We take stuff for granted. Right. It's kind of a human characteristic. Yeah,
and I mean, that's what we do. We adapt. And part of adapting to something is just like
coming to see it as normal. Yep. And yeah, I mean, you see that in every facet of life.
You become so used to it that you are just I mean, even I'll give you the example of being
a parent, you know, like you're so used to seeing your kids do cute, funny, amazing things that
every time you're around other people that haven't seen your kids in a while or whatever, and
they see them do those things. Not that I don't, I mean, yes I do because it's human nature,
but you forget and you see it and you're like, you know, it is awesome. Right, you're taken
aback by, like, yeah, the seeing things through other people's eyes or realizing how amazing
something is that you see all the time. Yeah, and even, you know, another example of obviously
with kids is they see the world so differently and it's so amazing to them and you have to
see it through their eyes. Right, right. Everything is new. Every single thing they do. Yeah, something
about growing up, like, we start to gain a picture for how the world works and at some point we
kind of call it good and we stop being as curious. Right. So it's a skill to like keep that curiosity,
keep that wonder. Yeah, and it's almost like
having the ability to have kids and like, you know, go through that or, you know, nephews
and nieces or any young ones in your life, like try looking at... the world through their eyes,
ask them questions and, you know, talk to them a little bit and you'll see like a lot of the
things that you take for granted are just absolutely just amazing to them and they'll want to talk
about it for hours. So yeah, we'll go on here. Enumerable antecedents. Just as you cannot
trace your family tree back very far, so it is impossible for me to name and explain all
my antecedents. but I would like to suggest enough of them to impress upon you the richness
and complexity of my background. My family tree begins with what is in fact a tree, a cedar
of straight grain that grows in Northern California and Oregon. Now contemplate all the saws and
trucks and rope and the countless other gear used in harvesting and carting the cedar logs
to the railroad siding. Think of all the persons and the numberless skills that went into their
fabrication. The mining of ore, the making of steel, and its refinement into saws, axes,
motors, the growing of hemp, and bringing it through all the stages to heavy and strong
rope. The logging camps with their beds and mess halls, the cookery and the raising of
all the foods. Why, untold thousands of purpose, persons had a hand in every cup of coffee the
loggers drink. The logs are shipped to a mill in San Leandro, California. Can you imagine
the individuals who make flat cars and rails and railroad engines and who construct and
install the communication systems incidental thereto? These legions are among my antecedents.
Consider the mill work in San Leandro. The cedar logs are cut into small pencil length slats,
less than 1 1⁄4 of an inch in thickness. These are kiln dried and then tinted for the same
reason women put rogue on their face. Rouge. Rouge, I was wondering. That's like a fancy
word. Yeah, makeup, yeah. A blush, I guess. Yeah, I don't know why I say rogue. It's a
similar spelling. Yeah. Rouge on their faces. People prefer that I look pretty, not a pallid
white. The slats are waxed and kiln dried again. How many skills went into the making of the
tent and the kilns into supplying the heat, the light and power, the belts and motors and
all the other things in a mill requires? Sweepers in the mill along my, sweepers in the mill
among my ancestors. That's a question, sorry. Sweepers in the mill among my ancestors? Yes.
And included are the men who pour the concrete for the dam and the Pacific Gas and Electric
Company hydro plant, which supplies the mills power. Don't overlook the ancestors present
and distant who have a hand in transporting 60 carloads of slats across the nation. Once
in the pencil factory, $4 million in machinery and building, all capital accumulated by thrifty
and saving parents of mine. Each slat is given eight grooves by a complex machine, after which
another machine lays lead, and every other slat applies glue and places another slat atop.
A lead sandwich, so to speak. Seven brothers and I are mechanically carved from this wood-clenched
sandwich. My lead itself, it contains no lead at all, is complex. The graphite is mined in
Ceylon, Sri Lanka. Consider these miners and those who make their mini tools and the makers
of the paper sacks in which the graphite is shipped. And those who make the string that
ties the sacks and those who put them aboard the ships. And those who make the ships. Even
the lighthouse keepers along with the assisted, along the way assisted in my birth and the
harbor pilots. The graphite is mixed with clay from Mississippi in which ammonium hydroxide
is used in the refining process. Then wetting agents are added, such as sulfonated tallow,
animal fats, chemically reacted with sulfuric acid. After passing through numerous machines,
the mixture finally appears as endless extrusions. As from a sausage grinder, cut to size, dried.
and baked for several hours at 18, at 1,850 degrees Fahrenheit. To increase their strength
and smoothness, the lids are then treated with a hot mixture, which includes candelilla, something
like that, wax from Mexico, paraffin wax, and hydrogenated natural fats. My cedar receives
six coats of lacquer. Do you know all the ingredients of lacquer? Who would think that the growers
of castor beans and the refiners of castor oil are a part of it? They are. Why even the processes
by which the lacquer is made, a beautiful yellow, involve the skills of more persons than one
can enumerate. Observe the labeling. That's a film formed by applying heat to carbon black
mixed. Carbon black mixed with resin. How do you make resins? And what, pray, is carbon
black? My bit of metal, the ferrule, is brass. Think of all the persons who mine zinc and
copper and those who have the skills to make shiny sheet brass from those products of nature.
Those black rings on my ferrule are black nickel. What is black nickel and how is it applied?
The complete story of why the center of my ferrule has no black nickel on it. would take pages
to explain. Then there's my crowning glory, inelegantly referred to in the trade as the
plug, the part man uses to erase the errors he makes with me. An ingredient called factis
is what does the erasing. It is a rubber-like product made by reacting rapeseed oil from
the Dutch East Indies, Indonesia with sulfur chloride. Rubber, contrary to the common notion,
is only for binding purposes. Then too, there are numerous vulcanizing and accelerating agents.
The pumice comes from Italy and the pigment which gives the plug its color is cadmium sulfide.
a lot. It's crazy like, wow, until you read something like this, I remember my first time
reading this, I was like, Jesus, like something so simple. Like, just, it involves the entire
world and involves shipping and involves engineering and involves just so many trades, disciplines,
power. Like it's, it's not just take some wood, take some rubber, take some metal, wrap it
around, stick some lead on the inside. Like it's... Right. And obviously, like there might
be some people thinking, sure, you can make a pencil-like object. Oh, of course. Like you
could, like, you can just get a stick and burn it a little bit and just rub it. Right, right.
But we're talking making like... the standard yellow number two pencil that we all see in
school. Like it looks simple, we all take it for granted, but it's incredibly complex. Yeah,
I mean, the pencil had to, I mean, and obviously the pencil is the example we're using, but
there's so many things that are dependent on other industries and other infrastructure having
already been set up. And all these things are already being in existence. You want to? Go
on the next one. Sure. The next section is called No One Knows. Does anyone wish to challenge
my earlier assertion that no single person on the face of this earth knows how to make me?
Actually, millions of human beings have had a hand in my creation. No one of whom even
knows more than a very few of the others. Now, you must say that I go too far in relating
the picker of a coffee berry in far off Brazil and food growers elsewhere to my creation.
That this is an extreme position. I shall stand by my claim. There isn't a single person in
all of these millions, including the president of the pencil company who contributes more
than a tiny infinitesimal bit of know-how. From the standpoint of know-how, the only difference
between the miner of graphite in Ceylon and the logger in Oregon isn't the type of know-how.
Neither the miner nor the logger can be dispensed with, any more than can the chemist at the
factory or the worker in the oil field.
Here's an astounding fact. Neither the worker in the oil field, nor the chemist, nor the
digger of graphite or clay, nor any who manns or makes the ships or trains or trucks, nor
the one who runs the machine that does the knurling on my bit of metal, nor the president of the
company performs his singular task because he wants me, each one wants me less perhaps than
does a child in the first grade. Instead, or indeed, there are some among this vast multitude
who never saw a pencil, nor would they know how to use one. Their motivation is other than
me. Perhaps it is something like this. Each of these millions sees that he can thus exchange
his tiny know-how for the goods and services he needs or wants. I may or may not be among
these items. Yeah, right. So that makes, yeah, that's, yeah, I mean, the people who are shipping,
driving the ships across the ocean, they're not pencils. They don't want pencils. They
don't even realize that their job has anything to do with pencils necessarily. Maybe they
realize like every once in a while, sure, like it wouldn't surprise them if there were some
pencils in it. in one of the shipping containers, but they don't know that. Right, well, if you
talk about like the people mining and stuff. The people mining don't realize They don't
know. that this, you know, copper and zinc are gonna end up in a pencil. No. Like no one.
Unless they're getting a direct, yeah, maybe the person taking in the order knows. Right.
You know, these like, But not that they care. farmers across the world growing castor beans,
like there's gonna be people involved in this who don't even know how to read and write.
Not to belittle anyone. Exactly. It's because they live their little life. They grow, they
farm, they ship their products, and they buy what they need for their families. Right. Like
it says, they are exchanging their tiny know-how for the goods and services he needs and wants.
Right. You know, they're just doing their thing in their corner of the world. And it just so
happens that it's going to create a pencil. Right. Yeah. No mastermind. There is a fact
still more astounding. The absence of a mastermind, of anyone dictating or forcibly directing these
countless actions which brings me into being. No trace of such a person can be found. Instead,
we find the invisible hand at work. This is the mystery to which I earlier referred. It
has been said that only God can make a tree. Why do we agree with this? Isn't it because
we realize that we ourselves could not make one? Indeed, can we even describe a tree? We
cannot, except in superficial terms. We can say, for instance, that a certain molecular
configuration manifests itself as a tree. But what mind is there among men that could even
record, let alone direct, the constant changes in molecules that transpire in the lifespan
of a tree? Such a feat is utterly unthinkable. I, pencil, am a complex combination of miracles.
A tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves
in nature, an even more extraordinary miracle has been added, the configuration of creative
human energies, millions of tiny know-hows configuring naturally and spontaneously in response to
human necessity and desire, and in the absence of any human master-binding. Since only God
can make a tree, I insist that only God can make me. Man can no more direct these millions
of know-hows to bring me into being. then he can put molecules together to create a tree.
The above is what I meant when writing, if you can become of the where the miraculousness,
which I symbolize, you can help save the freedom of mankind that is so unhappily, that mankind
is so unhappily losing. For if one is aware that these know-hows will naturally, yes, automatically
arrange themselves into creative and productive patterns in response to human necessity and
demand, that is, In the absence of governmental or any other coercive masterminding, then one
will possess an absolutely essential ingredient for freedom, a faith in free people. Freedom
is impossible without this faith. Once government has had a monopoly of a creative activity such
as the delivery of males, most individuals will believe that the males could not be officially
delivered by men acting freely. Each one acknowledges that he himself doesn't know how to do the
things incident to mail delivery. He also recognizes that no other individual could do it. These
assumptions are correct. No individual possesses enough know-how to perform a nation's mail
delivery. Any more than any individual possesses enough know-how to make a pencil. Now in the
absence of faith and free people, in the unawareness that millions of tiny know-hows would naturally
and miraculously form and cooperate to satisfy this necessity, the individual cannot help
but reach the erroneous conclusion that mail can be delivered only by government masterminding.
You know, that's actually very timely with having just gone through Christmas and I'm sure other
people have experienced this too. The USPS is probably the least efficient when it comes
to packs delivery. When you're going to order something and you see USPS and there's another
option, you choose the other option most of the time. Right, usually. I mean, unless you're
just going for like sheer cost, but like, this gets close to Christmas. It's not about cost,
it's about getting quick. It's about efficiency. Yeah. Yeah, and it's not just a shit on USPS.
Like obviously there's a lot of hardworking people there and like they do a lot of, they
do work obviously, but. It's to show, and obviously this is not just Christmas either. Like there's
times, there's been times in the past where they've almost collapsed because they just,
they're inundated by what is most likely some kind of government oversight and policy that
they are inundated, like they're, they're forced to cooperate with. Right. And this is just
to illustrate the point. It's bigger than the post office. It's anything that the government
does. Exactly. Like we find ourselves like so much later in time than Leonard Reed wrote
this. And now the government does a lot more things that it didn't do before. It does security
at airports. And a lot of people could no longer imagine a world in which the government doesn't
do security at airports. How could we possibly be safe on planes? Or Imagine if the airlines
did their own security. Yeah. I mean, yeah, right. Or I mean, any other thing that the
government does. Yeah, exactly. The point is that a lot of these things actually have a
history of being done before governments were involved in doing them. Yeah, it was more of
like there was something that happened that caused a big outrage that instead of outsourcing
it and allowing free enterprise or man to fix the problem itself. There was a government
oversight and they were like, we're going to fix this problem immediately. Right. And we're
going to institute all these different rules and regulations and we're going to come up
with this new department and it's going to be the TSA. Right. And they tried to do it themselves.
And for all, most Americans at least. Like the TSA can be a bane of your existence if you
travel a lot, or it could be a friend if you don't travel a lot and you want to be safe.
Obviously they do have a pretty good record so far, but. People have tested it. There's
like studies where people actually try and sneak things past them, and they are like astoundingly
successful at doing it. Really? Yeah, it's actually like. The more you look into it, it's a little
creepy. If that kind of thing. Well, I'm not going to look into that. Well, I also don't
travel airlines all the time. So yeah, I'll go on here. Testimony galore is the next section.
If I pencil were the only item that could offer testimony on what man and woman can accomplish
when free to try, then those with little faith would have a fair case. However, there is testimony
galore. It's all about us. And I'll. And on every hand, mail delivery is exceedingly simple
when compared, for instance, to the making of an automobile, or a calculating machine, or
a grain combine, or a milling machine, or to tens of thousands of other things. Delivery?
Why, in this area where men have been left free to try, they deliver the human voice around
the world in less than one second. They deliver an event visually and in motion to any person's
home when it is happening. They deliver 150 passengers from Seattle to Baltimore in less
than four hours. They deliver gas from Texas to one's range or furnace in New York at unbelievably
low rates and without subsidy. This is obviously the 1800s. No, this wasn't written then. Yeah,
yeah, yeah. They deliver each. four pounds of oil. They deliver, yeah, they deliver each
four pounds of oil from the Persian Gulf to our eastern seaboard, half around the world,
for less money than the government charges for delivering an ounce, a one ounce letter across
the street. I mean, even back in 1800s, whoa. No, he was born in like, early 1900s. So like,
yeah, 1930s, 1940s, great. But the point is taken, like, it's, when you can ship things
across the globe for way cheaper than the government can deliver a postcard across the street, it's
kind of crazy. What is the difference between delivering a good or service across the world
than delivering mail? And why is government taking it on to do our mail when all these
companies, private companies, are doing it more efficiently? Right. That's just- There's actually
one less paragraph. Let's finish this and then we can talk. The lesson I have to teach is
this. Leave all creative energies uninhibited. Merely organize society to act in harmony with
this lesson. Let society's legal apparatus remove all obstacles the best it can. Permit these
creative know-hows freely to flow. Have faith that free men and women will respond to the
invisible hand. This faith will be confirmed. seemingly simple though I am, offer the miracle
of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a
cedar tree, and the good earth." Boom. What a beautiful little 10-page essay, man. Yeah,
now that was... I've read it a few times, but it's been a few, like a month or so since I
read it last. when we first decided to do this episode. Mm-hmm. Yeah. It is... It's awesome
when you can simplify such a complex thought to this. Right. And like really chew on something
so simple and then expand it and expand it and expand it and expand it until you realize that
everything that you have looking around you, right? Everything around you is free market
at work. Is man and women freely able to like, obviously there are some instances where that's
not true. But the government likes to stick its hands in the way of a lot of stuff. But
the point being is that just allowing people to exert their creative know-hows to provide
some sort of product, some sort of service, some sort of little bit of something somewhere.
that can get something done. And that little thing that gets something done is then taken
as an input for the next thing. And then it's refined again, and then it's transformed, and
then it's shipped across the world, and then it's combined with a bunch of other things.
And then some entrepreneur somewhere starts some company and he's like, I'm gonna make
a, I don't know, I got a microphone in front of me. I'm gonna make a new, better microphone,
right? I'm gonna start a startup company. about how great my microphones are. And what do they
do? They order all these raw materials that they have no clue how they're produced. They
just come in at some later point and try and improve the mousetrap or improve. Yeah. They
put it together in a different configuration. Because they think they can produce those microphones
the same way everyone else does, but maybe just a little bit cheaper. Or even just a little
bit better quality at the same price. Right. And so. they weren't the ones that invented
it. Like, the invention of most things, like, goes back in a chain of events. It's these
little know-hows, these little incremental improvements, the complex network of people's creative talents
that brings the world we have to us. And honestly, like, most people can probably attest to this
is just like, when you think of, like, the most creative endeavors and, like, the most, like,
obvious creative endeavors like it's all just people doing what people do. Like there's no,
there's no oversight as to how to do that thing. Right. Like obvious oversight other than the
person themselves, you know? Right and at times in the past where humans have thought they're
smarter than the invisible hand of the market and that they would control it and that they
would dictate it all and that they would centralize all that production and decide what goes where.
Those have ended in the greatest human suffering the world has ever known. Right. And that's
important to keep in mind. Like not that there aren't certain insights and things to learn
from those systems. Obviously I'm talking about like socialism, but like. Sure.
but that you can't engineer the interactions of humanity. Humanity is too big, it's too
complex. There's just too much. You can't know it all. There's too much to it all, especially
nowadays. This might not have been true 20 or 200 years ago. But it is true. Even then it
was still true, but it was just on a smaller scale. But even you're talking about like the
Roman empires and you're talking about like all these ancient civilizations, right? And
they, when the government tried to interject and, and forced the, the different States to
do what they wanted, things fell apart. Right. Yeah. So we're up on our first break here.
We'll, uh, we'll go check on the kids. Looks like why it's meditating. Sawyer's a starfish,
but we're good here. We'll see you in a bit. Adios.
So close to me
to me
I don't know what the words are. I like to beat that. I love it. So we're back. Welcome back
to Duality Chair. We're going to get all serious now because we're back. So, just cause we've
done it every podcast so far and we're going to keep doing it because why not? Our beer
update. We are drinking Los Coast Hazy IPA. It's very straightforward. There's no fancy
name. I mean, it's Lost Coast of Brewery. Yeah. And then Hazy Apia. California. I've actually
been up to there before. Yeah. I went to the, I went to the, to the one in Eureka. Cause
Rachel, my wife went to school up there. And it's a great, it's actually good. Oh, 6.7%,
sorry dad. Yeah, it doesn't meet your 7%. Sorry, is it seven? Is that what he said recently?
I don't know. I think that's about the range where he starts. He was, obviously we're recording
this just after Christmas. Merry Christmas everybody and happy new year. We are. We're recording
this between Christmas and New Year, so Christmas just passed for us. This will be out in mid-January
or something like that for you guys. Yeah, so he got a sneak peek of our other episodes y'all
probably have heard now. And hopefully, and go check him out if you haven't. He was so
excited that we talked about his beer tastes. So I'm coming up, I'm coming. He's like, I'm
going to show up with beers, and I'm going to bring the beers, and we're going to talk about
the beer. I'm going to take over a mic. I was like, yes, that sounds great. I'll just shout
from the background. We'll hear you. We'll turn off the noise gate. Yeah. No, yeah, it's fun.
He's a funny guy. You guys would enjoy it. You guys would very much enjoy him. And I know
the people who know us know what we're talking about. Yeah, right. So yeah, Lasco's Hazy IPA,
6.7% alcohol. It's tasty, I like this one a lot. It is good. It's very clean tasting. I
was trying to read this label, but it's printed white on yellow. That's super hard to read.
Oh my God, it's terrible to read. So we're gonna skip that. But look them up. The only words
I saw were notably orange. Which I do taste. Yeah. All right, we'll get back into this here.
Cool. So. What were we talking about? We had just finished the essay we were talking about.
just kind of the nature of the free market and the invisible hand and Yeah, we didn't actually
talk about that much yet But the invisible hand is like the idea of like the free market without
government Interference right so I believe the well It's not necessarily about the lack of
government It's about it's about the fact that there is no central planner in a car right
like it's about I believe it was coined by Adam Smith when he wrote The Wealth of Nations,
which is like kind of like a foundational economics work. I forget even the era, I think it was
in the 1700s, maybe even earlier. Oh, this is like foundational economics. Foundational economics,
yeah. He was from like the classical school and so he heavily influenced like the founding
fathers of America. a lot of thought at that time. Anyway, I believe the invisible hand
comes from him. OK. But it's an interesting concept. It's just the idea that things come
together, and you don't even realize how. As needed. Yeah. So I did all these notes on the
pencil itself that I don't know. I want to. really go into. It's essentially repeating
the essay itself, but I did some research and I'll share some of these links that I thought
were pretty interesting. I got some videos of actual pencil factories and how the pencil
is made. I got some videos on how
There's one that how it's made of aluminum foil, like all these different things. Yeah, that
one's super interesting. It shows them like, How erasers are made. How they like, they keep
stretching it and stretching it and stretching it. Until it breaks. Yeah, like till it's like
super thin. Until it's super thin, yeah. Like, like a lot of people know that gold is super,
is very, I don't know what the word for that is. Malleable. Like you can take a small amount
and spread it over. A giant thing or whatever. Not giant, relative, anyway. I looked into
foil stamping, and man, it's crazy. The process of mining aluminum is super interesting. Well,
their notes there are kind of pointed towards, like, they're not super repetitive, if you
want to read that or talk about it or whatever. Yeah, I just kind of have other places I like
to go with this, but like for instance on like this aluminum, on aluminum. So it comes from
processing a substance called bauxite, which is mined all over the world, but the biggest
suppliers are in Australia and China. That's a good gamertag. The closest bauxite mine here
in America is in Arkansas. That's a big one. And processing it into aluminum. Involves these
chemical processes because aluminum isn't like super pure in the ground. You don't find like
giant lumps of it It's like distributed as like a component within metals within like other
whatever sedimentary Yeah rock the bauxite, right? So like they have to subject it to all
of these chemical processes to like a road and refined and sift and sort until you end up
with Aluminum, it's super interesting But I will link a bunch of these videos and there's
research I did. So if you wanna like dig into some of this stuff, I encourage it because
it's really interesting.
But in general, this whole thing is about the process of the free market and about economic
thought in general. And that is really the point. that I'd like to talk about because economics
is super, to me, very interesting. Just real quick, while you're pulling that up. In Earth's
crust, aluminum is the most abundant metallic element, 8.2% by mass, and the third most abundant
of all elements after oxygen and silicon. Doesn't make it easy to get to, but. Right. Just thought
I'd point that out. So economics is. an interesting thing. Like if you had to define economics,
how would you try and define it?
Um, I would say it's the practice of, um,
Yeah. Or the economy, I suppose. Yeah, I was going to say it'd be more of like, it's like
the practice of maintaining a balance of goods and services and needs. Yeah, I would maybe
say, like a- I don't know. That's more, it's a pretty basic way to say it, but- It's like
the process of humans producing and transforming objects to fulfill their need and exchanging.
Exactly. Yep. So there's different schools of thought in economics. So the most influential
in America right now that actually has like the ear of most politicians that is behind
a lot of the decisions that is behind. financial policies and whatnot is a school of thought
called Keynesianism. Which is Keynesianism. That's how you pronounce it. Yeah. Which is
because I was saying Kenzianism. Yeah. It's Keynes. It's John, John Maynard Keynes is the,
is the guy who is like kind of the founder of that tradition. That's what the K that's what
threw me off. Yeah. So previous to Keynesian, I don't think Keynesian invented this stuff,
but back in time, there was, economics was done by like thinking, like just thinking through
how things work and trying to like tie together the logic of stuff. And then someone came along
and decided that, you know, like we're, the sciences are getting started and empiricism
is getting going. So empiricism is the process of inductive thought, which is to gather data
about the world and then sift and sort that data and hypothesize about it and then design
experiments and gather more data and sift and sort and design experiments to constantly learn
about the natural world and refine our knowledge about it. That's called empiricism. Right,
science. Well. More generally speaking, science could be defined as the process of just learning,
of gathering and systematizing knowledge about the world. So is this more pointed in a certain
direction? So there's two schools, like there's two sides of the coin. There's the empiricist
side, and then there's the deductive side. So empiricism is inductive. and logic-based stuff
is deductive. So mathematics, geometry, law, and originally economics are examples of deductive
or logic-based sciences. So these are sciences based off of inductive thought? Based off of
deductive, right? So like. Well. Yeah, but they're based off of your other... If you go into a
geometry class, right, and you're learning Pythagorean Theorem... But it's based off of other math.
Right, but it's based off of logic. Sure. It's built up by logic. So we understand the Pythagorean
Theorem about the proportions of a triangle by building up logical rules. Yep. And we can
prove that they are true. without going out in the world and finding natural pyramids and
taking a tape measure and measuring the angles and taking a protractor. Right, you can do
it without that. So regardless of whether you go out in the world and you find a triangle
and you go and you measure the sides and you measure the angles and then you come back and
you're like, this doesn't match the Pythagorean theorem. My empirical evidence shows that the
Pythagorean theorem is false. And the reason that doesn't work is because logic. The way
that it's built is... The rules of logic prove that the Pythagorean Theorem is true. That's
where, like in geometry, you get into like proofs. If you can do a proper proof, it legitimately
proves there's no if-sans about it. There's no amount of going out in the world and collecting
data that can overturn that truth. That truth is rock solid. Well, and it also is because...
Instead of the human going out there and doing the measurements, it's done with just the numbers.
It's done with just reflecting in your head. Yeah, I mean, you're reflecting on... Maybe
using a pen and paper to help you think. Right, you need visually. Visually, you need some
kind of stimulus to help with the thought. Some people do, some people don't. Well, of course,
but still, even if you aren't visualizing it, there's still a visualization. to be done there
because you're talking about distances and you're talking about formulas that help distinguish
the different distances and how they correlate with other things. So yeah, so it's basically
just the way of looking at the three dimensional world, but without needing to go in out and
measure it yourself. So we're talking about empirical knowledge, which by definition, empirical
knowledge, because it relies on gathering data and hypothesizing about it to refine a theory
and then going out and testing that theory with further experiments and more data in the natural
world, right? The natural sciences have made tons of progress. We have this whole modern
world because of it, but it's actually always open to revision. No empirical knowledge is
a hundred percent proven because the nature of empiricism means that tomorrow you could
go and take measurements and they're different. Right. And anyway, so all knowledge in empirical
thought is provisional. It's subject to refinement. It's subject to further study. To change basically.
Yeah. Whereas in deductive logic, which is called like a priori. Have you heard that term before?
A priori. I have heard that, yeah. Yeah, so a priori knowledge is knowledge that you can
arrive at without going out to the world to measure anything, without going out to the
world to gather any evidence. It's knowledge that you can gather just upon reflection and
clear and careful thinking. And in practice, it's basically like plugging them, in a sense,
like when we're talking about geometry and like triangles, like if you're talking about that
basic of a thought, right? It's basically plugging in the numbers of the distances of each side
of a triangle and knowing that there's going to be an angle that you can define. Right,
so A squared plus B squared equals C squared is not open to debate. Because it's been formally
proven. Exactly. And the angles that it creates and all of the different dimensions that it
creates. So no matter what the actual numbers are, it's going to be this and this and this
and this. And you can change the numbers on an infinite scale until you get to a circle.
But you know what I'm saying? Like it's. you can just change the numbers and do it without
having to go out and measure all this triangle is this and this triangle is this and you can
write, you know, this is the angle that it created because of that. Like I measured it. I know,
you know, you don't need that in this because you can just plug the numbers and you can visualize
the thing that you're trying to measure and all that. Right. And in fact, there's no perfect
example of a triangle or of a circle in the real world. Right. There's There's no triangle
or no circle that will be 100% true. But we know the concept of one is governed by these
logical principles. And there's no debate about it. So if you ever saw one, it'd be like, huh.
So what actually, if you go out and measure a circle or measure a triangle, and you come
back and you say the Pythagorean theorem is wrong, all you're actually proving is that
wasn't a perfect triangle. Right. but perfect doesn't mean it wasn't a triangle. So, doesn't
matter. Yeah, anyway, so. But when you see one, huh. These two modes of knowledge, empiricism
and a priori knowledge, okay? Now let's go back to economics. So, economics has split into
one school that stayed on the a priori side of reasoning about economics, and then these
modern schools of economics that have gone the empirical route. Okay, and that's the big difference.
So what I'm going to talk about today is the school of thought that stayed on the a priori
side. That's Austrian economics, right? That is Austrian economics. And Keynesian is the
empirical. Keynesian, there's also the Chicago school. If you ever heard of Milton Friedman,
he's like the founder of the Chicago school. He's actually... Yeah, actually I, yeah, okay.
So recently read about him. The Chicago school is interesting because they're actually have
in many respects, but not perfectly they they're very free market oriented like the Austrian
economists But the biggest difference between Chicago and Keynesian and Austrian is that
The Chicagoans and the Keynesians they believe that you can The best way to go about learning
and doing the science of economics is to go out in the real world and write down numbers
of prices and write down historical events of trades and gather all these statistics and
then to take those statistics and try and suss out mathematical theorems that govern the economy
as a whole. So they're going about economics in an empirical way. They're trying to reduce
the entire economy to an equation. I see. So that they can then use that equation to predict
if you tweak this or that lever in the future that you can get this or that outcome. So they
want to be able to predict is what they're like kind of basic like they wanted to be able to
predict so they came up with a way to be able to predict. Right. Yeah. Okay. Which turns
out to be incredibly useful for like governments and kings and people who try to run societies.
Because you can predict. Because to them, their population is just a bunch of statistics. It's
not people. These are faceless people. This is their flock. They don't see them as a bunch
of individuals. They see it as aggregate numbers. That give them something. Right. And so they
have a desire to push the economy in this way or that. So they're going to try and pull on
these strings, you would call them. right these different levers in order to tweak the economy
to move this way or that. Whatever strings might be available to them. So the Austrians are
totally different right? It was started by this guy named Karl Manger back in the 1800s and
then his student was a guy named Ludwig von Mises. That's the name I know. Yeah so Mises
was the first guy who completely systematized Austrian economics. Okay so the other guy was
more like theoretical. Well he like He laid all the groundwork for that style of knowledge.
I mean, not all the groundwork. Like we're talking- Where was he from, just so I know? This is
why it's called the Austrian School, because they come out of Austria. God, obviously. Yeah,
that makes sense. I should have known that. But, so, what time frame was that? So Karl
Manger is a little bit older. Mises, he's around in like the 20s and 30s and 40s. So it must
have been the 1800s and that the other guy was around. All of his theories. He's also Jewish,
living in Austria, right leading up to World War II where Hitler's gonna take over. So he
actually escapes out of Europe. That's an interesting fact. And goes to America and starts teaching
in America where he gets new students, Murray Rothbard. And he kind of sparks. Austrian movement
in America. Gotcha. OK. Wow, I didn't know that. That's an interesting fact. Right. And that's
an interesting time frame for that. And Hitler and the Nazis were not interested in a free
market. They were interested in a command and control economy. Obviously, yeah. I mean, look
at it. Yeah, we won't get into that. Yeah, so he wasn't very popular there. So I actually.
I'm taking an excerpt here that I want to read to you guys from a book called Man Economists
in State by Murray Rothbard, who was a student of Mises. And it's his sort of synthesis of
Austrian economics with libertarianism and like systematically going through Austrian economics.
I would read from Mises, but his, I actually have been going over his books in preparation
for the show, but his stuff is really dense. It can be a lot harder to follow the way like
Rothbard words a lot of this stuff is like a lot easier to follow. So I want to go over
the real basics like that. The foundation of what it is, what Austrian economics is built
on. Okay, let's do it. Okay. So the distinctive and crucial feature in the study of man is
the concept of action. Human action is defined simply as purposeful behavior. It is therefore.
sharply distinguishable from those observed movements from the point of view of man, which
from the point of view of man are not purposeful. These actions include all the observed movements
of inorganic matter and those types of human behavior that are purely reflex, that are simply
involuntary responses to certain stimuli. Human action on the other hand can be meaningfully
interpreted by other men. For it is governed by a certain purpose that the actor has in
view. The purpose of a man's act is his end. The desire to achieve this end is the man's
motive for instituting the action. All human beings act by virtue of their existence and
their nature as human beings. We could not conceive of human beings who do not act purposefully,
who do not have ends in view that the desire and attempt to attain. things that did not
act, that did not behave purposely would no longer be classified as human. In this fundamental
truth, it is this fundamental truth, this axiom of human action that forms the key to our study.
The entire realm of praxeology and its best developed subdivision economics is based on
analysis of the necessary logical implication of this concept. The fact that men act by virtue
of their being human is indisputable and incontrovertible. To assume the contrary would be an absurdity.
The contrary, the absence of motivated behavior would apply only to plants and inorganic matter.
Whoa. That's excerpt from Man, Economy, and State. So that's called the action axiom. And
to try to argue against it is to be self-contradicting because you have to act in order to argue against
the action axiom. Whoa, yeah, no, that's a, woo. That is, I mean, what can I say about
it? So that's what I mean by a priori knowledge, by logic-based knowledge, right? So by sitting
there and thinking of the fact of the matter that humans act, you can draw an entire theory
of what he calls praxeology. This is what Mises termed it. Praxeology is just the study of
human action. OK? Mises as an economist, his biggest interest is in the division of human
action that is trading and production, which he deems as economics. Okay. Right. But there's
other types of human action. Obviously, yeah. That aren't about productive behavior, going
to church or whatever. I mean, productive is a loose term in that sense, because productive
to whom? you know, if it's productive to you, then. Right. There are other ways that you
can study human action, though, sociological ways or historical ways or psychologically,
psychological ways. Yeah. Which is interesting. And I don't know if anyone's actually picked
up like the praxeological style in those fields. I was going to say, yeah, that would be interesting
to see. Yeah. So that's the foundation of Austrian economics. So we can actually pull a bunch
of insights and understandings from the fact that man acts. Right. If you're a human, you're
a man. So as long as it is true that man acts, then you can use formal logic to unpack that
statement and pull out other truths that are attached to the fact that man acts. OK. Let's
do it. So. action is made up of employing scarce means, guided by knowledge to achieve an end
so that we can alter the course of events in a way that we wish to bring about. So we're
trying to change the flow of time. We're trying to write some sort of discomfort. Yeah. And
something that ails us we wanna fix. So you're sitting on the couch and you start getting
these hunger pangs. You want Doritos and you really want to keep like playing video games
and that's an action you're undertaking. But this hunger is starting to come up, right?
And so you look into the future and you see this hunger is getting worse and worse. And
so you decide to act and to attain that act, you will use the knowledge in your head that
if I go to the fridge and I put together some ingredients and take those ingredients and
put them in my mouth and chew them and swallow them, I won't feel that hunger anymore. Yeah.
Right? And you're using scarce means. Means is just like a fancy word for saying like,
whatever objects, whatever physical matter you need in order to attain that end, the end being
to satisfy your hunger. Yeah. Okay. So you can have a practical analysis of the fact that
you get off the couch and make a sandwich. So that's the first unpacking. So we now have
new categories. We've got ends, we've got means, we've got knowledge. We've got time, because
it takes time to do an action. There's no such thing as an action that doesn't take time to
perform. And then we can build the idea that costs exist logically, because the fact that
I'm going to go to the the fridge and make a sandwich means that at that same moment, I
cannot continue sitting on my couch and playing video games. So I am foregoing the cost of
the enjoyment of video games because in my mind at that moment, I now value higher the fulfillment
of my hunger. Yeah. And so by choosing one action over another, you're now incurring costs. You
can't do everything at the same time. You have lots of things that you can do, but you're
always gonna, at any given moment, you can only be doing one. So we now have the concept of
cost. We have the concept of profit. Personal cost, we should. Personal cost. Everything
is personal. Sure. Everything in Austrian economics, instead of going from a society down to the
individual, it all builds up from human action up to society. Yeah, that makes sense. as far
as like cost goes, yeah. Right. So that's cost, there's profit, because by going and making
that sandwich, I now have either attained my goal and my hunger is fulfilled, so I have
profited because I'm now in a better situation than I was before I did the action, or I'm
a terrible cook, I burned everything, my oven caught on fire. and I'm even more hungry than
before. It's still a cold sandwich. Right. And now, yeah, so that's loss, right? All of these
concepts built on the fundamental idea that humans act. Right. Yeah. And in order to argue
against those things, you have to argue against the fact that humans act. Because if humans
act, these things are true. Because they'd logically come out of it. Yeah. Because obviously, imagine
the first human, right? They had no fucking clue what was going on. They were like, what
do I do? Am I hungry? What do I do? I thought I just became not hungry. What is happening?
Right. I get to make choices? We can build the idea of value, of valuation, because at any
given moment, like I said, you're sitting there, there's like a million things you could be
doing at any given moment. And when you sit and you're like, what do I want to do? Like,
you're going to sit and think in your head about the things you could do. And whatever rises
to the top as the most urgent or the most important to you. you've now ranked that among the other
things you could be doing as the highest ranked thing. So we know that at that given moment,
you value making the sandwich more than playing the video game because if you didn't, you would
still be playing the video game. Right. Yeah, you're just grabbing every Saturday night for
me. You've proved your valuation by the fact that you did it.
and we can know that valuations are subjective. There's no such thing as an objective value
of anything because the amount that you value something right now is not the same that I
value that same thing right now. How could you compare? Yeah, of course. You're gonna have
a valuation, I'm gonna have a valuation, but in order to compare two things, we would have
to have some sort of standardized unit. So what are we gonna do? Like make... units called
like happiness units or whatever? Hunger units. I mean like even outside of hunger, this applies
to everything. Happiness, joy. Right, so like you can say, I apply this many units of happiness
to making the sandwich right now and I can say, well, you say 10, and I'm like, well, I apply
70 units of happiness to having a sandwich right now. And then how do we know that the units
we're talking about are the same? Yeah, the image. How can we, like there's no way to.
Untangle all of the things you need language involved in order to know that your units are
the same as my units and therefore Value is subjective Man those first humans were fucked
So Then if so like let's take a bunch of objects like you have a bunch of objects in your house
or whatever and you value any end, any object that you have. Subjectively, yeah. Evaluate
based on its ability to achieve ends for you in the future. Personally, though. Right. Whatever
ends you deem valuable. Right.
So then we can start getting even more creative, and we can start building the logic out further.
And we can come up with this idea in economics called marginal utility. Okay. So let's take
an example, okay? So I want you to follow this thought experiment here. I'll guide you through
it. I'm with you. So let's say that you have 20 plastic containers, gallons of water, and
we can even number them. Gallon number one, all the way up to gallon number 20. That makes
it easy. Okay. And let's say you got all these different uses for water. Okay, how would you
maybe value those things? What are the uses for water that you can think of in order of
most valuable to you that you couldn't live without to least valuable? Drinking. Might
be number one. Cooking. Probably number two. Even though you might not necessarily know
to cook with water right away, but bathing. Um, cleaning, general cleaning, making sure
my cave is clean, making sure the walls, the, all the art that I did on my cave wall is clean.
And then I would just say, um, recreation. Okay. Cool. Yeah. So we've got, how did I score?
It's all subjective. So we've got those valuations for you. You said drinking, cooking, bathing.
What did you say next? I think I said cleaning. Cleaning and recreational. OK. So now let's
say of those water jugs, I take away number three, four, and five. Oh, shit. Now, does
that mean that because you took away three, four, and five, that you're going to have to
give away your second, third, and fourth preference for use of water? No. What would you do? What
would you go without if all of a sudden you found yourself with less water? Recreation
right. Yeah, so you've got this rank of things in your head of uses for water the most important
and You remove some water and you're gonna get rid of the thing that you value the least.
Yeah as far as the uses So that's called marginal utility Easy to understand. Yeah, so well That
allows us to do something where we can understand that by adding another gallon of water, so
they say you have no water now. Right. And you had to buy water and you had to buy that first
gallon. You might pay whatever you pay a decent amount for because you're thirsty and you need
a drink. I gotta live. Right? Yep. And then I try and sell you a second gallon. And you
might... pay pretty good money for that, because you've got to cook. Sure. And then I try and
sell you a third, and a fourth, and a fifth gallon. Less, and less, and less. And as we
add more, and more, and more of the thing, you're willing to pay less, and less, and less for
it, because the things that I need. Right, based on the ends that you seek to achieve with that
water, those are ranked lower, and lower in your head. So the more, and more, and more
of a unit that you buy, you're going to value it less, and less, and less. Right. I mean,
I can live without water gun fights. Right. You know, I'll pay a little bit less for the
water gun fights. That's the law of marginal utility is that the more of a unit you buy
for every extra unit, you're going to value it less and less. And that goes for everything.
That goes for money, that goes for bricks, that goes for water, that goes for food, anything.
Yep. That's- Absolutely. We've just created an economic law based off of logic. Yep. So
that's praxeology. Okay. And that obviously goes into more than water. Yeah, and wherever
I lack in explaining this, read the sources, but you can't actually refute these things
without refuting the human's act because it all falls out logically. And if you don't act,
you're probably not reading this or listening to this podcast. Right, because that's an action.
You ain't a human. See you later, AI. Get out of here. So you can actually use that law of
utility that we just uncovered to create an economic concept called the downward sloping
demand curve, meaning that the more and more of a thing that you sell in quantity, the less
and less of a price you can get for it. It demands, yeah. And that's like a graphical mathematical
concept. But it's actually Pulling it out of logic. So it's not to say that like praxeology
can't use math or doesn't use math It's just it's not using math to predict humans. It's
using logic to build up Economic principles, right and then the math can follow right essence
because it knows and it's based geographically It's based on need. It's based on the demographic.
It's based on all these different things Yeah But in any given instance, if you go and measure
an economy and the specific downward sloping demand curves, like any given example you can
find doesn't refute the law of marginal utility. It just says that in that instance, there's
more going on. Sure. Just in the same way you go out and you find a triangle in nature, it
doesn't conform to a Pythagorean theorem. It doesn't mean that Pythagorean theorem is wrong.
It doesn't make sense. there that's not necessarily a perfect triangle. We're still looking for
that perfect triangle.
So yeah, you can also build up wealth creation. So transforming an object, if you take an object
out of the state of nature and you transform it, so it's ready to be consumed in production,
then you are... then someone else can take that thing and use it to sell or to cook or to clean
with. You have taken something and changed its value, and that's where production comes from.
You go out in the woods, you cut down a tree, you mill it, and then you take planks of wood
to the market and you sell it. You've now created value and you've... started the process of
production. Right. Yeah, that makes sense. That's pretty easy to follow. Yeah. There's a there's
another cool truth that you can uncover in Austrian economics, which is that all voluntary exchange
is by definition increasing wealth. So if you and I no matter the value, no matter the value
of the things, because the person who wants the thing. from you. That values it. Yeah,
so if you and I are gonna trade, right? Like I got a beer. Right, I want that beer. I'm
hungry, so I want a sandwich from you. I can make a sandwich. Right? I make a good sandwich.
Even if like objectively you're at the market, you can buy a sandwich or a beer for this or
that. Like if you have a sandwich and I have a beer and I give you a beer and you give me
a half a sandwich. Immediately. Right. The value is. What you can know in that exact moment
is that In that moment, I value the sandwich more than the beer. And in that moment, you
value the beer more than the sandwich. And so when we exchange, we have now both become more
wealthy. We agree to the fact that these are both the things we want more than the thing
we have to offer. So regardless of what prices on store shelves say, what our preferences
have shown is that we have done a mutual value exchange and that we have both profited. Right,
even though tomato prices might have skyrocketed the way before. Right. So all voluntary exchange
by definition creates wealth because what is wealth except for a growing of your satisfactions,
an achieving of your ends, praxilogically. Okay. Makes sense. Um, let me see where we are. Yeah,
I was going to say, we should check on the tiny. Of course we are. Yeah. If I'm miscellany.
Yeah. So anyway, let's, uh, let's take a little break and then we're going to go over. I'm
going to go eat a sandwich. beer and maybe we'll trade. Depends how good a sandwich is. I think
I want beer more than a sandwich. Alright, see y'all in a bit. Alright, adios.
Thanks for watching!
BOOM
So full of love, so, so So, so, so Let's go, the world is just so full of let's go
We should know better. Anytime we start talking, we really need to record. We just had a whole
talk about sandwiches. Man, it was the greatest talk, too. And it was at the very last sentence
of the talk, we were both like, we should have been recording. Yeah. I know that's what you
guys really come here for, is knowledge about making the best sandwiches. Yeah. Drew's claim
is that. If you're going to put a sauce on one side of the bread and a sauce on the other
side of bread, the mustard belongs with the cheese and the mayo belongs with the meat.
Yep, whatever meat. Doesn't matter. Or if you prefer a different sauce other than the mayo,
it still belongs with the meat other than the cheese. Like if you're doing like a creamy
sort of sauce. Any kind of creamy sauce. I'll stand by it. I'll debate you. Please email
me. I will debate you about this topic Host site duality check that met so does an email
Uh-huh I brought up hot dogs and I was like, but what about I don't see a lot of people
putting just mayo on their hot dogs But I see a lot of people putting just mustard and then
I was like is a hot dog a sandwich? I don't know, but
honestly I don't eat hot dogs all that often, and I do put mustard on my hot dogs, but I
don't think I'm gonna start putting mayo now that you said that and see if it tastes better.
You should try it. But I don't think it's a sandwich still. Report back. Don't get me wrong.
I'll report back. Report back. And please, debate me. I love debating this topic. My other brother,
John, and he'll probably talk about this with me too, but he always used to make me make
him sandwiches. Partially because he's my older brother and I was younger and he was like dude
you make the best sandwiches And it like gave him some kind of power over me, but I also
I was like I watched him make a sandwich I was like dude. You are just doing it all wrong.
You are you are lost in this world my young brethren He valued the ends of learning to
make a sandwich too low and drew set him right absolutely I'll continue to do so with anybody
else. Email me, I'm telling you.
Where were we? We talked a little bit about wealth creation. Before that we were talking
about the law of marginal utility.
So Austrians have an interesting, and I actually haven't studied this on other schools, but
Austrians have an interesting theory of the formation of money. The formation of the exchange
of a thing that wasn't the actual thing. Yeah. Yeah, they have like a sort of theoretical
framework for how a money comes into existence. OK, which I find super fascinating. And it
sort of shed some light on our current society and what we call money now. Let's hear it.
Yeah. So. Yeah. So Austrian school basically believes that money comes from throughout.
comes about through a natural process of exchange, right? So starting with barter, OK? So let's
go into a barter mindset. OK. OK, we've got person A, B, and C. Let's give them names so
it's easier to follow. Drew, Dean, and John. OK. Perfect names to do. Let's do it. So we'll
put you as person A in my diagram here, which I'll post. OK. So we'll rename it to Mayo Mustard.
So you are a person who has specialized in and tending chickens and producing eggs. And you
want something else, like you want butter. And I've specialized in making butter. So a simple
barter is like, hey, Dean, I got all these eggs, I don't have any butter. And I'm like, yo,
Drew, I got all this butter and I don't have any eggs. And because of the law of marginal
utility that we talked about earlier, all of this excess of a product, you value it less
and less and less. Right. Right? So because you have all these eggs, a bunch of those eggs,
I mean, there's a certain amount of eggs you're gonna keep for yourself to eat, right? But
then after, past a certain point, like why do I need all these eggs? It's a waste. And same
for me with butter. So we're gonna approach each other and see that I'll see all those
eggs you got and I'll be like, yo, I would love some eggs. And you're gonna see all this butter
and be like, yo, I would love some butter. So we're gonna exchange. Barter. And that essentially
proves out through the law of marginal utility that we're both profiting again. Because you're
gonna value that little bit of butter that you get from me higher than this excess, this hundredth
egg that you have in your stock. Probably 300, I'm probably feeling pretty good. So, and vice
versa for me. But barter has limitations, okay? Because not everything takes the same amount
of effort to create. So while you got all these chickens and you got hundreds of eggs, like
as you just said. 300s of eggs. And maybe I have a little less butter because butter's
like an involved process. They don't just, I don't have a bird to poop it out for me. I
have to like go through a process to make it. I might have a little less butter. Yeah, maybe
we should be exchanging how to make eggs and butter. So then John comes along and John produces
shoes. OK. What a fool. So shoes is a more involved process. He has to actually get all these raw
materials and process them and put them all together. Yeah, so it's like a lot more labor
intensive. A lot more labor intensive. The amount of work and effort and time he has to put in
to create shoes. Like for him, like he's just gonna have less shoes, but that doesn't mean
that you and I value them less. Right, I need, I mean, how else am I gonna go out and check
on my chickens? Right, so you've got eggs and John's got shoes, but what if you approach
John with your eggs and you're like, yo, John, let me get some shoes, I got eggs. And John's
like, hey, I've already got eggs, I don't need eggs. Now what do you do? Who the hell's this
other seller? Right, so. And he talks to me and I'm like, all right, well, if you don't
need eggs, what do you need? Right. And he's like, well, I could really use some butter.
So then you come back to me, you're like, hey, Dean, let me go ahead and trade you some eggs
for some butter. So we're like, all right, cool. Boom, we trade. And now you take that butter
and you go back to John and be like, yo, John, here's that butter you wanted. Let me get some
shoes. Boom. OK. Now, what is that butter that you just bought to you? You didn't buy it because
you wanted butter. You bought butter with your eggs because you wanted shoes. That's income.
So the butter is what's called a medium of exchange. Yep. OK, like you didn't buy it for the consumption.
You bought it for the purpose of that. For the purpose of trading for something else you wanted.
It's just a means to an end for you in that scenario. So that's called a medium of exchange.
Man, what a great trade I'm making here. What a great trade. I got chickens pooping eggs
for me. I got people making butter for me. I got shoes coming in for the butter that chickens
are pooping for me. I mean, wow. And back to eye pencils, it would have been so much harder
for you to have that know-how of all of those things, but it's a lot easier for you to focus
on your chickens. Absolutely. And same for the two of us, me and John. Anyway, so barters
can become more and more difficult to make. Right? Well, as soon as you approach someone
and they don't want what you have, they want something else, then you have to go to someone
else, find that thing, exchange, and then go back and exchange. Or find a new person, right?
Right. So now let's take it a step further where we're gonna introduce Beth. That's our sister.
So Beth is now, she makes plows. Okay? Now that's even... way more involved than shoes even.
Like crazy involved. Like that thing, like it might take her like months and months and months
and months and months to create a plow. But still based on the law of marginal utility,
maybe she wants to keep one plow for her own crops that she grows for herself. But like
she doesn't really need 10 plows, but that making plows is what she knows how to do. So she's
got 10 kids, you got 10 plows, you got 10 rows being plowed at the same time. I mean, shoot.
Right, but her profession isn't farming. She just farms for her own food. Her profession
is making plows. So the law of margin utility means every extra plow she makes is valued
less and less and less to her directly. So she wants to go out on the market and she wants
to sell these plows. You would really like a plow to tend your fields for. chickens because
plows are used for that in this logic. Well, hey, they gotta eat something. Oh, yeah, maybe
you're growing your own feed for them. They eat grains, some kind of grains, yeah. OK,
so now your goal is to buy a plow, OK? Absolutely, yeah, I gotta feed them chickens that do all
the work for me. But Beth comes to you and is like, not only do I not want eggs, I want butter,
but the amount of butter I want for a plow
I want lots of butter. So in order for you to procure a plow, you now have to go to multiple
people and be like, yo, can I give you eggs for butter? Yo, can I give you eggs for butter?
And you're doing all these transactions to accumulate all this butter just so you can go back to
Beth and be like, I want a plow. Right? So now you see how like super complicated this barter
system gets. And in order to simplify it, all of these people are starting to recognize that
butter is a thing that everyone wants for some reason. And so everyone's starting to buy up
all their stock. To trade butter as an intermediary, as a medium of exchange to get other goods.
And as more and more people realize that, hey, Drew, Beth accepts butter for plows, John accepts
butter for shoes, Dean accepts butter for eggs, or Drew accepts butter for eggs. Like more
and more people are realizing, well, everyone is willing to use butter as a medium of exchange.
So they might take any chance they can get to just procure some butter so that they can have
it for convenience to then give to someone else for something they really want. And now all
of a sudden, butter is being elevated. as a common medium of exchange that all of us are
using. Right. Butter's a good one. And essentially through that process and through getting it
more and more complicated with more and more people, you discover a thing rises as a medium
of exchange. As the commonality between all of the different things. Right. And when enough
people in a society all use the same thing as a medium of exchange, That's when now we have
a money. Do you think it was butter originally? Well, actually, it's really interesting because
so many things have been used in mediums of exchange as monies. I know grains. I know.
So I got a little snippet here from Man Economy State again. So people, so we're talking about
medium exchange. The people in each community tended marketable commodity available. Tobacco
in colonial Virginia, sugar in the West Indies, salt in Abyssinia, cattle in ancient Greece,
nails in Scotland, copper in ancient Egypt, and many others, including beads, tea, cowrie
shells, fish hooks, through the centuries, gold and silver, species. has gradually evolved
as the commodities most widely used across the world as a medium of exchange. Yeah, because
you evolve the sense of like needing the specific commodity itself, right? To be the thing that
you need in order to exchange for the stuff you really want. Because you're growing the
thing, you're receiving the thing, but you don't need that, those things to be the thing that
you're exchanging constantly. You don't necessarily need the gold for the gold sake. You don't
need the cowrie shells for the cowrie shells sake. You don't need the fish hooks for the
fish hook sake. Unless you're ancient Egypt and they put everything in gold. Right. So
among other factors, the high marketability has been, so for gold and silver, among other
factors in their high marketability have been their great demand as ornaments, their scarcity
in relation to other commodities. their ready divisibility and the great durability. In the
last few hundred years, their marketability qualities have led to their general adoption
as media throughout the world. Right, which makes sense because you want something that's
easily divisible. You want something that's not necessarily the thing that you need, but
it's something that you can...
attribute to the thing you need, right? As far as like the quality of it. Right, so back to
Beth selling her plows, right? So if she gets gold, so if she gets butter, the problem with
getting all that butter is by the time she goes through and uses it all to buy the stuff she
wants, it might go rancid. Exactly. It might. Exactly. Someone might, an animal might come
in and eat some of it. Right, you don't want something that's- There's all sorts of things,
like butter's actually not a good medium of exchange. It's not a good money because there's
all sorts of things that can cause it to degrade. Not only that, but people can quote unquote
counterfeit it because someone may be like, yo, everyone in this community, they'll accept
butter for everything. And so they go off, they make a- frickin' buttload of butter, and then
they come into your community, and they buy up everything with all this butter. Interject
it, yeah. Right, and so that can lead to weird, that's actually called inflation. And anyway,
so what you want is your medium of exchange to be scarce and not reproducible, and gold
and silver are very hard to mine. There's so much more of it in the earth than we've ever
mined out, but. I think, what was the figure I heard, like in all of Earth, like the amount
of gold can fit into like a couple swimming pools, like a little big sized swimming pool,
it's not that much. In comparison to the amount of exchange that it's been a part of, right?
Right. And so it's super durable because gold is one of the most stable elements. And malleable,
like we were talking about earlier. It's malleable, you can make it into coins. It's also like,
you can confirm that it is in fact gold, relatively easy. Yeah. especially nowadays, obviously.
But even back in Egyptian time, ancient Egyptian times, they used it a lot of times to just
coat a lot of things. And they saw the value and the ability to project their wealth as
a society by coating all of their things in it. So they valued it and they wanted to gather
it. And that's part of the theory is that a commodity typically has some sort of like root
usefulness that leads to it becoming a medium exchange and for gold that is the fact that
it is like used as a decoration. Yeah, it's used as jewelry. It's used on statues and used
in all these. You can cover. And today it's used in electronics and all this other stuff.
Right. So there's yeah, a bunch of things that make one thing out compete another thing as
the best medium of exchange recognized throughout the world and over time has risen to become
gold and silver. Which makes sense, yeah, actually. Unless something else comes into play. Right.
So, The Origin of Money, super interesting. Oh, we're far beyond gold and silver now. Oh,
yeah. Yeah. Oh, yeah. We're very far beyond that. So, yeah, and there has been historically
ways that people have cheated the system with gold and silver, right, so. There, back in
the day, there used to be... And right, or whatever it's called? Well, there used to be shaving.
Like if you, if people stamp them into coins and you can just shave the tiniest minute amounts
off of like, if you're a person who money passes through and every time money passes through,
you shave it. That's tax. You shave it. You shave it. And then you take all those shavings
and mint new gold coins out of it. Like you've essentially stolen value of that money and
you're watering down the money supply. That's actually where the ridges on coins come from.
It's as a mechanism of detecting shaving. That's a fun fact. I didn't know that. That's a fun
fact. Not that anything is coded in gold now. Well, there are obviously still gold coins.
Gold is still super-vining. It's not the main medium of exchange anymore. There's less worry
about... Shavings. It was by, yeah. That would get into the whole banking conversation, which
will be its own episode, but essentially banking comes along. Because gold, for large quantities,
becomes heavy, cumbersome, and risky to travel with, these people create these systems called
banks where you can park your gold there and they'll give you a receipt for the gold. For
how much you have, yeah. And then you can safely travel with that receipt. And when you get
to where you're going, you can pay someone that receipt where they can then go exchange it
and deliver and receive the gold. And then you get your gold, yeah. Right. And so that's the
beginning of paper money. Which is crazy because they still have to deliver that gold. Right.
Their origin paper money was as just a receipt for gold deposits. But that's also just for
the individual. For the individual. Right. But the bank still had to deliver that gold. Right.
But that was the service they offered was to keep it secure and to transport it securely.
Right, and if you think about the old west times, right? So you didn't have to take that, you
didn't have to take that risk yourself. That burden on, yeah. Because if you think about
old west, when you're talking about bank robbers, the stagecoach orders. The Wells Fargo stagecoach
that's traveling across. But they had the shotgun rider that had the shotgun, and then you had
other riders in the back with guns protecting the stagecoach. But the person who actually
the gold belonged to was nowhere near. So they were safe because of this whole system of receipts,
which at the time were what? Greenbacks. They're using that eye pencil market phenomenon of
little know-hows where the bank's little know-how is the security and storage and transportation
of the valuable resource itself. And the person just obviously valued that. Right, but then
later on. But the banks took a cut, still at the time, right? I don't want to go to you
being in the bank. I just find it so interesting. I really was super interested in the wild west
factor of it. But yeah, I know it's all fascinating. That whole time period of when we got off of
the gold standard and we got off of that whole thing was a crazy time period in American history.
Those gold receipts became so common that eventually people just started trading the receipts back
and forth rather than ever going and getting the gold out because it was so convenient.
And so the gold would stay in the bank while the receipts would pass around. And that's
the actual origins of paper money. When isn't that? But every little piece of receipt represented
physical gold in the bank at that time. But wasn't there an issue between banks too? Like
that was why there was this whole centralized banking system. That comes later on down the
line. Yeah. Like eventually they saw there was a problem. The fact that people are just trading
receipts and the. the gold was never where it needed to be when they called for it, right?
Yeah, so what actually happened is that at some point, the banks started cheating the system.
They realized that of that gold they had in their vault, only a certain percentage of it
would ever get demanded out at any given time. Right. And so they're like, well, why don't
we make use of this gold that is just collecting dust in our vault and they go and they start
loaning it out to people.
That was where that, a lot of that began. That's where like, right. So like you put your money
in there and then the bank's gonna turn around and loan it to people, charge interest for
that loan, make a profit on the interest. And then when the gold comes back, the gold will
come back in general before. you come and demand that gold. And because not all of the gold
is there in their vault anymore, that's when they start becoming prone to runs on the bank.
Right. That's the beginning of what's called fractional reserve banking. Right. Okay, we
can go back, but. Yeah. But that brings up the next point I wanted to talk about is just like,
well, once a money comes into effect and once everyone is using a money, then you can get
the formation of prices. So because everyone's using the same money, whether it be gold or
cowry shells or fish hooks, everyone in your area is using that same thing as their money.
And so now you can start to Understand that like a certain number of fish hooks is worth
a loaf of bread a certain number of fish hooks is worth a t-shirt a certain number of fish
hooks is worth a plow Right, and that's the formation of prices Okay, and prices allow
people to To take their economic pursuits to a new level, right with the information of
prices You can then start to write down the prices and create businesses where you process
a certain number of things with the expectation later on of being able to gather this or that
price for the thing. That's when you realize like, hey, Beth's plows sell for 10,000 fish
hooks, right? But... I think I can create a plow creating process. And with the people
I know and the prices I can get for the things and the process I created, I think I could
sell plows for 8,000 fish hooks. Competition. So you can now create a business around that.
And you can do calculations based on your inputs and your outputs to figure out if you've made
a profit. And that's where the economy starts taking on a whole new level. Once you have
money, once you establish pricing, now you can start doing calculations. You can do profit
and loss statements. And you can start doing math to figure out more complicated economic
transactions. And then the economy starts to complexify just because prices exist. Right.
That makes sense. Yeah. find all of that super interesting. But yeah, and then interest rates,
right? So if you had to define what is an interest rate, like in as simple as you could? As far
as loans go, right? Well, just what is an interest rate? I would just say it's.
the appreciation of the value for what you get? All right. So I would, what the Austrians would
say is like, what an interest rate is, is it's the price of money. And specifically, what
it really is, is it's actually a measurement of time and how much someone wants money now
versus how much they want money later. Okay. So let's say your plow business is super successful
and you've got all this money stacked up and you don't need it all right now. But someone
else has like something that they could do money with and they're like, yo, you got all this
money. Would you give me some? And you're like, sure. I don't need it now, but I need it later.
And because it could just sit here, or I could loan it out and then charge interest to get
it back later. So I have what's called a low time preference for my money. Right, over time.
It's basically the appreciation of the money over time. Right, and the person who's asking
for the loan has a high time preference for money because they need the money now in order
to do something with it. Right. Right? To make the, to do the deal that they need now, they
have to do it now, so they are willing to. Right. So what, so what interest is, is it's a measurement
of how much people want their money now versus they want that in the future. And the balance
of that, if more and more people in society who give loans to people want their money now,
the interest rates will go up. because they'll have to make a lot more money to be willing
to loan it out. But if their time preference goes down, then the interest rates will go
down. And it's also influenced on the demand side too. If more and more people want loans
and they're willing to compete for those loans, they can drive the interest rate up. So in
simply, it's the lenders, whether the lenders have the capability of loaning the money for
longer or shorter. Right, and in theory, what it represents collectively as a society is
it represents how much, so when you have the understanding that money represents trades
of valuable things between people, like every amount of money represents like a transaction,
like a thing you could buy, right? So all of the economy has a certain amount of things,
there's a certain amount of eggs, there's a certain amount of shirts, there's a certain
amount of plows, fish hooks and whatever, right? There's a certain amount of stuff in the society
and all the money in the society should be able to buy those things at a certain ratio of money
to those things existing. That's where the price has come from, right? But if people aren't
actually using that money right now, then that means they're not gonna go out and buy those
things right now. So it's society demonstrating a preference that they don't need to consume
things now, they'd rather consume them later. So that essentially frees up a bunch of capital,
a bunch of actual physical resources in the economy for other people to use to get things
now. And then later on they can pay that money back. Right, and also the people who are getting
the money back can use that money later for whatever investments or whatever they need
to do at that time, yeah. So I like to do this thing to, to explain like what inflation is,
where like you've ever played Monopoly, right? Have you ever played it like the proper way,
quote unquote, where you like bid for properties? No, probably not because I just, not knowing
how to spend that much. Yeah, no one has the patience to play the real Monopoly. It actually
goes a lot faster than you play the way it's supposed to be. No, I'd be willing to, but
I think you need everybody to be down. Yeah. I think all it takes is one person to just
throw the game. Right, so most people when they play it, They like, they play by the quote
unquote house rule where like you land on a, like you land on boardwalk, you can't afford
it. So you skip on buying it. But in the real rules, when you can't buy it, it goes up for
auction to everyone else in the game. Yeah, so at that moment that you land on it, you
either have to buy it or it goes for auction. And they can just bid on it. People start the
bid. And then the bids go around up until whoever is the highest bidder, no one's willing to
bid anymore. And then that person gets boardwalk. That's the real way Monopoly is supposed to
be played. Right. Okay, so this bidding process, right? So we got four people sitting around
with a certain amount of Monopoly money, right? Someone just landed on boardwalk. We might,
where are we at right now? We're ready for a break or even getting close to the end. Okay,
let me just, let me finish. Go ahead, finish it. Are the kids waking up? Well, yeah, one
of them is. Oh, shoot. All right, let's do one more break. Okay, we'll take a break and we'll
come back and we'll start this Monopoly talk over again. Yeah, there's one more concept
I wanna get through and then we can end the show off after that. Let's take a quick break.
Enjoy some music. See you in a bit.
And we're back.
It just took a while. Yeah, a little bit of time on that one. My, uh, the older, the toddler,
is in his own toddler bed now. So he, uh, is experiencing some sleep difficulties with that.
Yeah. It's like... Drew just showed me how when he's scared, he pulls all of his blankets and
stuffed animals right around him in a circle. Yeah, he puts himself in the corner of his
bed and like protects himself with all of his stuffies. He's totally fine. Like, look, yeah,
he just laid down. And I was like, I was like, look, you got all your animals with you. He
goes, oh, yeah. And then he like immediately calmed down. Oh, it's funny. Gosh, freaking
cute. Yes, hilarious.
All right, so we left off talking about monopoly, right? That was our analogy, right? Yeah, do
you remember? I gave you the analogy that someone lands on Boardwalk, they can't afford it, so
it goes up for auction. Yeah, which I've never played that way, but I like the idea of that.
Well, it means that all the properties get bought up the first time someone lands on them. Right,
so there's no going around and around and around and around. Monopolies happen quicker, therefore
people start getting taxed for them quicker, and therefore people get out quicker, and the
game goes quicker. Yeah, I don't know why more people don't play that way. It's actually faster,
and it's pretty fun. And it makes, it might be more frustrating in a sense, but. Sure,
but it gives you auction practice. Yeah, okay. So what was the analogy? Okay, so here's the
reason I say that, okay? So um. Here's like put yourself in that situation. Okay. Yeah
you have a certain amount of money in your hand, okay, and So does everyone else this is the
most desired property on the market So everyone starts bidding, okay and Whatever, let's say
it ends up bidding all the way up to 500 monopoly dollars. Okay Just because someone can afford
that and that's how much it takes to outbid everyone Yeah. OK. Now let's play the same
scenario. It goes on. It goes off her auction. But then all of a sudden, someone walks by
and just drops an extra $1,000 in everyone's hand. And then the auction starts. What is
the price of Boardwalk going to be? You can't tell me exactly, but is it going to be higher
or lower than $500 monopoly dollars? Likely higher. It's going to be higher because everyone
has more money to bid with. It's the most desirable thing. Everyone's bidding for it. There's more
money available to bid with. Right. So the price goes up. Yep. Now, if it drops on everyone
at the same time, then it's sort of a wash because everyone got the money at the same rate. Yeah.
It's basically going to end up being the same. Right. And so in a similar way, this is a metaphor
for inflation. Right. Okay. And this is where the Austrian school starts to get different.
Starts to differentiate itself. Right, because everything we've been talking about before
is really interesting. And those are the building blocks for the economy. But this is where really
the policy recommendations start changing. Right. Because the Austrian definition of inflation
is an increase in the money supply. Is it a unnatural? Like, I guess it would have to be
an unnatural increase in the money supply, right? No, just in general. So like if money is gold
and all of a sudden some miner strikes on a big vein of gold. So it could be natural. It
could be natural inflation from someone finding a bunch of gold or it could be a government
and paper money just printing a bunch of money. It's just the growing of the money supply.
Got it. Right. That is the Austrian definition of inflation. I don't know their exact definition,
but essentially the definition of inflation is when the prices of goods go up. What's that?
It's like an event that happens that caused prices to rise. It doesn't actually mention
the quantity of money. You're going to say, yeah, it doesn't actually talk about that?
Yeah. Okay. So because in Keynesianism, their ideal managed economy is like... printing a
certain amount of money to adjust for the natural growth and productivity that happens in human
society. So to them, there's an ideal amount of inflation. But to an Austrian, any money
injected in the system purely is that's defined as inflation. Okay, so we come along to the
monopoly scenario, drop a thousand dollars in everyone's hands. And that's an even inflation
across the board. That money got injected everywhere at the same time. So it's relatively fair,
even though it may disrupt what prices things are, right? Right, right. But an actual fact
in our everyday society with governments and central banks and monetary policy, inflation
doesn't happen that way. Inflation happens where money gets created through the Federal Reserve
Banking System. and new money enters the economy, but that money doesn't go to everyone at the
same time. I was gonna say most recently, especially
in the US, the COVID relief package, which the amount that the Americans got versus the American
people got versus the amount that the big politically connected companies got is totally different.
Right. So let's play the monopoly scenario again. The banker comes by right when boardwalk goes
for auction. and he only drops $1,000 in the hands of one person. Mm-hmm. Still inflation.
Sure. But what's the outcome going to be? Who's going to win that auction? Yeah, likely that
person who can now outbid everybody. Right. And that is what happens in our economy. When
money enters through a certain point, whoever gets that money first. The certain package
with the recipients are. The rest of the economy isn't really aware. that new money exists.
We're reacting to it, yeah. Whereas the person who gets that fresh new money, all of a sudden
they have this supply to go grab resources out of the economy, but the rest of the economy
doesn't know that money exists yet. And so they get things at the original price, whereas every
single time they buy and sell, it has a pressure on prices, it causes prices to change. And
so eventually that... money will make its way throughout the economy and prices will rise
everywhere and eventually wages will rise and eventually it'll even out. So in the long run,
it will find an equilibrium, but the process of injecting money at one point causes wherever
that money gets injected to have an unfair advantage price-wise across compared to everyone else.
And the ripples aren't felt until later. Right. And so someone starts getting all these resources
for free. It's like playing Monopoly and that auction goes on sale and someone only drops
the money on one person's table. Okay, yeah. Okay, so there's an understanding of inflation.
Now that leads to what's called the business cycle theory. And this is like the gem of Austrian
economics. This is like the most important thing to pull away from it. So business cycles, you
know what a business cycle is? Break it down for me. OK, so like a business cycle is the
idea in the economy that we have these times where all of a sudden the economy is like screaming.
People are making money left and right. Things are selling. Things are going up. People are
spending their money and businesses are reaping the benefits of it. And then the inverse of
that is like a depression or a recession. OK, yeah. and where things all of a sudden take
a crash, the famous one in 2009 with the Great Depression. And then you got like the other
big ones that have happened in our lifetime and the 99.com bubble and burst. Then you got
the 2008 and then you got the COVID. Right, so Keynesianism tries to explain crashes of
the economy. in a certain way where for them it is a misallocation of the balance of the
economy where the government can come in and manage by injecting money here and there to
try and cause a recovery to happen. Right. So they're just trying to- Something unnatural
happened to cause a crash in Keynesianism. Right. And they're trying to inject money to fix it,
scramble and fix it in a sense. Right. Are they a kid? You keep looking. He woke up, yeah.
Oh, is he crying? Oh, we could pause.
back. We paused. We took a pause. So yeah, I was saying that the Keynesian view of an economic
crash is that there's something out of balance causing a crash, right? Right. It's unnatural
in a sense, right? That's what their thought is. Yeah. Someone's being greedy. People are
acting properly. But it's a... There are... The Keynesianism, the... the economy needs
managing or else it will crash basically, inevitably. Right, but don't the Austrians also, like they
know of inevitably markets crash. Okay, so let's go with the Austrian approach because it's
different. Yeah. Okay, so the Austrian approach is that the unnatural thing that's happening
is before the crash. So the unnatural thing that's happening from the Austrian point of
view is that money is being injected into the economy, that a central bank is tweaking interest
rates. When you inject a bunch of money into the economy, you're going to get a bunch of
superfluous purchases. You're going to get people making investment decisions that they wouldn't
otherwise make because that money wasn't there before. Right. Remember the first people who
get that money, the people you drop that money on in the monopoly game, they're gonna come
ahead, right? So if you do the same thing in the real economy, you drop a bunch of money
in, or you turn down unnaturally through the process of central banking, you tweak down
the interest rate. Remember when we talked about what is an interest rate? An interest rate
is the economy's preference. for whether it wants to save money and free up resources for
future investment or whether it needs that money now and those resources now. Check that into
the, yeah. Right? So low interest rates are a signal to the economy that it's a good time
for investors to start long-term projects because people are choosing to save. Right? So with
low interest rates, you can make profits on long-term projects that require financing.
Right. when the interest rates are high, a lot of those long-term projects that require financing
aren't as viable. And it's supposed to be that way according to Austrian, because the economy
is telling you, hey, we need resources now. We prefer our money now. We need these things.
So then the government comes in, they turn down the interest rate. And what does that do? It
sends the signal out to the economy, hey, investors, now's a good time to invest in projects. but
that's not what the economy was saying naturally. And so all of these projects start happening
and the resources aren't there to back it up. So it's actually the boom before the crash
that's the unnatural thing. It's an injection of money in the economy. It's causing this
superficial bubble to build, but that superficial bubble is people investing in projects that
the resources aren't there for. And inevitably, it's like a game of musical chairs. At some
point, the resources aren't going to be there for certain projects, and projects are going
to start failing. And when projects start failing, investments start going bad. And when investments
start going bad, people start panicking. And when people start panicking, so you see. There's
runs on the bank. So in the Austrian point of view, the recession that happens is actually
the economy saying, hold up, guys. We've gone too far with this. What we need to do is reallocate
these resources. We need to put a pause on things. We need to allow some of these bad investments
to fail so that those businesses that were investing poorly can be liquidated, their assets can
be moved around to people who will manage them better, and the economy can start rebuilding.
Whether that be the businesses going under or new businesses taking over that capital in
a sense and then running with it. And so the analogy that you'll hear a lot of Austrians
use is it's like a hangover. So like, you know, drinking a bunch of alcohol for the night,
maybe it feels good when you're doing it. You're getting this big high, you're getting this
big buzz. You know, things are happening, you're having a good time. But what's coming down
the line is that inevitable hangover, that inevitable crap feeling the next day. And that's what
a recession is. The recession is the hangover. The cause of the hangover is not the fact that
you just happen to wake up and feel bad. The cause of the hangover is the fact that you
drank all night last night. Yeah. Yeah, you would. And so that's the analogy. Interesting.
OK. And so that's where Austrian and Keynesianism really, really split. And that has huge implications
on the country, has huge implications on how. the world should be managed. Should we have
a bunch of central planners and central banks and people sitting there with their economic
math equations, trying to calculate what's the right amount of money to inject in the economy
at the right time? Yeah, that's an important point too, is it's not just like a singular
point of the government that's making all these decisions. It's all these different groups
and all these different policy makers and all these different things that are happening all
at the same time. that are trying to, oh, we need to do this now, because it'll help this
and that. It's not really just a single mastermind. It's more of an entity with a bunch of masterminds.
Yeah, it's a bunch of interests that are motivated to manage things in a certain way. To pull
the market in a certain way. Whether it be lobbyists trying to manipulate the market to like, benefit
their sector of business or whatever. Businesses trying to take advantage of the new cheap money
policies and try and get in on really cheap loans so they can invest in these startup ideas
that have no grounds in profitability, they're making these wild bets, but they can do it
because the interest rates are so cheap and they're building all these companies, spending
all these resources on things that are ultimately doomed to fail. Yeah, and also because they
know. Just like the dot com bubble. Yeah. Because inevitably, they know that it doesn't really
matter. It's all printed money. Because it's on this model. Right. So in the dot com bubble,
you get all of this hype around the brand new internet. You get all these investment firms
pumping all this cheap money into the, oh, you got a startup idea? Here's money. Oh, you got
a startup idea? Here's money. And all of these projects aren't necessarily sound, but they're
are easier to invest in when the interest rates are artificially low and when money is being
pumped into the economy through inflation And that will ultimately crash and so that recession
is supposed to happen or in The 2008 all these people get an advice that real estate only
ever goes up real estate only ever goes up Real estate only ever goes up And so they buy these
investment properties and everyone's trying to flip houses and the market gets chunked
up Artificially, everyone thinks they can't lose money, but ultimately, it's going to pop.
Yeah, it's sad. A lot of people who are just buying their first time homes are the ones
that are like, they try to get a really good rate at some, you know? But it's artificial.
It's not realistic to where the market is going to inevitably go to. Yeah, I mean, in the long
scheme of things, like land is limited and population grows, so there should, over time, be an upward
pressure. on real estate prices, but like when everyone's trying to flip houses and you know,
like that's, it's. Right, it's unnatural. The way the market was saturated at the time. Mm-hmm.
And so the Austrians will tell you that we can't tell you, when you start printing a bunch of
money, when you start artificially lowering the interest rates, we can't tell you where
that bubble will necessarily form. But it's going to. But it's going to form somewhere.
Yep. And when it forms, it's going to cause all this misallocation. Stuff will start failing.
And that will ultimately lead to a recession or a collapse. The pop. Yeah. So there's a
lot of other implications. And I'm not going to back these ones up. But I'm just going to
state a couple so we can wrap up the show for today. But some other things that Austrian
theory brings about is the idea that bidefinite or bidefinite through Austrian praxeology and
the chain of logic, they will show that minimum wage laws necessarily, when you raise a minimum
wage, the inevitable outcome, all things being equal, is that you're gonna increase unemployment
for people who are young and people who are less trained. So the less skilled workers,
the ones who are at that rate, they're going to, you're going to have a higher rate of unemployment
for them. They can show that prohibitions necessarily increase violent black markets, alcohol prohibition,
drug prohibition, even child labor in some countries. Like when you start flat out banning child
labor, like for some families, like they're not sending their child to a factory because
they're greedy. They're sending a child to work somewhere because they need. all of the work
they can get to put food on a table. And when you take away that option, you start getting
really dark things like child prostitution markets and stuff. It's terrible, but like in countries-
The black markets of those child laborers, like you're still gonna labor out your child, it's
just not gonna be legal. Right, and that's the consequence of probation. Obviously we've kind
of pushed back that. We've kind of gone past that in this. In America, we've grown to a
level of wealth that that's not really necessary for most people anymore. But it's still happening.
Right. Subsidies are always going to distort. So any time the government comes in and pumps
a bunch of money into one thing or another, it's going to cause unnatural distortions.
All of these things, back to the eye pencil, they are messing with that invisible hand that
is guiding the market. That. natural ebb and flow of human relations working back and forth
that lead to an equilibrium. So when you come in and you make some big adjustment, there's
going to be a consequence. And especially with governments too, a lot of this money is taxed.
It's tax dollars that you, the taxpayer, who are also a worker, who are also a spender in
the economy, are now paying... putting money towards the company where you are inevitably
going to be buying from. Like it's just such a distorted way of, you know? And, you know,
for people who do study economics and, you know, like they haven't necessarily spent a lot of
time on the Austrian stuff, you'll hear arguments that, oh, Austrianism isn't scientific, but
that's going back to that a priori versus empirical. And I think honestly, the root of the problem.
Right. The root of the problem why the Austrian school isn't taken more seriously is because
the people in power, the people in control, what they want is someone to come along and
give them options for how they can manage people like statistics, right? They don't want the
Austrians to come in and say, anything you do is going to have a consequence. Anything you
do is going to upset the natural balance of the economy. They don't want that. They want
an out. You can't really like, the logical conclusion of Austrianism is that the free market is the
way towards the most prosperity. Well, and also in a sense, the free market is the way to free
the people in a sense, because instead of looking at people as a commodity or a statistic, you're
looking at people as the engine of the economy and not just a statistic of it. In Keynesianism,
they see... Deflation as an issue that they need to that they need to correct for so for
them printing a certain amount of money to prevent Deflation have to just write amount of inflation
to keep prices the same as the most important thing Whereas who's gonna stop them from continuing
that in Austrianism? The theory is no deflation is a good thing and what it's a marker, right?
deflation means that if you have the same static set of currency or gold, silver, if it's gold
or silver base, you can't just inflate it because gold and silver take effort to gather, right?
Yeah, they're limited. Right. So if you have a solid non-fiat currency, then by definition,
as the economy grows, as the economy becomes more productive, prices will go down over time
rather than going up over time. And that's actually a good thing. And the reason that's a good
thing is because you as the average everyday worker, you can work your career, you can take
money, you can save it in the bank, you can save it under your mattress. And guess what,
over time, the value of that money is gonna go up because of the deflation. And so just
saving money and working hard is actually a retirement plan. Right, instead of having to
put it into a artificial thing to continue to invest it. Under constantly, constant inflation
pressure. If you just save your money, if you work your whole life and all you do is save
your money, you don't invest it, you're a sucker because every single year you're losing value
of your money. And so it forces people into the stock market where they're not educated,
where they don't have the education on how to make money. And so what do they do? They sign
their money over to experts who quote unquote have their best interest in mind and they put
that money in stocks and mutual funds and all of a sudden, Everyone is putting their money
into Wall Street where there's a bunch of politically connected people Yeah, and so the whole thing
is just a scheme by the powerful and connected to Essentially farm value and wealth out of
the population Yeah out of the population to continue their power and greed right and so
they try and do it at a rate where? Where you know, it's not going to you know What's the
saying? You don't want to.
the straw that broke the camel's back. They don't want to crush their, they don't wanna
kill the goose that lays the golden eggs. That's what I was looking for. So they're trying to
manage it at such a rate that they can continually extract value without killing the goose that
lays those golden eggs. And anyway, I'm gonna leave tons and tons of links in the description
of books from advanced to simple. And if you're interested in reading more, if you've studied
economics, at least give Austrian thinking a shot. Read a couple of the books. See a little
bit of resource. See how you feel. How their arguments hold up to you. If you're new to
it, I'll recommend some of the easier reads and resources and podcasts and videos. So it's
an important topic. It controls the way our lives are run. Yeah. And uh. When everything
is working ideally and free, it can be a beautiful thing. Or it can turn us into a system of extracting
value where everyone's running that rat race just trying to get ahead. Got to grind, grind
just to stay at the same level you've always been. Yes, exactly. So. Hope that was fun or
informative. Hope I didn't lose everyone just talking about economics I hope everyone got
something from it. Yeah, I mean that's the beauty of episodes, right? Yeah, you can always Find
the episodes that you like most and keep on going but this has been a fun episode You can
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