John Haar Choosing Bitcoin & Austrian Econ over 13 years in TradFi

Hi. You're listening to Stephan Livera podcast, a show about Bitcoin and Austrian economics, brought to you by Swan Bitcoin. My guest today is John Haar, and he joins me from Swan Private. Now, he came with over thirteen years of experience over in traditional finance. Now, what was it that got him to learn about Austrian economics and go from advocating for a gold standard to advocating- For a Bitcoin standard, John and I chat about various ideas such as his journey learning about Austrian economics, some of the methodological differences, some thoughts on the full reserve and fractional reserve debate, as well as thoughts on Bitcoin decoupling and where we're going with inflation. This show is brought to you by Swan Bitcoin, and Swan is organizing a fantastic conference coming up. It's called Pacific Bitcoin Conference. It's on November 10th and 11th in LA, California. There's an awesome lineup of Bitcoiners coming, whether that's- That is the speakers or just the people who are attending. There'll be workshops, there will be various tracks in terms of multiple stages going, there'll be side events, so make sure you turn up to town early because there'll be all kinds of events that you don't wanna miss. And for premium ticket holders, there will be a VIP party, so go and get your tickets over at PacificBitcoin dot com, use code Livera to get a discount on your tickets. Are you interested in Bitcoin mining? Check out Brains dot com, they've got Brains OS Plus. This is auto-tuning my mining firmware that you can install on a range of Bitcoin mining ASIC machines. Now you can increase hash rate on your Bitcoin ASICs, improve efficiency by as much as twenty-five percent, and you can point your hash rate towards any pool or get zero percent pool fees if you point your hash rate towards BrainzPool. BrainzPool is the new name for SlushPool. BrainzPool offers a range of features such as frequent and customizable payout timing. You can also set up access management so that you can You can use APIs to share access to your pool account without fully compromising your security. They also offer VIP support for large scale mining operations, so go and get in touch. The website is brains dot com, that's b r a i i n s dot com. Now, for an awesome range of Bitcoin hardware and goodies, you've got to check out coinkites dot com. This includes a range of hardware such as the Coldcard MK4, which is a great hardware signing device to secure your Bitcoin private keys and also in Interact more easily with the Bitcoin network using things like NFC support and having more RAM and a faster CPU. It's very reliable and it's a very versatile performer because you can use it in all kinds of different setups. Also, as I spoke about recently with NVK, there's the TapSigner. This is a cheaper device with lesser security than the cold card, but more accessibility and being cheaper. So there's all kinds of options. Go and check it out over at coinkites dot com and use the code Laverara for a discount. And now onto the show with John. John, welcome to the show.

Hey Stefan, it's great to be here. Thanks for having me. And I've got to say that you were one of the major influences on my orange pill journey, so I thank you for that.

Oh, hey, you're welcome, you're welcome. And, and anytime we can, help get people on board on Bitcoin and Austrian economics, I'm all about it. so I know you're interested in Austrian economics yourself, and you obviously came from, let's say, the traditional finance background. I'm curious to get into some of Understand a little bit about what was life like for you pre the orange pill, and, as I understand, maybe you were also going and reading a bit of the Austrian econ-economists at the same time.

Yeah, that's exactly right. And, for me, it all goes back to the financial crisis, which, I think a lot of Bitcoiners can, tie their roots back to the financial crisis in some way. so I was a student, when, when the financial crisis was happening, '08, '09. I was graduating that year with a degree in finance, so you can imagine it probably had a pretty big impact on me, everything that was going on in the world at the time. but for me, the, the takeaway was it was just very hard to trust the, existing mainstream powers that be in the world of economics and central banking as I was seeing, the financial crisis happen and unfolding right before my eyes. So as it was all happening You saw the, the supposed experts at the time not really able to understand what was happening, not able to forecast what was happening. My teachers in school weren't really able to, explain what was happening. So that led me to look elsewhere. and as you know, most of the teachers in school are, it's kind of a mainstream Keynesian academic focus, so there wasn't really an explanation of what could have been happening from an Austrian perspective. So at some point along the way I had a friend, and, you know, thank God for this friend, but he recommended the Mises Institute online, and finding mises dot org is how I found all of these Austrian economists who I had never heard of from my teachers or from, you know, people you saw on CNBC or Bloomberg. and that's kind of how I got into the Austrian school. And obviously, the Austrians are big into sound money and the gold standard, so I became a proponent of the gold standard going back to like two thousand and nine. I did I didn't hear of Bitcoin until 2013, but ironically, when I heard of Bitcoin, I thought, "Oh, that's an awesome idea, they're trying to do sound money." But unfortunately, my next thought was, "That will never, ever catch on." And my thinking there was, I have spent a bunch of years in legacy finance talking to people about the gold standard, and they literally look at me like I'm a crazy person when I say it. So I figured if they're never gonna get on board with gold, they're not gonna get on board with the magic internet version of gold. That, that was my first reaction to Bitcoin. thankfully I didn't follow in the footsteps of Peter Schiff, and I eventually changed my views. But then it was a few years later when I- I came around to Bitcoin, but, but for a while it was Austrian economics and gold standard and sound money, even years before, I came around to Bitcoin.

And so what was it like living the double life then? Because I, I presume at one level you were interested in sound money and the gold standard at that time, but you were probably interacting with all kinds of people who are used to the fiat, debt-based fractional reserve system. So what was that like for you?

Yeah, it was difficult to- To really have a conversation with anyone who I worked with about these topics, because one, I think they were just not interested in it, two, they kind of bought the narrative of, "Oh, it doesn't work," and, you know, my economics textbook in college taught me that, the gold standard caused the Great Depression or it causes hoarding or something like that. And then most people just thought, this is probably the, the majority of people in legacy finance, they just thought like, "Why are we even having this?" This conversation, you know, the Fed's not gonna go away, it just doesn't matter. So, yeah, in, at work, it was hard to have these conversations. So, very thankful that things like the Mises Institute existed as a way to consume content and, and interact with other people to a, to a certain degree. But yeah, it was, it was difficult being a gold standard proponent, and I think, you know, maybe we can get into the, the gold and Bitcoin dynamics, but on the gold standard, it, when, when I was a gold stan- standard proponent, it felt like you needed to convince everyone to go back on the gold standard, and as I look back on it, convincing legacy finance and politicians and central bankers to go back on a gold standard, which they had clearly left, just seems like a, a pretty hopeless strategy, whereas with Bitcoin, it's kind of being built in reality before our very eyes. And yes, there's some convincing that can be done, but it's much more of a realistic exercise Whereas the, the gold standard seemed like you were just talking to people and trying to convince them that it was better, but they were gonna have to accept it and move towards that standard. And looking back on it, I just feel like there's a very low likelihood of, of that ever happening.

In some ways, it requires selling the message of personal responsibility, and I think that's something that libertarians struggle with in general, because it's so much easier to shill the idea of, "Oh, you don't have to work hard, you should just get..." Get things for free, you should just get them in a, in a very cost-less way or reduced cost way. So I think that's probably one of the main barriers that a lot of libertarian and Austrian-minded people run into, and so they either end up living the double life or they sort of strategically go silent at that point in the meeting when it comes up, they just sort of live the life of pretending like, "Oh yeah, I'm like one of you guys, you know? Let's all just get cheap credit and use that." A-and I, I suppose that can also- Hinder your progression as well in the organization, because to sort of move up, you have to play the game, as it were.

Yeah, and that, that brings up an interesting point, which is related to the specialization that you see in legacy finance. So what I mean by that is, you're absolutely right that the, the dogma and the, the prevailing beliefs in legacy finance are these Keynesian, central banking is good for society type views for sure, but it's- It's, it's actually just not a topic that comes up that much. You know, Bitcoiners are so hyper-focused on central banking, the history of money, the nature of money, but in legacy finance, these topics actually don't come up that much. And I think the reason is because if you look at a typical Wall Street financial services firm, the reality is that the level of specialization you see, people are working on their little corner of investing or trading or capital markets or advisory, whatever it is, and their job is so specialized that they don't have much of a need to consider the history or the nature of money. So I saw that to be the case firsthand in the, the world of finance. so yeah, you're absolutely right that if you were to ask them, "Hey, what do you think about central banking? What do you think about, you know, Keynesian economics?" they would generally be on board with the current system. But it, it wasn't something that came up every week, by any means. It was kind of just like this, this side topic that they thought was settled, but not something that they needed to focus on in their day job.

That's interesting as well, and I think like there's a pro and a con here, or there's a one angle that maybe in some sense you could argue that some people within the financial, traditional financial services community and investment world, to some extent, they accept an Austrian story in certain ways, where they understand this idea that if the central bank were to lower the interest rates or raise, or to, you know, if this, if, if, if the party has been proverbially going on for a long time, and now the central bank's starts to raise the rates very quickly, as arguably some central banks have been doing recently, that that would stop the party. And so there's some element to which they, I think they accept an Austrian story in that sense. What do you think?

Yeah, I think, I think what you said is fair, and I would elaborate on it that in some ways they accept an Austrian, framework of things, and maybe they don't even realize it. And I know Bitcoiners have pointed this out in the past, but it's definitely something good to keep Keep in mind if you're ever talking to someone in legacy finance, one of the key things you can say to them, you know, it's unlikely you're gonna get anyone to change their mind on the spot, that doesn't really happen, but one of the things you could say to them to get them to just think a little more deeply about their position, I think would be, you'd ask them the question, "Why do you believe that government directed supply and price controls are a failure when they occur within a particular industry of the economy?" Economy. So for example, no one in legacy finance would accept government price controls on the automobile industry, for example. They wouldn't accept that as an intellectually defensible policy. Yet those same people don't apply that exact same logic to the monetary system. So, yeah, like you said, they accept these free markets, are better frameworks. They accept that government central planning doesn't work in some ways, but then they seem to forget to apply that logic in other ways.

Right. And so what we end up having the conversation about, it ends up being how much intervention should the government do? And so they end up playing this game and perhaps they accept, let's say, the Phillips curve sort of reasoning. Now, of course, Austrians disagree with that. They would not- Say there's just kind of this, you know, you either have more inflation or more interest rates, right? and you could arguably say that the nineteen seventies and the stagflationary era are a rebuttal of that kind of thinking, but perhaps that is also an underlying frame of mind that a lot of people in legacy finance are, are taking. They just kind of implicitly accept, "Oh, there should be some level of government intervention. The right question is how much," in, in their mind, right?

Yeah, it is. And like you said, as an Austrian, as a Bitcoin To generally reject that, that framework. I would go back to the example of the real economy versus the monetary system if I were having that conversation with someone, and I would just have-- try to have them think, you know, let's say, today, for example, you see economists write articles all the time about, "Is the Fed tightening too quickly, too slowly? Q, you know, Q-T happening too much, too fast, et cetera?" And it would be kind of funny if you saw the- The same papers written if someone said, "You know, the price of cars are too high or too low, or there's too many automobiles being manufactured this year," you know, most of us would read that article and say, "Who cares what this guy or girl thinks about what the price of cars or supply should be?" The only reason you care is if that person is gonna go work for an automobile company and actually do something in the market, or if they're gonna be some large consumer, then maybe you care what they think. So it's just funny to me that we accept this idea That people can just debate what is, quote unquote, the right amount of government innovation, in-intervention in the monetary system, whereas we wouldn't accept that as a defensible policy in any other part of the real economy.

Right. And I think there's also a sense in which statistical analysis is seen like, that's economics, right? So for example, and I'm sure you're familiar with this, is where many of the different, the large banks will have a, an economics team, and really that economics team is almost like a- statistical team, they'll kind of say, "Oh, look, this is the, this is what we're seeing in the, in the market for, let's say, cars or energy," and they'll come out and they'll write some report or they'll come out with a view and say, "Oh, well, this is what we, you know," and that's, in a way, that's partly marketing, right? Like the, these large banks will have these divisions who write these big research pieces and put them out there, and obviously they send them to their high net worth clients or

Okay, here's our product that we're selling you, whether that's a fixed interest product or it's some kind of equity product. That's kind of, that seems to be the model, right?

Yeah, absolutely. And I, you know, I don't think it's entirely worthless, like you said, there's probably some industry participants who subscribe to it, they get some value from it. I, I think there is, there is value there, but I think the industry participants themselves have so much more insight as to what's really going on in the industry and the decision- visions of those players are what really matter, not the people who are sitting behind a keyboard all day long and just writing research and taking in data. Like I said, there's some value to it, but I think it's really the players who have skin in the game and are actually buying and selling whatever product it is we're talking about. Those people, their views matter far more than the people who are taking in data and trying to come up with some sort of conclusion. And, lastly on that topic, I would say there are tons of smart people On Wall Street doing those types of data analysis, but so not to, you know, knock them, but the reality is that the conclusions they come to, they could easily be wrong. It, it's, it's not as if they're, you know, batting nine hundred, and then, then they're right most of the time. A lot of time they take in the data, they maybe come to a conclusion, and it turns out that the opposite is true. I'm not saying it's easy for, for them to do those things, but again, I would just put more weight on Actually, participants in whatever industry we're talking about and the people who have skin in the game rather than just analyzing data and, and writing about

it. Of course. And I think another interesting theme and topic, that comes through from some of the content I've seen you put out either on Twitter or the article you wrote with, the Swan, website as well with swan dot com, this idea of the, you know, the yuppie elite, right? So it's kind of related to, let's say, the Krissus Bitcoin argument, right? This idea that- That, now summarizing just for listeners who haven't seen that, part of the argument is it's not that Bitcoiners are more intelligent per se than people in the normal financial world, it's actually, perhaps it's more about whether they have high trust in the system versus those individuals who have low trust in the system, which tends to be libertarians, Austrian economists, and cypherpunks and other people of that mindset, and maybe that's really the distinguishing factor whether somebody sees the point of Bitcoin, gets Bitcoin or not.

Yeah, absolutely. I, I think that is a critical point for a few reasons. One, like you said, it's not that people who see these things or seek them out are necessarily more intelligent or more intellectually savvy. I think it's part of just the nature or maybe the things they've been exposed to in the past. So for me personally, it was the financial crisis of '08-'09. I just looked around and, and I probably would have considered myself to be what, what I called in the article A high performing consensus follower, if you know, maybe doesn't sound so modest there, but, I always did well in school, always got good grades, but I was a consensus follower as well. But then, oh eight, oh nine happens, and I look at this, and whether, like I said, it was my teachers or it was Ben Bernanke on TV saying something, and then literally being proven wrong like days or weeks later, I just looked at that scenario and said, how could I possibly trust these experts to be managing the system? system and, and that is what they're tasked with. They're tasked with managing the economy, that, that they treat the economy like it's a car, that they can push the gas when they need to, they push the brake when they need to. And unfortunately, I just don't think it works that way. So I think for people who are these high performing consensus followers, maybe they have a well paying job at a big corporation, they don't have much incentive to look for any other narratives than what their company and the mainstream is, is telling them. But then for other people, I think there's gonna be a sort of light bulb moment that causes them to look elsewhere for explanations, and I think as you go down that path, you find that, the alleged experts, oftentimes get pretty critical things wrong. And just lastly, I'll say, I think it's important to keep in mind, you don't wanna use any sort of blind rule like, "Oh, the experts are always wrong on a given topic." You know, that, that would just be silly. you're just taking the other side of them all the The time, and the experts might be right in some cases, but after seeing the financial crisis, to me, that was just as clear evidence as I could find of, okay, the experts and their forecasts, can be wrong in a very big way. And I think once you see that, you start getting led down this, this path of, of looking at, looking for information beyond what the mainstream is talking about.

And especially in the world of macroeconomics, I think it's one of those things where there are so many different variables that anybody who gets something Wrong per se, can just point to, "Oh, well, see, the reason I was wrong is 'cause this other variable changed." And so then people end up playing this very slippery game, and it, it almost seems like the way the media, at least the mainstream media or the corporate press Will herald certain individuals despite them being continually wrong, and at the end of the day, it's almost like they just get invited to keep going on because they're saying something entertaining or something controversial as opposed to something that's correct?

Yeah, and, there's certainly one name that, that comes to mind for me. I, you know, have to be honest, when you're saying all that, I, I think of Paul Krugman. Who, yeah, I've been following him for, for many years, even before I'd heard of, of Bitcoin, he was kind of a, a focal point of the, the Austrian world, Austrian economics world. And m-maybe that would be a good place to, we could start chatting about Austrian economics a little bit if you'd like.

Recently, so firstly, like you said, I think it's spot on that these people have a history of not having correct forecasts about pretty critical things for, for years on end, yet somehow they go on mainstream media, they get constant appearances, they have columns that everybody reads. it's almost like they forget that, you know, this person was wrong several times about critical issues. But one thing that I thought was hilarious is that if you look and go to buy a Paul Krugman textbook online, I mean, the price is Are just out of this world. They're like a hundred or two hundred dollars for one Paul Krugman textbook, whereas you look on Mises, dot org and some, there's amazing content that is just available for free in PDF format. So you can get The Theory of Money and Credit by Mises for free, you can get Rothbard books for free. But if you want to rent, this is renting an e-book by Paul Krugman, it costs like fifty-five dollars, is the last price I saw. So yeah, there seems to be something off about- the, the focus of, you know, real, meaningful economic content. So maybe it'll be a good segue into chatting about, some of the Austrians.

Yeah, for sure. And so as you said, mises.org, I think for those of us in the Austrian world or at least fans of Austrian economics, we're very familiar with that website because we're going on there looking at articles, reading different books or maybe watching some of the talks given by the Mises Institute fellows, senior fellows, and so if you had any favorites, who were some of your favorites? from the, Mises Institute.

Yeah, so definitely the, the classics, obviously Karl Menger, Bastiat, Mises, Hayek. Haslett and Rothbard, I would say, are the ones that I've, you know, read repeatedly. But then you have the modern, Austrians too, who I think are, you know, pretty great. Tom Woods, Robert Murphy, Ron Paul has put out some good content. I, I would even throw Peter Schiff in there. He, you know, I think he's kind of an entertaining character for Bitcoiners now, but he put out some great work that I think really helped me, even the book How an Economy Grows and Why It Crashes Very, very simple book, but I think a lot of people could benefit from reading that. Hans Hermann Hoppe, Walter Block, Lou Rockwell obviously founded or co-founded the Mises Institute, and there's probably others that, that I'm forgetting there. But yeah, those are some of my favorites. And as a broader comment, I would say this, that I think it's important for us to restate and rewrite Austrian economic ideas as time goes on, because I think if we're serious It's about wanting sound money and rational economic thinking to prevail. You know, Mises and Menger obviously did incredible work, and oftentimes it was original work, but I think we, we have to be honest that many people today are realistically not just gonna crack open the Theory of Money and Credit, a book from nineteen twelve, and just start reading it page by page. So I think there is good value for people today to put these con-ta-concepts into a format And a language that is more digestible, more accessible to large numbers of people. obviously, I think you do a great job of that with your show and your writing, and it's a big focus of Swan's as well to help get these ideas out there in as effective, a way as possible.

Well, thank you. Yeah, and I, I definitely, I think this is one of those areas where, especially if you are younger or maybe you don't have the time, I remember for me when I was first learning some of this Austrian economic stuff, I didn't have When I was fourteen or fifteen, I didn't have the patience to go and read Human Action, but I would read somemeses dot org articles, and I would get a kind of a broken down version of that key insight, and that really helped me. And so that's something that I try to pay back, pay forward, right? when I'm writing an article and trying to condense down something like that, and I think that's something we could be doing, all of us could be doing, all Bitcoin, and Austrian economics fans, can be doing this to And maybe the next level of that is to make video form, even like TikTok or whatever, to try and accept-- to try and reach people where they are as well. so that's something perhaps we should be doing and even, updating things as well in terms of taking an Austrian lens to the modern day events, and I think that's also an interesting and important aspect there. I'm wondering if you have any ideas or thoughts on that.

No, I absolutely agree. I think, yeah, just-- there's just a need to restate and rewrite these concepts over time. Time, I think putting them in more digestible, segments, like you said, is, is a very important thing. I would say if someone does want to read an Austrian economics book that they do wanna dive in, I would say prop-- this, this is just my own personal op-- opinion, but I found Rothbard to be easier to read than Mises. Maybe it was just, Rothbard came several decades after Mises, so his language was, was a little bit easier to understand, but I found the books, The Mystery of Banking and What Has Government Done to Our Money, both by Rothbard, I found those to be very, very accessible. Whereas something like The Theory of Money and Credit, I look at that more as like a reference. let's say there's a topic you're focused on and you say to yourself, "Okay, what did Mises think about, you know, whatever it is, the role of money substitutes in an economy?" You can go into that book, look at the table of contents, and find what he said. But yeah, that book or Human Action are very To just read page by page. So yeah, I think there's tremendous value in putting things in a shorter, more digestible format, and then overlaying current events, I think just make it more realistic for people, because it can be hard for people to read about, you know, the mystery of banking, which goes into banking crises that happened in, you know, I don't know, the late eighteen hundreds or early nineteen hundreds. It's just not as tangible for people who are reading a book like that in, in twenty twenty-two. And then the last thing I would say To say, is there's, there's another book that I'm looking forward to checking out more on the basics, I know you had Per Byland on the show recently, and I think his book is called How to Think About the Economy, so that sounds like a very good overview, I liked his, the way he framed it, that a book like Economics in One Lesson, which is a fantastic book, and I think people could read that, that that is very digestible, it, it's not overwhelming, but her, as, as, as you mentioned on Go a little bit more broad than economics in one lesson, but still make it a digestible language and a, and a digestible format. So that's definitely another book that I'm looking forward to checking out pretty soon.

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Yeah, I think, you know, for me, I can say personally, when I, I was a finance major, so I took all the finance and economics classes that, you know, you would expect I would have taken, and the ones that talked about economics Never really clicked for me in a way that I felt satisfied coming out of those classes. Like coming out of a corporate finance or an accounting class, that, that's one thing, that's more just kind of the numbers are the numbers. But I can remember going into these economics classes and just not really feeling satisfied as to understanding what, what messages they were trying to get across. And for me, it wasn't until I read, so a funny anecdote Anecdote is that I can recall reading Ben Franklin's autobiography when I was in college, and all, all the kids had to read it when I was in college, and he made some comment about how he thought that some part of the colonies needed more money, and I remember thinking, "Well, that's interesting, you know, what would cause the colonies to need more money?" Because my first thought was like, "Yeah, everyone wants more money, who, who doesn't want more money?" But what would actually be an intellectually defensible view as to why? An economy or society needed more money, and, and at what point would it would just be ridiculous that you're, you know, mu-- they say money doesn't grow on trees, so at one point, at what point are you just trying to make money grow on trees? It wasn't until I read Rothbard's books, What Has Government Done to Our Money and The Mystery of Banking, that things started to click for me, and I think it all comes down to what you just said, which is that the Austrians start from very basic first principles, and they say, let's imagine a society that It's in these ways, and people are gonna make decisions based on these pros and cons that they perceive. And that to me just seems like a totally different way of approaching the problem than what I learned in school. I, in school, it was almost like they, they skipped over the basics and they started to try to tell you about things that were far more complex, about, you know, how does the central bank operate? I, I was in school in, you know, let's say two thousand and seven, and they're saying, "How does the central bank operate in two thousand and seven?" But it's so hard to place that in your mind anywhere and give it context if you've never really thought about the history of money or the nature of money. So I think most people end up just going through the motions in those classes and they maybe know enough to, you know, get a good grade on a test, but they don't actually know the, the fundamentals. So I'm much more partial to the Austrian way of approaching it, and it's bared out for me because when I read something by an Austrian economics author Author, it just clicks for me, whereas some of the other Keynesian stuff, it, it really, it really doesn't.

And I think part of that, as you're saying, it, it comes down to that methodological difference in how these different schools of thought are operating, because some of the more positivist schools of thought aren't operating from that same logical deduction premise. And so when Austrians start, they say, okay, man acts purposefully, okay, you know, and so from this we- We can deduce certain ideas and notions, and then we can construct them together in a way that's cohesive, and that's where Austrians build up some of these different ideas, culminating arguably in what's known as Austrian business cycle theory. And so that's something that someone like Peter Schiff will talk about in a very popularized way on TV, and others, you know, will talk about it, people like Tom Woods and Bob Murphy will talk about it, and I think that really helps explain a lot of what's going on in the modern- modern day world where we live in this fiat world with fiat consequences, as, as our friend Safetian would say, that there's, you know, we're living in a world of fiat food and fiat, well, from his perspective, fiat art or fiat architecture and all of these other aspects that have been corrupted by the money. So I think, and that also is relevant for Bitcoiners, because that is where we can sort of point out, look, this is why we're trying to solve that problem. And if you don't understand that problem, it'll just look like, oh, you Bitcoin Just this weird internet coin widows, you know, living in mom's basement, but actually, no, there's a real point to this. It's that fiat currency and fractional reserve banking has really brought such a big problem to society, culturally, economically, sociologically, that it's part of the answer, that, you know, that Bitcoin is part of the answer. So, yeah, I guess while we're there on this whole fractional reserve and full reserve, I know this is something, you made a few comments about this also, so I'm curious, how are you? Seeing that, and do you have any reflections for listeners in terms of your own thinking about fractional reserve, full reserve, what, what kind of system we're in?

Yeah, I think there's two intr-- very interesting questions on the topic of fractional reserve banking. I think the first one is, is it possible to engage in fractional reserve banking without committing fraud or counterfeit? And I know, you know, you could probably have an hour's long show with someone just debating that. I know people have written about it pretty extensively. But I think it's an interesting question. And then I think the second interesting question is, what's the best way to define the current system we have today? Is it fractional reserve? Is it zero reserve after COVID? Is it full reserve or is it something else? On this first one, I'll, I'll be brief on the first one, 'cause like I said, it, it, that could go on for a while. But I think if you look at how things took place historically, it was absolutely fraud or, or counterfeit. If I could steal, man, the argument For a possible way that frac-fractional reserve banking wouldn't be fraud or counterfeit, to me, it would require that banks made it entirely clear to their customers that when they deposit, quote-unquote, money to the bank, that money immediately takes another form, which is now it's a bank token or a bank note, and the bank is going to create more tokens than the base layer of money, and the whole thing is subject to blowing up because- Because it's credit based, and when defaults eventually happen, it's a painful process, and all the customers and other entities that are associated with this bank, you might lose all the money you had. Now, if it was done that way, then perhaps you could say, "Okay, maybe it's not fraud." But when you, again, you start looking at things historically, one, that's definitely not how it took place historically, and then I would say, even if all that disclosure happened, I believe I believe a very low number of people would be willing to risk their money in a venture like that, and if they did, they would have to be paid something to take that amount of risk. And then lastly, there would be-- have to be no government bailout when the defaults eventually happen, which they will, because once there's a government bailout, you just socialize the losses of people who are engaging in a risky activity. so that's generally my thoughts on whether I think fractional reserve is- Is fraud or counterfeit, but we'd love to hear your take on that.

Yeah, so, yeah, I think that's, that's interesting, and I think that's, yeah, obviously there's a lot of debate back and forth, and I think some of it goes into historical jurisprudence arguments about, okay, what was the way the law went? And I think to some extent, the full reserve Austrians are having, are arguing here that maybe in some sense the law went the wrong way, that it shouldn't have been that way, that they shouldn't have,

bankers this ability to suspend redemption of coins. So I guess let me back up a sec. I think what we're getting at here is this idea that bankers should be able to take in deposits, but then not pay out the people who are trying to withdraw, in a sense, because they should be allowed to engage in this system of fractional reserve. And now, here's where, you know, there'll be arguments here and back, back and forth, right? The likes of the, the free bankers will- I'll argue that, oh, I see, but there was this, the system evolved in a certain way that allowed this. So for example, they'll say there was this bagging rule that you should, if the bag was open or closed, that determined the distinction in how the banker should treat this, whether the coins being held, like in those days, let's say it's gold coins, that the banker should be treating it either as a bailment or it should be considered, you know, you're, you're, you're getting the token, right? In that example, like you were saying Of, there's so many different like rabbit holes and warrens that we could, kind of go down, but I think the key idea to me, h- I think it's, it's that fiat money and fractional reserve fiat money didn't just come into its own, like generally speaking, it didn't sort of just come about without government intervention, and, and that what allowed these things to go on was where governments permitted, or, or they had various rules, things like- Legal tender laws that forced people to exchange with a certain kind of coin or certain kind of money. So, yeah, I probably, I probably can't articulate it as well as like, some of the, you know, the authors and people who were talking about, people like Gert O Hulsman, Joseph Solano, people like that. But nevertheless, I think for me, at least on my reading of the arguments, and I, and I genuinely did try to read, you know, both sides, and I just, I believe that the full reserve side is correct. I just

analysis of what's going on, and I think a really good debate for anyone who hasn't seen it is there was a infamous debate maybe three or four years ago, and it was Bob Murphy versus George Selgin, and the argument Bob Murphy was making is that if you believe, if you accept this idea of Austrian business cycle theory, part of what he's getting at there is this idea that if commercial banks can extend out credit, and if those credit tokens are assessed as being at par with all the money, right? We treat all the claims It seems the same. That is Austrian business cycle theory. And so if you allow that, then you are going to allow these kind of economic unsustainable or artificial booms and busts. And so he was saying, even if you disregard the fraud question, that we're going to see these economic impacts, economic instability because of allow-- because society is allowing fractional reserve banking. So even if you-- even if we set the fraud question aside, that was his argument. So I'm curious as well if you have- Have any thoughts on that whole idea?

Yeah, I, I love these topics. I can talk about this all day long. I think, where, where you made my mind go there was, something I was thinking about recently. This is another question that you could ask people in legacy finance to help them question their views. It's, it's, commonly accepted in legacy finance that if an entity issues new shares of stock, that you are diluting the ownership of all the other Shareholders, you know, a hundred percent of people on legacy finance would, would agree with that statement, and for some reason they don't agree with the statement that when more money is created, that you dilute the existing holders of money. Right. And when I, it's, you know, again, I think it's just an inconsistency on their part, but I think there's a few fascinating takeaways when you start thinking about that more deeply, and you think about what happens in the process when new shares of stock are created. So it, it happens, right? You, so you have to ask yourself, well, why does anyone let new shares of stock be created if it just dilutes the existing owners? Well, it happens, but it's highly scrutinized because if you do it and you don't create more value for the company, then all you've done is dilute the existing shareholders. So the existing shareholders have to say, okay, I'll allow this, but the only reason I'll allow it is if you have a plan to make the shares more valuable for each holder. And then, okay, we can take in more capital, execute on our business strategy, and everyone will have a more valuable share. But what's fascinating to me is the takeaway there, that works because the, the entity, the, the company in this case, is sectioned off from the rest of society, meaning we're not using that company's stock as money, like you said, the claims aren't equal at everywhere else. It, it's just that company's stock kind of operating in this segmented- part of the economy. And of course, if that company fails, we would say, "Okay, only those shareholders should lose." If the rest of society starts to lose when that company fails, then you get into a very, very questionable situation where you have these people who are trying to benefit themselves by creating more shares, which is fine as long as it stays within that entity. But then when you start to look at the banking system, you start to see a bank create new banknotes or bank- Bank tokens, whatever you wanna call them, and it's fine if those bank tokens are known to be those bank's tokens, but when they circulate on par with every other claim and every other form of money, that's problem number one. And then problem number two, when that entity gets into trouble and the government bails them out, you just socialize the losses with everyone else in society. So, yeah, I think it's a pretty unworkable system, and I think there's an inconsistency where if you- Talk to legacy finance people about how, stock issuance works, they get it, but then you talk to them about money creation and then they seem to not apply the same logic.

Right. And I think that's part of that is it's that same idea that, you know, if you talk to the fish, that fish doesn't understand he's swimming in water, right? It's because that's the world, that, that's the only world they've ever known. Now, i-in fairness to the, let's call them the free market, free bankers, let's say, the fractional reserve People were circulating different kinds of coins with different kinds of values, and people would have to look, "Ah, which was, which bank was the issuer of this dollar and that bank issued that dollar?" And, I mean, they too would also criticize government intervention and central banks, but just from a different angle. Or they would say, "It, it's feasible that you could have a free market fractional reserve system," whereas kind of the full reserve side, which I'm part of that, would say, "Nah, part of that is there were governments helping in certain cases by allowing some of these..." These entities to suspend withdrawal, to, as in, suspend redemptions, so that these banks would still be allowed to keep holding their gold or in some cases continue operating as a business while not letting customers take money back but still keep operating. And it's like, no, that's just not-- So that's where I think some of the full reserve people are coming back and saying, "No, that's actually wrong. We, we should just be, you know, and I guess anyway, putting that, I guess, aside a little bit, kind of going forward to the Bitcoin world. You know, and, what would it take for it, for us to have a full reserve Bitcoin system? And I think, in some sense, as my friend Pierre Richard spoke about on a recent episode as well, on a related topic, he was saying, "Look, currently, nobody is treating, let's say, a Kraken IOU the same as, let's say, a Prime Trust, right? So with Swan, you, you know, we partner with Prime Trust. It's not like we treat Prime Trust IOUs like, the IOUs, the same as Binance IOUs. I mean, w-what is crucial is that they are all treated differently. And of course, not your keys, not your coins, but they are treated, or they, we believe, they would be treated differently. but I'm curious how, how you're thinking about that question.

Yeah, I think, also, you know, some of your comments made me think of the article you wrote recently on full versus fractional reserve, and I think the point that kind of drives it all home is when you look at historically, you had these long periods, and I forget exactly how long, but it was measured in years of how long the government said, "Okay, you, this banking entity, can suspend redemption into precious metal." And I think once that happens, that kind of, you know, the cat's Out of the bag that this was a system that was not gonna work. So without that preferential government treatment, I think those entities would have failed, right? I think just by definition, they would have not had enough specie to, redeem, and, they would have failed, and I think that would have been a wake-up call to everyone, and then society would have just chosen full reserve after that. You know, maybe could there have been a small contingent of, free banks where people got paid? To take on additional risk, you know, may be fine, but if those entities were allowed to fail, as they would have, I, I just think most of society would have chosen full reserve after that. I think it's the preferential government treatment that allowed it to continue existing. And on this, yeah, this other, you know, you brought up Pierre Rochard, I, I think it was interesting because he was on your show in August, I think that was a fantastic episode. He also made the case that, our current system can be- thought of as full reserve, which I thought was fascinating. And he, he ultimately said this because governments and central banks would realistically not allow widespread defaults to happen, whether that be through deposit insurance or other programs they come up with, the bank credit which exists in the system today would ultimately not be allowed to just disappear, in a way that potentially it could happen in a, a truly fractional reserve system. So I, I generally agree with that, but I think in addition to the fractional versus full topic, we also have to specify what the reserves are in the system. So reserves are of course meant to be the real base form of money, and historically that was gold. You have JP Morgan, who famously said, "Gold is money, everything else is credit." So historically, you have the real base money of gold, and then there's forms of bank credit created on top of it, but everyone views themselves as owning the real base form of money, even if their money's in a bank account, right? they don't view themselves as having a thousand dollars worth of Wells Fargo banknotes. they view themselves as having a thousand In actual dollars. So, you know, fast-forwarding a little bit, I guess what I'm saying is, while I think it might be accurate to describe the current system as effectively full reserve, I think we need to clarify the nature of those reserves and who controls them, because I think a lot of times people hear "full reserve" and they think, "Oh, that's good, that, that means stable, that means sound money." But you can actually have a full reserve system where there's an entity that controls the reserves and they can expand and contract them when they please. So I think maybe The, the current system full reserve fiat monetary standard versus a full reserve sound monetary standard. Maybe that's a small point, but I think it's, it's worth discussing because fractional reserve gets thrown around a lot and, there's a lot of nuance here, I think.

Absolutely. Yeah, I think you're right. And I think the sound money point, it reminds me, this is the point that Mises, I think going back to Theory of Money and Credit, like he defines, like he, he says sound money, it's two components. One is chosen by the market Government. And if we've all been coerced into this system, it's clearly not a full reserve sound money system, it's a full reserve fiat money system. And we wanna, obviously, as Bitcoiners, we're trying to promote and advocate and educate about this idea of actual sound money, actual market chosen money. And so, you know, that comes into, you know, Bitcoin. And obviously, I think the conversation as well around inflation, and, you know, I understand every few years Bitcoin has this, you know, these huge bull and then bear cycles. And so then people are led to think, "Oh, well, Bitcoin is dead, or it's not an inflation hedge anymore, or it's too volatile to be used." I, I think there's also this narrative that, you know, inflation, that, you know, Bitcoin hasn't kept up with inflation. How would you answer that kind of question? So let's say somebody's coming to you and they are either a pre-coiner or they're a relatively new coiner, and they're saying, "Well, John, you know, Bitcoin hasn't kept up with inflation recently. What should

we Defining the, the word inflation or deflation. And originally, if you go back decades, inflation always meant monetary expansion. It meant the creation of more banknotes on top of base money. That was inflation. Deflation would have been the contraction of the money supply. Somewhere along the way, and I'm not exactly sure where, but inflation started to get used as CPI synonymously, and inflation- started to mean consumer prices are going up. I, I personally don't think that is a good definition for inflation. I think it just ends up leading to a lot of confusion. And, shout out to Stephan Luca of Swan Private, he wrote a great article on, on this as well, talking about definitions of inflation and, you know, what does Bitcoin really protect against? And, and for the record, I think the Bitcoin community probably could have done a better job a year or two ago communicating this, but I think- I think we've got it correct now. And the point is that Bitcoin, being a scarce sound money asset, protects against monetary expansion. So if we're gonna call that inflation It protects against monetary expansion. It doesn't protect against CPI rising, because CPI rising could happen for a whole host of different reasons, one of which is maybe monetary expansion. CPI usually rises on a lag basis after that, but Bitcoin is most correlated to monetary expansion and monetary contraction, and I think, that's been proven to be true over the last few years, obviously March of twenty twenty until You know, December of this past year, one of the greatest and fastest periods of monetary inflation we've ever seen, and now we're seeing the reverse of that, starting in, you know, roughly January of this year, we've seen monetary contraction, and Bitcoin has reacted to that. So I would say CPI, it-- and, and I would usually encourage people to speak a little bit more clearly about these topics. If you mean prices, you know, call it CPI inflation. It, it's tricky because so many people out there- Or just say inflation and they mean CPI, so it can be easy to just go along with that. But I would try to say CPI inflation and maybe say monetary expansion or monetary inflation to, to, give a distinct meaning. Yeah, yeah. So I, I think it comes down to the, the definitions of, of inflation.

Yeah, that's a, that's a fair point, I think. So I think it's-- This is one thing that, let's say for listeners who are following the discussion on Bitcoin Twitter and things like this, and I- I understand that, in some cases it seems like Twitter has become FedWatch Twitter, and I understand that, that can be frustrating in some ways because let's say, in another way, you could say, "Well, actually, Bitcoin is marching to the beat of its own drum, that it's, it's like..." I think this conversation also comes in around, is Bitcoin correlated with the, with the overall market, or if it is, when is de-correlation going to happen? Like, when do we sort of break off, and potentially that comes, we don't know Later, I believe it does, it does, it will come. Obviously, I, I believe at some point we will start to see that decorrelation moment where, let's say, people understand that Bitcoin is something different and it's rightly in a different category to, let's say, the stocks and the bonds and the property and all these other things that people are putting their money into, and of course, crypto, you know, quote unquote crypto. So I'm curious, from your perspective, how are you seeing this whole question of correlation, decorrelation, and Bitcoin compared

I think the first thing I would say is I'll, I'll take even a, a bigger step back real quick, just to point out, I, I think it's fascinating that if you look at the narratives in, in legacy finance, what they were in twenty seventeen around Bitcoin is that they said it was a scam, it was a Ponzi scheme, and it was only used for illicit activities. And if you fast forward five years later, one of the biggest knocks is that they say it's volatile, expect- asset and it's correlated with tech stocks. So I always find that fascinating because I think if you just step back and look at that bigger picture, they clearly have changed their main criticism, and I think that speaks volumes about the Bitcoin adoption we've seen in the last five years. But addressing your question on, you know, correlation today, yes, Bitcoin is pretty highly correlated with tech stocks and, and the Nasdaq and, other speculative investments. I think that's because it still is treated It as a speculative investment by many people, and I think there are certain entities out there who have a good amount of money who treat it as such, and when they're treating it that way, when most of the world views it that way, it will trade that way. And, and again, I think this also comes back to Bitcoin being correlated to monetary contraction. So I think really any financial asset when we're going through this period of monetary contraction, I, I don't know if there's a way around the, The, the high correlation in times like this, until you get to a world where people are much more on a Bitcoin standard and Bitcoin's being used as a unit of account, then maybe you get kind of a separation. so I think there will be, there will be a decent amount of correlation for the, the near term, but one thing I think Bitcoin has going for it that certainly stocks don't, is that there are adoption events that could happen in Bitcoin at any particular point in time Time, whether that's a government, a central bank, an oil producing nation, a corporation putting it on their balance sheet, those could happen at any time and that-- those are kind of step functions higher in Bitcoin adoption. That doesn't happen in stocks, right? If, if anything, every valuation metric and adoption metric you look at in stocks is that too many people have bought stocks and they've been bid up too high over the past, you know, ten, fifteen years. So I think those are some ways that, you could see Bitcoin decouple from more traditional assets.

Yeah, I think that's a very fair answer. And, you know what? It's also fair to say that in recent, let's say, weeks or months, we have seen Bitcoin pretty much hold around that same level, around kind of eighteen to twenty thousand ish, where other things have been dropping harder than Bitcoin. So in a way, at least in recent times, it's kind of decoupling, although of course, we don't know whether that's gonna remain the case. but, I think, yeah, we'll just have to wait and see People to understand the difference between Bitcoin and other things, and to understand why Bitcoin is superior. So I guess looking out to the, let's say, more of the medium or longer term future, what kind of, what kind of future can we expect to see, in a, in a Bitcoinized world?

I think you will see adoption continue to increase over time. I, I don't think it will be linear. I think there's always gonna be building happening, and like I said earlier, I think one of the great things about Bitcoin versus gold, and this is coming from someone who was a gold standard proponent for many years, is that with Bitcoin, things are being built in reality, and people have the opportunity to use Bitcoin, have a real experience. With it, to use it as a store of value, use it as a medium of exchange, engage in self-custody. So I think those things will continue to get built over time, and then I think there will be events that happen which are kind of these step function higher, most, a lot of the world will wake up to the reasons as to, to why we need Bitcoin, and I think that probably will happen outside of the developed, world first, because, you know, this is one of the things that- I, I put in the article was if someone in Venezuela or Nigeria or, Turkey or several other countries, Argentina, it's, it's pretty easy to explain to them w- the benefits of Bitcoin, whereas someone in a developing nation might not be as readily apparent as why we need Bitcoin. but I think more people are waking up to it over time. And then, you know, just more broadly about why we need sound money. And of course, I think Bitcoin is the best option to bring us to a world of sound money. I tend to be in the camp of, of our friend Safet, who, talks about how fiat money leads to fiat food, leads to fiat architecture, leads to fiat lifestyle, leads to fiat time preference, and I, I don't think it's actually that, radical of an idea. I think when you look back and you see that, well, first let me say that because money is so Critical as a, a tool that coordinates human behavior and coordinates human action and it records it. If you mess with that, I don't think it's that far fetched to say that the effects could be felt in every part of society. And then lastly, I would say, to anyone who has the view that people who want to go on a sound money Bitcoin standard, that those people have some sort of radical view, what I usually try to remind them is that we're not actually proposing Some brand new system that hasn't existed before. We're actually proposing going back to something that existed for quite a long time, and you could much more easily argue that the current system is more of an experiment as opposed to a sound money system, which again existed for a very long time. So I think, you know, Bitcoin has, a bit of an uphill battle because a lot of the mainstream portrays it as this radical thesis. I, I think we could probably do a better job of explaining to people that, no, we're actually suggesting we go back to something that already existed

and something that worked, right? We are, we are living in the fiat aberration. That's really what we're living in, and what we're trying to do is go back to something that actually worked really well, right? And that's the irony of, so obviously I agree with you and, certainly the cultural point as well. That's something I think we, we really are seeing that, you know, I've written articles, I've done podcasts about that also Spot to finish up here. So just before we finish up, John, where can people find you online?

Yeah, you can find me on Twitter. Now that I'm not, in Legacy Finance, I have an active Twitter. So it's john underscore at underscore swan, john at swan. And, yeah, check out that article if you'd like, like you said, Stefan, it's on Swan's website. It's called How Legacy Finance Perceives Bitcoin.

Fantastic. Well, all the links will be in the show notes, John. Thank you for joining me today

And if you haven't already, make sure you check out Per Bylund's book, which, we spoke about in a recent episode. You can get all the show notes over at stephanelivera dot com. Thanks for listening, and I'll see you in the citadels.