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OUTLINE:
0:00 - Introduction
1:43 - Grading our understanding
14:01 - Inflation
33:37 - Government
54:47 - War and power
1:05:57 - Dematerializing information
1:37:18 - Digital energy and assets
1:48:56 - Oil barrel vs Bitcoin
1:58:16 - Layers of Bitcoin
2:15:27 - Bitcoin's role during wartime
2:20:11 - Jack Dorsey
2:36:31 - Bitcoin conflict of interest
2:43:13 - Satoshi Nakamoto
2:48:38 - Volatility
3:01:03 - Bitcoin price
3:13:19 - Twitter verification
3:22:16 - Second best crypto
3:27:58 - Dogecoin
3:32:31 - Elon Musk
3:38:00 - Advice for young people
3:49:27 - Mortality
3:52:32 - Meaning of life

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Remember George Washington, you know how he died?

Well-meaning physicians bled him to death.

And this was the most important patient in the country, maybe in the history of the country.

And we bled him to death trying to help him.

So when you're actually inflating the money supply at 7%, but you're calling it 2% because you want to help the economy.

You're literally bleeding the free market to death.

But the sad fact is George Washington went along with it because he thought that they were going to do him good.

And the majority of, of, the society, most companies, most, most conventional thinkers, you know, the working class, they go along with this because they think that someone has their best interest at mind.

And the people that are bleeding them to death believe that prescription because their mental models are just so defective.

The following is a conversation with Michael Saylor, 1 of the most prominent and brilliant Bitcoin proponents in the world.

He is the CEO of MicroStrategy, founder of Saylor Academy, graduate of MIT, and Michael is 1 of the most fascinating and rigorous thinkers I've ever gotten a chance to explore ideas with.

He can effortlessly zoom out to the big perspectives of human civilization and human history and zoom back in to the technical details of blockchains, markets, governments, and financial systems.

To support it, please check out our sponsors in the description.

And now, dear friends, here's Michael Saylor.

When advanced humans or aliens or AI systems, let's say 5 to 10 centuries from now, look back at Earth on this early 21st century, how much do you think they would say we understood about money and economics, or even about engineering, science, life, death, meaning, intelligence, consciousness, all the big interesting questions?

I think they would probably give us a B minus on engineering, on all the engineering things, the hard sciences.

Like we're doing okay, we're working our way through rockets and jets and electric cars and electricity transport systems and nuclear power and space flight and the like.

And if you look at the walls that grace the great court at MIT, it's full of all the great thinkers, and they're all pretty admirable.

If you could be with Newton or Gauss or Madame Curie or Einstein, you would respect them.

I would say they'd give us like a D minus on economics.

First of all, optimistic vision of engineering because everybody you've listed, not everybody, most people you've listed, it's just over the past couple of centuries.

And maybe it stretches a little farther back, but mostly all the cool stuff we've done in engineering is the past couple of centuries.

I mean, Archimedes, you know, had his virtues.

You know, I studied the history of science at MIT and I also studied aerospace engineering.

And so I clearly have a bias in favor of science.

And if I look at the past 10,000 years and I consider all of the philosophy and the politics and their impact on the human condition, I think it's a wash for every politician that came up with a good idea, another politician came up with a bad idea, right?

And it's not clear to me that most of the political and philosophical contributions to the human race and the human conditions have advanced so much.

I mean, we're still taking guidance and admiring Aristotle and Plato and Seneca and the like.

And on the other hand, if you think about what has made the human condition better, fire, water, harnessing of wind energy, Try to row across an ocean, right?

And for people who are just listening or watching, there's a beautiful, sexy ship from 16th, 17th century.

This is a 19th century handmade model of a 17th century sailing ship, which is of the type that the Dutch East India's Company used to sail the world and trade.

So that was made, you know, the original was made sometime in the 1600s and then this model is made in the 19th century by individuals.

Both the model and the ship itself is engineering at its best.

And just imagine, just like rockets flying out to space, how much hope this filled people with, exploring the unknown, going into the mystery.

Both the entrepreneurs and the business people and the engineers and just humans, what's out there?

Yeah, the metaphor of human beings leaving shore or sailing across the horizon, risking their lives in pursuit of a better life is an incredibly powerful 1.

In 1900, I suppose the average life expectancy is 50.

During the Revolutionary War, while our founding fathers were fighting to establish life, liberty, pursuit of happiness, the constitution, average life expectancy of like 32, somewhere between 32 and 36.

So all the sound and the fury doesn't make you live past 32 but what does, right?

Antibiotics, conquest of infectious diseases.

If we understand the science of infectious disease, sterilizing a knife and harnessing antibiotics gets you from 50 to 70, and that happened fast, right?

That happens from 1900 to 1950 or something like that.

And I think if you look at the human condition, you ever get on 1 of those rowing machines where they actually keep track of your Watts output when you're on

So a kilowatt hour is like all the energy that a human, a trained athlete can deliver in a day and probably not 1% of the people in the world could deliver a kilowatt hour in a day.

And the commercial value of a kilowatt hour, the retail value is 11 cents today.

And so you have to look at the contribution of politicians and philosophers and economists to the human condition, And it's like at best a wash 1 way or the other.

And then if you look at the contribution of John D.

Rockefeller, when he delivered you a barrel of oil, yeah, and the energy and oil, liquid energy, or the contribution of Tesla, you know, as we deliver electricity, And what's the impact on the human condition if I have electric power, if I have chemical power, if I have wind energy, If I can actually set up a reservoir, create a dam, spin a turbine and generate energy from a hydraulic source, that's extraordinary, right?

And so our ability to cross the ocean, our ability to grow food, our ability to live.

It's technology that gets the human race from a brutal life where life expectancy is 30 to a world where life expectancy is 80.

So are they too like the politicians of Walsh in terms of there's good ideas and bad ideas and that tiny delta between good and bad is how you squeak past the F plus onto the D minus territory?

I think most economic ideas are bad ideas.

You know, like take us back to MIT and you wanna solve a fluid dynamics problem.

Like design the shape of the hull of that ship.

Or if you wanna design an engine or a nozzle in a rocket ship, you wouldn't do it with simple arithmetic.

It's vector math, computational fluid dynamics is N dimensional higher level math, complicated stuff.

So when an economist says the inflation rate is 2%, that's a scalar.

And when an economist says, it's not a problem to print more money because the velocity of the money is very low, monetary velocity is low, that's another scalar.

Okay, So the truth of the matter is inflation is not a scalar.

The saying, what's the velocity of money?

Oh, it's slow or it's fast, it ignores the question of what medium is the money moving through.

In the same way that what's the speed of sound?

Sound is a compression wave, it's energy moving through a medium, but the speed is different.

So for example, the speed of sound through air is different than the speed of sound through water.

It moves faster through a solid, and it moves faster through a stiffer solid.

What is the fundamental problem with the way economists reduce the world down to a model?

Is it too simple or is it just even the first principles of constructing the model is wrong?

I think that the fundamental problem is if you see the world as a scaler, you simply pick the 1 number which supports whatever you wanna do and you ignore the universe of other consequences from your behavior.

In general, I don't know if you've heard of, Eric Weinstein has been talking about this with gauge theory.

So different kinds of approaches from the physics world, from the mathematical world to extend past this scalar view of economics.

So gauge theory is 1 way that comes from physics.

Do you find that way of exploring economics interesting?

So outside of cryptocurrency, outside of the extra technologies and so on, just analysis of how economics works, do you find that interesting?

Yeah, I think that if we're gonna wanna really make any scientific progress in economics, we'll have to apply much more computationally intensive and richer forms of mathematics.

Yeah, you know when I was at MIT, I studied system dynamics.

You know, they taught it at the Sloan School.

It was developed by Jay Forrester, who was an extraordinary computer scientist.

And when we created models of economic behavior, they were all multidimensional non-linear models.

So if you want to describe how anything works in the real world, you have to start with the concept of feedback.

If I double the price of something, demand will fall and attempts to create supply will increase and there will be a delay before the capacity increases.

There'll be an instant demand change and there'll be rippling effects throughout every other segment of the economy, downstream and upstream of such thing.

So it's kind of common sense, but most economics, most classical economics, it's always, you know, taught with linear models, you know, fairly simplistic linear models.

And oftentimes even, I'm really shocked today that the entire mainstream dialogue of economics has been captured by scalar arithmetic.

For example, if you read, you know, read any article in New York Times or the Wall Street Journal, they just refer to there's an inflation number or the CPI or the inflation rate is X.

And if you look at all the historic studies of the impact of inflation, generally they're all based upon the idea that inflation equals CPI, and then they try to extrapolate from that, and you just get nowhere with it.

So at the very least, we should be considering inflation and other economics concept as a nonlinear dynamical system.

So non-linearity and also just embracing the full complexity of just how the variables interact, maybe through simulation, maybe some have some interesting models around that.

Wouldn't it be refreshing if somebody for once published a table of the change in price of every product, every service, and every asset, and every place over time?

You said table, Some of that also is the task of visualization, how to extract from this complex set of numbers, patterns that somehow indicate something fundamental about what's happening.

So like, summarization of data is still important.

Perhaps summarization not down to a single scale of value, but looking at that whole sea of numbers, you have to find patterns.

Like what is inflation in a particular sector?

Maybe different geographical regions, things of that nature.

I think that's kinda, I don't know even what that task is.

You could look at machine learning, you can look at AI with that perspective, which is like how do you represent what's happening efficiently, as efficiently as possible.

That's never going to be a single number, but it might be a compressed model that captures something beautiful, something fundamental about what's happening.

If we take, for example, during the pandemic, the response of the political apparatus was to lower interest rates to 0 and to start buying assets, in essence, printing money.

And the defense was there's no inflation.

But of course, You had 1 part of the economy where it was locked down, so it was illegal to buy anything.

It was either illegal or it was impractical.

It would be impossible for demand to manifest, so of course there is no inflation.

On the other hand, there was instantaneous immediate inflation in another part of the economy.

For example, you lower the interest rates to 0.

At 1 point, we saw the swap rate on a 30-year note go to 72 basis points.

Okay, that means that the value of a long-dated bond immediately inflates.

So the bond market had hyperinflation within minutes of these financial decisions.

We had what you call a K-shape recovery, what we affectionately call a K-shape recovery.

Main Street shut down, Wall Street recovered all within 6 weeks.

The inflation was in the assets, in the stocks, in the bonds.

If you look today, you see that typical house, according to the Case-Shiller Index today is up 19.2% year over year.

So if you're a first time home buyer, the inflation rate is 19%.

You can pretty much create any inflation rate you want by constructing a market basket, a weighted basket of products or services or assets that yield you the answer.

I think that the fundamental failing of economists is first of all, they don't really have a term for asset inflation,

You mentioned bond market swap rate and asset is where the all majority of the hyperinflation happen.

In the conventional economic world, you would treat inflation as the rate of increase in price of a market basket of consumer products defined by a government agency.

So they have like traditional things that a regular consumer would be buying.

The government selects like a toilet paper, food, toaster, refrigerator, electronics, all that kind of stuff, and it's like a representative basket of goods that lead to a content existence on this earth for a regular consumer?

I mean, I'm gonna say you should have a thousand square foot apartment and you should have a used car and you should eat 3 hamburgers a week.

Now, 10 years go by and the apartment costs more.

I could adjust the market basket by, they call them hedonic adjustments.

I could decide that it used to be in 1970 you needed a thousand square feet, but in the year 2020, you only need 700 square feet because we've miniaturized televisions and we've got more efficient electric appliances because things have collapsed under the iPhone, you just don't need as much space.

So now I, you know, it may be that the apartment costs 50% more, but after the hedonic adjustment, there is no inflation because I just downgraded the expectation of what a normal person should have.

So the synthetic nature of the metric allows for manipulation by people in power.

I guess my criticism of economists is rather than embracing inflation based upon its fundamental idea, which is the rate at which the price of things go up, right?

They've been captured by mainstream conventional thinking to immediately equate inflation to the government issued CPI or government issued PCE or government issued PPI measure, which was never the rate at which things go up.

It's simply the rate at which a synthetic basket of products and services the government wishes to track go up.

Now, the problem with that is 2 big things.

1 thing is the government gets to create the market basket, and so they keep changing what's in the basket over time.

So, I mean, If I said 3 years ago, you should go see 10 concerts a year and the concert tickets now cost $200 each, now it's $2,000 a year to go see concerts.

Now I'm in charge of calculating inflation.

So I redefine your entertainment quota for the year to be 8 Netflix streaming concerts.

And now they don't cost $2,000, they cost nothing, and there is no inflation, but you don't get your concerts, right?

So the problem starts with continually changing the definition of the market basket.

But in my opinion, that's not the biggest problem.

The more egregious problem is the fundamental idea that assets aren't products or services.

a share of Apple stock, a bond, a Bitcoin is an asset, or a Picasso painting.

Right, if I throw away an asset, then I'm not on the hook to track the inflation rate for it.

So what happens if I change the policy such that, let's take the classic example, a million dollar bond at a 5% interest rate gives you $50,000 a year in risk-free income.

You might retire on $50,000 a year in a low cost jurisdiction.

So the cost of social security or early retirement is $1 million when the interest rate is 5%.

During the crisis of March of 2020, the interest rate on a 10-year bond went to 50 basis points.

So now the cost of that bond is $10 million.

Okay, the cost of social security went from $1 million to $10 million.

So if you wanted to work your entire life, save money and then retire risk-free and live happily ever after on a $50,000 salary, living on a beach in Mexico, wherever you want it to go, you had hyperinflation.

The cost of your aspiration increased by a factor of 10 over the course of some amount of time.

In fact, in that case, that was like over the course of about 12 years, right?

As the inflation rate ground down, the asset traded up, but the conventional view is, oh, that's not a problem Because it's good that the bond is highly priced because we own the bond.

Or what's the problem with the inflation rate in housing being 19%?

It's an awful problem for a 22-year-old that's starting their first job, that's saving money to buy a house, but it would be characterized as a benefit to society by a conventional economist who would say, well, housing asset values are higher because of interest rate fluctuation and now the economy's got more wealth.

So the, what's being missed here, like the suffering of the average person or the struggle, the suffering, the pain of the average person, like metrics that captured that within the economic system.

about the- 1 way to say it is a conventional view of inflation as CPI understates the human misery that's inflicted upon the working class and on mainstream companies by the political class.

And so it's a massive shift of wealth from the working class to the property class.

It's a massive shift of power from the free market to the centrally governed or the controlled market.

It's a massive shift of power from the people to the government.

And maybe 1 more illustrative point here, Alexis, is what do you think the inflation rate's been for the past 100 years?

Oh, you're talking about the scalar again?

If you took a survey of everybody on the street and you asked them what do they think inflation was, what is it?

You remember when Jerome Powell said our target's 2% but we're not there?

If you go around the corner, I have posted the deed to this house sold in 1930.

And the number on that deed is $100,000, 1930.

And if you go on Zillow and you get the Z estimate.

And in 92 years, we've had 305X increase in price of the house.

Now, if you actually back calculate, you come to a conclusion that the inflation rate was approximately 6.5% a year, every year for 92 years.

Okay, And there's nobody, nobody in government, no conventional economists that would ever admit to an inflation rate of 7% a year in the US dollar over the last century.

Now, if you dig deeper, I mean, 1 guy that's done a great job working on this is Seyfeddin Amos, who wrote the book, The Bitcoin Standard.

And he notes that on average, it looks like the inflation rate and the money supply is about 7% a year, all the way up to the year 2020, if you look at the S&P index, which is a market basket of scarce desirable stocks, it returned about 10%.

If you talk to 10% a year for a hundred years, the money supply is expanding at 7% a hundred years.

If you actually talk to economists or you look at the economy and you ask the question, how fast does the economy grow in its entirety year over year?

Like the sum total impact of all this technology and human ingenuity might get you a 2 1⁄2, 3% improvement a year.

I'm not sure I'd go that far yet, but I would just say that if you had the human race doing stuff, and if you ask the question, how much more efficiently will we do the stuff next year than this year, or what's the value of all of our innovations and inventions and investments in the past 12 months, you'd be hard-pressed to say we get 2% better.

Typical investor thinks they're 10% better every year.

So if you look at what's going on, really when you're holding a million dollars of stocks and you're getting a 10% gain a year, you really get a 7% expansion of the money supply.

You're getting a 2% or 3% gain under best circumstances.

Another way to say that is if the money supply stopped expanding at 7% a year, the S&P yield might be 3% and not 10%, it probably should be.

Now that gets you to start to ask a bunch of other fundamental questions like, if I borrow a billion dollars and pay 3% interest and the money supply expands at 7% to 10% a year and I ended up making a 10% return on a billion dollar investment paying 3% interest, is that fair?

And who suffered so that I could do that?

Because in an environment where you're just inflating the money supply and you're holding the assets constant, it stands to reason that the price of all the assets is going to appreciate somewhat proportional to the money supply.

And the difference in asset appreciations is gonna be a function of the scarce desirable quality of the assets and to what extent can I make more of them and to what extent are they truly limited in supply?

Yeah, so we'll get to a lot of the words you said there, the scarcity and so connected to how limited they are and the value of those assets, but you also said, so the expansion of the money supply, which is put another way is printing money, and so is that always bad, the expansion of the money supply?

Is this, Just to put some terms on the table so we understand them.

You nonchalantly say it's always, on average, expanding every year, the money supply is expanding every year by 7%.

I guess to be precise, it's the currency.

I would say money is monetary energy or economic energy, And the economic energy has to find its way into a medium.

So if you want to move it rapidly as a medium of exchange, it has to find its way into currency.

But the money can also flow into property, like a house or gold.

If the money flows into property, it'll probably hold its value much better.

If the money flows into currency, if you had put $100,000 in this house, you would have 305X return over 92 years.

But if you had put the money, $100,000 in a safe deposit box and buried it in the basement, you would have lost 99.7% of your wealth over the same time period.

So the expansion of the currency creates a massive inefficiency in the society, what I'll call an adiabatic lapse.

It's what we're doing is we're bleeding the civilization to death, right?

Right, in aerospace engineering, you wanna solve any problem, they start with the phrase, assume an adiabatic system.

So I've got a container, and in that container, no air leaves and no air enters, no energy exits or enters, so it's a closed system.

Okay, what's a closed, okay, I'm gonna use a-

I'm gonna use a physical metaphor for you because you're a jujitsu, right?

Like you got 10 pints of blood in your body.

And so before your next workout, I'm gonna take 1 pint from you.

Now you're gonna go exercise, but you're a one- You've lost 10% of your blood, okay?

It takes about 1 month for your body to replace the red blood platelets.

So what if I tell you every month you gotta show up and I'm gonna bleed you?

So if I'm draining the energy, I'm draining the blood from your body, you can't perform.

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Michael Saylor: Bitcoin, Inflation, and the Future of Money | Lex Fridman Podcast #276