Can Banking be Saved?
with Henry Magram
Intro
In this episode of Magic Internet Money, Brad invites amateur economist, Bitcoiner, and fan of the show, Henry Magram, onto the show to discuss in-depth two major concepts; The first being Austrian economics and the second being fractional reserve banking. Brad and Henry mostly agree on a few things, but there are the matters of the fine print to settle.
Henry is a close follower of the Austrian school and explains the position more in-depth after Brad asks him about the possibility of a middle-ground between Keynesian and Austrian positions.
Afterwards, Brad and Henry dive into the second topic, fractional reserve banking. Brad thinks that central banking and banking cannot be separated, but Henry believes the practice of banking need not be run the way central banking is today. The two cap things off with a short debate about what makes a means of exchange count as money before closing the show out.
Podcast Mentions
Find Henry Magram on:
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Timestamps
00:01:00 - Introduction
00:04:28 - Introducing Henry Magram
00:12:48 - What is the Austrian school of economics?
00:18:10 - A middle ground to be found with the Austrian school?
00:27:37 - Brad’s take on The Bitcoin Standard
00:30:50 - Fractional Reserve Banking
00:46:30 - Central Banking vs Banking
00:57:30 - Price and Expenditure Within Systems
01:02:54 - Is Bitcoin Money?
01:16:08 - Closing Remarks and Plugs
Transcript of Episode 62:
[00:00:00] Henry Magram: The Austrian School looks at economics as a topic in which description and understanding and intellectual exploration is valuable to see how civilization arises out of these competitive free market processes of peace and voluntary trade. Whereas in the alternative system, in the most extreme example, the government taxes all income and then decides what to do and what should be done, how many widgets to build.
[00:00:23] You know, the Austrians argue that this tends to deprive us of the benefits of wealth accumulation and saving and harm society. So the Austrians tend to be for limited government. They tend to focus on private property. And economic competition. And most importantly and above all, peace, you know, non-aggression.
[00:00:48] The market has changed from, from, from speculators to allocators. Mad
[00:00:53] Brad Mills: Money down the rabbit. Looking into welcome back to the Magic Internet Money podcast. This is Brad Mills and I'm returning from, I suppose, a little bit of a hiatus. Been about three months since I uploaded a podcast to the show, but I have a backlog.
[00:01:11] I've recorded about six episodes. I just have been super busy. FTX exploded and there's a whole bunch of crap that, you know, I decided to refocus my attention on. For a little while there. I spent a lot of time on Clubhouse and I actually went on a bunch of other podcasts. So I've been going into other people's podcasts, doing Twitter spaces, things like that.
[00:01:30] Kind of slacking a little bit on my show, but you know, if you want to get more timely stuff from me, I do have a YouTube channel as well. You can just go on YouTube and search Brad Mill's Magic Internet money. And when I'm recording episodes, typically I'll stream them at the same time and they'll go up on my YouTube.
[00:01:46] So if you kind of want to catch up and just hear conversations more closer to when they happen, then you'll probably be better off finding them there. This podcast was recorded probably a year ago with Henry Mara from, at the time Block five, and now he's gotten a job with Layer two Labs, I think that's what it's called.
[00:02:05] It raised a few million dollars. It's Paul Storks, uh, drive Chains company. They're building like a, kind of like a side chain on Bitcoin, and Henry has a job there. So this episode with Henry's is a unique one because he's a listener of the podcast and then he, he's kind of like listened to every podcast, I think I did.
[00:02:24] And then we became friends over Clubhouse and I figured like, wow, okay, well this guy's actually listened to all my podcasts. Why don't I have him on as a guest? And he can kind of grill me with some things I've said in the past that may have been stupid. And , it was kind of an interesting podcast. For that reason.
[00:02:40] Henry's an expert in like Austrian economics and things like that as well. So it was also a good podcast if you're interested in learning more about that. I don't have any sponsors for the show, as you know, or you may not know. So I would appreciate if you enjoy the show, leave me a review, uh, rate this podcast.com/bitcoin.
[00:02:58] That's how you can leave me a review. And if you leave something funny, I'll probably read it on the show. And, uh, other ways you can support me would be take a look at my website, brad mills.ca and you can look at some of the Bitcoin only companies I've been investing in and I, you know, pick 'em, use them.
[00:03:15] Give me your feedback. I will let the founders know if you have any feedback. One of the companies that I'm very interested in seeing how they do over the next few years is peach. Peach is like Tinder meets Bitcoin trading or buying and selling. So it's kind of like what local Bitcoins used to be, except it's meant for people with mobile phones.
[00:03:34] You put up an offer or an ask, and then you can like swipe through and match with people. It's all end to end encrypted. There's no accounts. It's privacy preserving. It's an ethical way to buy and sell Bitcoin right now, they're rolling out in Europe, so give 'em a shot, follow 'em on Twitter, download the app and let me know if I feel like the best way to buy Bitcoin is from somebody that has Bitcoin.
[00:03:57] Skip the middle man. Like you don't need to go to an exchange. So I highly recommend and I support and I invested in peach Bitcoin because I do support that grassroots belly to belly, peer-to-peer Bitcoin economy, the, uh, circular economy as they say. So hopefully you enjoy this podcast with Henry. We may be talking about things that are highly outdated.
[00:04:17] I don't remember exactly what we talked about because it's been over a year, since we recorded this.
[00:04:28] Henry Mara, welcome to the Magic Internet Money podcast. I appreciate you accepting my invite. For context, I met Henry on on Bitcoin clubhouse a year ago. He works for a Bitcoin company that everybody knows block five. and he was coming onto Clubhouse and he had some really interesting questions and really interesting things to say and kind of was shy at the beginning and didn't want to butt into the conversation too much, but would ask good questions.
[00:04:57] And initially I thought, who is this guy? He must be a spook because he said he's a fan of my podcast. And I'm like, there's no real fans of my podcast out there. Like, who is this guy ? So, but then I got to know you a little bit over the last year. You reached out to me saying, oh, you should interview this person.
[00:05:11] And I was like, you know what? I should interview Henry. So welcome to the Magic Internet Money podcast. You're definitely a, a knowledgeable guy on economics and Bitcoin information because you've been down the rabbit hole the last year and a bit, I guess, and have learned a lot of things about Bitcoin and economics and thought about complex topics and how Bitcoin relates to certain different schools of thought around economics and money.
[00:05:35] So yeah, wanted to have you come on and discuss. , what you've been learning going down the Bitcoin rabbit hole. You know, maybe some things about the last year of your, uh, your journey, like working in the space and paying such close attention to Bitcoin and where you think Bitcoin's going. So thanks for joining me, Henry.
[00:05:52] Henry Magram: Thank you, Brad. That introduction was too kind. I agree with everything you said. We met on Clubhouse. You've been a great presence on Clubhouse during the roughly year that I've been a listener and participant on the app. You're one of the people along with Aaron Wise and Joe Carla, sorry, who I really like listening to because you're insightful, you're genuine, and you're interested in Bitcoin and all of its many effects and interesting questions.
[00:06:24] I think that, as I told you when you invited me onto this show, I really don't think I'm a worthy guest. I think there are a lot, so many experts in Bitcoin who understand its deep complexities in computer science. And hardware and economics and, and other issues. And I'm not an expert on any of these things, but I agree to come on your show just out of respect for you and out of appreciation for the invitation.
[00:06:47] But to be clear to all of your listeners, I'm just really just one of your listeners and not an expert in my own estimation. So I'm humbled that you're having me on and just agreeing to it to be agreeable. As a little background about me for just as a brief introduction, I went to Villanova Law School and then spent the last 10 years in the compliance departments at three different alternative investment management firms in the institutional financial space on Wall Street, and then pivoted a year ago to my current employer, one of the larger cryptocurrency service providers.
[00:07:23] Everything I say today exclusively represents my personal opinions and ideas and has no reflection necessarily at all on my employer's ideas or positions. And. , I'm excited to talk about Bitcoin and any questions you have about my personal experience learning about it. Before I got into Bitcoin a year ago, I developed a very strong interest 10 years ago in Austrian school economics.
[00:07:46] In fact, it was back in 2005 when I went to Auburn, Alabama and went to the Meas University event. It's just a one week event they call Mesis University. I was really interested in human action by Von Mesis and I also read Man Economy and State with Power and Market by Rothbard, and then a bunch of articles and other books by Rothbard Mesis and other Austrian school thinkers.
[00:08:10] And that's what got me interested in Bitcoin was Satoshi's thread where he discussed with others back in 2010, Mesis and Rothbard and the Mesis regression theorem. So it was totally like seeing Satoshi's interest in Mesis and the Austrian school of thought. That sparked my interest in Bitcoin and that's when it clicked for me that.
[00:08:32] all of the interest among Austrians in gold is going to transition into an interest in Bitcoin One by one they'll understand that there's nothing singular about gold and that the difference between abstract money and physical money is not important and that the best possibility in the internet age is probably going to be a digital one because of its infinite.
[00:08:56] The visibility and immediate transferability across space and that sort of thing. And I've prepared a bunch of things I like to discuss with you if you're interested, like things where I think we disagree and that could be interesting for your listeners. Kind of like when you discussed with Johns a bunch of fascinating differences of opinion.
[00:09:12] I found that episode of your podcast really good and I recommend anyone who hasn't. , go to your podcast and hear that
[00:09:19] Brad Mills: episode. Oh, yeah. Well, that, that was a really good episode. And just for the record too, I don't think I'm an expert in anything. I think you're definitely more knowledgeable than me on, on these subjects like Austrian economics and stuff.
[00:09:30] I just have, you know, like I'm wearing floaties, treading water when I talk about this stuff. I just have been in Bitcoin so long that I just have the historical like, understanding of different events that happened through Bitcoin and have just absorbed information through osmosis by hanging out with really cool people and clubhouse and Bitcoin conferences and online.
[00:09:49] So I, I don't, I wouldn't consider myself an expert in any of these subjects either. And, and also I try to kind of like retain. A level of relatability with people that, like I'm doing this podcast for like my friends and my family and stuff. I don't want to become so much of an expert in like these different areas that I lose the ability to translate to normal speak
[00:10:09] So it's cool to have people like, I've never read any of those books you talked about. I read books that are more like lightweight books, like currency wars and stuff like that. Like where it doesn't get into the real meat of Austrian economics or different schools of economics. I kind of like tread the surface of that stuff.
[00:10:27] So yeah, listening to you debate with John Seth and different folks on the app has been real fun. So for sure, uh, you should give yourself more credit because you definitely have a depth of knowledge about this stuff that allows you to hold your own and make interesting connections and challenge things.
[00:10:43] So for sure, you got some things that we should talk about. Let's go. If you got a list, you're more prepared than me. So, but before we do that, you got into Bitcoin, what was it a year ago? Or you got into Bitcoin before you started working for block five? It
[00:10:54] Henry Magram: was in 2015 or 2016 when I first bought some Bitcoin on Coinbase, but it was many years later until I had any interest in it at all.
[00:11:03] So it was a passing, unimportant experience for me until about a year ago. Before that, it didn't click for me.
[00:11:10] Brad Mills: What was it a year or so ago? Was it just because you had started working at this company or was it something else that caused you to go seek out, like working for a Bitcoin company? It was two things
[00:11:20] Henry Magram: that led to my interest in Bitcoin.
[00:11:22] One was the fact that I had bought some years ago and it appreciated. So that caught my attention. The number go up for me was a psychological experience. When you see something grow in proportion to your portfolio's, total value, when it becomes a significant holding, you have to think, do I engage in an active omission and let it fall or continue to grow, or do I begin to study it and try to figure out if I want to continue holding it, buy more, sell some.
[00:11:52] all of a sudden you have to make a decision. So there's that. There was, that impetus for me was a portfolio experience led to interest. And secondly, that Satoshi email about Von Mesis that discovering that on the Nakamoto Institute website, looking through those Satoshi quotes in their complete Satoshi archive, which is a great service they provide, is, you know, categorizing a bunch of important things.
[00:12:17] He wrote, encountering the dimension of Austrian school thinkers, Mesis and Rothbard by Satoshi directly in that thread. That was the light bulb moment for me. Wow. As soon as I discover someone has a comprehensive understanding of Austrian school thought. . That makes me much more interested in anything that person says about economics or
[00:12:36] Brad Mills: politics.
[00:12:36] Yeah, it's like a base operating system that you're compatible with. So it's like, if you can get this concept, I wanna listen to what you have to think about other things. Can you explain for listeners, like what is Austrian economics? Just, you don't have to go super deep into it, but like what are these different schools of economic thought?
[00:12:54] How are they relatable to our lives? And what are the main differences between Austrian and Keynesian and modern monetary theories? Another new
[00:13:03] Henry Magram: one. The Austrian school traces all economic phenomena down to the actions of individuals, and the Austrian school tends to focus on the value of the competitive entrepreneurial market process.
[00:13:13] Instead of a centrally planned, bureaucratic, taxpayer funded committee of politicians and appointees trying to arrange the structure of production and the allocation of capital to different parts of society. So when you think about the way like the U S S R was run for a long time, that was a big experiment in central planning and you know, it collapsed and there was mass deprivation of wealth and and suffering.
[00:13:42] Whereas in the competitive, entrepreneurial free market, free enterprise system, the planning is done by thousands and thousands of different competitive entrepreneurs all vying for capital labor and resources to make their own plan. Like Starbucks is one plan. McDonald's is a plan, Chuck e. Cheese is a plan, Disney is a plan.
[00:14:03] Each of these planners are competing for the consumers dollars and the consumers are free to reward the plans as they see fit. The Austrian school looks at economics as. Topic in which description and understanding and intellectual exploration is valuable to see how civilization arises out of these competitive free market processes of peace and voluntary trade.
[00:14:25] Whereas in the alternative system in which Keynes has been the most influential, the way of thinking is how can technocrats arrange society through taxation and top-down decisions on distribution? So the government tells you what to do in the most extreme example, the government taxes all income and then decides what to do and what should be done, how many widgets to build.
[00:14:48] You know, the Austrians argue that this tends to deprive us of the benefits of wealth accumulation and saving and harm society. So the Austrians tend to be for limited government. They tend to focus on private. And economic competition. And most importantly and above all, peace, you know, non-aggression. So it's consistent and harmonious with a lot of the thought within libertarian and classical liberalism.
[00:15:13] Thought. You know, one of the things that connected us about this podcast was I suggested a month or two ago that you have Larry White on your podcast. He's a professor at George Mason, who I like to follow his tweets and read his essays. And he is an Austrian school thinker, I believe, who has a lot of knowledge on money and banking especially.
[00:15:32] So I'm hopeful that he will become a thinker in the Bitcoin space of greater prominence because he has a deep knowledge of things most people don't have, like how the Fed works. And also a very deep knowledge of the history of money in civilization, especially modern money issues. how the Federal Reserve really creates money and, and the complex interesting
[00:15:52] Brad Mills: topics there.
[00:15:53] And yeah, it'd be cool to talk to 'em. So there's Austrian School of Thought, which is peacefully operated in a free market with the sound money, and you encourage people to save and then invest their money. And then the Keynesian style would be fiat unsound money, I guess, where the government controls more of the printing of the money and stimulating the economy through air, dropping money onto different sectors or even the population to stimulate them to spend and keep the economy going.
[00:16:22] Is that like a good explanation, do you think?
[00:16:25] Henry Magram: Yes, exactly. The Austrian view, the source of wealth in society as a rising from production and saving the keynesians view the source. prosperity in society as a rising from spending and consumption, right? They like stimulus, they don't like
[00:16:44] Brad Mills: austerity. So typically if you're talking to somebody who doesn't like Austrian economic school of thought, they'll say things like, when we are on a gold standard, it, it's a disinflationary money.
[00:16:56] So it encourages hoarding and then disincentivizes people to invest. The Gresham's law says that bad money drives out good money, which in a competing currency situation, like the currency that is losing its value, you'll wanna spend that one and you'll wanna hoard the one that isn't losing its value.
[00:17:13] You wanna hoard the currency that's holding its value. So gold typically was like the currency that through history, you'd wanna keep that and then spend the bronze coins or the whatever. So in an Austrian system, which a lot of bitcoiners typically like lean more towards that because it's like a about long-term thinking and saving and stuff.
[00:17:32] Critics of that will say, oh yeah, but we would never would've had the economic expansion that we had over the last 50 years if we were in an Austrian school system because credit allowed us to allocate capital all over the place and allow people to take more risk and then invent new things. If we were in an Austrian system, we would never have gotten to the point where Elon Musk is launching reusable rockets because the people would be more stingy with their capital.
[00:18:00] When I hear that argument, I can't help but be like, ah, I don't think it's like that. I don't think it would've been like that, but how do you think about that? Because how do you even prove what would've happened had we been on a sound money system? Is there. Of middle ground between Austrian and Keynesianism?
[00:18:14] Henry Magram: I don't think so. I don't think that money printing has ever benefited society. It has benefited only certain special interests, so the Cantillon effect drives wealth from those who get the new money last to those who get the new money first. This is discussed very well in the Bitcoin standard by safety, a book that I'm currently reading, and I find it very good.
[00:18:37] It's an outstanding book, and this is the first of a few things that I think we disagree on because I remember, and correct me if I'm wrong, you said in Clubhouse maybe half a year ago that you're not a fan of that book. I think it has an excellent discussion of the history of money, and it has an excellent representation for the layperson of Austrian thought.
[00:18:58] On almost every page, there's a discussion of Mesis, Hayek, Rothbard and others, and there's a great discussion of money throughout all of human history and how money evolved from seashells to gold. and then finally the Bitcoin. In fact, the first half of the book, which is all that I've read so far, is almost entirely not about Bitcoin.
[00:19:16] It's just an education on the foundational ideas. You need to appreciate Bitcoin with theory and history of money. So regarding whether or not money printing has benefited society, I think definitely no, without any question. And it always benefited the politicians. Economic theorizing about history though requires us to compare not what happened at one point to what later occurred.
[00:19:39] For example, you know the Federal Reserve was created in 1913, and since then, America's standard of living has improved, but we can't post hoc aircraft. Proctor Hawk conclude that money printing had anything to do with that. I think central banking has deprived society of a lot of wealth, but it has enriched certain parties.
[00:19:59] And there also have been people who supported it who weren't evil at all and just didn't understand the trade offs at hand. So we have to compare what would have been. , which is an imaginary world, what would have occurred in the absence of central banking and fiat money to what did happen. So it requires theoretical reasoning.
[00:20:17] We can't simply look at different points in history and find that central banking and fiat money were beneficial. Even though CI civilization has grown and persisted and many people are better off than they used to be generations ago, we can still identify bad patterns, I believe. And then getting to your question about Bitcoin and credit, this is something where I actually have an original idea.
[00:20:41] So I think that everyone who says that there will be less credit under colonization is wrong. Colonization. Bitcoin will drive a rotation of store of value premium from equities to money increasing the supply of Loanable funds, which causes a natural credit expansion. So let me break that out a little bit.
[00:21:00] I'm talking about there being a rotation of store of value premium from equities to money. This is a commonly said claim. that Bitcoiners in the mainstream are familiar with and and agree with. Not all, but most people would say that when Bitcoin occurs, and Bitcoin is the only money because it is a scarce money, unlike Fiat money absolutely scarce, it will serve as a store of value.
[00:21:22] Unlike our money today, which is always being debased and losing purchasing power. So because people will hold, because people will be able to store their value in money, there'll be a higher store of value, premium in the price of money. So one, Bitcoin will command a lot of value, partly because people will be holding it, not treating it as they do cash today, where they earn cash and then they spend the cash to buy, for example, real estate in order to preserve their purchasing power.
[00:21:50] So instead, people can store value in money and therefore the store of value premium will rotate out of stocks and real estate and into money as Bitcoin and. , if you agree with that. Then you have to also, I think, agree with my second claim, which is that if you agree with the first part that everyone knows about already, then you have to also agree that the rotation of store value premium into money constitutes an increase in the supply of Loanable funds.
[00:22:20] Now, of course, houses are loanable, but they're not Loanable funds. They're not eminently loanable like money is. If the total proportion of wealth that society holds in money increases because society adopts a higher quality money, then there's going to be an increase in the supply of Loanable funds, which is going to reduce the interest rate on loans, which is going to increase the marginal propensity to borrow.
[00:22:45] Which is going to, in other words, cause a natural credit expansion, natural being an Austrian term, referring to a market driven, voluntary and sustainable pattern of activity as opposed to an artificial credit expansion caused by central bank injection of loans into the money market to try to depress interest rates.
[00:23:05] I think that under Bitcoin, there'll actually be more lending than there ever has been in the past. Even though the Federal Reserve won't be artificially lowering the interest rate, there'll be a larger portion of society's wealth held in money and people are gonna hold it, I think, not only in self custodys, but as they are today in large part at service providers that are loaning it out to entrepreneurs and consumers and anybody else who wants to borrow for whatever reason.
[00:23:31] Brad Mills: I like that. One of the things we were talking about over the last couple of months off and on, was this, Credit in a hyper Bitcoin ice world or under the Bitcoin standard. Bitcoin Tina is famously known for, uh, yelling at people who think there's gonna be credit in a Bitcoin standard world. But I think where he's coming from is that like on the path to Bitcoin becoming the re world's reserve currency or a re reserve currency, having Bitcoin loans wouldn't make sense on the path there because as Bitcoin keeps increasing in value, the interest rates will just be so unmanageable.
[00:24:09] You know, while there is other fiat currencies, like while Bitcoin's continually increasing in value in the fiat currency that we're using for denominating our lives in making our purchases and everything, it will be unmanageable to like pay your loans back because it. Be 200,000, 300,000, 400,000, 500,000.
[00:24:28] Bitcoin will just keep accreting in value and you just will never be able to pay the interest rate if it's denominated in, in Fiat. But like once we get to a hyper Bitcoin eyes world, I think for sure you're right. There will obviously be people that will wanna borrow Bitcoin and they'll pay an interest rate.
[00:24:45] And the interest rate will be set by the free market and it won't be artificially manipulated by the central bank. So it'll be determined by the free market and the risk will be equivalent to the reward. But it has to be stable. I think like the price of Bitcoin can't be going up a thousand percent in a year cuz people will worry about borrowing Bitcoin if it's, you know, got a chance of going at 10 x and then now your loan is 10 x more expensive cuz you have to go find your interest rate that's in bitcoin.
[00:25:11] Just gone up 10 x and Fiat. I, it's complicated. I think like actually Hal Finney on the Bitcoin talk forums back in like 2010 or so, they had a discussion about this. Him and Satoshi were talking about this on the Bitcoin talk forums, and I think the mailing list where they saw multiple ways that Bitcoin credit could work.
[00:25:30] They saw like fractional reserve Bitcoin banks, where you could back in the Wildcat banking days of like the 18 hundreds, early 19 hundreds, commercial banks issued their own money and they had different levels of reserve ratios. So if you wanted to bank with a full reserve bank, then. , that's the risk you're willing to take.
[00:25:51] Then you would do that. And if you wanted to bank with a 20% fractional reserve bank, then that's the risk you'd wanna take, and you'd go do that. Before the Federal Reserve, the United States banking system was completely decentralized. Now the drawback of that is that when banks failed, then you lost your currency.
[00:26:09] Like the currency also failed, and you were just shit out of luck. So that, I think, would also happen in, in a, in a bit, in, in a, a bootstrapping of Bitcoin as a reserve currency. If it plays out the way that Satoshi and how Finney and them were talking about, like there will be people that offer banking services with Bitcoin and they will be able to offer loans fractionally reserved.
[00:26:32] Now Bitcoiners typically are like, well, that's the reason why Bitcoin exists so that there can't be fractional reserve, like we're making Bitcoin. So that it's, it is the thing, it it, it doesn't need any kind of fractional reserving. , but we still live in a world with fiat currency and we, we don't, we don't live in that paradigm.
[00:26:50] So the free market might just work out that 10% of the population, 20% of the population, are completely fine with working out, like operating with a fractional reserve, Bitcoin bank, , even though that's not the intended design of Bitcoin, like that, that's the free market. It might play out like that. So, I mean, it's a really interesting topic.
[00:27:10] It's kind of like next level, uh, deep discussion about Bitcoin concepts. I like that concept though. You should talk to Bitcoin Tino about it sometime one-on-one so that he doesn't have to yell at you in front of everybody in the, in the room, which he tends to do. , he's trying to protect the noobs all the time.
[00:27:27] So he, he gets a little protective when people put challenging things out there. You're confusing everybody. No, don't say. Back to what you were saying about like the Bitcoin standard, the book. It's not that I don't like the book I, I do like the book. I just don't like recommending that book to new people.
[00:27:46] And especially like average people who don't have a deep interest in money, they don't have an understanding of money. I wanna see normal people get into Bitcoin before rich people. I wanna see the genie coefficient of bitcoin. Go in a better direction. So I, I like to speak to normal people and for them, I like to send them like videos and stuff.
[00:28:05] Like I'll send them videos or an article here or there, like a podcast to listen to. I find it's just a lot easier for them to digest that stuff than to go buy the Bitcoin standard and dive deep into that. And if somebody then like goes through and they watch the video or they listen to the podcast and they're like, yeah, this is actually interesting, then I'll recommend books like the the Bitcoin standard, because then I know that like it's not just gonna turn them off From a marketer's mind perspective, I just want to increase the retention rate of people that I'm exposing to Bitcoin.
[00:28:33] And if I send them this really complicated thing at first, I just, I know they're probably just gonna put it aside and go, go watch Netflix or something instead, instead of going through it. So wrapping the loop there. I agree with you what you said about, we would never know. It's saying that the Federal Reserve and fractional reserve banking and the expansion of the money supply is the reason why we've progressed so much.
[00:28:54] It's an ex post like explanation of. What happened? We would never know what would've happened if we stuck on a sound money standard. I'd like to go through, like, if you don't mind, could you give me, I'm gonna name a country and you tell me what kind of system they're on. Oh, I,
[00:29:10] Henry Magram: I don't think I'll do well at this.
[00:29:11] I am not someone who has a very good expert level knowledge of international affairs with regard to monetary policy.
[00:29:21] Brad Mills: Well, let What about like U S S R? Like what were they on?
[00:29:25] Henry Magram: No, I I'm not good. I mean, I, if I racked my brain, I probably could remember things I've read from Rothbard, like a few essays on this topic.
[00:29:34] I know that he wrote a lot about how the U S S R had pervasive black markets and those black markets. This black market capitalism within the Soviet Union was the main reason why the Soviet Union persisted as long as it did. Had they achieved full socialism, they would've immediately fallen apart. . But when you have a lot of black markets, you can maintain a certain level of stifled, but sustainable economic activity that's productive, meeting people's demands for food and you know, arranging labor with capital to enable society to limp along despite being under the, the stifling pressure of overregulation and, and government control.
[00:30:20] I would love to, first of all, thank you for clarifying your point about the Bitcoin standard. That makes complete sense to me, and I like what you said, so I don't think we have any disagreement there and maybe the other things we could discuss that where we disagree would be equally interesting to resolve.
[00:30:35] Could we do that? Sure.
[00:30:36] Brad Mills: Let's do it. Okay. Yeah, let's do it.
[00:30:37] Henry Magram: So your profile on Clubhouse says, you know, screw banks or something similar and I think , that it'd be great to share a thought or two about fractional reserve banking. So this is a theoretical topic in economics that I like to think about.
[00:30:54] Fractional reserve banking, in my opinion, is totally unproblematic, and I think every Bitcoin who thinks that fractional reserve banks are bad, is wrong. I respect their views and I even concede to them readily that Satoshi himself expressed this view Impliedly in his white paper, where in the first or second paragraph, immediately after a sentence, criticizing central banks, he criticizes banks.
[00:31:25] So this is where Satoshi and I disagree, and of course that suggests that I'm not him , but, um, a suggestion I would agree with that. He says, fractional reserve banks lend money out with barely a fraction reserve. And I think that this is wrong. The problem with banking is central banking. , there's no problem with banking generally banks, intermediate between borrowers and savers.
[00:31:50] So when you put your money in the bank and then they load it out to someone else, that is the type of intermediation in the economy. And that volume of intermediation should be as large as the free market will bear in order to maximize the productive collaborative arrangements in society that are possible.
[00:32:09] If somebody wants to build a business, they need capital. They don't have that capital internally, they need to transact with someone so they can transact in a way that gives them capital in the present, first present, spending someone else has money but doesn't wanna spend it right now. So the two parties get together and arrange on an interest rate and it's mutually beneficial, and economists should defer to the judgements of consumers with regard to these activities.
[00:32:37] and there's infinite examples of businesses that have used credit to their advantage. And this occurs in a free market in history under the gold standard. It can occur in, in a regime of free market money. There is certainly a lot of credit that's, you know, induced through the artificial influences of the central bank today.
[00:32:56] But not all credits like that and not all fractional reserve banking as a result of the F D C's existence. So I think that where I think some Austrian school thinkers like Larry White have written well, that in history, uh, in Scotland, you know, a couple hundred years ago there were long periods where for decade after decade, fractional reserve gold banking facilitated a free market prosperous arrangement with regard to banking and money.
[00:33:21] And there were no banking crises where that led to the liquidation of the consumers. . I think that fraction reserve banking is okay. Just like I think that insurance companies should be allowed to promise insurance coverage to many parties without constantly having a hundred percent in reserve. So people who are opposed to fractional reserve banking need to have a coherent answer to why they support insurance, or are they prepared to say they believe fractional reserve banking is a form of fraud called misappropriation, and that insurance companies are guilty of the same thing because they're promising insurance coverage simultaneously to many different firms without a aggregate liability in reserve to meet all of the claims simultaneously.
[00:34:06] See, the thing about FRA Reserve of banking and the opposition even within the Austrian School by rothbard and to some extent Hayek, many people think even in the Austrian school that, and like Satoshi, that FRA reserve of banking is no good and it's a form of fraud. Called misappropriation because they think that the bank is promising simultaneous availability of the money to multiple people.
[00:34:29] First, the depositor and then the borrower, and that the banks, quote unquote, create money out of thin air. But this same thing is true of insurance companies, that they're creating money out of thin air. I don't think this creating out of thin air phrase is good. And I think that the metaphorical or poetic aspect of it, this quote unquote thin air phrase, indicates how there's a lack of coherent reasoning on the part of those who believe this.
[00:34:51] The fact is that the time at which the depositor is going to want his or her money back is unknown. So it's a complex topic, but I think there's nothing wrong with this free market arrangement, and people should generally be in favor of allowing for free market activity, and they shouldn't be too aggressive in deciding what they think is a form of fraud and what should be prohibited.
[00:35:15] Consumers should be free to internalize their banking costs and do self custody. With all of the cybersecurity and technology and hardware risks and costs associated with that. Or they should be free to put their money in a bank, have the custodian lend it out or not, and either pay a fee or get interest depending on the terms.
[00:35:32] So I think that you are incorrect respectfully in your opposition to fraction reserve banking and so was Satoshi and so are probably what appears to be a majority of those interested in Bitcoin who don't share my view. I think this is kind of a minority, an interesting view I have and I, I like thinking about it and there's, there's one or two other things we could talk about where we disagree, but I'm happy to stay on this fraction reserve banking topic.
[00:35:56] Brad Mills: Yeah, let's talk about that. That's an interesting one because I've like evolved my thinking on fractional reserve banking. I come from the perspective of just a regular, average, normal person who, when I learned what money was, I felt like I was living in a, in a Ponzi scam. Like I felt like I'd been scammed my whole life and how.
[00:36:13] There's nothing backing money anymore, and money's mostly credit that the money in your bank account is not actually hard money. It's the bank's liability to you to give you this asset on their balance sheet that isn't really even an asset. It's just made up . So like when I first learned about this, I went down the rabbit hole of sound money taxation, how there used to be no income tax and the income tax was like a temporary measure to try to fight the war, and it was supposed to go away, but it never did and kept getting bigger and bigger.
[00:36:48] Then the, the governments went off the gold standard and they just started printing more and more money, and then banks started being able to expand the money supply through fractional reserve banking. That whole thing, to me felt like a scam, so I just felt. Well, fractional reserve banking is the problem.
[00:37:03] Then if we had a sound money system, then they wouldn't be able to just continually loaning out money and there wouldn't be this MO 10 to one money multiplier effect where I deposit a thousand dollars in my bank account. Then they take 900 of that, they keep a hundred in deposit, and they lend 900 to somebody else.
[00:37:19] They deposit that in their bank account. The bank keeps $90 of that and loans out $810 of somebody else, and it goes on and on and on until it's a 10 to one ratio of what was originally deposited into the system. I've evolved my views over time. It's not necessarily just fractional reserve banking. It's a combination of false advertising, basically, like we've all had the whirlpool over our eyes.
[00:37:44] Money is not money, so banks have a monopoly on creating the money and it's not actually money. It doesn't fulfill all the properties of money, and they are able to take excessive risk. and then get bailed out partially by the government, partially by the taxpayers, whatever, like banks get bailed out. It feels like there could be a way that fractional reserve banking could be useful.
[00:38:12] And as long as we were on a sound money system where people understood that the thing that they're participating in is actual money, like Bitcoin, if you had a fractional reserve system where the numbers in your account were not designed to go down over time because of money printing. An expansion of the money supply.
[00:38:34] So if it was a hard money, then that's one plus for fractional reserve banking, in my opinion, because then you're not scamming the entire population and creating a wealth gap. The other thing is like the artificial government interference with interest rates makes it so that the banks take zero risk when they loan you credit cards.
[00:38:52] You know when they, when they issue you credit cards and charge you 20% interest rate, but then they can loan out the money in your bank account at zero and pay you nothing. That's a problem. Like the banks are taking no risk and you're taking all the risk. The shareholders of the bank arguably are taking on some risk if you're buying stock in a bank.
[00:39:11] But as we've moved more and more to a zero reserve banking system, like fractional reserve banking is basically doesn't exist anymore. I'm learning like ever since Covid, even before Covid. Most banks operated not on fractional reserve banking anymore because money is nearly a hundred percent just credit.
[00:39:31] It's just keystrokes these days. Like it, it, and this is the consensus I'm finding, like it's, it's hard to even understand how the money system works because depending on what economist or what banker you ask, they'll say, oh yeah, we're on fractional reserve banking, or, no, no, we're on zero reserve banking.
[00:39:48] Like, like it's, it's tough to even find like, well how, how the freaking banks work because it's a consensus thing. It's almost like nobody really knows and they're all writing w white papers and doing research studies and. Ex post figuring out like how this crisis worked and how this out of money printing worked to figure out that apparently we're on a zero reserve banking system right now.
[00:40:11] And that the idea of fractional reserve banking is a myth. And really what happens is banks just control the money supply through issuing credit, and then also the treasury and the central bank can also issue money. So I think like in the current reality of the way banks work, I'm still critical of banks because for those main reasons that one banks are advertising this as if it's money and it's not actually money.
[00:40:40] It's a fiat currency that you denominate your bill payments in and that you. And we're told to save in this thing, even though it's guaranteed to like increase the wealth gap because the rich people are not saving in this thing. That's not really money. It's just a liability for some digits. The bank owes you like in a fiat money standard where bailouts are normalized.
[00:41:02] So one, it's unfair for poor people in the average person because they have high interest rates, they have high overdraft fees, high bank fees, and the bank has pretty much zero risk. They have no interest rate. Basically, they're at like, like some banks are at negative interest rates, so they have no risk.
[00:41:17] They create the money from nothing. Issue it to you, charge you crazy interest rates. Then as if banks don't take enough from the populace, not only do they get to just create the money from nothing and charge whatever interest rates they really want, that's not enough profit for them. So then they start to package your debts, your credit card debt, your mortgages, your business debt, your car loan debt.
[00:41:40] They start to create derivative synthetic products. and bet on their customers whether or not they're gonna default on their loans and sell those packages as like products because you are paying interest. So those things have speculative value for other banks and hedge funds and stuff. And that's how we got into 2008 where the subprime mortgages were these layers of like actual loans that were then packaged and layered up and then sold and swapped and put leverage on.
[00:42:12] And then when they blow up, we got into this paradigm now where the banks are too big to fail. Most banks in like the 1980s and nineties, banks would fail a lot. And I got, I learned about this more recently after arguing with Bitcoin Tina on Clubhouse a month or so ago that banks take on no risk. And he was like, they do take on risk.
[00:42:31] And I, I was under the impression that they don't anymore. And I think I'm right because when I went and looked back at bank failures over the last 10 years, banks pretty much stopped failing. During the last round of QE and leading up to QE in 2008, like in the 1990s, there was a banking crisis and hundreds of banks failed.
[00:42:50] And you know, F D I C insurance had to come in and some banks were nationalized, some banks were bought by other banks. So there was some risk in the two thousands after like the QE where trillions of dollars is just printed based and saddled onto the taxpayer to bail out banks for taking these excessive risks.
[00:43:10] then they don't fail anymore. Like there was a couple of hundred banks that failed in the last crisis. But ever since we've got onto this paradigm that the money printer's just gonna bail out a bank that is, you know, not able to meet its 30 day liquidity needs, or is taken on too much risk and is exposed to like Russia getting sanctioned and not able to settle their debts.
[00:43:32] Like that's a massive stress in the system right now. Russia, like a nuclear bomb, has just been dropped on the financial system. Russia's pretty much cut off and there's hundreds of billions of dollars in derivatives and like baseline equity exposure and stuff that now it's just not gonna be settled for who knows how long.
[00:43:51] So that's gonna add a lot of pressure to other countries, which is then gonna be exposure to our banking system. But the government's gonna come in and bail those banks out because I don't think many banks have failed in the last six, seven years. I think it's once after 2009 or so, when. The government started to normalize quantitative easing and bailing banks out.
[00:44:11] Banks pretty much don't fail anymore in 2020. It was worse than 2008 in terms of the economic impact to the banks. But the government acted so quickly and printed so much money and provided so much liquidity that I don't think any banks failed. Maybe one or two banks failed, whereas in 2008, 2009, like hundreds of banks failed.
[00:44:32] So that's where I come from, where it just feels wrong. It feels like it's unfair that the money itself is gonna go down over time and it's gonna punish people who save in that money because the money is fiat and it's not hard money. So you're encouraged to save, pay off your bills and whatever, and then you're involved in this relationship with a bank where they're just a predator, basically, like milking you for as much fees as they can.
[00:44:56] Well, they have no risk anymore. So that's where I come from and I definitely think that. , you're right. It's not the concept of fractional reserve banking, it's more about the context of everything that fits in together and how we are, we're in this paradigm of banks are too big to fail. Money is designed to go down over time and money printing increases the wealth gap.
[00:45:17] And if there was a fractional reserve system, I would be less opposed to it. I probably wouldn't personally choose to use it, and I would recommend people don't use the fractional reserve banking system. I'd probably educate people on the benefits of like saving and trying to be able to weather bad times and stuff like that.
[00:45:39] And, and I wouldn't wanna have my money exposed to a bank that's fractionally reserved, that's operating in a fractional reserve system. But in that paradigm, I imagine the interest rates are gonna be pretty high. So like if, if a bank is doing fractional reserve and willing to give me like six or 7% interest because they're charging 10% interest, I might be tempted to work with a fractional reserve bank because I'm being compensated and I'm not just being preyed on by the bank.
[00:46:08] So that is like a more nuanced way that I've kind of developed my, my thinking on why I'm against banks . Does that make sense?
[00:46:18] Henry Magram: Yes, Brad, it makes sense. However, I disagree, as I said before, with your view and with Satoshi's view, because you and Satoshi think the same thing. In my opinion, you and Satoshi fail to distinguish between central banking and banking.
[00:46:37] So in your discussion just now, You said it's not necessarily fraction measure of banking. It's the whole thing. The whole thing is central banking, all of the things you don't like that you just mentioned have to do with central banking, in my opinion. Not banking per
[00:46:54] Brad Mills: se. Well, no, because banks and central banks and the treasury, the government, the central bank and the commercial banks all work together as multiple wings of the same vulture that are prey on society.
[00:47:07] So the central banks monetize the debt of the government and also the government and the central banks allow the commercial banks to have a monopoly on printing money. So they all work together to print money into the system and to expand the money supply, whether it's through quantitative easing or reverse repurchases of treasuries or direct stimulus, um, or loans.
[00:47:33] Henry Magram: Everything that you don't like, all of the ills can be traced back to government, not banks. Banks are not the government. Now we have a quasi-governmental banking sector. And that's what Van Misa said back in the fifties. He said, finance is quasi-governmental due to the excessive regulation. And of course, the regulations have only become more burdensome, driving even greater degrees of oligopolistic, non-competitive rent-seeking consolidation and lack of competition that brings down price and drives up value.
[00:48:10] So when you talk about predatory behavior and other kinds of negative value add patterns and the banking sector, I think you're talking about the effects of regulation and central planning. Central banking is a form of central planning. It's the socialization of monetary policy and the institution of infinite money through inflation and credit expansion.
[00:48:31] The credit and the banking sector in a free market does not have these bad patterns of activity. So I think that a more coherent view from you and Satoshi would be to focus solely on the bad effects of central banking. However, I think it's important I acknowledge that there is under Bitcoin ization a real question of whether self custodys facilitates the political viability of Bitcoin.
[00:48:59] And by that I mean if there is widespread practice of self custodys, I think that is healthy for the system. In other words, as Michael Sailor says, even though micro strategies coins aren't like in his pocket on a treasure, he says that the people who take self custodys keep the system honest. He said that in a video I saw, and I agree with that, and I think self custody is important and excellent, and those who have PR who practice it provide a valuable service because self custody, although inconsistent with banking, as far as I understand, because how could you have custody and at the same time loan your money to someone else who would spend it?
[00:49:37] You know, the money can't be in two places at once. So self custodys is a little bit inconsistent with the idea of lending, but at least lending through a custodian that pulls the saved assets and then lends them out entrepreneurially, you know, assessing borrower credit worthiness. I think that self custody is great.
[00:49:56] And then as you described, some people will choose self custody, others will choose to put their money in a bank. Maybe that bank is a full reserve bank that charges them a fee. Maybe that bank is a fractional reserve bank that pays them interest. It would be up to them to decide how to go. But I think the F J I C and the Fed and the other government, you know, organizations impacting the monetary system and the banking sector are totally separate.
[00:50:23] Conceptually from the idea of competitive free banking and if you read articles by Professor White, who I mentioned at George Mason or Nick Carter seems to be interested in his ideas and writes about competitive free banking. I think you'll find if you explore the phrase competitive free banking, you'll see how competitive free banking is consistent with free market principles of property and freedom and wealth creation, whereas it's central banking is the thing to criticize, not banking
[00:50:51] Brad Mills: generally.
[00:50:52] I agree with you. I think the main difference is like we don't live in a paradigm of competitive free banking. We live in a paradigm of corporate capitalism and government monopolies like government has basically given monopolies to the commercial banks. And they're rescued. They don't have the risk, part of the risk reward equation of capitalism.
[00:51:12] They're socialized by the population and the taxpayers. I agree. When problems happen. So yeah, I think I would agree with you that like if we were in a system of competitive free banking, I probably wouldn't be so critical of Fractional Reserve or the banks. But because we're not, we're in like a factory cookie cutter vultures relationship with the banks.
[00:51:32] I can't separate the banks from the government, from the central banks
[00:51:35] Henry Magram: because they have to separate. Oh, you must absolutely separate, but they're all
[00:51:39] Brad Mills: the same in this, in this paradigm.
[00:51:41] Henry Magram: No, they're not. There's a vital conceptual difference between a market hampered by government intervention, central planning and rent seeking, created by license.
[00:51:52] Like right now in the banking sector, you have to have a license to. You have to, uh, you know, comply with legal tender laws and with, uh, an enormous amount of regulation. So the idea that banks, per se, private enterprises engaged in the economic category called banking, which is intermediating as a professional between borrowers and savers, by pulling saved capital and then lending it out to entrepreneurs and consumers who wanna borrow that can, like in the, in the free market theory of banking.
[00:52:25] I see nothing wrong with banking per se, nor fraction reserve banking per se in our actual historical circumstances. The market for banking and money has been totally run, you know, influenced but materially by government intervention. So we have to separate conceptually, you know, what would occur in the free market and criticize it if it's not.
[00:52:49] and I think that in the free market you wouldn't see central banking arise. You wouldn't see fiat money arise. So I think we need to be very careful, extremely careful with like the words and phrases and claims we make when it comes to economic reasoning. For example, when Peter Schiff said that Bitcoin is fiat, that for me was the end of Peter Schiff's career as a economic thinker because if you, if you lose all grip on reality and you say that a free market digital asset is a fiat money, you're basically conflating the, the notion of fiat.
[00:53:25] Like it's a total confusion. He
[00:53:27] Brad Mills: doesn't understand the decentralization properties really of Bitcoin. I kind of understand why some of those types of folks would say Bitcoin is fiat. They've lost
[00:53:36] Henry Magram: all touch with coherent reasoning and they're obviously biased in favor of their personal business interests.
[00:53:42] In my opinion. And I, I followed him for a decade as a genuine. Fan. And then when he said that, that was the end for me. And also I think there's a lot of confusion similarly to that in Bitcoin talk. And this is where it's more interesting to, to discuss,
[00:53:58] Brad Mills: let's wrap that last post up or that last topic up.
[00:54:01] I, I think that we can agree that in a world of competitive free banking, that fractional reserve banking is not, um, a huge problem. It would just be a market choice. Like you, you would choose if you wanna work with a fractional reserve bank or a full reserve bank or whatever. And that would be based on like the market, like interest rates and stuff.
[00:54:23] I wouldn't be against that.
[00:54:24] Henry Magram: It's not even a problem. It actually creates value in society. It increases the standard of living of society to have fractional reserve banking because it lowers the cost of the payment system. So for example, under a gold, because of fractional reserve banking, there were more demandable claims on gold, and therefore the total number of gold claims.
[00:54:46] Or gold equivalent claims because of the issuance of fiduciary media like gold IUs and entries on ledgers at banks, more people thought they had gold than there was actual gold in vaults. And because of that, the price of gold on the market fell in real terms, the purchasing power of gold fell in real terms, which lowered the real cost expended to mine gold because if the real purchasing power of gold falls, there will be less profitable expenditure of society's real resources to mine gold.
[00:55:20] So by bringing down the price of gold, society saved money by spending less money to mine gold, all of the value that's, you know, lost mining. Gold is not a benefit to society when there's more gold mines that opened and more labor and more pickaxes built and more trucks driving around all the gold out of the mines that doesn't make anyone's house.
[00:55:43] Larger or, you know, cure anyone's cancer. So the cost of the gold mining industry is a cost to society and it is optimal for society. All other things equal to have less cost expended on gold mining. In fact, it's all things equal better to have any cost reduced. That's what costs are. They're not benefits.
[00:56:04] So the, this is something Von Mesis wrote about, that the lower cost of an ounce of gold, lower value of an ounce of gold in terms of its purchasing power as a result of fraction reserve banking saved society real costs. And similar with Bitcoin, the manufacturing and design and production and running of asics and all of the electricity involved is a cost to society.
[00:56:29] The benefit is we get a monetary system that's digital and sound. However, all things equal, it is not a benefit to have more costs consumed. So the point I was making about the lower cost of. Announce of gold reducing the gold mining sector in terms of its real consumption. The same is true with Bitcoin.
[00:56:48] And this is an idea that I did not invent, but I I do think it's mm-hmm. , it's correct. So if fractional reserve banking lowers the cost of the Bitcoin payment system, then we get something good at lower cost. I think this is something to be explored. I just wanted to make the point in the most extreme way because that's more interesting.
[00:57:07] So I differed with you in saying like, you're like tolerant to fractional reserve of banking. I'm telling you, the market will adopt it, and I'm telling you why. Because if you can do something cheaper, you're going to do it.
[00:57:17] Brad Mills: Yeah. And uh, it's, we've clearly have seen through history that the majority of the population doesn't even care about their.
[00:57:24] Like they don't care whether it's a sound money system or a fractional reserve system. And when you even compare Bitcoin versus Ethereum inside of the cryptocurrency world, that's a great analogy about the gold mining because that would be perfectly applicable into Ethereum because the higher the price of Ethereum, the higher the gas fees are and the worse it is for the users of the network.
[00:57:45] The lower the price of Ethereum, the lower the gas fees are and the better it is for the Ethereum society because you can do more things. So the price should actually go down with a system like Ethereum where the fuel is the asset, but. , it's at odds with the capitalist, uh, desire for price go up for a system like Ethereum where they, they're trying to rebuild everything like the entire financial system and everything else in a decentralized way using this, this scarce ish asset as the resource.
[00:58:17] So it is a funny conundrum. You want the number to go up, but that actually punishes the effectiveness of allocation of resources. In a way. It hurts the people that are using the network as the price goes up, but in a system where, um, Bitcoin versus Ethereum, we are trying to scale up Bitcoin and on second layers that don't use Bitcoin more efficiently as the fuel.
[00:58:40] So more of the economic energy's gonna be put on these second layers that will hopefully accomplish that task that you were talking about, where you'll be able to have more economic output with. Mining energy and stuff with second layers of Bitcoin. It doesn't actually require more mining, more electricity and all this stuff.
[00:58:59] You can have the same expenditure of resources of energy and ASIC mining and opex costs and all this stuff. Whether it's a trillion dollars of value being transported or a hundred trillion dollars that they entered, the, the resource usage doesn't need to scale with with the amount of economic value.
[00:59:18] Henry Magram: I'm really excited to get to our next topic, which is gonna be about Bitcoin fees and the security budget. But to wrap up this conversation at the moment, this, this part of the conversation, I wanna emphasize something else and in this conversation to make it as interesting as possible for you and our listeners.
[00:59:34] I wanna focus on things on which we disagree. . I'm not trying to be critical and I also don't, I'm not sure I'm right about anything that I'm saying, but I I'm trying to tell you what I don't like about what you think, just to highlight those areas, because I think we agree on like 99%, right? We both love Bitcoin, right?
[00:59:52] I mean, I personally am, am a majority Bitcoin person. Not, I'm not talking about crypto portfolio. I'm talking about everything, you know? Mm-hmm. . So I don't like what you said earlier about money. You said what I hear in a lot of Bitcoin discourse on Twitter and Clubhouse, that you said something to the effect of like, Bitcoin is perfect money.
[01:00:13] Or they say that Bitcoin is the only money that's ever existed. These are totally wrong, confused statements that I hear. In my opinion, Bitcoin is as much money as seashells. , it is as much money as dollars are money in my definition, and I think this is the only possible coherent definition, money is the generally accepted medium of exchange in an economy.
[01:00:39] So money can be higher quality or lower quality depending on what society chooses to use as money or what society tolerates from its government at making money. So I agree with you that fiduciary media, like bank notes or fiat money, paper tickets, you know, these fiduciary media are are low quality money if they're being debased by the central bank.
[01:01:04] And I agree with you that like. Money nest leeches into bank notes when the consumer doesn't differentiate between a dollar and a check for a dollar, when the merchant doesn't differentiate between a credit card swipe and a dollar in their hand, the liabilities of the bank are treated like money. So we have a complicated question of what is money today?
[01:01:26] It's all kinds of different claims that are treated equally as money, and that's because the government's backstopping all of those claims. As you. As you, well, you have well discussed, but when people say that Bitcoin is perfect money or that, or even worse a claim, that it is the only money that's ever existed, I think that is a terrible, confused way of thinking that leads to incorrect conclusions about what Bitcoin is because it is certainly logically possible for a better money to be adopted in the future than Bitcoin.
[01:01:56] There is no guarantee at all that the Bitcoin improvement proposals will be the best possible and another monetary. regime could come into being. There's no guarantee that Bitcoin is always going to win. I like Bitcoin. I'm pro Bitcoin, but I'm not a religious proponent of it in that I think that it is inevitable to succeed.
[01:02:21] And so I don't like this discussion of like, what is money to become a religious thing or to become a bad use of words, A confused use of words where we talk about perfection or inevitability or that worst of all the people who say Bitcoin is the only money that's ever existed. Gold was money. Paper tickets are money today in Amer in America.
[01:02:42] And you know, in the past, stones and seashells were money. So no one can coherently say that there's been a history of money for a couple thousand years, but also that Bitcoin's the only money that doesn't make any sense those two statements together. So I think Bitcoin's the best money ever discovered.
[01:03:00] It's a monetary technology. and why don't you respond to that as long as you'd like. And then let's go to our next topic, which is the security budget problem in Bitcoin.
[01:03:10] Brad Mills: This is something that recently I've heard Jack Mallers, John, Seth, a couple other folks I've heard say something like along the lines of like, Bitcoins the first money that's ever existed or whatever.
[01:03:20] I think it's mostly like a semantics kind of like philosophical thing that they're doing. Obviously there's been other monies. Somebody like John Seth will say, well that wasn't actually money. Like gold was never money. It was just the most approximate thing that you could get to money cuz we hadn't yet discovered Bitcoin.
[01:03:35] It's not helpful for like a beginner conversation to say something like that cuz then it's just like, you sound like you're in a conspiracy rabbit hole. Like, we've never had money, man. We've never land on the moon either. Like , it sounds like you're going down a path that that leads to, uh, getting high in order to understand what they're really talking about.
[01:03:53] So I don't agree with that either. I mean, philosophically I'm fine to have the conversation and like think about it in those terms. But what I was saying earlier was that like the money that's in your bank account isn't actually money. Not in terms of like it's not money and that Bitcoin is the only money that's ever existed in that there's bank bail-in provisions and money that we don't operate on fractional reserve banking anymore.
[01:04:15] And money's actually credit. So like money that you've been issued from the banking system, from the commercial banking system is actually just credit. That's a liability on their books. And the asset, is the interest gonna be paid on the loan? So legally, like speaking, The money in your bank account is not your money.
[01:04:35] Bail-in provisions say like that, you can lose your money and under like times of emergency, banks can just freeze your money and take your money. And especially like seeing what's happening with Russia right now. The whole entire country's being sanctioned by the rest of the world. Their assets, their money, their gold, anything that's in the banking system.
[01:04:55] Is not censorship resistant. Like it's clear now that digital Fiat money has kind of reached its apex for use in a global world of sovereign nations at least. And here in Canada, we had recently the trucker convoy, where the government decided that this protest was illegal white supremacist Nazis. And therefore anybody that was supporting it was a supporter of an illegal terrorist occupation.
[01:05:22] And so we're gonna freeze everybody's bank accounts who donated to the protests just to scare everybody to stop donating and stop participating in it. And about 200 bank accounts actually got frozen. So in Canada, in a liberal democracy, a western liberal democracy, we've had the go. Use your political views as an excuse to freeze your, your money.
[01:05:42] So that doesn't serve the purpose of money, in my opinion. Like I don't think money in a bank account serves the purpose of good money, and that's because it's not censorship resistant. So it's not fungible really. Like if you're a protestor, you're dollars in your bank account aren't fungible with the cash that you have because you can't even access it.
[01:06:00] I look at money as medium of exchange unit of account, store value. Those are the three like ideal properties of a money. And in the paradigm that we're in, we're trained to save. Pay off your debts and save right, pay off your debts. And save is such a stupid thing to teach people and the current paradigm of what money is, because interest rates are the lowest they've ever been in history.
[01:06:22] So you actually want to have as much debt as you possibly can bear at low interest rates, the lowest rates in history. and you don't wanna save money because money, quote unquote money, Fiat money is guaranteed to go down in value over time cuz they're gonna continue to print more and more of it. So it's a shitty store of value.
[01:06:41] So when I say like dollars or whatever, the bank count, money is not real money. It's more like in the paradigm of what you think money should be, you should be able to store your value in your money and over long timeframes. That's a terrible way of doing it with cash or with bank account money. And I've had economists and stuff tell me that the money in the bank is not actually money because it's a database entry for the commercial bank, which is tied to like a database entry for the central bank.
[01:07:10] It gets kind of complicated like I agree with you mostly about what you said, but I think if we just boil it down to like, what should your money do for. . Well, in Canada, you should not be worried about having the government be able to freeze your money. If you have political views that they don't agree with, you should not worry about losing purchasing power over five, 10 years.
[01:07:30] So we've learned all these lessons before in Cyprus and Venezuela and Greece where high inflation and hyperinflation has happened and bank Bains have happened. So that's why a lot of us Bitcoiners, like 10 years ago when the Grease bank Bains happened and the Cypress Bank Bains happen, we're thinking like, okay, so the banks can just take your money.
[01:07:51] That's not good. So we don't really trust the banking system and that's why Bitcoin is a great option for us because nobody can take your Bitcoin. If you're sovereign and you're not holding out an exchange, then nobody can actually. Affect that. It's a new paradigm. It's outside of their rules. So right now, Bitcoin over long timeframes has served as a really great store of value, but it's extremely volatile, and that's the price you pay while something's being bootstrapped as a new money.
[01:08:17] But for sure, I don't think it's good to say, oh, bitcoin's the only money, or There's never ever been money before. I would agree with you on that one. I say, like you said it, it's a better money. Yes,
[01:08:26] Henry Magram: and I agree with you that censorship and permissioned spending of money is a problem, and it lowers the value of money for everyone because they're at risk for the arbitrary decisions of the authorities.
[01:08:40] Now, of course, in a free market, a merchant might say, we don't accept gold, we don't accept Bitcoin, we only accept whatever. So no money necessarily would be accepted by all parties. But when there's a centrally planned decision to confiscate the money of dissidents or to penalize. Through surveillance stateism, the usefulness of money or the monetary system for certain people, that's a threat to markets and to society.
[01:09:10] So I agree with everything you said about that, and I think we're on the same page. I just like talking about money. Clearly. I think the only coherent understanding of money is Carl Manger idea and those who built on it, which is that the fundamental property of money is medium of exchange. Everything else is second order to that.
[01:09:31] So Carl Manger and Mesis agreed on this 200 years ago. That medium of exchange that's generally accepted as money and store of value is logically related to that because a medium of exchange is something you acquire at one point in time to later liquidate at a later point in time for a different asset.
[01:09:52] So, you know, you get money today in exchange for your labor and then later you trade the money. For an apple at the store. So you acquired it as an exchange of labor at one point and later for a different thing, you traded it again for apples. So that's medium of exchange or what manger called medium of indirect exchange, but he meant the same thing.
[01:10:14] So important here is the role of time, which is a common motif in Austrian thought and reasoning is that the role of time, all media of exchange. Every time you have this phenomenon of medium exchange, there's a time involved between the point where you acquired the good and later on when you liquidated it.
[01:10:32] And the time difference shows that the good must have a store of value role because if it didn't, in your view, if it weren't likely to store value over time between that first point and the second point in time, then you wouldn't have acquired it in the first place. So store of value is actually logically intertwined with medium of exchange.
[01:10:53] even though medium of exchange is still the fundamental concept to have in mind. So there have been tons of media of exchange throughout history, which were generally accepted in certain economies, and that's why there were monies we could say in those economies. And maybe one day Bitcoin will be the ultimate most popular ever medium of exchange.
[01:11:13] And if it's generally accepted everywhere, it could be in theory, the only money. But I think it's probably not going to be at any point in history. The only thing you could ever describe as money, but maybe that would happen and that would be great. But whether it does or doesn't is a question of consumer tastes and preferences.
[01:11:32] and political decisions. So I li I just like getting back to the fundamental idea of money in that Arian Austrian way, which is generally accepted medium of exchange.
[01:11:43] Brad Mills: This is actually the basis of why a lot of Bitcoiners deviate. This is where Bitcoiners deviate with Austrian economists. This was the whole debate during 2017 with the Bitcoin four cores.
[01:11:56] A lot of the early Austrian economists, folks like Jeffrey Tucker, Roger Ver, anybody that was like influenced by the Austrian school and their like strict definition about Austrian, uh,
[01:12:08] Henry Magram: thought yeah, they want the medium of exchange to come first before the store of value. Yeah, I think that's a confused idea and I, I can totally see how what I said sounds like that, but I was not making that claim.
[01:12:19] Oh, okay. Okay. Let me be very clear the order in which a particular economy adopts money and whether that adoption tends to be. Expressing story of value or tends to be expressing medium of exchange is a incoherent question for the reasons I just explained. Story of value and medium of exchange are logically intertwined and simultaneous, right?
[01:12:42] In fact, if you are holding something as a story of value, you are exchanging it. You are using it as a medium of exchange because you're transacting with yourself through time. Every moment you choose to save is an affirmative decision to act, and the way you are acting is through omission. You are saving the money so that your later self can spend it and you a chain of this decision repeated is the act of saving over long periods of time.
[01:13:09] So economics rightly understood involves actions al automatically conducted as an individual. Where you are behaving independently at different points in time with like multiple selves through time. You know what I mean? So if you're saving money,
[01:13:26] Brad Mills: that's a really good way to
[01:13:27] Henry Magram: think about it. I like that.
[01:13:29] Actually, credit Arthur Breitman say this, the very smart guy, you know, even though he is not first and foremost a Bitcoin, he said that saving is underappreciated. People criticize saving, but saving is an activity and there's nothing wrong with it. The use of the word hoarding as a disparagement is wrong.
[01:13:46] People are simply saving always when they're holding something. I like to phrase it as you're transacting with yourself through time, so they're medium of exchange and store of value. You're intertwined and the, I'm not really a Roger ver expert, but I think that anyone who says that Bitcoin should be used as a transaction medium more than a savings medium is totally incoherent in my opinion.
[01:14:07] It's clear that there's tons of transacting at Bitcoin today. There's also tons of saving. , and as I just explained, everyone who's saving is also transacting with themselves through time. You know, sending money to yourself in the future simply by holding it and doing nothing. You know, physically, you're intellectually acting, you're sending it to yourself so you can spend it at a later date.
[01:14:29] So I love
[01:14:30] Brad Mills: that. Did you make that up, Henry?
[01:14:32] Henry Magram: I, I certainly didn't because Austrian thinkers have said for a long time that saving is commendable and you're sending money to yourself at a later
[01:14:40] Brad Mills: date. That's a great way to think about it. You're doing a medium of exchange with yourself. You're transacting with your future self.
[01:14:46] That's a really cool way to think about holding
[01:14:48] Henry Magram: Bitcoin. , I think it was maybe a safety and amuse for someone who said that the most important decisions any person ever makes are those with themselves. Those decisions you make with your future self. When you study a book and you learn you're investing your time, it may not be fun today, but tomorrow you're much smarter and you're more powerful intellectually.
[01:15:09] So the most important economic decisions a person ever makes are those trades they make with their future selves. Are you borrowing from your future self or are you donating to your future self?
[01:15:20] Brad Mills: I lo I love that. I, but we'll definitely do a, a round two because you got lots of interesting topics and, uh, it was a great conversation.
[01:15:29] I'm glad I, I'm glad I had John. Thanks for, thanks for saying yes. Well, I,
[01:15:33] Henry Magram: I was flattered you had me on. I hope that, um, nothing I've said bothers anyone. Um, I really like polite conversation, Brad, and you're a polite, civil presence in the Bitcoin space and I really appreciate that. So, you know, if anybody wants to get in touch with me about any of my ideas, they can find me on Twitter and send me a dm.
[01:15:53] Um, if you, anyone disagrees with me, probably they're right. I just wanna say that. So, You know, I don't think I'm necessarily right about what I said about banking or, or the definition of money or anything else. I'm just an amateur who likes to chat with, with people
[01:16:07] Brad Mills: like you. So what's your Twitter handle that people wanna follow you?
[01:16:11] Henry Magram: It's my name, h e n r y m a g r A m, Henry Marom.
[01:16:17] Brad Mills: You know, that's it. Perfect. All right, man. Well thanks for, thanks for coming on the show. I'll see you on Clubhouse. Yes, thank you Brad. And people should come find us both on Clubhouse if you're interested. Uh, half the time we talk about, uh, the economy and Bitcoin and interesting topics.
[01:16:32] And the other half the time we're, we're talking about ridiculous nonsense. So come back a couple of times, , because the first time you come in it might be talking about chaps or something. You never know what we're gonna be talking about. Great. But, uh, yeah, come join me in Henry on Clubhouse and thanks for listening to the episode.
[01:16:48] I'll see you later, Henry. Thank you, Brad.
[01:16:54] As I said, I don't have any sponsors, would appreciate a review, helps me, uh, get discovered. I I wanna be famous. Maybe one day I'll be famous. Uh, no, I, I, I don't, I don't want to be famous, but I do want to have interesting conversations. So if there's, if there's anybody that you think I should have a chat with, hit me up on Twitter at Brad Mills can or come on to Clubhouse on the master Bitcoin today, or Cafe Bitcoin Rooms is usually where we're hanging out and come say hi and, um, you know, that's it.
[01:17:24] So hopefully you enjoy this podcast with Henry. It's been over a year, since we recorded this, but, uh, I'm gonna try to process the backlog and hopefully over the next few months we'll have, uh, five or six more episodes out and, um, have a great 2023. I'll see you on the next episode.