Episode 23
Transcript:
Donella Meadows:
I've been asked to talk about systems and sustainability to say how can we live good lives for everyone on this planet in a way that preserves the functioning of the planet and all the other creatures. Insofar as I have a role, I guess it's to try to see it whole, to try to see systems as a whole. That's largely because I ran in an early and impressionable part of my life into people who had some systems tools and who taught me how to use them to picture, to think, to simulate to understand systems as a whole.
And that's primarily what I'm going to talk about today, but I guess I should start by talking about sustainability. I'm sure you've heard a million definitions. I'm going to use the very strict definitions that I suppose Herman Daly has already told you, the three biophysical necessities of sustainability very clearly: (1) Every renewable resource must be used at or below the rate at which it can be regenerated or can regenerate itself that's soils, waters, forests - are a renewable resource base.
(2) Every non renewable resource; our fossil fuels, minerals, must be used at or below the rate at which a renewable substitute can be developed so that when as is inevitable, that resource is gone or so far depleted to use, we can get on to a renewable sustainable substitute. (3) Pollution stream must be emitted at or below the rate at which it can be absorbed or made harmless by the natural systems. And then typically, I know Herman didn't explicitly put this in because it's of a different order than the biophysical rules.
But I'm sure a fourth condition that he agrees with, it's one that Karl-Henrik Robèrt puts this the fourth necessary system characteristic in the natural step. It's the one that has to do with the sustainability of the social system, with equity, with the fact that every human being has to be cared for and secure, and feel that the distribution of the resources of the planet is fair. I have never heard any argument about the first three of these system's conditions.
Anybody who knows the laws of the planet has to understand that those are the rules within which we have to design our sustainable systems. I've heard a lot of argument on the fourth one, I don't quite myself see how one can argue with that one either. In order to design a world that I want to live in, or to design a world that will not self-destruct on the social level. And if you take that definition seriously as I do and you look around, you don't see a sustainable system anywhere.
Peter Joseph:
Good afternoon, good evening, good morning everybody. This is Peter Joseph and welcome to Revolution Now Episode 23, May 21st 2021. The opening audio extract is from a lecture by Donella Meadows, a prominent systems theorist, perhaps most famous for her contribution to the book Limits to Growth from 1972 out of MIT which was updated in 2004 by her colleagues as she passed away in 2001. Donella Meadows is one of the greatest oracle thinkers and educators on systems sustainability.
Someone who would be very notable today in pop culture if the world had any priority of focus and political economy relating to sustainability both environmentally and socially. Forget the lawyers and the business people, policymakers should be versed in systems science first and foremost. In this opening audio, she mentions the three biophysical necessities of sustainability, as put forward by Herman Daly who is a well-established ecological economist as he's referred even though like most, he still supports the business system, of course ,which is completely antithetical to sustainability as a structure as this podcast will continue to argue.
The first biophysical necessity, every renewable resource must be used at or below the rate at which it can regenerate itself - dynamic equilibrium. Number two, every non-renewable resource must be used at or below the rate at which a renewable substitute can be developed. It's an important one people don't often talk about and number three, every pollution stream must be emmitted at or below the rate at which it can be absorbed or made harmless obviously.
However, Ms Meadows does go a step further to express social sustainability as a function of equity. The need for an equitable, more equal society, meeting all human needs, as a function of the system directly, not some hopeful side effect by proxy as we experienced today in the market game. Her view is not from a political, moral or ethical disposition. Once again, as I've talked about before in this podcast, it's not about what is ethically right and wrong, it's about what works and what doesn't moving toward a given shared goal.
Socioeconomic inequality as we see it growing every day is a fundamentally destabilizing sociological and psychological force and the more it maintains its momentum, the more difficult the toxic outcomes are going to be to diagnose and resolve. We are breeding psychological sickness in society and once the damage is done, it can take on a life of its own. As she puts it, this fourth requirement, "To be socially sustainable, capital stocks and resource flows must be equitably distributed and sufficient to provide a good life for everyone."
And as she also points out, this is the most contentious of all sociological ideas to this day. People have been beaten over the head with pro-capitalist and hence pro-inequality propaganda for so long, the very notion of equity or equality instantly manifests an image of oppression or lack of freedom. Yet of course, there is a tremendous contradiction in our most basic cultural evolution if you pay attention, the trends we have seen. What has society been doing for the past few 100 years in terms of human rights progress?
All segments of society have been pushing for increased human equality, women's suffrage and the feminist movement, what is that about? It's about women being recognized as legally and economically equal to men and without sexist stigma. What have the overall civil rights movements of the world been pushing for all these years? It's about all colors of skin, creeds, sexual preference, gender identity, physical ability, and so forth being destigmatized and recognized as equal, in respect, as a function of human rights and supported as such.
This has been the trajectory. Point being the entire course of human rights evolution, the evolution of social and group relations have moved in the direction of increased equality as an evolutionary sociological force. It supports a basic intuition in fact, bias and bigotry causes conflict. Inequality causes bias and bigotry, in fact, along with a vast range of public health, epidemiological issues also leading to tension and conflict by extension, and conflict is obviously not a sustainable pattern. It is destabilizing, and increasingly so in our age of weapons of mass destruction, severe computer hacking technology, artificial intelligence, and all the other looming threats.
And yet again, the moment economic equality, the moment the very idea of giving people what they need is brought up, people still recoil in horror as if it's the most unnatural thing in the world. It's against human nature, or whatever. And all sorts of mythologies about, "Well, no one's equal." Well, obviously, no one's equal, it's impossible for everyone to be equal. That has nothing to do with the fact that people need to be supported for the sake of system sustainability.
The best thing you find with progressive folks today who are too scared to be labeled an evil socialist is they will say something like "we want equality of opportunity, not equality of outcome," which is saying absolutely nothing as the expressed problem in how our social system works, rests in the disproportional nature of economic opportunity itself. The game is so deeply slanted the dynamic is so bound by what one can only call "class war" as an outcome, that to impose legal or regulatory policy to assist this supposed "equality of opportunity" has and continues to do little to help.
The system is based once again on scarcity. Scarcity is how the system and the players leverage success and hence equality of opportunity becomes impossible. The rich get richer, and the poor stay poor by force of those dynamics, a litany of various feedback loops. Anyway, I'm already disappearing into tangents here and I have a lot to talk about today, but it is worth pointing out that one of the most caustic of all of these reinforcing feedback loops is the irrational cultural objection to the idea that increased social equity and basic egalitarianism is something to be thwarted.
Remember, 99% of our history as human beings, we did not use money or markets, and had no form of business as we know it. Hunter, gatherers by force of geographical determinism and inferences they're in cultivated a way of life that is nearly the opposite of what we experience today. Hence to say our human nature is in the way of humanity finding balance with itself is to ignore this history. And as Donella Meadows points out, without this equitable distribution of economic capacity, without the support, human culture will remain unsustainable and increasingly so as the ecological walls close in.
Now, before I jump into the core of the podcast today which will focus on Bitcoin, cryptocurrency, the ongoing toxic rise of financialization, a few quick programming notes. First, the postponed talk from March titled on the future of civilization will now occur on June 16th. I'll be updating things at peterjoseph.info soon. As of now, the event will still be closed because of the existing contract either way, it will be streamed for free online for everyone to see.
Number two, my film InterReflections is now free online in multiple languages on Vimeo, if you want to contribute to language translation, I certainly welcome it. And I'll look into some other avenues for translations for public contribution. Third, after years of internal debate, I am moving forward now with Zeitgeist Part 4 to be released next year. As many know, I've worked in many mediums of communication over the past decade from live performance events, media festivals, personal compositions, documentaries, TV style web series, Culture in Decline to my academic treatments, The New Human Rights Movement book, to this podcast, to more avant garde experimental communicative concepts such as seen in InterReflections.
I also just got noticed by the way that a paper I co-authored with a friend of mine will be in a peer-reviewed journal fairly soon through the World Academy on the subject of structuralism, I'll keep everybody apprised of that. The point being many different attempts in communication have been made, many different styles, but the Zeitgeist film series has a certain gravity and a certain cultural memory.
So I think it's high time to bring back that gesture and the ultimate point of this film, I want to make very clear to people, is that there will be very specific strict proposals put forward in the film regarding building out a new social system. And finally, I know a lot of people are like, "Well, it took you 10 years or something to make another feature film." Well, it didn't actually take me that long. The InterReflections project had a lot of barriers, a lot of complicated family issues occurring during that period and I love the film, I'm happy with the project.
But there's also an enormous amount of strain built into that production. And the final six to eight months of working on it, I was just dead. But my point is that after this kind of complex production, I can make a documentary standing on my head. No disrespect to documentary filmmakers out there, but until you try to do a live action thing, you don't know what the real challenges in filmmaking are. Okay, all that aside, d now let's jump into the subject of financialization, this time specifically focusing on Bitcoin and cryptocurrency.
Primarily concerning the poorly thought-out assumptions that have arisen in regard to crypto as being some kind of catalyst for social progress. To be clear, what I'm not going to talk about today is address say the inner workings of distributed ledger technologies (DLTs) or blockchain which is one form of DLT nor am I going to go after more common public criticisms of Bitcoin such as the massive ecological footprint occurring today as the Bitcoin blockchain continues to grow. I will quickly note, however, that it does not matter how much of this processing is supposedly coming from renewable energy today, it is still utterly wasteful, when you come to terms with the fact that Bitcoin is engaged far more for the purposes of speculation, gambling as a so-called investment store of value, than use as an actual currency. Bitcoin processing today is using more electricity per day than some countries, almost entirely for the purposes of speculation and gambling. Think about that, which in an odd way actually makes sense given the price volatility of Bitcoin is too extreme to be reliable as a currency.
There was a sell off just the other day dropping value by 30% showing no stability in Bitcoin's value, and hence integrity as a currency. And while enthusiasts continue to claim that the price will somehow stabilize in time, logic suggests the opposite when you analyze the nature of the instrument, and the cultural and political climate. First, from an asset standpoint, not a currency standpoint, the fixed 21 million coin float will always ensure higher levels of volatility.
Yes, from a currency standpoint, the 21 million limit is good as it's not inflationary in the same logic as limitations imposed by gold standard. But the fact is today and for the foreseeable future, Bitcoin will be looked upon and engaged as an asset, not a currency - instability that will be compounded by the fact that for the foreseeable future, for years to come, there will be controversial news, government rejections, whatever the hell Elon Musk wants to say moving the price around showing a rich pattern of contention sourced in news media and government activity and so forth.
As I will explain, Bitcoin exists in a very unique place, cryptocurrencies exist in a very unique place because value is entirely driven by subjective public perception. Pumping fiat money into it, taking fiat money out of it. Furthermore, once you factor in the demographic, youthful, highly uneducated, emotionally driven demographic, the Bitcoin community, people I am convinced on average have no idea what they are doing when it comes to the nature of market dynamics coupled with the fact that as an asset with no safeguards such as the ability for intervention and trading when there are massive sell-offs on Wall Street, these factors coalesce into the conclusion that Bitcoin and crypto in general will likely have very high volatility for many, many years to come, wasting enormous amounts of energy not for purposes of supplanting fiat currency in some act of revolution, but as a store of value and hence gambling instrument.
That stated, the core focus today will be on how the market economy has evolved and adapted, how money has evolved, and how Wall Street and proxy asset training came to be. You see, the rise of crypto is best understood in this evolutionary context, not as some resourceful creative destruction. But actually as part of what is best described as the cancer stage of capitalism, the rise of financialization. What people see as some kind of activist hope to challenge today's financial system is actually just another sick characteristic of the system itself.
I'm also going to run down some of the popular myths stated by Bitcoin and crypto proponents as they once again relate to this idea of social progress built into this and boy are there many. I've honestly never seen such ideological, philosophical and ultimately delusional assumptions about the supposedly revolutionary nature of Bitcoin and crypto. People grasping at ethical straws to justify what will, mark my words, remain as nothing more than an investment store of value, hence gambling instrument from here on out. That is all Bitcoin is, and all it ever will be.
Now I'm going to really try my best to keep my insolence and disdain to a minimum here, but I have to emphasize as a former private equity trader for six years who studied the stock market religiously leading into my interest in human psychology and economics, I have never in my life seen a more misled and confused subculture, people conflating what is little more than an abstracted trivial gamma instrument literally made out of thin air through computer code with a litany of radical progressive assumptions that imply some kind of revolutionary nature to help progress society.
The truth is that Bitcoin is not only a waste of time and energy when it comes to positive social change, it also has become a dangerous distraction for many in the activist community propped up again by false assumptions of some kind of revolutionary adoption, an adoption, quite simply, that shows no signs of ever occurring. I've watched so many friends in the sustainability, progressive, human rights and social justice circles over the years drift aimlessly into the cult of Bitcoin, crypto, NFTs and beyond, blinded by the irrational, idealistic propaganda behind its perpetuation coupled of course with a kind of pathological greed, a deep narrow self-interest that truly underscores the entire thing.
There's an old saying, "There was nothing more dangerous than one with righteous ignorance compelled by the idea morality is on their side." Think of the abortion doctors killed by so called pro-life advocates, right? In the case of Bitcoin proponents, not only do they believe they have virtue on their side as some kind of activist expression to change the world, the public spectacle and hype generated by this direct monetary reward, the dopamine hit they get when they watch the price of bitcoin rise as their fiat wealth increases, compounds the delusional sentiment.
If someone makes a million dollars owning Apple stock, there's a very good chance that they will be a fan of that company on that basis alone as a reinforced reward feedback and the same psychological force is happening in the crypto community as well. People pathologically lying to themselves about their actual motivations. Remember, prior discussions, podcasts back about why the rich are the last to question the integrity of the system that made them so? The same applies here, but in a kind of shared mass delusion.
The more the price of one's crypto holding rises, the more compounded the assumption of virtuousness and hence, the more irrational and blinded they become to actual reality, reason and the truth of what they are actually doing. The righteous Bitcoin enthusiasts actually think that by buying this thing, getting the price to rise, influencing others to buy, they are contributing to social progress in some way and that is what really bothers me.
That stated, let me make one more thing very clear. I'm not going to be arguing the benefits of the technology itself. Yes, crypto has done good in some regions, and the general potential for distributed ledger technologies like blockchain to improve efficiency in many areas of society technically is notable and productive. We are in a nascent stage of this DLT development, and if guided properly with the right motivations, DLTs do have revolutionary applications for data flows, allowing trust between parties without the need for a middleman and so forth.
While Bitcoin might be a blockchain, mind you, blockchains are diverse in design as are other DLTs and applications range far outside simply being a currency or a store of value. Also in the interest to avoid being accused of setting up straw man or the like. At some point, I will be playing clips from an interview with one of the most outspoken Bitcoin cheerleaders Max Keiser to contextualize my criticism and basic thesis.
So let's jump into this, first, let's start with a refresher on historical economic evolution. How did we get to where we are today? As has been touched upon numerous times in this podcast, markets evolved from the geographical determinism born from the Neolithic Revolution. Once settled societies emerged after the advent of agriculture as a self-organizing pattern. It became inferentially logical and predictable for interpersonal and intergroup trade to emerge as the foundation of economic activity.
This then led to further systemic self-organization over many generations influenced, of course, by emerging science and technology, leading to all of the institutions and procedural economic patterns we see today. Again, we're dealing with properties of a complex adaptive system, the market economy by which emergent self organization functions as a kind of cultural or social evolution. In other words, our social, economic, legal subsystems and institutions were not invented out of thin air by some power, they have evolved over generational time consequential to various feedback loops that maintain a certain gravitation.
And of course, at the root of that gravitation and influence is the economic mode. The nature of the legal and political systems we see today are a result of the economic mode and not the other way around. And if you're new to this podcast, and don't get what I've just said, please back up a few episodes to better understand this structuralist and system-based framework by which the entire sociological argument, indeed the entire basis of this podcast - rests. Now, it's important to understand that there has not been a true departure in the basic nature of our dominant social system in the last 12,000 years.
What academia often cites as different economic or social systems are really part of an ongoing evolution sharing the same basic foundation. And that is this network of human activity bonded by trade, competition, property, and economic exploitation. I call this in the book the root socioeconomic orientation of our society from abject slavery through feudalism to mercantilism to modern day capitalism, what you see is an evolution of a single system as opposed to the introduction of any new systems which is why in modern capitalism you still see all the characteristics of those aformentioned categories.
We still have slavery, we still have feudalism in the form of corporate rentier control, we still have mercantilism, and the form of state corporate collusion, and so forth. Of course, as an aside, one can argue that Soviet communism was a different system, but as far as I'm concerned, and many other theorists are concerned, it really didn't deviate enough to assume a new structure. Despite assumed theories and ponderings of Karl Marx, Soviet communism is best argued as an extreme form of state capitalism.
It still had money, markets, trade, property, and so on, but the obvious difference being the state owned virtually all means of production. Very quickly, the nuanced difference between historical capitalism and communism is capitalism gravitates towards self-regulation through free trade, seeking little to no involvement from the state. Hence, the modern libertarian ideal. Historical communism disallowed market self-regulation on the highest level of economic organization, hence controlled by government, but it did allow aspects of it in the public's day-to-day level of interaction. So it was a hybrid system.
Anyway, all of this is to say that overall, all known social systems since the Neolithic Revolution have shared the same basic theme. And the point I'm getting at is that there are characteristics that morph and change inside the system as it evolves and adapts, and hence the rise of what's termed financialization. Financialization is basically defined as this evolutionary process by which financial institutions, markets and beyond increase in their size and influence.
The financialization of an economy means a movement away from actual production into speculation, paper pushing, and other things related to the infrastructure of finance, including, of course, the stock market. And in terms of emerging characteristics of modern society of the market economy, financialization is becoming one of the most dominant adaptations, meaning, they move away from actual good producing economics to financial speculation economics. This emergence is already very dominant in fact as I will discuss.
And if markets remain as the dominant economic pattern of behavior, as technological automation replaces jobs and other influences, we are going to continue to see more increased activity in the financial sector, moving away from jobs and income that have actual tangible economic utility into more vacuous enterprises such as digital trading. Now, someone might argue, "Well, what does it matter?" If dematerialization and technological unemployment, automated systems are creating efficiency on the level that less energy and people are needed in the manufacturing sector to get things done, and they deviate into paper pushing and gambling and financial speculation, and other avenues of financialization- what does it matter?
Well, it matters because it's insanity. The great efficiency progress we have seen technologically and hence economically in our society should give us motivation to change the structure to take care of everyone to create a more safe environment, to reduce the stress on people, to reduce the workweek, and all of those things that have been talked about before, not the engineering of some fake non-productive activity such as everyone getting up one day and since automation is taking care of most things along with AI, everyone's job hence become sitting at a computer and trading money strategically like people do on the stock market.
Imagine if that was the last remaining economic activity and that might sound absurd, but that is where the trends of financialization are heading, as the economy becomes more efficient. We're moving in the wrong direction in other words. To frame all this, some may remember the description of the widget in basic market modeling, Economics 101. The widget symbolizes a good or service. From a systems perspective, it really doesn't matter what the item is that's been bought or sold, it's about the dynamics around it.
The abstraction of the widget is helpful here because the rise of financialization, the rise of Wall Street and the culture of non-productive speculation is the fictional widget come alive. What has happened is the idea of buying and selling for profit in the abstracted conception of it has taken on a life of its own. Each year, abstracted financial assets grow stronger in their attraction than the actual production which is why most corporations today dedicate or invest a large amount of their surplus capital into the financial system, gambling.
The financial sector alone now rakes in 30 to 40% of all corporate profits. The financial services sector, an economic sector, by the way, that literally doesn't need to exist in the real world in earthly economic terms, is on pace to becoming more profitable in the context of GDP take than an actual good manufacturing itself. Think about that. And get this, as the trend has emerged, moving from 10% of GDP to around 40% over the past 50 years, employment in the financial sector has remained at around 5%.
That's a ton of money going to a very small number of people making clear even in this broad statistic that the financial industry is a large driver of socioeconomic inequality. And very quickly, and I'm not going to go into too much detail, but it's worth noting that the financial sector, this arena, specifically financial asset trading, has been the most destabilizing economic force on the planet. The natural boom and bust dynamics of the business cycle do not have the capacity to crash itself in the way the financial system and Wall Street repeatedly has.
Largely a result not of the integrity of currency, but a result of the behavior of abstracted financial asset trading once again, which is why I use the hashtag Abolish Wall Street quite often. Now as a brief aside, theorists of cryptocurrency see the application of a distributed ledger, peer-to-peer blockchain capacity as a way to help eliminate this dominance of the financial sector, which is logical. If we eliminate the middlemen of banks and such institutions through peer-to-peer exchange, smart contracts and beyond, it theoretically could deflate the financial sector and its influence helping to reduce income and wealth inequality.
It certainly makes theoretical sense on paper such an outcome is possible. But as I'm going to describe in the context of many of these idealistic assumptions, people are getting lost in the theoreticals and not paying attention to what is actually happening. Yes, crypto as a currency, Bitcoin, could revolutionize interaction in the financial sector because of its peer-to-peer, decentralized nature. But what is it actually doing?
Actually, it's contributing to the exact opposite. It is deeply entrenched and part of the destabilizing pattern that is Wall Street, that is the high volatility speculation, leveraging, companies buying Bitcoin - when Bitcoin crashes so could the companies crash and you have the same kind of phenomenon that you see: the housing crisis, the dotcom crisis and beyond. So there's that, that is where we are.
And in terms of adoption of the actual currency in the hope to see some kind of revolutionary infrastructural change, the question becomes how is this going to be adopted to allow for that? How will Bitcoin or any existing cryptocurrency somehow magically come into favor of state power to allow for that kind of use, or as many idealists like to talk about, become the new global reserve currency. How is Bitcoin going to do that?
The answer on one side of the extreme is that people assume that simply using Bitcoin as a substitute for fiat in their day-to-day life will grow so popular, everyone will just start cashing in their fiat into bitcoin and that is the transition, fiat becomes absorbed. So to create a Bitcoin-based global reserve currency, all the fiat money in the world would have to be spent into Bitcoin to absorb it all.
And even if Bitcoin absorbed say 75, 85% of all the fiat out in the world, it doesn't change the nature and disposition of state power. The fact is, until Bitcoin is accepted as payment for government taxes, there will never be full adoption. And hence, the framework of fiat institutional power will always remain. Deutsche Bank analysts boldly proposed in 2019 that by 2030, Fiat will be entirely replaced by crypto. They call the transitional idea a "social consensus flip".
Now obviously, I can't predict the future, but I do have a probabilistic sense about how things happen in this world. And the more people that use crypto in their day-to-day world, the more popular it will become. But without direct government sanction, all you're ever going to have is a crypto-based sub-currency that at some point for state purposes will have to be converted back to fiat, preserving the system. And if state power does choose to adopt a cryptocurrency, as we are starting to see with the rise of Central Bank, digital currency pilot programs around the world, the essence of the decentralized Cypherpunk fantasy is lost.
Why? Because it will be co-opted. Naturally, governments will institute the code variations they want, crypto versions that serve state commercial interests. Look at what China has done with the emerging digital one. It isn't based on blockchain, but it is a direct response to the rising crypto phenomenon. And in time, the United States and other nations will do a similar thing. Point being what's going to happen, mark my words, is current instruments like Bitcoin will simply remain as a kind of arcade token.
When you put a $1 into the token machine as a kid, at the mall, and you get the special custom coins out of the machine to put into the video games? That's what the future of Bitcoin is now, and will be. It doesn't matter what the price of Bitcoin is, it doesn't matter how much fiat it absorbs by people buying it, states are never going to adopt it outright, and hence, it will never exist outside of the arcade. The arcade might be global, the arcade might have helpful aspects, especially poor countries that are using cryptocurrencies because of oppressive conditions.
I get all that, but let's be realistic about this idealism once again, this meta-magical thinking about how Bitcoin or any crypto is going to take over the world's financial system in the spirit of true decentralization. So I'm going to return to this problem of adoption as we cover more claims as well as it is the central factor that makes all pontification about Bitcoin's opposed merit moot.
Now let's return to the discussion of the rise of financialization. Where did Wall Street come from? How did this proxy asset system of investment gambling arise? Historically, investing in something means people put up capital to help a good producing organization, seeking to get a return once that company becomes profitable selling its material items or services. So 10 investors come together and they put money into the company, the company makes something and the investors get a profitable return.
That return is often referred to as a dividend, 10 investors in a company, 10 shares of a company's stock divided between them and they receive profit by way of that dividend. However, as has occurred in many contexts in this market system evolution as the system keeps adapting, today, it's moved to embrace its most basic structural function which again is the act of trade in and of itself, the buying and selling of the widget.
In this self-organizing gravitation once again, the idea that the share of a company itself could be priced and then traded for gain in and of itself increased in popularity. With the price value of that share of stock seen as representative of the performance of the company in general. Dividends became less common with focus moved to gambling on these stocks as a financial instrument in and of itself based entirely on the subjective opinions of those buying and selling.
And sorry to run this into the ground, but it's the market's most basic pattern of behavior once again, to buy and sell the widget and now it has been fully realized and accepted today as normal, trading abstracted non-existent so called assets, producing absolutely nothing in the process. News reports and pundits and experts cover the stock market today as if it's a normal economic institution, as if the stock market isn't anything, but a deviation of Las Vegas.
Now this may seem like an issue of semantics to some, but people who claim to be investing in the stock market, commodity market, or any other financial derivative, bonds, options, futures, and of course, the rise of cryptocurrency are not actually investing in anything whatsoever. You can't invest in something that does nothing. You know all those TV ads about how to "grow your wealth" and "put your money to work by investing in our mutual fund." It's all code for gambling, getting lucky and taking money from other people who are also gambling hoping to get lucky.
Buying a stock is not an investment, it is a zero sum money redistribution game. The market doesn't create value, it just moves money between players. It's only when a company goes public, the IPO, when the company sells off its full float of shares does the company benefit directly as an investment. That is where the direct relationship of a company's stock price and the company itself ends. What begins after that is pure public speculation based on subjective information.
And that is the first major myth of Wall Street I want to talk about, that people don't seem to fully understand, amazingly. People buying a share of Microsoft are not investing in anything by tangible definition. They are gambling based on information or news hoping to take other people's money. The news could be from company's earnings quarterly reports, or it might come from so-called experts reading news articles. But the only connection of financial instrument's price has to anything is the beliefs of the people trading it based upon the information they have.
That is it, and Bitcoin and all crypto currencies being traded as assets. People so called investing in them operate precisely the same way. The only reason Bitcoin goes up in price is because of the beliefs of those buying it. Elon Musk tweets something, Bitcoin jumps and falls. The legion of social media Bitcoin advocates out there, the guys with those stupid Bitcoin things in all their names each promoting and bragging about how much money they've made and how they're going to change the world, that legion of enthusiasts coalesce into one self-reinforcing feedback loop influencing others to buy Bitcoin, moving the price around.
In true real life markets, economic value comes from three places, labor, capital resources and demand. Demand meaning perceived utility. When you buy a chair, the price of it will generally reflect the labor energy put into it, the resources used to make it and the existing demand for it. In the case of equities or stocks, the value is determined once again by the subjective sentiment of those buying and selling, but usually based on news or information that is actually related to the company, the company's performance, its business reports, its profitability or lack thereof- which is why generally, such reports are correlated to some degree to the actual movement of price. Up being positive, down being negative.
However, in the world of crypto, that loose, last remaining basic association to something real disappears as well. Value becomes universally subjective, arbitrarily determined by a wide range of interpretations, whims, sentiments, social trends, idealism, and the general dynamic feedback spectacle of the crypto participants in and of themselves. In other words, it's completely meaningless. I'm not saying crypto doesn't have utility as a currency in some ways and all the stuff I've already talked about or the technology, but all of that becomes conflated and reduced, and then projected like a Rorschach test into the price of crypto and into the motivations behind those price movements.
And this gets to the central problem I wish to highlight that in this obnoxious groupthink mess is the idea that the value of Bitcoin, what people are seeing, actually reflects some kind of radical important social shift toward a more sustainable, more humane, economic pattern. That is the leap of faith that frightens me and bothers me very much, once again. People say things like "I support and own Bitcoin because it's anti-war", or "it's going to stop the debasement of currency through inflation," or and this is perhaps probably the most amusing of recent pretend activist incentives, but forward by Twitter founder Jack Dorsey claiming that "Bitcoin is going to be incentivizing more interest in renewable energy development" which is just stunningly Orwellian. Greenwashing.
Even if there is truth to the potential of Bitcoin or any cryptocurrency to achieve such ends, none of those things are or will occur since Bitcoin's fundamental lure is as an asset and not a currency. Bitcoin activists have this huge array of poorly thought-out moral claims, adoption and application concepts about the future potential use of it, superimposing all of that speculative vagueness upon the interest to simply see the price rise so in fact they can just make more fiat money.
In true technical reality and ironically in a way, the only thing that gives Bitcoin its value, its price, is the fiat currency being pumped into it. If it wasn't for the gambling interest to take other people's fiat money and the zero sum Bitcoin gambling game, Bitcoin would have no interest whatsoever. Now, the second myth which also really should go without saying, but I'm going to say it anyway is the idea that the stock market or any financial instrument, including crypto somehow creates wealth.
We could enter into a deep philosophical conversation about what wealth means. As far as I'm concerned, wealth is a capacity, not an outcome. However, in traditional conception, wealth is seen as a propertied outcome, a surplus, and somebody with a 50 room mansion or a billion dollars in the bank, we call wealthy, the more surplus, the more wealth. The fact is no financial instrument creates anything once again, all it does is redistribute existing money.
Every single financial instrument is a Ponzi scheme bubble and I don't mean that in a pejorative sense. It's a balloon, if you will, that inflates and deflates in value based upon how much air or money is put into it or taken out. That's literally all that's happening. I feel weird have to point that out, but people really don't seem to understand this when they look at the stock market. They've been so brainwashed by the media which presents the stock market as somehow related to our productive economy, and how wealth just magically is created inside this machine.
And to give another sense of the kind of illusions and self-referential nonsense that occurs in this world, think about the concept of market capitalization. So a company has a market cap of say $10 billion. Does that mean $10 billion has been put into their stock? Not even close. The number is an illusion that is inflated based on patterns of heterogeneous buying and selling through bids and asks.
So if I have a stock and the current value is $10, and there are 10 of these stocks available, the market cap is $100. Right? Let's assume this is the starting point of the asset. So 10 people spend $10 on the 10 shares upon the IPO, $100 is now invested. Now what if I offer my one share for $20 to another and they buy it? At that very moment, the market price of that stock goes to $20. Meaning, the market cap, the outstanding shares times to the current price, now becomes $200 magically - all because of that one little $10 spread trade.
So think about the absurdity of that in general and the absurdity of Bitcoin enthusiasts as they brag about their own market capitalization as if it means something. In May of this year, it was like a trillion dollars or something. Great. Guess what? It's utterly self-referential and meaningless. A high number simply means more people are gambling on it with increased enthusiasm and that's it and I bring that up because there are these deeply arbitrary argumentative comparisons via metric assessments Bitcoin enthusiasts make under the false assumption that such metrics reveal meaningful information, pretending like it's evidenced that something is changing in the world.
"Oh, compared to this and that Bitcoin has this great market cap" or this statistic or that metric. Again, it's completely pointless, and yet used constantly to keep this inspiration going to get other people to buy this crap. It is 100% meaningless, what the value of Bitcoin or any crypto is at any given point in time. It's relative only to itself, and it's not even worthy of comparison to other forms of instruments because it's too heterogeneous.
Whether a Bitcoin is valued at $60, or $60,000 or $60 million makes zero difference to any assumption of its utility as a currency, or its potential adoption. And speaking of adoption, and the activist delusions they're in, companies like PayPal or Tesla, formerly, or whomever are not accepting Bitcoin, because they want to change the world, have a decentralized currency and move away from Fiat. They are obviously simply getting in on the action for their own financial gain, absorbing transaction fees, and appealing to, of course, a new demographic that would feel more excited by using Bitcoin with such an institution because they think there's something radical about it once again.
From the incentive standpoint of commercial institutions so called adopting Bitcoin, it's no different than the decision to use a new credit card company or not for their transactions. And as an aside, people are often quite surprised when they find out that I, the Zeitgeist guy, am not in support of Bitcoin or cryptocurrency when it comes to economic or social activism. I made a series of documentaries which criticized the financial system, the fiat system, fractional reserve lending and beyond.
However, when you analyze all of this, you begin to see that the true solution is to transcend the system we have, not try to keep messing with the cogs and the wheels. As I often argue, I do not see in system solutions as viable and to refresh that notion as stated before, there is in system and out system activism. In system activism respects the structure of the system as it is, working to use, again, the existing pulleys and levers to change the system's nature- to no avail.
Out system activism focuses on existing leverage points that, if properly activated, will fundamentally change the system structure through self-organization, redefining the behavior of the system on the whole. Much of the Bitcoin and cryptocurrency community have deluded themselves into thinking that what they are doing is revolutionary, out system activism. I will say that DLTs and blockchain and so on do have potential to be part of an out system activist development, but it's been co-opted by the system already in the form of the gambling instrument.
All the dominant patterns of behavior surrounding Bitcoin present no challenged the system structure proven by the fact that the asset gambling aspect side of cryptocurrency, of Bitcoin, is profoundly more engaged by the public than any form of currency use. That said, let's now jump into a little bit of history on money itself. While gold coins can be found going back thousands of years, most early transactions really came in the form of debt, not currency.
People used sticks and all sorts of methods of record keeping or bookkeeping to track transactional liabilities. David Graeber, his book Debt: The First 5000 Years covers this well, so I'm not going to expand the issue. But eventually, precious metals including gold became adopted, not because gold and any particular utility that was sought, but simply because it was considered rare. This is the dawn of economic faith in assets and currency. Gold is considered rare and precious simply because it's considered rare and precious.
Since all forms of minerals are non-renewable in general, finite, literally any fixed item on the planet that can be deemed scarce could be used as a currency generally speaking, but gold being heavy, banks began to hold the gold and give people paper receipts for it. And over time, people found that they could just trade with these receipts without showing the physical gold and money as we know it was born.
In the United States, there was a gold standard where at a certain point, you could take your paper money to the bank and get actual gold. The price of the dollar representative value of a fraction of a mostly fixed gold supply. In 1933, however, FDR took the first step to take the US off the gold standard, delinking gold and the dollar, disallowing gold to be redeemed. Why did he do this?
Well, by most accounts, it stands to reason, the standard was interfering with recovering from the Great Depression. The crash of the financial markets in 1929 could only recover in the same way we recover from periodic crashes today, sad to say, but this is the way the system operates: financial stimulus. They needed to pump money into the economy, lower interest rates, and that couldn't happen with the fixed gold standard. And it is argued, logically, by many economists today that without doing that, the market would not have recovered. The depression would have continued far longer than it did and such is the nature of the evolving system.
As an aside, keep in mind that Main Street was doing just fine before the Wall Street Crash of 1929. It was once again rampant financial speculation and various leverage schemes, almost exactly what people are doing with Bitcoin right now mind you, that crashed the system creating the Great Depression, a process of crashing that has repeated many times since, once again due almost entirely to financial speculation; financialization. And what I'm getting at here is that in such an unstable system as financialization has grown, evolved in popularity and effect and institutionalization, governments today actually need the capacity to create such a stimulus because the crashes are going to keep coming.
It is unfortunately, part of the emergent adaptive equation. Can you imagine if during COVID with mass unemployment and business failure left and right, the US government was bound to a gold standard, unable to inject money into the system? I'm not saying I think the system functions correctly at all mind you, I hate the system. But let's observe what the system is and does and where it's coming from.
If the US government wasn't able to pump fiat into the system, it would have been a disaster, irrespective of the debasement of the currency through running the printing presses, and resulting inflation. So if we're going to endure the lunacy of our infinite growth, increasingly speculation driven society through the rise of rampant financialization, once again, the idea any of our money can be tied to a fixed value limiting monetary expansion is actually, in the modern day, a terrible idea.
It is a terrible idea because the only tool government has to correct inevitable periodic failures of the financial system is stimulus. And it's no surprise given these patterns that the entire world eventually went off the gold standard with the final nail in the coffin in 1971 when Nixon ended The Bretton Woods System. Now, I've probably ruffled some feathers with that distinction.
"What? Peter is in favor of inflation?" I'm not in favor of inflation, or the debasement of currency. But unfortunately, when you look at the whole system and what it's doing, and the infinite growth paradigm that has evolved, you see that fiat currency and the need to debase it, through running the printing presses for economic stimulus to keep the economy going - is actually a necessary evil due to the fundamental lack of integrity of capitalism itself.
And if you don't accept that, and you do not accept the theft of savings, the hidden tax that inflation creates which I'll talk about more so in a moment as it's a popular subject in the Bitcoin cryptocurrency community - if you want to change all of that, crypto is not the solution. You have to change the structure of the entire economy to stop the necessity for these stimulus needs. Now on that note, let's now listen to one of the most dominant proponents that I'm aware of Max Keiser, some of you remember Max Keiser was interviewed in Zeitgeist: Moving Forward.
Keiser has always been outspoken to his credit about the corruption of Wall Street and the lunacy of certain elements of it which is why I interviewed him on the subject. But he's also a card carrying capitalist apologist, one of those guys that doesn't see modern capitalism as a true form of capitalism, but some kind of perversion. You know the drill, it's that basic libertarian defense to say what we had isn't capitalism, promoting some theoretical ideal that will never come to be.
How we idealize a system should work is meaningless when faced with the system actually doing what it does in real life. And the more you understand market economics both as an economic system and a power system, everything we see in the world today from cartels, to cronyism to collusion are all predictable and expected on the system level of behavior. Now the following segments are from an interview Max did with my friend Lee Camp from Redacted Tonight. And Lee does a great job of getting to the root of it asking Max point blank how Bitcoin is actually a positive social progressive admin.
Max Keiser:
Well, what it says about our economy is that the solution to all the problems appears to be money printing, and that's debasing the US dollar, and so people are looking for a safe haven. And the number one destination for a safe haven today around the world is Bitcoin and that's why you're seeing the price explode the way it is.
Peter Joseph:
First, as discussed, more thought needs to be given on the subject of debasement of the currency as an unfortunate necessity because of the economic growth nature of our society, keeping money moving, thwarting crises. Second, Max immediately says that Bitcoin has become the new safe haven to hedge against inflation, basically, which historically speaking was the realm of the purpose of gold in the financial system which is why gold and the US dollar tend to be inverse.
Is Bitcoin the new safe haven? First of all, Bitcoin is extremely volatile, and safe haven instruments tend to have a lack of volatility. Bitcoin fits no profile of what a true safe haven has historically been. Furthermore, I don't think anybody moving into Bitcoin is doing it because they're hedging against inflation. His statement is just a very convenient idea to make it seem like there's some kind of integrity in Bitcoin, there's some kind of function in it as a response to system behavior (fiat system).
And perhaps even more importantly is the very concept of a store of value, a way to hedge against inflation - is a complete contrivance. It's a completely nonsensical concept when you break it down. When you buy gold, gold doesn't somehow do something magical. It's simply the temperament of the traders in that market which will move gold up as more attention is placed into it and then assuming the price rises, you take your money back out of it, eventually hoping to get a percentage return that competes with whatever inflationary loss may have happened.
But the inflation still exists, the money is still debased, all you're doing is taking other people's money in a zero sum game. So how does that actually play out in some larger order benefit? When people say these kinds of things, it says if everyone just bought gold, somehow everything will be stable, it's not, people are going to lose in the same way they lose in any kind of gambling game.
In the strict concept of the idea, there is literally no such thing as an investment safe haven. It can't be a safe haven if one side is going to win, and one side is going to lose by force of the zero sum game.
Lee Camp:
You and in terms of some of the other characteristic of Bitcoin, you've said Bitcoin is progressive, others believe that it's simply another tool for the rich to play around with and that doesn't fundamentally change the system or change the exploitation inherent in it. Which side do you say is right on that?
Max Keiser:
I think it's progressive because you are replacing fiat money which is easy to debase and that's at the root of most problems.
Peter Joseph:
Once again, so typical of the exaggerated rhetoric so common to the community. You're not replacing fiat when you buy bitcoin in the same way, you're not replacing $1 when you put it into an arcade machine and get out tokens. And I've already covered this bizarre incremental assumption that as long as people keep putting their money into Bitcoin, it's going to magically systemically override the entire system.
It's not going to happen without state sanction and as far as I'm concerned by force of the volatility of these instruments, you're never going to have enough faith in the currency, in currency use, to see that trend either. Again, today, people see it as an asset, that is the dominant identity of Bitcoin and it's going to stay that way for a long, long time.
Max Keiser:
Bitcoin can replace fiat money and replace all the criminality we see on Wall Street. So I think it's progressive in that sense.
Peter Joseph:
While it is theoretically true that Bitcoin "can" replace fiat money, how it actually gets there is the ultimate question with enormous barriers. And as far as the passive statement, once again, all this rhetoric about how Bitcoin will overcome criminality on Wall Street. Well, what kind of criminality are we talking about? Wall Street is defined by investment banks and market movers working through exchanges to gamble on various instruments. The entire institution is sickness with perhaps the most fundamental problem being the creation of derivatives.
It should have been criminal for these housing mortgages subprime stuff to be bundled and gambled upon by proxy leading into the 2008 housing market crash. Is that the criminality Bitcoin will solve? Will Bitcoin solve the insane leveraging? No. Will it solve the problem with people like Bernie Madoff? No. Will it resolve the outrageously offensive bonuses and extreme income of hedge fund managers? To what effect Bitcoin can limit criminal conduct in a system that is fundamentally criminal, I can assure you it will be very minor.
The criminal incentive is directly built into the market economy. It is a system-based incentive function. In fact, no change in the kind of currency being used will have any real effect on various degrees of criminal conduct we commonly see on Wall Street or anywhere else.
Lee Camp:
Bitcoin is deflationary because there's a limited number that will ever be present in the world, right?
Max Keiser:
Right. And that is not a bad thing because it means it provokes competition and it provokes innovation. When we are under a gold standard, for example, you had a huge boom in the global economy because the people had to innovate their way to make profits.
Peter Joseph:
First of all, innovation is constant and rampant in our competitive society as people were born into the scarcity based world; into the scarcity-based social system, they either have to sell themselves or they have to create something. There is so much innovation right now it is wholly wasteful. Everybody is innovating at every turn, trying to think of anything they can to produce and sell to somebody else.
To say that during the gold standard there was more innovation is a deeply weird and specious statement. But let's get more context and see how he explains himself.
Max Keiser:
What happens in a fiat money system is that you have people who are closest to Washington, people who have greatest political influence get the free money the first, first before anybody else, it's called the Cantillon effect.
Peter Joseph:
Okay, then this is a true observation, the Cantillon effect is real, it's from a 19th century economist that recognized that when new gold was found, new influx of money was created in parallel. And that money was distributed first to the financial system to wealthy folks related to government in a kind of cronyism. And of course, that is still common today. When you have the bailouts of our society, the tendency, for many reasons actually, is to put the money back into the financial system, and you end up giving literally the rich people all the money to begin with, and then it trickles down through the economy.
That is indeed a very unfair state-driven reality. It's also a very sparse phenomenon. Of all the problems in the world, that is one sub-problem that is not necessarily the worst of all of our economic problems, of course. Furthermore, what we're really talking about is cronyism, favoritism of government towards certain institutions, helping out their friends. And that's going to happen whether we have a cryptocurrency or not and Max goes on this tangent about companies getting interest-free loans from governments and benefiting off of the inflation that is created, leveraging the inflation as he talks about it and that is a problem.
That's a very specific nuanced and relatively small problem compared to all the other inequality issues and all the other ecological issues we face as a species. And furthermore, it's worth pointing out that it's implied, it's assumed that some kind of adoption to Bitcoin would stop this pattern. But wait a minute, we're talking about government and government cronyism. If they're doing this pattern as it is, that incentive will still remain which then means there would be hesitancy on the part of any state to interfere with those kinds of loyalties.
And hence, why would the government adopt Bitcoin or any kind of cryptocurrency that would limit its ability to perform such acts? Once again, this gets to the heart of the delusion. If you're bothered by what the government does in its money creation and spending, remember, it's still the government. Why do we think that general public adoption, buying Bitcoin and using it is going to magically influence the behavioral patterns of a government that uses fiat when it benefits from it? How does that revolution occur?
Max Keiser:
The fiat money world is very prone to violence and war. The US likes to go to other countries, drop bombs and steal their assets. Well, if those assets are unconfiscatable, if the assets of the country is Bitcoin, the US can't steal that country's assets. So the US is going to have to go to that country and negotiate in a friendly way to get what they want from that country. So it demonetizes war, it demonetizes violence and that way, it's a progressive issue. Bitcoin every progressive should love Bitcoin for that one reason alone, it demonetizes war and violence.
Peter Joseph:
And I'm going to stop with this one in its grand naivety. First of all, if the United States wants to steal the oil of Iraq, it doesn't matter if Iraq is using goddamn Bitcoin. The idea that any of this stuff is non-confiscatable is extremely dubious as well on multiple levels. On a level of criminality or war, putting a gun to someone's head and forcing them to give you information about their Bitcoin account would not be that difficult ,obviously.
So these are just more weirdly exaggerated claims that lose all nuance and just sound good. Furthermore, building upon this concept, one of the arguments I hear from a lot of Bitcoin proponents is that the US military machine, the military industrial complex needs fiat currency to pump into the Pentagon each year with this outrageous budgets and that's how it finances its empire wars.
This argument has been around for a long time in the Ron Paul community, I think I first read about it in The creature from Jekyll Island about the Federal Reserve by Ed Griffith. And of course, it's true. The US government can make enormous amounts of money out of thin air and use it to finance whatever it wants. That's also the basic observation of MMT. Given that, given the constituency of the US government and the longstanding pattern of military dominance, do you honestly think they're going to throw that concept away because the public is now clamoring for a peer-to-peer decentralized currency with a fixed 21 million standard? Of course not.
And again, I hate to sound like a broken record, but this is where the ultimate delusion clashes. The state is never going to go along with any of this. They will simply continue the system they have and they'll just tolerate the token arcade players that are using Bitcoin in general day-to-day reality. It will be tolerated on that level, it will never go anywhere and the state fiat systems of power will remain unless there's a total domestic or global revolution.
And in that case, we shouldn't be messing with any of this garbage at all and we should be focusing on true system level change. So in conclusion, I've gone over an hour with this and my God, I hate the subject. The way you do not change a system of this nature is by trying to alter one of the most fundamentally caustic aspects of it. This is why I advocate a marketless society and I actually see a higher probability of that occurring, believe it or not, than any of these incremental in system ideas such as the application of cryptocurrency.
As my lecture will talk about, there is a way to build a new kind of social infrastructure. In fact, using some distributed ledger technologies, and maybe in certain context, cryptocurrency would be applicable in this new rising trend. But in this design revolution, the concept of markets and currency being the fundamental problem, being the fundamental catalyst of the power sickness we see has to eventually be put to the wayside.
That is what system level change is going to require if humanity expects to be sustainable in the future, and create social justice and hence, social stability, as Donella Meadows pointed out earlier. All right folks, I'm exhausted. I will talk to everybody soon. Thanks for listening, this program is brought to you by my Patreon and I'll be in touch very soon. Thank you.