The Natural Order of Money | Roy Sebag | EP 330
If you believe in God, then you believe that the world was created. And if the world is created, um, then you know ipso facto the natural order itself is imbued with the order. In the natural order, the regularity and the vagaries, they're imbued with us, with a sense of morality. The material world is a lot more spiritual than we might conceive.
Well, one of the ways you can think about that practically — because it sounds like a strange abstraction — is that if you and I decide that we're going to do a joint venture in a relationship to mining and we don't treat each other fairly and honestly, the probability that our mining endeavor is going to be successful is pretty much zero. Yeah, because we're going to run into so many entanglements over time that it's going to make the practical operations impossible.
And so you might say that in order to come to some concordant grip with the vagaries of the natural world, there's an ethic you have to manifest. And that seems to be part and parcel of your sense too, that to operate morally also means to align yourself with the proper rhythms of nature and to pay attention to the proper ratios of scarcity and the principles of the natural world that you have to abide by in order to play a productive game.
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Hello, everyone watching on the YouTube platform and associated podcasts. I'm here today with Roy Sabag, who I met about a year and a half ago, continuing my investigation into the field of economics, I suppose, in monetary policy and monetary conceptualization as well, something I'm woefully undereducated in.
Roy's had a remarkable career as an entrepreneur, businessman, and thinker. He's recently published a book, The Natural Order of Money, which is what we're going to talk about today, trying to puzzle through just exactly what constitutes money and how it might be productively contemplated psychologically, biologically to some degree, at least in terms of its potential biological implications, economically, sociologically, philosophically, and theologically. We're going to try to cover all the bases as Roy's book does.
And so I thought we'd begin this conversation by having Roy talk about his background so that all of you who are listening have some reason to understand why he's doing what he's doing and perhaps why his ideas might be regarded as compelling and credible.
Yeah, so Roy, um, we met a year and a half ago. You started to talk to me about the thought that you've put into the idea of money for really for what's — decades, really. And then you handed me this manuscript, which was an early version of the book, and we've been talking about it to some degree ever since there are variants of it.
And so let's walk through your history and the development of your businesses so people can get an idea of the range of activities that you engaged in. So what did you start with on the entrepreneurial front?
The first thing I started with on the entrepreneurial front was actually buying and selling physical mines, so iron.
And you did that how at all? How old?
Probably 25, yeah, 25, 26. So that gave you a taste for real-world engagement because there's something very concrete about mines. And from what you've told me, you went and visited a number of months.
Yeah, and so how did you get involved in investing in something as complex as the mining industry at such a young age, and why did you pick mining?
It's actually a good question. So when I started in finance, I was what you might call a value investor in the Graham and Dodd method, which is the method espoused by Warren Buffett and a lot of the famous investors. So the idea was that you were looking at a share of stock as a piece of an actual business, and your task as a security analyst was to essentially value the business, come up with an estimation of value known as intrinsic value. And then you would seek to capitalize when the price in the market was at a discrepancy or a delta from that estimation of intrinsic value.
So, you had to learn to investigate something like intrinsic value conceptually, right from the beginning. Right? That started you thinking about what intrinsic value might actually constitute in some deep sense, I would presume.
Absolutely! But in this case, the method is simply an abstract one. I mean, you know, you're looking at financial statements, so you're analyzing filings the companies that are publicly traded have to make, such as 10K filings, 10Q filings, or annual reports in other countries. And then you're learning to study basically three statements: the balance sheet, the income statement, and the cash flow statement. And you're building models either in your mind or in actual spreadsheets, and you're looking to see if you can make an estimation of intrinsic value.
Now, normally, what you're doing is you're taking the sum total of potential cash flows that the business might earn, and then you're discounting it back to the present at an appropriate discount rate. Now, this becomes very important. So, what you're really doing is you're valuing time. But I don't want to get into that just because it's a bit of a complex issue.
But the other aspect of this theory or method of investing is Benjamin Graham, the founder. He had this view that the stock market had evolved into a kind of dual nature beast. On the one hand, there were speculators that were just trying to buy something and sell it for the sake of, you know, like a hot potato, but the actual...
For a quick profit! Right.
Right, they were like the merchants in the bazaar that were just turning over their inventory. But on the other hand, there were the business owners, the large shareholders, the proprietors, and to them, the machinations in the market, the daily movements were meaningless.
So the way they looked at a business was actually what was the profitability of the business, what would the potential dividends be, what would the sum of parts of the business be in a liquidation. And what he noticed was he called it Mr. Market. You know, Mr. Market shows up every single day and tells you that your share of stock is worth this or that, and he's kind of a schizophrenic. You know, one day he says your shares are dear, and the other day, you know, they're not.
And your job as a security analyst is to disregard those daily machinations. The only thing that's important for you are the actual business results, right?
So you're trying, in some sense, as a value investor, to put yourself in the seat of a living business owner, yes, and to see what the productive potential of the business is over time.
That's right.
Right, right. And so, in some sense, you have to get down to whatever the fundamentals are, and it's not so obvious what the fundamentals of a business might be.
That's right. So you have to familiarize yourself with a few things. But on the surface, the idea behind the method did is that you would take the financial information that's available to everyone, you would come up with an estimation of intrinsic value, you would use your discounting mechanism, whatever it is, and then you would go out into the market and look for these situations where there was a large discrepancy.
Right?
So essentially for a good purchase, yeah, you're looking to buy a dollar for 15 cents or for 50 cents.
Now here's the problem, as Benjamin Graham famously said, in the short run, the market is a voting machine, but in the long run, it's a weighing machine.
That long run, we never truly know how and why it happens, but mysteriously, eventually in time, companies will trade at their intrinsic value. And what often happens is they'll overshoot their intrinsic value or undershoot their intrinsic value, right?
Now this idea, because the short term is trying to estimate that within parameters that are indeterminate.
That's right.
So as you stretch the arrow of time, you find that the kind of volatility that you see in the short run somewhat disappears. But there's a problem here because there's nothing guaranteeing that the share of stock, which is basically a security, it's a claim especially for a minority owner with no rights to just take control of the business, shut it down, and cash out the intrinsic value, there's not necessarily a forcing mechanism that would cause a share to appreciate your intrinsic value.
And oftentimes, or as would be believed in modern economic theory, the market is so efficient that if investors decide that a share of stock should trade below intrinsic value, there's a reason for it. The market's sensing something in the future, whether it's, you know, there are hypotheses in some sense. Correct me if I'm wrong, that that value investing of that sort is in some way impossible to do consistently.
Consistently? That would be the efficient market hypothesis, right? That all actionable information is in some sense already priced into the stock.
And then the hypothesis would be that even people who routinely outperform the market are doing that not because of any of their intrinsic wisdom, but because they're statistical outliers, they've got lucky in some statistical sense. And sometimes even consistently, or the corollary that they'll tout is that those people are just providing liquidity at certain moments.
That's kind of the newer way of arguing it. But that position is just plain wrong. I mean, I wouldn't be where I am today if it were true.
Well, the problem I had with that position is that if that's true, it sort of invalidates the idea that intelligence is useful because the world is about as unpredictable as the stock market, and yet we seem to be able to use our intelligence to negotiate through it.
And so I have some, what would you say, sympathy for the proposition that an intelligent analyst might be able to get an edge on the perturbations of the market.
Anyways, you did do that and you were quite successful, and what do you think made you successful? You've continued to be successful financially and in other ways, but what do you think it was that you brought to the problem, especially at such an early age, that enabled you to be successful? And what did you learn by actually going to the mines and so forth?
Well, we're not at the mines.
Yes.
Okay, so this would be me just basically picking stocks in a vanilla way, both long and short but employing this method, which I definitely internalized. You know, at a very young age, I would meet Warren Buffett and write him letters and have lunch with him and things like that.
There was nothing wrong with the method; in fact, I think the method is the only way to outperform the market over time. That's why all the great investors are generally value investors.
For the last 15 years or so, 10 years or so, value investing has gone out of vogue but all of those investors are now making a comeback, many of which have produced really positive results in the last year in 2022.
So, if you're going to try and generate alpha, as it's called in hedge fund parlance, you need to be a value investor in my opinion.
An alpha is the differential between the actual price and the assumed intrinsic value.
Or performance over the index?
So, if the essence —
Oh sure, I had that wrong. Yeah, it's over performance over the index; that's the average performance of the market, that's right.
So you need to prove that you're able to generate a return that a monkey throwing darts can't generate because you know there's the famous experiment where they had a monkey throwing darts at various stocks, and he basically produced the same.
Right, but the idea is that you can't beat random samples.
That's right, yes.
Fooled by randomness.
So, no, there's nothing wrong with value investing.
But for me, I think it reached a point where it was no longer satisfying intellectually to just sit there and analyze businesses abstractly, although I did enjoy learning about different industries.
And that's another very important thing, you know value investors need to be versatile enough to learn about the economy itself and one of the issues I had with the method intellectually, or the school of value investing intellectually, and some of the mentors that I had was they genuinely believed that they didn't need to care about the economy at all.
Their job was just to look at individual stocks and to construct a portfolio of individuals.
There's a detailed focal knowledge.
Yeah, and they used to — there used to be these outages in the community all the time. I remember even as a young kid, you know, that nobody can understand macroeconomics. That stuff is just a fool's errand and there, you know, you can't actually —
But importantly you can't actually value a commodity because a commodity has no balance sheet.
How do you distinguish a commodity from a stock or another financial asset?
Well, a commodity is something that's physical. So its possessor is using it as an input.
So if you buy wheat, you know, you might buy it electronically; then you take delivery of it and you use it to make flour to produce bread.
So we think of those as raw materials?
Yeah, they're natural resources.
That's right.
You're not buying it to sell it onwards; you're buying it to consume it.
Whereas a stock is basically a contract, you know, a note, a piece of paper that says that you're entitled to a share of a corporation.
And corporations themselves are these interesting entities which are, you know, relatively new in the history of humanity — joint stock companies.
The idea before that was that you would normally create a partnership, pool capital, then when you died, your other partners would have to buy you out.
But with stocks, you've created these entities that essentially live on forever with just the shares changing hands.
Right, a more abstract form of ownership.
But what that allows it to be more distributed allows risk to be more distributed.
That's right.
Zoom allows people to diversify more easily.
That's right.
But what that achieves is a kind of illusion where once a stock is traded on a public exchange and it has shares slushing around every single day, investors begin to impart a sense of timelessness or entropy resistance to a share of stock.
Right, like it's a thing.
Yeah, you can't conceive that Apple will not be around in 100 years.
Right.
Well, but it turns into our psychology very interestingly because if you plot a stock and you see it going up, if you see if you see a physical entity going up, yeah, it's still moving at a pretty decent rate.
You assume it's going to continue to go up.
It's very difficult to shake that.
But when you're looking at a stock chart, because you have this built-in embodied proclivity to assume things like inertia, it's going down very rapidly, and things going down rapidly tend to go down rapidly to continue that.
And there's no reason really to assume that that's the case at all with the stock because, well, if you could, then you could predict the stock, and then, of course, you could make a lot of money!
So, but there's actually an even greater problem, which is a historical fact that if you stretch time, none of these stocks ever survive. So when they hit zero at some point...
Well, they actually disappear, they go bankrupt or they get reorganized.
And so when Charles Dow, who worked at the Wall Street Journal or sorry, at the Dow Jones company in the 19th century, formulated the initial Dow index of 30 companies, it's the same Dow index you have today, right?
The index is the same, however, there is not one constituent, I think U.S. Steel, the U.S. Steel is no longer in the Dow.
Yeah, there's not one constituent in the Dow today from 130 years ago.
Right, so you're trying to measure something that's...
Caught?
You're trying to measure, that's right, whose constituent elements are transforming constantly.
That's right.
But the double illusion there is that the index value itself becomes an idea and an object, you know? It becomes a security in and of itself.
So people like always... I mean, you know, some of the greatest economic thinkers, Nobel laureates, will make this error, but the whole industry makes this error.
And what they do is they'll say, um, the value of the index has gone up this much over this many years, but the problem is that the index from 100 years ago was an entirely different group of stocks.
And every time you need to get rid of some stocks, there's costs associated with it, with it, and many times...
Is there, can you make an index that's large enough so that you overcome that problem statistically?
No, because I suppose it would take just longer for it to transform entirely if it had more entities, and I know most corporate entities don't last that long, even if they're highly successful.
Right?
That's about, it's about 30 or 40 years.
Yeah, right.
And that turnover is probably increasing, and that's a good thing as far as capitalism is concerned because, you know, there's creative destruction, and failure is an integral component of capitalism.
But going back to the switch, there was nothing wrong with value investing; it was fine. But there was a kind of intellectual... I became a little disinterested in the whole way of going about it, and I had this problem that, uh, you were making money doing it.
Yes!
How old were you when you became financially independent?
I'd say early 20s.
Early 20s. Okay, so despite the fact that you were making money, something was pulling you to investigate something different.
Yeah, yeah!
And did you know at that point what it was? I mean, was it just a diminishment of your interest, or could you see interest in something specific otherwise making itself manifest?
I actually do remember one of the things it was. It was me trying to purchase property and bidding on a few properties and learning about the real estate market and seeing the price of houses change nominally.
At some point, like asking myself the question, what exactly is driving the price of the house up? I know it drives us the price of a stock up.
I know that ultimately, um, a stock is a share of a business which generates income, but what exactly is a house? Like why is a house worth more today versus yesterday?
And I remember thinking very clearly, like wouldn't the house actually be decaying over time? Wouldn't it cost money to upkeep the house?
And so that was when I realized that value investing was insufficient for understanding economics. And that was what I was really interested in, was trying to answer certain questions I had about how the economy works in and of itself.
And I also had this real problem that commodities were somehow excluded from the value investing method.
And so I started learning a lot about commodities, and I was just fascinated with, you know, the periodic table.
And the fact that...
So it sounds like, to some degree, you were starting to become interested in basic, like really basic philosophical notions of value, per se.
Right?
Remember when I was a kid, 17 or so, I read this book, Zen and the Art of Motorcycle Maintenance.
Oh yes, wonderful! Great book!
Yeah, well, it's really an investigation. He called it an investigation into quality, right? Into what makes something of higher quality than another, which is really an investigation into value.
And yes, my career was driven in large part by an investigation into value, and that might be maybe why our interests parallel to some degree, because you were interested in value very practically, but then you also became interested in the idea of value, like abstractly.
What constitutes value? Why does it dynamically shift and change? What drives that? Is that merely a consequence of human interaction?
I mean, that's something that Persig investigated in The Art of Motorcycle Maintenance, right?
Because we could assume that value is no more than what we say it is, right? It's merely a matter of human agreement.
But the fact that there are commodities, for example, this is something your word points to, indicates that while it's not merely a matter of human agreement, because there's something basic about basic commodities, right?
There are some things that we cannot do anything at all without.
And I suppose water would be the most basic of commodities or air in that particular case.
So there's some fundamental relationship between human subjectivity and the objective structure of the world, and so maybe that's alerting you, like lurking at you underneath.
I think that's exactly what it is.
I would just change, I don't love the word value. I would say I was searching for truth.
And I think that there was always this inherent intuition that there is objective truth, and what I couldn't reconcile — even in economic analysis — absolutely, economics is reflecting the real world.
And so my issue, I think, was that the commodities were objectively true. You know, these were real entities that were at the heart of all human activity and cooperation.
But then when it came to the sort of sophisticated financial analysis, commodity trading was seen as a kind of, you know, inferior art form.
You know, the people in the Midwest did that in the futures market.
The real intelligent people were hedge fund managers in New York City.
What do you think accounted for the prejudice, so to speak, the elitist prejudice against commodity trading?
Because you'd assume that if the goal was to understand and to make money—and maybe with the latter primary—why would there be any elitism in relation to the methods of trading?
Was the idea that somehow it was simpler to analyze the commodities markets?
You think that would make it more attractive, though?
Well, the fact is, it's not simpler because if it were, you know, you would have incredible investors in that space, right?
But they're a very small group of investors that have done well, primarily building and operating mines.
But in terms of trading the commodities themselves, there aren't — there are maybe a handful of good investors.
No, it actually has to do with it's a mirror reflection of the state of our society and our economy.
So our economy became more abstract, more service-oriented, and the velocity of activity, you know, was increasing.
The tenor of activity, you know, if you just take a, you know, basic example of how publicly traded companies, you know, used to report their financials once a year, now they're being forced to report every 90 days.
Now they're making projections every 90 days to what they're going to report in 90 days.
So we're building an abstraction hierarchy on top of the commodity base. Yes.
And the status as an analyst seems to depend on your operation at the upper levels of the abstract.
I wonder if that's partly... well, that's where you're going to make money too, so you're going to make money in all of these frontier so-called industries, whether they're in STEM or whether they're in, you know, high finance, financial engineering, derivatives, complicated things, right?
So there's a novelty, there's a novelty contribution.
There is that the commodities trading, that's an ancient business.
Yeah, that's a physical business, physical clearing.
So remember, the issue with the stock is you buy it and you never know if the stock will be weighed.
Benjamin Graham claims that it does over time, but as I said it might, and it does over time, but you never know exactly when.
Physical markets are entirely different, right?
Well, if they buy, here, apart, pork belly's future, and you don't trade it in, eventually you get the pork belly.
Exactly! And once you get the pork belly, the transactions close!
Right. You no longer own anything.
If you want to buy another pork belly future, you have to decide what month and delivery you want so that the farmer who's producing it will sell into that contract and settle the trade.
So the fact that you have full clearing and settlement in physical commodities is very interesting from a financial lens because it means that you always have that objective arbiter of truth.
You know, you can't just defer things indefinitely, and I think that also attracted me very much to the industry.
But basically what I did was a lot of fundamental corrective, in some sense, yes?
Right, a fundamental reminder of your union with an underlying structure that isn't arbitrarily — in some sense, isn't arbitrarily ordered by human beings.
That's right. That's right.
And I think that, for me, I was trying to express what I had learned in value investing through the world of commodities.
And so this brings us back to the mining chapter. What I ultimately estimated was that if you take a mine in a stable geopolitical jurisdiction, so say in Canada or in the United States or in Europe, you know, depending where in Europe, um, and the mine had already been geologically explored and thus there was an ore body which was delineated.
In other words, we've drilled holes into the ground; we know what exists underground, and you bought that mine but you didn't actually mine, you just bought the land.
What you were essentially doing was buying a call option on future weights of commodities in the future which you could always extract from the ground.
Okay, explain that a bit, call option.
So you're leaving it like it's a bag?
Yeah, it's a vault in the ground. You're betting that the future value will be higher than the present value, otherwise you'd mine now, right?
There's a reason why you don't want to mine now, and the reason is that you're estimating that there's going to be more money floating around and so the price of the commodity will rise over time.
But you're also betting that the cost of extracting the commodity will not rise as fast or decline.
That's right.
Well, they don't normally decline; they rise with inflation.
Okay, just like everything else because you've got basically three inputs in mining — any commodity, like you have three inputs in doing anything in the economy, which is energy, labor, and time.
And labor, you know, in inflates, always rises.
And when you actually have inflation, you have to raise interest rates; then you're basically increasing the cost of time as well, the price of time.
But that was my idea; you know, it was a novel idea. There were a few people that had done it successfully that I looked up to, but I had the idea of kind of building an aggregation of these deposits.
And so I raised money from some investors; I cashed out some of my own money, and I did that.
And I chose a few commodities that I thought would be integral to society. I was trying to make a prediction over my lifetime, and I used to say to my investors that I'm trying to imagine, you know, like right before I die, which commodities are still going to be the ones that are most important.
And so I chose copper, which is one of the most important metals that we have in the periodic table.
It's antimicrobial; it conducts energy.
It's just a fascinating metal; there's no end to the mysteries of copper.
I chose silver, which is the most reflective of metals and is also an incredible conductor of energy and antimicrobial.
And I chose zinc, which has medicinal properties and is used in a variety of applications.
Right, so the periodic table, just so that everyone is following this, is the layout of the structure of the elements of the cosmos.
That's right!
Right, and so if you decompose material structures to their most fundamental elements above the, like say, subatomic levels, right, then you end up with about 116 fundamental elements.
The top 15 or so are mostly man-made.
That's right.
So there's a very finite set of elements, and all the elements have quite spectacularly different properties.
And that intrinsic to their nature!
Right!
Which is very important because there's really nothing else like that.
Everything else reduces back to these elements, these material constituents of reality, essentially; they're like the alphabet of reality in some sense.
Yes, yes!
Um, yeah, except that human beings didn't invent them.
Yeah, I used to say they're like Legos, you know, they're pre-given Legos, and then you can rearrange them.
And you can do more than just rearrange them.
But essentially what you're doing is you're rearranging them.
And so it was, yes, silver, copper, zinc, iron ore, which was a lot more interesting back when I was doing it.
These days, it's less interesting as we're not building as many things.
But obviously, iron ore is an input for steel or any kind of, you know, metal production.
And then why did you focus on metals particularly?
Well actually, there was a flaw in my thinking that was only corrected in the last six years. I had thought always in terms of longevity, stretching time; you know, how can I buy as much time as possible?
And my problem with the soft commodities or livestock was that I was thinking that their—they diminish faster, right?
So you're looking for permanence.
That's right! So you associated that with metals.
Absolutely, because, you know, if I have a hundred tons of wheat, I have to store it somewhere, and it's deeply decaying, right?
That's right, and even oil, if I try to store it, you know, is evaporating at two or three percent a year, so you have to store it in salt caverns and inject water, and then that costs loads of money.
But with metals, you know, you mine them once, especially the precious metals.
The precious ones are the most unique ones.
But you mine them once, and what's cool about owning the mines is they're in the ground, so they're not oxidizing yet; you know, it's only when you get them out of the ground they start to oxidize.
Right.
So they don't decay further than they have already.
That's right!
And so that was the general idea.
And so I did that for a few years, and I learned so much about geology and the natural world, and I was just shocked to see that there were these intrinsic relationships, not only in the natural attributes that each of these elements possessed, but in terms of the relationships of the natural attributes to the other elements.
So in other words, you know, there's an important metric called crustal abundance, and that's basically the average rate at which an element exists in the Earth's crust.
And it's obviously an imperfect standard of data because you might go in your backyard and drill a hole and you will not find that material, right?
Right!
It's not uniform!
It's not uniformly distributed!
However, when you're talking about ore bodies, something that is actually being mined for the sake of extracting the resource, that is generally the average, and you can infer absolutely and measure something like comparative rarity, absolutely, as a consequence, even if it isn't homogenously distributed.
So one of the features of the periodic table of the elements is that all the elements are not equally distributed.
That's right.
There's an intrinsic...
That's right.
But actually it turns out that they are all relatively equally distributed, you know, on a continent or nation basis; you know, almost at a country level.
I mean geographical territory is large enough.
Yeah! And this is important for later when we get into the notion of scarcity.
And people always have qualms with, you know, but isn't it fair?
It's not fair that one country has this or that.
It turns out that pretty much every country has what they need in terms of the important elements.
And if they don't, they have something else that they can exchange for the important elements.
But so I learned a lot about that world and was fascinated by it and spent quite a bit of time with geologists.
Yeah, well, you told me a funny story last night.
Yeah, we're talking about a Nobel laureate in economics that you had talked with who was convinced that the value of money was not attached in any fundamental sense to the structures of the real world in the manner that you claim it is.
And you told me that he didn't know that there was genuine natural variation in crystal abundance of different metals.
That's right!
So, yeah, yeah! So this was a Nobel Laureate who said — and it is recorded somewhere — that the reason that copper is valued at X and gold is valued at Y is just subjective; you know, people have decided to value copper at this level and gold at that level.
And I responded by saying, but don't you think it's a bit mysterious that the price of copper reflects the same crustal abundance of copper?
In other words, copper is 5,000 times more abundant than gold in the earth's crust, and if you look at the price of copper per ton in the market, it's roughly 5,000 times, right?
Right, right!
Right, right!
Well, this is a key point, right? Because that was part of what clued you in to the idea that value, per se, including financial value, was not merely something that was subjectively determined; that it also bore a relationship to something like abundance and ease of access.
Now there's an interaction between the two, but the fact of that abundance in your hypothesis places intrinsic constraints on the parameters within which pricing might vary.
And as an even data point that should usually be taken into account both practically and conceptually.
And it's important here because partly what we're trying to understand is what is the relationship between human systems of value that would be pricing and the actual natural world as such?
And that's like a — that's like an investigation into the relationship between brute empirical reality and the domain of philosophical value, right?
So it's crucial.
It's a crucial issue, and practically it might help you invest better, and then you'd know what to do with your money. But it's also crucial conceptually.
And so, okay, so now you also said to me at one point that there is a rough equivalence in the ratio of the value of metals to one another across time in relationship to the relative abundance.
And so with silver, you see the same thing with silver in relationship to gold that you see with copper in relationship to gold.
Silver's rarer than copper!
Yeah!
Yeah! We never wake up one morning and see that an asteroid really did hit, and these relationships were appended entirely.
We never really see that, you know, all of a sudden, you know, zinc becomes the rarest element, you know, or aluminum becomes the rarest element.
We go back in history and what we see is that something like gold was always understood for its intrinsic natural attributes but also as being extremely rare.
And that there are certain things that are more abundant than gold and yet closer to gold in rarity than they are to something like oxygen.
So, so I see that as a kind of natural order, a natural...
Right, right.
Well, yeah, because there's a natural reason why people, for example, gravitated towards gold and silver and bronze often, but that's causal, essentially, as hallmarks of monetary value, right?
So they were — that was an attempt, an attempt, what would you say, practical and conceptual, to tie the system of abstract value to some underlying natural phenomena to keep the value system pegged to the structure of the world.
I would say it a little different. I would say that there was no notion of abstract value that basically you would have these different commodities that were produced for their utility, for their usefulness.
And as they were being produced, rather than having a coincidence of wants or barter or some kind of inefficient system, people recognized that each one of these commodities were a common measure of the other ones.
In other words, I can trade you two bushels of corn for one gram of copper, and then...
And that wasn't an abstraction; that was an actual...
It's about that!
That was an even trade of intrinsic value.
It's literally a balance scale that's weighing the weight of these two different commodities.
And then eventually, so that's not precisely only social contract dependent.
No. It's not!
This is basically just, I would say it's metabolization.
At some point, you have some energy that I need, right?
And I'm going to give you something that you need.
And we're basically helping each other; we're nourishing each other's souls.
But the thing is that at some point, one of these things begins to be the de facto measure for all the other things.
And so that is what you see with metallic money, whether it's gold or silver or bronze or even iron in some civilizations.
But it was important to remember that every civilization that deserves the name civilization in the historical record would have had a metal as money and would have had a monetary unit which had a weight rather than some abstract nominal value like a dollar or five dollars.
It would have been something like a pound.
So, you know, a pound in this country, sterling means silver.
A pound is a weight of silver. That's what the pound would have been.
So I was figuring all of this out, and it actually led me to a real appreciation of the exemplar qualities of this one element, which was gold.
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So, when you were analyzing mines, how did you learn which mines to invest in?
And then let's go that concrete route first and then back to the abstract. What did you learn about value investing in relationship to mines in particular? And then how did that inform your decision to focus more particularly on gold?
Well, actually, I did something quite novel even in regards to that. I figured that as long as the mine truly had the material wealth embodied in the mine because it was drilled out and it was audited and it was basically tested through a public disclosure file that has to go through a securities commission or something like that, it was worth owning that mine even if it wasn't necessarily clear how you would get that mine permitted.
And so I was buying mines that, you know, some people might say would have a difficult time of being permitted.
And I felt that over time, the communities would work these things out as the value of the world, intrinsic values —
What perspective to begin with?
Yes!
Because your notion there is that because forensic value—
Yes, of the market, which would be the regulatory environment.
Some senses — which converge on appreciation of the value.
And you can see that now in the UK where you're burning coal again.
Exactly right!
That would be a perfect example!
So someone like me, I never invested in coal, but someone like me might have purchased a coal mine six years ago for pittance, you know, because people told them this will never be permanent again.
But it's coal!
Yes, exactly!
And I would argue that with coal, you know, the argument isn’t so clear because you don't necessarily — coal is a great source of energy, of course, in terms of its energy density and in terms of the UK having a lot of coal nearby, too.
Yeah!
But with metals, it's easier to make that estimation, you know?
So just give you a very basic example. If the world truly wants to electrify the global fleet of cars, we basically don't really have enough copper to do that based on what we know today, the reserves, the economic reserves.
So at the very least, we're going to be taking down a lot of mountains around the world if we want to get just the amount of copper that we're estimating, you know, to sell 100 million cars a year.
And the same is true of something like nickel.
Which is...
We can just solve that by forbidding people to have cars.
Well, that seems like what might happen.
But with nickel, it's even easier.
And with gold, it's the easiest.
Easiest in what way?
In terms of you're always at a shortage of gold; it's the hardest thing to get out of the ground, and it just keeps getting harder and harder.
So there's this difficulty curve; it's almost like...
Is it harder than uranium?
Is it harder than...
Even though, yeah, uranium is quite abundant, actually.
The thing about uranium is it needs to be enriched into U208 or whatever, YouTube, and so that's the real cost in it.
It's not the — I mean, there's quite a bit of uranium around the world and its crustal abundance is, you know, not special at all.
But it is interesting to note that, you know, Isaac Newton was obsessed with alchemy and tried for, I think, almost a decade to transmute other elements into gold.
And it was when he finally recognized that this wasn't going to be possible that he was made the Master of the Mint of the Bank of England in 1694.
And one of his first acts was establishing a gold standard.
And so it's almost like he tried to hack gold for so long, and then failing to, and then gave up and recognized, you know, this is how I'm going to get create monetary order out of the chaos of an economy that doesn't have one.
So he became convinced of the immutability of gold, and that made him a good candidate for someone who was establishing the foundations or, what would you say, guarding the foundations of the monetary system itself.
Yeah, there's a curious passage in the optics. I don't think I can recall it because I read it many years ago, but it's something like in the beginning, it's clear that in the beginning, God formed all matter in such a way where it was truly indestructible.
And then he says something about gold shortly thereafter.
But, yeah, I know! I think that.
And remember, like Newton is someone that appreciated the laws of nature, helped advance humanity's knowledge of those laws in ways that are just unfathomable today, but he recognized that this was an element that was exemplary and that money needed to be something that was physical, rooted in nature.
We'll be back in one moment. First, we wanted to give you a sneak peek at Jordan's new documentary, Logos and Literacy.
I was very much struck by how the translation of the biblical writings jump-started the development of literacy across the entire world. The pastor's home was the first school, and every morning it would begin with singing. The Christian faith is a singing religion.
Probably 80 percent of scripture memorization today exists only because of what is sung. This is amazing! Here we have a Gutenberg Bible printed on the press of Johann Gutenberg!
Science and religion are opposing forces in the world, but historically, that has not been the case.
Now, the book is available to everyone, from Shakespeare to modern education and medicine and science to civilization itself. It is the most influential book in all of history, and hopefully people can walk away with at least a sense of that.
So prior to this conversation, we've talked about the advantages and disadvantages of decoupling the monetary system from this underlying…the underlying principles of or constraints of reality.
And people who are like late followers of Keynes have made the proposition — if I have it correct — that one of the advantages to bringing the monetary system under only human control is that you can inflate or deflate the money supply to smooth out business cycles, and that would be the oscillation between bust and boom that can otherwise be somewhat destabilizing and upsetting.
Now there's plenty of controversy about whether it's even possible to de-oscillate the business cycle; it's not obvious to me that it is.
But also there are some advantages, a little bit of extension of political and voluntary control.
But the disadvantage is, or one of the disadvantages is the production of devaluation of the currency, inflation essentially.
And so let's talk about that a little bit, and then let's turn specifically to the order of the topics in the book.
Sure! Well, let's look at a few examples.
In the natural world, you have cycles of generation and degeneration. So that means that production has to come before consumption.
In an inverted economy, we see that consumption is brought forward before production.
That's debt!
No, just in the sense that we’re trying to stimulate the economy as though if we stimulate consumption demand, we will somehow produce more.
But in the natural world, you first have to produce so that you have the privilege to consume.
You know, the farmer has to produce this crop first.
In the natural economy, we see that these cycles also breed growth and decay.
So we don't see anything like infinite growth in the natural economy, whereas in the inverted economy, we look at these abstract metrics — like GDP, nominal growth — and we become obsessed with this idea That we're not only temporally exceptional but we're constantly just piercing through reality itself and growing and growing and growing.
In the natural economy, in the natural world, frugality and savings is a function of your cooperation with nature.
You absolutely have to produce more than you consume, and you have to reserve a surplus of seed for the following year so that you can sow the seeds and reap them again.
It's this cycle where you first have to sow, then you reap.
In the inverted economy, we see that, you know, people are incentivized to consume first. Again, just like in the previous example.
But not necessarily save; you know, not really look out for the future to do as much as they can to increase the velocity of their activity as much as they can and sort of pursue this limitless growth.
In the natural economy, we see that people have a respect for the land and that they basically want to work in the land and follow in the activity of their ancestors.
Because, you see, to have an economy in the first place, we have to produce these material things.
In an inverted economy, you see prosperity as coming centrally from a centrally controlled spigot, you know? Top-down.
And so it comes from the center to the periphery instead of from the periphery and building up into a center.
And then when you get into something like the rate of interest, you know, in a natural economy, your rate of interest — if you had one, if that was how the society wants to organize itself, it's not the only way — through lending, but if it does, it would be a function of the material prosperity.
You know, the harvest of that season, the amount of capital you produced from the earth.
And in the inverted economy, you know, a bunch of people sit in a room and decide arbitrarily what the rate of interest should be, and as we see, they can be coerced by political interests, you know, to bail out political failures or folly.
And so just, you know, take another account.
So you're saying in some part that as you abstract away from the natural or you introduce the possibility — an increased possibility of merely human manipulation for purposes that have nothing to do with the maintenance and stabilization of the productive natural order...
So you're devolving away from the natural ethic that's imposed on you by the principles and constraints?
Now, it's how do you distinguish that from just a romanticization of the state of nature?
You know, because there's echoes of that in some sense in what you're saying.
Well, I'll give you an example.
So let's look at a live example.
We see that in Europe, there's a war, and we see that politicians are saying that, you know, the issue with the war economically speaking is it's creating an energy shortage of energy.
And so our job as politicians is to solve this problem so that we can steer the economy back to the track that it was before.
And so my question would be, what exactly is that track?
Like, were we on the right track before? In what data set were we on the right track?
And the fact that over the last 30 years, we just see, you know, rich people getting richer; the fact that it's harder to buy a house, harder to pay for, you know, education, for health care, inflation run amok, the quality of our products diminishing, the craftsmanship —
Um, obviously within the technology bubble, we might argue that we're seeing some phenomenal things, and that may be true; you know, it may be true that materially, as regards to material technological peripherals, things are incredible.
But in almost everything else, you know, the quality of your clothes and the quality of your, you know, actual artifacts that are made by hand, they're terrible.
And so I don't think that we have observed, you know, this system working in the sense of producing material abundance or prosperity.
I've said this before, but the whole notion of prosperity has become divorced from the tangible side of it; you know, which is basically food on the table, a warm place to live.
You know, knowing that if I work hard, my children will have an opportunity to do better than me.
But more people around the world seem to be experiencing that proportionally, say, than 50 years ago.
Yes, and so that's sort of what I meant by the romanticization.
I mean, oh, you think more people are doing better today than 50?
Well, proportionally, I don't think that's true.
Yeah, I mean, maybe in the developing nations.
No, that's what I meant! I meant in the developing nations.
Yeah. But they're doing that because their economies are more oriented towards the real.
So they're the ones producing all the things that we in the West —
So you think we've hit a kind of asymptote in some fundamental sense in the developed countries.
So it's reflected in such things as the ever-escalating price of housing for young people.
Yeah!
Yeah! And just, you know, it also expresses itself in society and just, you know, this decadence of Western society and these individualism and selfishness and the subjectivity that's creeped into our objective disciplines in school, in academia.
And you also in our consequence of being decoupled, in some sense, from the natural order.
Absolutely, I think that's...
Anything that's contrary to the natural order of things is going to find itself at the center of our culture.
That's an interesting philosophical claim, because you could imagine the Western culture is really an intermixture of two ideas of logos, right?
So there was an objective logos idea that was primarily Greek, which was the idea that in the natural order, there's an implicate order of things, and that there's a moral structure to that that's implicit in the world as such, right?
And then on the more Judeo-Christian side, the idea of order was exemplified more particularly on the spiritual and personality side.
And then the West, in some sense, is the laying of the personal logos on top of the objective logos, and the proposition that there's an isomorphism between the two.
And your argument seems to be to some degree, so the Nietzschean argument is that we've dispensed with God and are floundering about in nihilism or ideological possession as a consequence.
But your argument is, well, we've done the same thing from the bottom up.
We've divorced ourselves from the implicant order of the actual world, and that's also destabilizing us, well, morally and practically.
Just is that...
Is that a reasonable...?
Absolutely!
I think that, you know, I don't make arguments to that extent in the book.
I give hints at it, and I actually have a footnote where I say I think this would be profitable for other people to do.
But I certainly think that the relationship between that natural standard of measure and reward, which the real economy is subject to and the rest of society having that ability to temporarily forget about that standard, decouple from that...
It's a fact of nature!
So at some point, the natural order exerts its fault.
You know, I've often liked — I like dealing with real scientists; I like dealing with engineers; I like being dealing with craftsmen and high-quality workmen.
And I think the reason for that is that they're always testing their abstractions against something that isn't merely arbitrarily human!
So they pop themselves out of the postmodern bubble, yes, and their orientation in the world isn't a mere consequence of their rationality, right?
It's got this empirical element to it, and within that empirical element, there's a kind of unethical logos.
And so it keeps the conversation honest.
Let me turn to your book.
Okay.
So, again, for everyone watching, the book that Roy has recently published — and he self-published it for reasons we may get into later, perhaps on The Daily Wire side of this — the book is called The Natural Order of Money.
It's quite a beautiful book. It's very elegant; it's a very short book, and it's very tightly edited, although it's also a book that, for me, indicated, you know, one of the ways that you can distinguish high-quality thought in some sense from low-quality thought is that you can tell in the high-quality book that every sentence has been thought through using multiple sentences that aren't in the book, right?
So there's a depth of idea that has been compacted into the concepts, and there's an elegance of presentation, and it's a beautiful book.
And so that's also extraordinarily interesting, but it's very straightforwardly written.
It reminds me in that sense of Matthew Pagel's recent book called The Language of Creation, which is about this long and is analogous to this book in some ways, although more on the theological side.
So this book has eight chapters, and so I'll start. There are little chapter summaries at the beginning, and I'll just throw them at Roy for now, and he can comment on them.
So chapter one: what makes cooperation possible and sustainable between people?
In the natural world, we must turn to the natural order.
Modern economic theory deals with analysis in a mathematical vacuum removed from its wider ecological environment.
This work, this book is an exercise in natural philosophy that is occupied with the synthesis of the living, breathing economy.
Now, we probably covered that.
Yes!
Time is the fundamental superseding law of nature.
It moves forward and is irreversible.
Human action is beholden to the requirements of the present.
Contemporary economics tends to ignore the condition of our temporality.
There's one. Let's... We haven't delved into that particularly.
So what do you mean by that? Contemporary economics tends to ignore the condition of our temporality.
So the moment that you take the moment of production or activity and you abstract it into some kind of symbolic value, you're representing something.
There is some truth there, but as you aggregate those values and you begin to refer to them in the way that you refer to either a stock index or a GDP graph over time, you've completely stripped that measure from anything real.
So you're adding layers of abstraction?
Yes!
And it gets more untenable as the abstraction layers —
It's measuring nothing!
At the very least—
Everything has changed since the time you've published the measure!
You know, like at the very least, that's one problem.
But the real issue is that you're trying to... You're lying to yourself; you're saying that somehow I can quantify all of this multifarious economic activity, and you also allow yourself to have another party — in this case, the government — run deficits or spend money and get the G in the GDP by growing it.
And so it's just a false metric.
You know, it's kind of like grading your own paper, if you could conceive of this.
Well, we had started to talk a little bit about the dangers of abstraction away from the fundamental economy.
And one of the dangers there is, well, the danger of government-produced inflation because one of the things that governments can do, as they're supposed to be printing money, let's say to smooth out the business cycle.
But the problem is, of course, that when you're using a fiat currency that isn't grounded to something fundamental, is that you can print money more or less at will, and then you rob the people who are saving.
That's what we're saving, essentially.
And as you print fiat money, the GDP increases nominally, right?
So your measure looks good!
Yeah, it's basically like it doesn't reflect the underlying—
Yeah, it's sustainable; it reflects nothing!
You want to look at, you know, more tangible measures!
If you're looking to measure the health of an economy, start with the fertility rate because that's going to be where your real growth comes from.
Um, and so — or, or start with the amount of weight of products that you produce, right?
So we should just point out for everyone who's listening, that's actually a pretty radical proposition because the ethos of our time is that a low birth rate is better because there's too many damn people on the planet anyways.
And you just made the proposition that a more fundamental measure of human flourishing would actually be a positive birth rate.
Absolutely!
But I don't think we even know if we're at that limit or not because we don't compare the fertility rate to what our productive capacity is in the nation.
You know, we're mixing services with real economic activity, and then we're measuring them.
And so the services can be measured — there's a lot of really incredible analyses and products that central banks and endemic economists come out with, which I think do shed light on a lot of very interesting questions within the service economy, within the subjective side of the economy.
But they cannot be the national lodestar!
You know, it just goes back to what I said. The majority...
I mean, I actually think the majority of the people should probably be in the real economy.
I think it's bizarre that you have this situation where a great majority of the people are not working in the land or are not involved with the extraction of these fundamental things.
And I think that what ends up happening in a recession of the kind that we're facing now, but also of the kind we're going to keep facing, given where we are in this overall arc of the Western development of the economy since the suspension of the redeemability of money into gold in 1971, is that people will revert back to the natural economy.
You know, they will recognize that it's becoming a fool's errand and trying to live in a city and make ends meet and have terrible air quality and all of the things when they can literally buy a plot of land somewhere and, you know, start a homestead and live off their land.
And so I think that that's literally what happens in a recession.
That's a natural recession if the government doesn't get involved and try to stimulate and try to keep all the thoughts.
It decomposes the excess levels of abstraction.
Yeah! And you know, the objector will respond and say, well, what are you talking about?
You know, look at the Great Depression. What were people supposed to do? They were in soup, you know, they were standing in line for their bread.
Where would they go?
And the answer is that, well, but what was the government policy leading up to the Great Depression?
You know, the government incentivized stock market speculation. Millions of people own stocks!
There were bucket shops on every corner of the street, and—
Well, it is an open question always how much of that cyclical activity you actually want to suppress, right?
So the idea would be to suppress the cyclical activity and produce a linear growth.
Well, the problem with that is, is that even in...
Yeah!
Well, within us, our life is actually a very delicate balance between proper death and proper regeneration.
So any cell lines that you have that don't die are cancerous.
Right!
So I mean, the only reason you're able to live is because you're dying optimally all the time!
Yes!
So, so the idea that life is nothing but growth — that’s what cancer is — is a life that's nothing but growth!
I think that there has to be death and replacement as a precondition for life in some real sense!
So if you flatten that out of the economy, there's no...
Your point, I think, is that there's no signal that you've gone astray if you artificially suppress like a recession because a recession is a form of death inside.
That's right!
That's right, yes!
That line you mentioned, I've read it before somewhere.
Yeah!
That the policy of a cancer cell is infinite growth.
Right!
Exact — the philosophy of a cancer.
Yes, yes!
That's a great line!
Um, yeah!
No, well, and you can see that reflected in certain kinds of environmentalist fatalism, right?
But remember these are cancers on the planet, right?
And this is pursuing this infinite growth policy, and we want people to be more prosperous.
But that doesn't mean that growth can — and this is where I think your work is so interesting — it doesn't mean that growth can occur in a completely abstracted manner that doesn't take into account the underlying fundamental principles of the natural world.
And it does go back to time though with regards to this because the whole point we're trying to say is that time moves forward and is irreversible.
So any of your actions are always taking place in what we call the present.
You know, you're always living in the present.
The past is, you know, available to you through recollection, and the future is coming, but it's sort of like always a present that's becoming the future and becoming the present.
Um, but at some point, you do know that it's finite, you know that you're going to die, and everything grows and decays.
And so the idea of infinite growth is already an illusion in the sense that it's lying to you as though you're going to outlive, you know, your own life someway through economic contributions.
And you're not!
What's going to happen is you can make a contribution to the economy, and through your offspring, perhaps, you know, bequeath something to them which then imparts on them a sense of responsibility both to the land, to the community, to the state, etc. etc.
Um, but it's really not all about that, you know? In Latin, you know, the word "otium" means leisure, and the word "negotium" means business.
So business is defined as not leisure.
And I think that's another thing that we lose when we denaturalize the economy.
We lose the fact that our goal here is to work for the sake of leisure.
It's not to work every single day for the rest of our lives.
There's a time for work, and there's a time for leisure.
And I think that in general, in modern society, most people are working all the time, you know?
Even in the way that they may have forgotten how to have leisure at all!
Even in the way that they're ostensibly having leisure, it's still this very quantitative, technical, work-based, gamified experience where there's a zero-sum: you know, how many likes did I get?
How many tweets did I do today?
How many followers do I have?
Uh, did you see this person over here? Did you see that?
Everything is just constantly being ranked in this quantitative way, which is actually entirely subjective and manipulable.
Whereas what they're really supposed to do is produce a surplus which then allows them to either have a family, bequeath that surplus to the family, or live off their remaining days in pursuing some form of leisure.
It could be playing golf, or it could be coming closer to God.
You know, that is within their free will and rights to do.
But this idea of constantly working or even a country just constantly working is so bizarre.
And you know, this is actually what China does.
China is a corporation disguised as a country.
You know, they're basically generating a profit on the back of outcompeting with the rest of the world, and so on an economic level, that's a problem because it's true!
And the West has to deal with that.
But on a philosophical level, on a cultural level, that's one of the advantages we might have in that they don't really tend towards leisure in the way that I think we can.
We used to here in the West!
So that's also part of the manner in which the ethic, in some sense, has gone astray.
You have ever more work, tracing ever more growth, forgetting the fact that the purpose of work, in some senses, you said, to enable leisure and, say, to enable play.
Yes, play perhaps being the opposite of toil.
Yes!
And that that's a true loss of richness in life!
Right!
Right!
Now, we're supposed to work, but there has to be a balance.
Chapter four: The human cooperative system is also thermodynamic.
There's a chain of temporal energy dependency in which the first cause of an economy is those who work with nature to source foods, fuels, and elemental substances.
The real economy generates energy embodiments; the service economy only consumes them.
So what do you mean by energy embodiments?
So energy embodiments is anything that's produced from the earth that can be weighed, divided, and shared.
And I specifically say anything that's produced by the work of the human hand from the earth, so it can be salt, it can be the cattle, it can be gold, it can be silver, it's any commodity, essentially.
Well, it's very interesting that you tie that into thermodynamics.
I was talking to a neuroscientist recently, um, whose name momentarily escapes me, Tristan, and we discussed the relationship of human emotion to entropy.
So imagine you can calculate entropy by computing the distance between your goal and your current reality, and that's a path length, right?
So there's a certain distance that you have to traverse to get to where you're going, and that distance requires a certain amount of energy.
And that energy, that distance, is equivalent to the entropy of the distance between your vision and your goal.
If that distance increases rapidly, that's an entropy increase.
That's what happens when a tool fails, right?
Because you don't know how to use it in relationship to the goal: it makes you anxious.
Anxiety is actually a signal of unexpected entropy increase, and then positive emotion, interestingly enough, is a signal of entropy decrease.
So you feel positive emotion, for example, when you're moving towards a goal, so decreasing entropy and the movement works.
So now you're closer to the goal.
So the whole, the whole emotional system is also thermodynamic fundamentally in its essence.
And you're making the point that the primary, the point of the primary economy is to produce the commodities that have an intrinsic entropy reduction.
It's not just entropy, right, because it's also the provision of material resources like direct food.
I know that some of that's energy; some of it's the reconstitution of the material substrate as well.
Yeah, right!
So, so I think I'm using energy and entropy, I think, in a different way from how a physicist might use it, and perhaps even how you just used it.
The way I think about energy and entropy, after wrestling with this concept for a long time, is I think energy is best described as the generative force in nature, and entropy is best described as the degenerative force in nature.
Yeah, so I'd say that's the same.
Yeah, it's the same!
So I concentrated on a different element, yeah, of course, of course!
Yeah!
But like, so, you know, the rose blooming in springtime is energy, and that same rose withering is literally dying in front of your eyes is entropy.
But then, but nature, you know, dies and then is reborn again.
You know, this same plant will die and then give birth all over again.
It's like it dies and renews!
And I think that's just really, well, you know, Schrodinger, the physicist, basically defined life as an anti-entropic phenomenon.
That's right!
So there's something very fundamental about this.
I'm going to read three chapters specifically, and then I think we'll close this out concentrating on what they concentrate on because this turns to the issue of money.
Ecological accountability is a fact of nature of all human cooperative systems.
So the idea there would be if you transgress against the principles of ecology, you're playing a non-playable game; you're going to fail.
Only the service economy is able to artificially and temporarily ignore ecological accountability.
The environmentalists make a case like that, although it's more of an explicitly anti-industrial case, right?
When ecological accountability is manipulated or forgotten, so...
That's the relationship between the economy and the underlying environmental structure.
The relationship between the real and service economies becomes parasitic.
Very interesting turn of phrase there — parasitic!
Because it means a parasite actually destroys the source of value, well, conscious!
Right?
Yeah!
Yeah!
So there's nothing about it that renews and revivifies.
The natural standard must be reified and extended to all members, ensuring that ecological accountability remains at the heart of cooperation.
So the idea there in some sense, this natural standard to be reified means that the signal that it contains has to be propagated reliably through the abstractions of the system.
That's right!
Okay, ecological accountability — this is where it gets more practical — is not an ideal or promise, but a lived reality.
And then we switch to money.
Money extends the natural standard.
So that's the key element of your book in some real sense.
Yes!
Genuine money extends the natural standard in an ecologically valid manner!
That's your claim!
Because it's taking that natural standard and it's reflecting it in the object itself.
It has two features.
Any commodity has two features: it's a measure in the sense that it's a weight of something relative to other things, relative to the farmer's harvest this season relative to the amount of land, right?
So it contains an intrinsic information.
Yes!
Yes!
But this information is changing relative to the natural order, but the natural order is the arbiter.
But then it's also a reward in the sense that irrespective of whether it's a good measure or a bad measure, it's something you need as an input.
You can do something with it; it's useful.
And so every commodity has that feature.
And so when we...
So your notion with fiat money is that it's stripped of its intrinsic information.
It's neither a measure nor a reward.
I mean, it's...
Which is why the Nobel Laureate would have been able to say, well, the only difference between copper and gold is subjective!
Yeah!
But, you know, it's funny because Aristotle in the politics says that money shouldn't be pursued for its own sake.
It has to be something that's a good, that's useful.
And the fiat money is something that's just pursued for its own sake.
You don't receive the fiat money so you can do it — so that's another place where it's ethically uncoupled is because it doesn't have that intrinsic value or you get the idea usefulness.
And remember, in the cryptocurrency space, they've been trying to tell us now — and, you know, I have a great respect for the cryptocurrency space — but they've been trying to tell somebody, well, it's things can have utility by virtue of them just being a medium of exchange, with exchange onwards.
And they build scarcity into it, yes!
But I just don't think that's true!
Right?
You know, I think that nobody — you think about it, even in financial markets — nobody just wants to have fiat money sitting in their bank account.
They want to invest the fiat money to generate some interest.
They want to buy a stock. They want to buy property.
So, right?
Nobody actually wants to just sit and own the fiat currency unless they're buying it on leverage relative to some other fiat currency, like the Japanese yen.
Well, why can't you say the same thing about gold?
Because the gold always has that embedded optionality to its owner.
I can sell it to someone that needs to turn it into jewelry, or I can sell it to NASA which needs to add it to a rocket, or I can sell it to Apple which is...
Right!
So at minimum, it always has that fundamental...
Yeah, your choice to take the gold and treat it as what's called a storehouse of value doesn't change its intrinsic natural utility.
Okay, so then you say money extends the natural standard, promoting cooperation while re...
Reflecting ecological accountability.
That's a very nice sentence, by the way!
It's a good example of the elegance of your writing, I would say, because that's a very tight sentence!
Promoting cooperation while reflecting the ecological accountability.
You can think about that ethically because what that means is if it promotes cooperation, then it's a medium of exchange that helps us play socially sustainable games.
That's right!
But if it can also simultaneously reflect the natural order, then not only does it help us play socially sustainable games, it helps us play the small class of socially sustainable games that are also environmentally sustainable!
Right!
So then you get a balance of that logos, top-down logos, that's right, and bottom up!
Okay!
What I'm doing there is I'm basically going back 150 years to the point at which William Stanley Jevons in 1875 introduces these terms: unit of account, medium of exchange, store of value, to a lesser extent, standard of value, which have become the rigor in any discussion about money these days.
And I'm trying to show that the main function of money goes beyond; it's more than the function of just allowing the farmer who has a surplus of corn to sell his corn for money so that the barber can, you know, basically buy the corn with the money that someone pays him.
It's actually making sure that every single member of the economy is accountable to the real wealth that's being produced.
And I think that the whole notion of a store of value follows from that because today we're told that anything happens — that's why you say money is more than its incidental features!
Yes!
Yes!
And today we're told that anything can be a store of value if someone subjectively decides to just hold on to it!
So we say, you know, art is a store of value.
But when you think about it, the way that money was understood before this denaturalization of the economy was that it was a store of value, not because I just subjectively want it, and I don't care what it's worth, but hopefully, it's scarce and it'll be worth more one day.
It was that I want to hold on to this thing because I know that everyone else recognizes that this thing is something that they might need in the future!
Right!
Right!
And that has a deep intrinsic value that's tied to nature itself!
Another anti-post-modern argument in some sense!
So chapter seven, this is where we turn to the nature of money itself.
That's the signal and medium of exchange but also as something that contains intrinsic information about the structure of the sustainable — of the world and sustainability in the world.
A superior money will be resistant to entropy, so that would be decay.
So it's permanent, a storehouse and reliable and unchanging spatially as well and rare or difficult to extract from nature.
Because otherwise, it would be so plentiful, you can't use air as a medium of exchange.
True money will neither be food nor fuel because it's consumable then, but rather an elemental substance.
Elements are naturally scarce, meaning that each element exhibits certain unchanging qualities.
And then, at the Apex, gold is the apex element within the natural order of money.
Expand on that a bit, Roy.
Now, that has to do with its scarcity and its nobility.
That's a great map!
But it's important to state that when I say true money there, I'm saying in a post-subsistent society.
So as the society has matured and it's become complex, and there's a division of labor and there's a market, at that point, it wouldn't make sense to use the most necessary inputs — food, not only because they're subject to entropy — no lettuce lasts six days, but also because it's better for the economy to use those inputs rather than just hold on to them for the sake of