# Entrepreneurs and inflation
- URL: https://www.petrikajander.com/bylund/
- Author: Petri Kajander
- Date: 2022-06-19
- Language: en
- Audio: https://anchor.fm/s/1cba80bc/podcast/play/53407139/https%3A%2F%2Fd3ctxlq1ktw2nl.cloudfront.net%2Fstaging%2F2022-10-19%2F298042504-44100-2-a807d663115b7.mp3
- Video: https://www.youtube.com/watch?v=sNH8k8E-UkE

## Per Bylund - TALKS WITH PETRI

**Per Bylund talks about the root cause of inflation, how to deal with it and why founders have some inherent advantages. He also explains the fiat currency scam and explores the wonders of MMT.**



#### Bio

Per Bylund is a Swede in Oklahoma, USA, where he works as associate professor of entrepreneurship and Johnny D. Pope Chair in the Spears School of Business at Oklahoma State University. He had careers in politics and as business consultant and systems developer before moving to the USA and starting a career in academia. He has also successfully failed as an entrepreneur no less than four times, experiences that he draws from when teaching students and writing columns for Entrepreneur magazine.

He is an author of two books, The Problem of Production: A Theory of the Firm (Routledge, 2016) and The Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives (Lexington, 2016), and has a third on the way (expected later in 2022). He is also actively discussing matters of the economy, entrepreneurship, and freedom on Twitter; follow him at [@PerBylund](https://www.twitter.com/PerBylund).

[Website](https://perbylund.com/) | [Twitter](https://www.twitter.com/PerBylund)

[Video](https://www.youtube.com/watch?v=sNH8k8E-UkE)

#### Episode notes

- what should founders know about inflation at the moment?
- what is inflation?
- old vs. new definition of inflation
- prices should be going down not rising over time
- inflation measurements
- redistribution from savers and fixed salaries to borrowers
- inflation reduces your income
- hidden taxation
- how people dealt with inflation in the past
- strategies for sales and purchase contracts & your cost structure
- why you should not listen to the government
- learning proper and sound economics
- dilution of money vs. other issues (e.g. boom, trend, demand or supply issues)
- stay out of long-term sales contracts
- do not hold currency
- understanding vs. predicting the economy
- central bank money printing
- where does the printed money go?
- central banks are not stopping the money printing
- impossible to predict people’s behaviour
- mathematical models are not working
- naïvety of modern economics
- “pee in your pants” economics
- crises are getting bigger
- fiat currency scam
- digital government currency vs. old fiat money
- central bank digital coins (CBDC)
- dangers of CBDC
- possible outcomes
- entrepreneurs are well positioned in the market
- how to think about the economy?
- Bylund’s new book coming up
- you can understand economics with the right tools
- stablecoins
- market-based monies cause problems for politicians and governments
- modern monetary theory (MMT) is not modern, monetary, nor theory
- money is not about coins and bills: it’s the commonly used medium of exchange
- governments did not create money
- money arises from people’s actions
- why founders have advantages that others don’t have
- entrepreneurs are in the business of creating our tomorrow

#### Episode links

- [Austrian economics](https://en.wikipedia.org/wiki/Austrian_School)
- [Carl Menger](https://en.wikipedia.org/wiki/Carl_Menger)
- [Central bank digital currency](https://en.wikipedia.org/wiki/Central_bank_digital_currency)
- [Stablecoins](https://en.wikipedia.org/wiki/Stablecoin)
- [The Denationalisation of Money by Hayek](https://en.wikipedia.org/wiki/The_Denationalization_of_Money)
- [Modern Monetary Theory](https://en.wikipedia.org/wiki/Modern_Monetary_Theory)

## Transcript (https://www.youtube.com/watch?v=sNH8k8E-UkE)

[0:00] This is Talks with Petri show and I'm your host Petri. Today our guest is Per Bylund, who's an associate professor of entrepreneurship and this is his second time in the show. Welcome. Thanks so much. This is episode number 42. So Per, what's the question? Yeah, you know, I wonder if that is not the question. probably not so let me try something else okay what should every founder know about inflation because you know it seems to be that something weird's been going on and the numbers are going up but you know the revenues usually are not going exactly in the same same fashion so what's happening yeah well that's a very good question I think what they should know is that this is not really a matter of prices going up.

[1:04] It's a matter of the purchasing power of money going down. And I mean, in a sense, it's the same thing. But if you think about it, if money is losing value rather than prices are going up, then you focus on different things when thinking about it. So even if you're holding on to money and prices are going up, but not the prices that you're thinking of and that you're going to pay, then it doesn't really matter all that much. But if you think about how it's actually your money losing value, then you would act differently and probably act sooner too. So I think that just shift in perspective is really important. Okay. I think I'm already confused.

[1:52] at least pretended to be confused. So what is actually inflation? How do we measure it? And, and, you know, some people say that it's one thing and something, some people say it's another thing. And the government is also measuring it in some ways, they're dropping something away from them. This is a huge mess. So can you, can you make some sense out of this? Well, I can try. I mean, you're absolutely right. It is a huge mess. And the reason for that is that there are several different definitions. I mean in the beginning it was really the increase in prices overall due to creating more money. So it was the fall of the purchasing power of money which caused prices to go up because there's simply more money around to compete for the goods in the market. So when people...

[2:41] So can we actually make a... Sorry. Before you move on I'm just thinking that maybe Peter, can we use the example of stocks share? You know, you have a share capital in a company, and if you're issuing more stock, is that the same thing as printing more money? Is that inflation, the dilution of your stock? Can we use that as an example? And is that sort of equivalent in a way that it would make it more simple? Yeah, I think that sort of makes sense. Because I think founders should know about dilution. Yeah, it makes sense, because you are diluting the currency. and the currency, I mean, it's there to buy all the goods that have been produced, basically. And you don't get more goods that have been produced already just because you're printing more money. So by printing more money, there's more money.

[3:30] And as in your example, you have more stocks or more shares, which of course, each share gives you a smaller part of the business. And it's sort of the same thing with money. If you have a $100 bill in your pocket and suddenly the Federal Reserve or the central bank is flooding the market with new money, then that $100 bill is a lesser relative claim on all the goods available. Prices will therefore increase. It is a dilution in that sense. This is the older definition that was used by economists to explain what the heck is going on and explain the prices that go up because of manipulation of the currency. Of course, a hundred years ago, economists were talking a lot about and trying to understand the causalities in the market and not just sort of provide policy recommendations, but instead understand what the heck is going on.

[4:33] They use this older definition because it makes more sense and they can then separate why prices go up because of course sometimes prices go up anyway and prices go down sometimes and that's not strange they always change in the marketplace but the inflation itself is that all prices or at least in in general prices tend upwards that's that's the inflation but the new definition is that the price a level as they call it which is sort of a statistical construct the level of all prices is higher than it was before and it's measured through the consumer price index. The prices of all consumer goods are, I mean the way they do this is that they have a, it gets a little technical, but they have a basket of goods that are sort of standard what people buy and then they look at, oh, how much is this basket of goods now compared to a month ago is it higher than its inflation if it's lower than its deflation and and and then you track this over time of course the problem is that what is in this basket of goods changes over time too because people buy different types of goods so they're adjusting what is in the basket while measuring the prices in the basket so uh that's quite crazy but you're actually moving two variables and then pretending that it's stable.

[6:01] Right, and they're putting a lot of calculations and a lot of statistical mumbo-jumbo, basically, into figuring out what the true basket should be like. So it actually captures what, say, what a standard, whatever that means, or representative housewife would buy normally. So if you put it that way, then you would see that, yeah, it changes over time because your mother probably does not buy the same things as, or did not buy the same things as you are buying now when she was your age. And the same thing with your grandma because there were different things to buy and because people had different ways of living and all of these things, right? So, of course, the goods in the basket are going to change. And there are probably hundreds or if not thousands of economists trying to figure out what is supposed to be in the basket and how much of each and things like that.

[6:53] And of course, you have things like, we're talking about things like shrinkflation, right, where the first thing that happens is not that prices go up, but it's that the packages tend to shrink. So if you go through the aisles in the grocery store, say Kellogg's Corn Flakes, it's no longer 750 grams, it's just 700, and no one told you, right? But the price is the same, which means you're paying more for each gram or whatever. right well then the question is is it one package in in the basket or is it suddenly one point something packages in the basket right so you have to adjust for all these things so so you're absolutely right i mean you have you have two sides in the equation and both sides are moving and you're trying to figure out the relationship between their moves and that's not even all yeah because you mentioned that it's over time you know with different generations or just you know with years things change we are not buying nokia phones or rotary telephones anymore we're buying iphones and different things and they change as well and sometimes we are not buying some stuff at all anymore like vcr so fax machines or whatnot but then there's also this thing that you say that they are thinking of making like an average person. So basically, there's no person like that.

[8:25] They just assume that everybody is that person and that's the average inflation. But it's a different thing if you're like a high income person or you're a student or you're a pensioner, you're renting your place or you're owning your place. So you have a car, you don't have a car. Sounds like a huge mess. Yeah, it is. Because, I mean, even if prices or the price level, according to the basket, is increasing by certain rates, just like you said, we have different goods that we buy, so maybe the goods that you buy are going up really fast, but the goods I'm buying are not really going up much. So you are experiencing enormous inflation, and I'm not. Maybe just a little bit. And of course, what they're reporting is just the average, not the average between the two of us, but the average imaginary person who has this shopping basket that no one else has.

[9:23] And it's supposed to represent the economy overall or something like that. So it's a purely statistical construct based on a sort of a sound concept, I think, that in general prices are moving up or down but just a measure of it makes it really complex and basically so complex that the measure is not really related to the concept anymore. Yet it has consequences and now we've been assuming that all these changes all these things are done in bona fide so in a not in a way to manipulate or starting to hide things or any of this is that also happening can we trust yeah of course and i mean part of it is is it's just in the decisions of what should be in the basket because it's it's not that easy i mean you mentioned that oh today we're buying iphones whereas before we bought nokia flip phones for instance well it's also the case that an iPhone is different every year. And you need to keep the quality level at about the same.

[10:37] Because otherwise, you're suddenly buying higher quality goods. So obviously, an Opel car is not the same as a BMW car. So you need to figure that stuff out too. And then of course, if something goes up really quickly in price and now there's things do not then you might want to tone that down a little bit because it's going to pull all the price of the whole price level up so they did this earlier a number of years ago where they took electricity and gasoline basically out of the of the of the basket because those prices were you know there's no use for them for the regular average show or chain. Yeah, and especially in America. I mean, we all have cars in America. So, obviously just excluding gasoline is just ridiculous because everybody's buying gasoline.

[11:31] Every week we're buying gasoline. It's the only way of going anywhere. So, that didn't make any sense, but they took it out because they thought that it distorted the picture because it had too much impact on the price level of the basket. And, of course, those decisions they can be made completely objectively, if you want to use that term, so that you're just trying to represent exactly what people are buying or exactly the price level itself. Of course, we already said that people are buying gasoline, but we're excluding it because the price increase is abnormal. So we're excluding it.

[12:18] Because we want to somehow keep the price level construct untainted by this one price that is going up. And you see that now we're sort of leaving the concept behind just in order to produce a measure. And of course, those decisions can be made to manipulate. So if an election is coming up, for instance, and certain prices are going up because of policy, then you can tone those down and make sure that they are not as big a part of the basket anymore. And then it looks like inflation is not as high. So will we see this now? Yes, the money is running out of your wallet. Exactly. And then you report, oh, look at this, inflation is 2%, whereas the basket, if you had kept it the way it was two months ago, maybe inflation would have been 7%.

[13:11] So you can play with these numbers and make sure that the numbers fit policy rather than the other way around, which of course now you have two sides that can vary on a different dimension too. So in a sense, I wrote an article many years ago, maybe two decades ago, where I claimed that inflation analysis or inflation research is in itself propaganda. And this is a little bit of a different argument, but what I claimed was that we are so used to prices going up in general. But if you think about it, prices, if money doesn't change, and no one is producing a whole lot of new money all the time, then prices should fall.

[14:02] They should go down because we have competition between all these businesses. We have productivity improvements. We have innovations. So we should be getting more and more for our money. So even measuring inflation, using the basket and all these goodies, we're still comparing it to zero. We're comparing it to no change, whereas we should expect in the market a fall in prices. So even the number itself, even if it captures completely the change, it captures the change from before, but not the change from what it should have been otherwise, which is probably lower than it was before. So even the numbers reported, I mean, there's nothing here that really corresponds to what's actually going on in the economies.

[14:53] It's a measure, but it's, yeah, you can use it for whatever you like, basically. And it certainly has been used. Like one of the consequences is that if you're investing and then you're putting your money on stocks and the stock market goes up but the inflation goes way more up and then you're cashing your stock but you are not adjusting the profits based taking away the inflation you're actually paying the taxes on the inflation as well Right, and that's sort of the thing that governments in general they benefit from inflation and so do those who borrow money, so those who are in debt.

[15:41] Because if you have a loan for, say, $100,000 from 10 years ago, the principle is not increasing because there is inflation. It's still going to be $100,000. So if you have to pay it back in 10 years and there is 10% inflation every year until then, it's going to be easy to make $100,000 in 10 years and pay off the whole loan, right? But if you're saving, well, if you put the money in the mattress, you're going to lose money every day. And even if you put the money in the bank account, you're probably not going to get as much as the inflation rate. You're still losing money. So in this sense, inflation is a redistribution from people who save and from regular folks with fixed salaries to people who borrow, who are highly leveraged, and who are investing in those markets where you have sort of bubbles, where you have these booms, and to government, for the reason you said that your people are making, accounting-wise, it looks like profit, but in terms of the purchasing power, what they actually have, they are losing, and still they have to pay taxes on that loss, because it looks like a profit.

[16:57] And at the same time, of course, wages will eventually catch up or at least adjust a little bit to inflation. So wages go up, but probably not as much as the prices themselves. So you have less left over in terms of purchasing power every month, but you have a higher salary, so you're in a higher tax bracket. So you're paying more taxes even though you're making less money in terms of purchasing power. So it's a sneaky way, and some people have called it a way of taxing without actually having a tax rate, right? Because you're taxing people and you're taking away value that they have and value that they earn without them even recognizing. And that's sort of how it was used from the beginning, too. You have people like John Maynard Keynes and other economists arguing for inflation because they said wages are sticky.

[17:52] So if there's a lot of unemployment and the wage rate or wages should adjust down because they're a little too high, well, no one is going to renegotiate their employment contract to have a lower salary. And employers can do that sort of as an ultimatum that we will need to fire 10% of you or you accept lower salary. But that's not going to be a reduction in wages overall. So he basically claimed that, well, if government undermines and dilutes the value of the currency, then wages will go down without workers noticing. So it's sort of a trick, too.

[18:40] It's pretty nasty when you think about it, especially when you think about the measures, too. So they're hiding how much it is while undermining what we own and taking it for themselves, basically, too, depending on who they are. So knowing all this now, you're having a business. You need to function. You have employees. You probably may need to buy some capital goods. Then you have to also price your products and you have to survive in the market and maybe even try to make some profits and keep your investors happy and pay some dividends and pay some taxes and the list goes on. So how to survive, how to navigate, any practical tips, how the people did that in the past, what can be done, knowing that this is happening.

[19:37] now you know that you cannot deny it anymore but you have the pain that you know it's gonna happen and it's too big for you that you sort of have to adjust your own business you just cannot run away from it i think the rule number one in business is be lucky right because if you're lucky it doesn't really matter so should i buy a lottery ticket and check whether i'm lucky or what do you mean by that no i mean i mean if you look at because you asked what have people done in the past that worked out Well, I mean, they probably didn't have a strategy for how to deal with the things, but they happened to end up doing something that turned out to be good. And in that sense, they were lucky. But as long as prices are going up and you expect prices to go up, then you should make sure to keep your sales contracts with as short time span as possible. So not fixed prices on your outputs, but keep as long-lasting, long-term contracts as possible with your suppliers.

[20:42] Because if those prices go up, well, if you have a contract stating the price for 10 years into the future, you're sort of safe, at least until your supplier goes bankrupt. But the same thing the other way around, that if you have a sales contract and selling and the price is already stated in the contract for 10 years ahead, you're screwed if inflation is 10 or 20% or whatever it might be. it's going to eat into your profits and probably cause a loss and a greater and greater loss. So you should keep your sales prices flexible so that you can increase them whenever it's possible and keep your input prices or your costs basically fixed to the degree possible. Of course, this does not mean looking at official statistics and even less listening to the Federal Reserve, what they say, what their analysis or prediction of the inflation rate will be because they're practically always wrong.

[21:53] And they say that, oh, things look fine in the future, and this is just transitory and whatever it is. And they're always wrong. So you sort of have to have a feel for how this works and basically rely on your entrepreneurial judgment. What do you think might happen? And here, I think the only way you can do this really is by being out there and talking to people and picking up those signals, which are, I mean, they're difficult. No one is going to tell you what the inflation rate is going to be or how it's going to affect you. But you're going to hear on the grapevine that people are struggling among your suppliers maybe or your competitors, whatever it is, or this other industry that is related to yours. They're thinking of raising prices.

[22:47] So you see that things are sort of happening, but it hasn't really shown yet in the statistics. And then you can act based off of that using your judgment, what do you expect from the future? And then adjust your situation. I would say that learning proper sound economics is also a good idea to just understand where these business cycles come from, how they work. Because otherwise you might be screwed and you might listen too much to authority in a sense. I think too many business owners and founders, they listen to the news and the inflation rate that is reported by whatever government agency is calculating the price level in that basket. And then thinking, how should I deal with this?

[23:42] Well, then it's already too late. You should be in the future. You should always think in how am I going to be positioned and what can happen? So have these scenarios. And to have those scenarios and be not just completely unconnected with reality, you need some theory, some framework to understand what is going on. And to me, that is Austrian economics and the Austrian theory of the business cycle. So you can sort of expect that things will happen. So as soon as you see that, yeah, things are starting to move a little bit and people are starting to talk about it in certain ways that sort of indicate that things are happening, then you can immediately see that, or at least you can form an expectation of what might happen and respond to it before it happens, which is super important, of course.

[24:38] That sounds so simple, but I'm already thinking, for example, just an example that we've been having are quite a lot of supply chain shocks and resources are scarce in some, for example, timber. It's been hard to find just like a simple timber. You know, we are now in a Nordics here in Finland, for example, or, you know, in this region, which is like almost like forest. And yet, you know, there's somehow, you know, you cannot find wood and it is difficult to get that. So, and there's also some other supply chain issues at the moment. Sometimes are not coming from China because of things happening in China at the moment or the logistics are not working. So how do you differentiate the signals which are basically maybe manufacturing issues? It's just too little supply or too high demand. What's inflation? And then there could be also like some industries are starting to boom, like they're new industries. So it's just more demand it's a new thing and it's not like a generic inflation thing going so i already lost count how many different variables there were but probably like among four or five so you expect the regular founder to sort of have a you know rule of thumb you know how to do that or do they need to call you or some other economist to figure this thing out no no no don't call an economist that's not going to be helpful at all.

[26:13] They're the ones calculating these things and making predictions that are wrong. So that's not going to help. I mean, it's basically putting your ear to the ground and trying to figure that out. And I mean, really what you're talking about is why economists used to have a different definition of inflation. Because they were trying to separate what is actually dilution of money and money's purchasing power versus other things that affect, like you mentioned, supply chain problems or maybe a booming industry and maybe just demand for something went up for some reason. People, it was a fad or what have you. All of those things can push prices up, but that's not inflation. It's different, right?

[27:01] So sometimes you want to ride those waves too and sometimes you want to stay away from them. But knowing what they are, I mean, no one in business believes that the market is sort of a calm water where nothing is going on. It's only economist equilibrium models that look like that. So there's always stuff happening and you're always adjusting to those things, trying to stay ahead. And then inflation adds more problems to that, of course, because it undermines the purchasing power of money. And that's like broadly or generally throughout the economy, but it's not going to happen at the same time everywhere. So when I say that money's purchasing power is going down, it's going to be going down with respect to some goods first and other goods later. It will have to work its way through the economy before you see the final result.

[28:00] And then the question is just, in what order will prices be adjusted to this and how soon and to what extent? And that's not really possible to say. But knowing what, and sort of having that intuition that business people tend to have, and knowledge of not only their business but their industry and how things usually work, and seeing that, wait a minute, something looks fishy, something looks weird. It's a little off. Why? And have conversations with people in the industry, other experts, not necessarily economists, but other people, and figuring out how could I deal with this? And then just draft those scenarios in your head and try to figure that out. I mean, it's definitely not easy.

[28:52] I mean, like you said, it's easy to talk about perhaps, but it's not easy to do. And that's why inflation is so nasty. But it changes the very variable or the very sort of institution that we all rely on, money. And money is one side of every damn transaction in the economy. And now someone is manipulating the value of that side. So everything else is going to be affected. But how and when? We don't know. And that screws up the whole picture. It makes business so much harder. How about?

[29:41] Could I actually avoid a bit of the inflation? Let's say that I'm in Eurozone, for example. It doesn't matter. Maybe in the U.S. That's how I'm charging. My customers are paying in that currency, US or euros. But what if I would actually use employees, freelancers, people outside of the currency zone? So they're like in Asia or they're in different parts of the world and we're not using their local currency, for example, to pay them. Would I avoid some of the costs of inflation by doing this? Could this give me some advantage so I could actually somehow avoid the full effect? You can. I mean, the problem is, will they have inflation too and how much? So you're still, I mean, you're still, you're speculating, right?

[30:31] And it's the same thing with any international business that currency fluctuations, well, who knows exactly what is moving the currencies up and down compared to each other. We can't really tell. And now we're seeing inflation. We're seeing inflation pretty much everywhere. It's at different rates, but the baskets are different too. So who knows exactly how they are different anyway? And I mean, the US, we have the benefit of having the only, in a sense, hard currency. I'm not using that in a technical sense because it's not backed in anything. But it's the only world currency, which means that if there's a lot more money being produced in the U.S., a lot more dollars, they tend to go into other countries, too, through oil markets and all kinds of world markets. Because a lot of people need dollars to trade with American companies or trade with oil and what have you.

[31:38] So people outside the country will want to hold dollars, which means that it's not going to have as much of an effect in the US on prices. So inflation rates will be lower simply because a lot of those money will go somewhere else. Whereas if you have other countries, I mean, especially smaller countries like Sweden and Sweden's kronor or any such country that is small and dependent on trade, then if you produce a whole lot more kronor, it's not going to be the case that a lot of people abroad are going to say, yay, let's hold a lot of Swedish kronors. It's going to be the other way around. They only will buy it if they're going to trade with some company in Sweden. It's not a currency to hold.

[32:26] And then you're in much greater trouble. So Americans sort of are and have been for a long time benefiting from this status as economic superpower. Because people want to hold dollars. And people hold dollars in oil too. I mean we can get into conspiracy theories about oil markets and why they're using dollars and not euros or gold or what have you. But it is the fact that they do use dollars. So dollars will be held by other countries, by foreign corporations and a little bit all over the place. So the short answer is that there's no cheat codes, there's no shortcuts. I cannot basically do anything else to be smarter with my business and try to be more quick with my price adjustments and cut costs quicker and just...

[33:25] Yeah, I mean, that is important to basically stay out of long-term sales contracts. So whatever you're selling, right? And make sure to have as many as possible if you can from your suppliers. But other than that, I mean, since we're talking about a currency or a money that is losing its purchasing power, something else to do is to not hold currency. Right? So if you instead hold things, because inflation means that the number of dollars it takes to buy things is increasing. So each dollar is worth less. Well then hold things instead of holding dollars. Should I buy stable coins?

[34:17] Well, you could try whatever, but any type of asset really, maybe not stablecoins, but I mean, you could buy land, buy gold, buy cars, what have you. I mean, anything that would sort of retain the market value, not necessarily expressed in the currency, but in terms of value compared to other goods. So it might be hard because you still have bills to pay and everything using currency. But whatever you have left over and whatever you don't need in terms of liquidity right now, it might be a good idea to have assets instead because the assets will at least not fall in value. It's like a car which usually is, you know, if it's not like a classic car, is like already you know appreciating value but usually these regular consumer goods are actually not a good investment right buying a new car from the dealer and then you lose 30% as soon as you just sign the contract that might not be a good idea but I mean we saw that here in the US not long ago right but where the used cars skyrocketed in price suddenly now though holding a bunch of used cars at that point I mean it's like any speculation really which asset should you be holding but it it might make sense to hold something that you think might will go up a lot or it might make sense to hold something that you think will not move a lot at all especially when when the the money is is going down so what's your prediction what's gonna happen in the future and I think I already probably learned that I should not ask from an economist, but I'm still a bit dumb. So I'm, you know, repeating my mistakes. So how do you, what do you think is going to happen in the future?

[36:19] You know, it looks like that the US government has been printing a lot of these special metal tokens, which are, was it 1 trillion tokens? So, you know, are they tokens actually? Are they like, They're actually physical tokens, almost like a crypto, but just for the atom world. And so what's going to happen in the future? Are they going to keep on doing that? And the same with euros. So are we somehow getting rid of this COVID time also in the monetary policy? So what's sort of your feeling of what's going to happen in the future? Well, the problem is not only that that you're asking an economist, but you're asking an Austrian economist. And Austrian economics is about understanding the economy and not predicting exactly what's going to happen because we don't believe you can because people behave in different ways and they react in different ways.

[37:15] And also I'm not a macroeconomist, so I focus on entrepreneurship. So what is going on in the economy overall, that's not really my expertise. Are they actually macroeconomists in Austrian economy? No, you're right. They're not. So you need to know a little bit of everything. But since I'm in academia, you have to specialize in something. And I'm specializing in sort of the micro of the micro entrepreneurship and starting new businesses. But it's exactly correct what you said, that the central banks all over the world have been creating a ton of money lately. And it's not only COVID, it's basically since the financial crisis back in 07, 08, around there. So, I mean, we've had this quantitative easing where they have been, when we say they use the printing press and they print money, of course, that's not what they do.

[38:11] It's all computers now. So they just create money in a bank account somewhere. And I mean, when you get a mortgage for your house, it's not the case that they move the money from somewhere else. They just create that money in your account, which of course immediately goes to the seller of the house. So it's new money. And that of course dilutes the value of the currency itself. And they've been doing this for a long time. And people have been saying that, well, see, it's no big deal because we have no inflation. Because the basket, the price of the goods in the basket has not gone up. Well, I mean, this all depends on banks' behaviors, how much money do banks have in their accounts, how much money do they offer out into circulation, how many businesses are actually taking out loans and getting money to spend on stuff, How much are consumers spending on goods?

[39:12] So, I mean, the more the money gets out there and it's being used in transactions, the more effect it's going to have. So you can't really time these things at all if they say when it's going to happen. But I think what we are seeing is a correction of pricing overall, which really means the pricing of the currency. So the dollar and all the other currencies too, because we have had interest rates at zero or negative even, which is just weird. Because of that, I mean, they do that by creating a whole lot of new money. That's how they push down interest rates. And that money has to go somewhere. It's not just disappearing. So when that starts hitting, I would say it goes into one industry first because they take up a lot of loans and they're entrepreneurs there that see opportunities and they get a lot of that money. Well, they're going to spend that money on something.

[40:09] They're suppliers probably. They're workers, what have you. And they are going to spend it somewhere else. And that's going to affect prices because they're going to bid for prices with all this extra money. And they're going to be able to buy resources and buy goods first. And that's going to cause those producers to try to produce more, which means, of course, they increase their demand for resources. And then eventually it's going to like ripples on a pond if you throw a rock. It's going to go through the whole thing, but it's not going to be as circular and nice as on a pond. It's going to depend on how people act. What we are seeing, I think, is a correction to this new money. The follow-up question that you asked, are they going to continue to create money?

[41:05] Well, I don't think they have a choice. First of all, they don't understand what is going on. So they're just guessing. They have these very simple models, and they're all equations. And to me, as an entrepreneurship scholar, you can't really put entrepreneurs or any action into an equation because we don't behave exactly as the variables. So any equation is going to be wrong. Yeah, we're not exactly like a variable. Exactly. At least constants, at least. And we tend to be... We are more like the choker card. Right, and we tend to be unpredictable, right? I mean, anyone has tried to predict, say, go dating or something, and that's just one person. And you just can't understand exactly what they're thinking and how they're going to react to that next present or the next restaurant that you picked or whatever it is. You have no clue.

[41:55] You can study them forever and you still don't know. But they think that they can put the whole economy into an equation. And that's, of course, absurd. So they're trying to use these aggregate variables for the whole economy based on the assumption that, oh, everything will sort of balance out in some magical, mysterious sense. And, of course, that's very problematic. But then even worse is that they're trying to adjust those variables to recreate balances and tamper with this variable over here so that the variable on the other side goes up or down. Of course, that's not how aggregates work at all. That's sort of the opposite of even the meaning of aggregates. That's not how it works.

[42:48] So the methods they have and the tools that they have are super crude, and I don't think they ever get the results that they think. We've seen that now. when they try to push interest rates down to cause different things and cause more employment and things like that. And they push them down and push them down and push them down. They were like, we don't know what is going on because it's not happening. What we thought and all the models said it would happen, it didn't happen. So they pushed them down below zero, which is no one thought it was possible, but they did it anyway. And still it didn't really happen. So thinking that they can somehow just pull back and tamper with other variables to fix things, I think that's, well, that's naive, let's put it that way. And that's, I'm definitely not exaggerating when I'm saying it's naive.

[43:48] So what can they do? I mean, they can just continue creating money to cover the government's expenses and their debts. And I mean, that's basically what they're doing now, isn't it? They've borrowed this much money and they're creating new money to cover the interest rate on the loans that they have. Of course, that's not sustainable for any person. It's not sustainable for government either, even though some obscure theories claim that it is. the previous episode we did together there was kind of a cliffhanger we were talking so long that it was better to stop for a while and oopsie now it's like two years later and you were saying that there was kind of a scam happening that all the currencies are basically packed by all the other currencies. And then you were saying that I'm checking here the notes, the transcript, and for all the audience who hasn't actually checked the episode, it was an awesome episode.

[44:56] I'm probably a bit biased, but maybe Per will also agree. So we are almost like in a maturity of 100% agreeing that it's an awesome episode, so you probably should check it out. But we sort of stopped the discussion there and what you were saying that as soon as people stop trusting the government that the money of the government which they bring printing which is basically worth exactly just what the piece of paper is worth with the ink on it so it's you know worth nothing that's going to be a huge problem so you concluded by saying that if we have a depression like crisis again. I'm not sure I want to see what happens. But the markets are going down. There's obviously the war happening now, Russia and Ukraine. And then there's the supply chain things happening.

[45:53] Inflation is going up. There's a lot of these things happening at the same time. They're probably not exactly from the same causes, but they are kind of accumulating as a focus point. And so are we heading towards a depression? Is this actually the long run? Some gentleman in the early 2000, 20th century was saying that, you know, we should never worry about because it's just so far away that, you know, it's just practically, you know, nothing. Right. That's what I once referred to as the pee in your pants economics. And as someone living in the north like yourself, you can understand what I'm talking about, that when it's really cold outside and you're freezing, being in your pants will give you some warmth.

[46:45] It might not be comfortable in other ways, but it will give you warmth, but temporarily, then it will get even worse because you're wet and it's cold. All right, so... So how many times you can do this? This is really getting disgusting now, but you know, so you're saying that we're constantly being in our pants and there's no end on site. Yeah. Yeah, and that's what we have been doing. I mean, each of these big crises that we've seen, not starting with, but for me, it was sort of one of the first ones that I experienced myself, the dot-com bubble in 99-2000. That one burst. And then they had the housing crisis, the financial crisis. And, I mean, now who knows what is happening? And they're getting bigger and bigger because we are not, but they are sort of trying to cover up the problem by creating more.

[47:43] So you have this bubble bursting and the problems, the distortions throughout the economy cause the bust, and then they print a whole lot more money to just make sure that sort of the wheels start turning. That's something that they often say, right? So entrepreneurs get a lot more money, and then they can start doing things again, and people can afford consuming again, and then you basically create a new bubble on top of the old one. And, of course, it has to be bigger. So they get bigger and bigger, and it's going to be more and more painful to get rid of it. But are we heading towards the depression? Sure. But when? Is it this one or is it the next one? I don't know. But it's...

[48:32] I think the guy you quoted was right there. That the last Great Depression, it was bad, really bad. But it was during a time when currencies were backed in something. So the money you had in your pocket, they were redeemable in precious metals. So you could go to a bank and say, hey, I'm not going to have these pieces of paper anymore. I'm going to get the actual gold that they represent. And when you can do that, well, I mean, gold is not going to disappear. And people like gold. Gold emerged as a money, an international money for a reason, because people like it and people consider it valuable. They use it for different things.

[49:23] I mean, we use it in industry and computers. We use it for jewelry. We use it for all kinds of things. And it's easy to use, too. So at least then you had sort of that lower limit to what could happen to the currency. People could always go to the bank, and they could go. If they thought that a bank was manipulating the currency, there were many more dollar bills, say, than there were actual gold coins in the vaults, They would rush to the bank and try to get the gold coins before, while trying to not be the last one because then you wouldn't get any. And those bank runs would cause devastation for those banks that were not solid, that did not have the actual backing.

[50:15] So if they had created a lot more money, then they could not pay people the gold that they owed them. Now, paper currencies are not based in anything. It's not even the case that we use paper currency anymore either. We use just digital, so it's just a little bit of magnetism on some hard drive somewhere. Which of course means that you can create a whole lot more very easily. and you can take people's money away pretty easily too, and it's not backed in anything at all, nothing whatsoever. And then, of course, you have the discussion on central bank digital coins, which is a new thing now, which is sort of following the whole crypto thing, but from a central banking perspective, where central banks want to replace these digital amounts that are on hard drives with some crypto algorithm instead, so that they can basically control each coin centrally.

[51:27] And the Bank of England said something about this, that this is a beautiful technology because if you don't spend your money often enough or a big enough fraction of your savings, they can just tap, tap, tap on the computer and then your savings go away. So they can force you to spend on stuff that you don't want, but you'd rather have stuff that you don't want than nothing left at all. So, of course, you would choose it, which means they can micromanage the economy, so you can't really save money for a rainy day at all. If they want you to spend, you will have to spend. If they want to make someone rich, they'll just make someone rich. If they want to make someone poor, they'll just make someone poor from the central bank's headquarters.

[52:18] And I think that is super scary because it's not only is all privacy gone completely, and same thing with personal finance. You are no longer the master of your own money, your own purchasing power. So this is if and when people figure out that this can be and probably is being used by actors in bad faith, this will probably force the economy back to barter. That wouldn't surprise me because people would shun this money because it doesn't matter where you have it. The central banks can still go in and take it from you or just dissolve it or double it maybe too. And that's really scary because that takes the consumer and takes the individual out of the economy and that whole equation really.

[53:22] We become sort of antsy. It sounds like a complete total madness. yeah you actually think that they're gonna carry it out yeah that's the thing when I think about it too maybe I'm old fashioned but I think of it too as this is just crazy why would anybody think that this is a good thing and why would they want to try this at all but they're all trying it most central banks are working on some sort of digital currency that's gonna be based on some kind of crypto algorithm thing so that they can control each and every coin, so to speak. And I mean, the Bank of England said that this is a great benefit of it, is that we can control each and every coin. And they believe apparently so much in their equations and formulas that it will be better for everyone if they do this.

[54:22] And I think what they're really saying is that they have discovered that their models don't quite work because people don't behave the way they should according to the models. So when they change some variables or the interest rate or what have you, and people do not spend on these goods that remain unsold, then the model didn't work. And people should have because we provided them with the incentive or changed those variables, whatever. But if they can force us to do it, then the models will work. That's not really a banking system serving the population anymore. It's the population serving the banking system. And that to me is, I mean, it's authoritarian. It's totalitarian. It's a dictatorship.

[55:08] It's a finance-based dictatorship. And it's super scary. But to them, the central bankers, and I mean, they're the central planners of our age. To them, it's an advantage for the economy because they can create the economy that they want. Or at least they think so. They really believe it. So what's out of this situation? What's the getaway? Are we just going to need to move our assets to Bitcoin and not central bank controlled cryptos or should we just buy all the gold in the world? What are the alternatives? Well, I mean, there are plenty of alternatives.

[55:57] There's a reason, I think, why they want to regulate all those things, right? That they want to make sure that Bitcoin does not become a currency, that people don't buy gold. I mean, people have been talking about how the gold market price has been manipulated since, well, at least since the gold standard disappeared, or was done away with, rather. But I mean, it's the same thing as any inflation. I mean, this kind of control over the currency means that you're better off the less you have to do with the currency. That means you're less exposed. So that's why I sort of hypothesized or speculated that this will lead to some kind of barter trade, because people would rather trade a thing for another thing than have money in their pocket that might disappear at any moment. And they would, of course, not accept that type of money for something that they're selling, because it might just disappear at any moment. I mean, you're sort of, you're just getting uncertainty. And that's really the behavior we're seeing in hyperinflation, that everybody's trying to stay away from the money.

[57:13] So in some situations, you can't escape the money, so maybe you have a job and you get paid. But as we saw in the Weimar Republic, and we've seen in other countries more recently, where there's hyperinflation, as soon as you get that money in your hand, you immediately rush to the store and buy something before the prices increase because they change the prices several times every day. And you buy whatever is there. It doesn't really matter because toilet paper is going to be toilet paper tomorrow too, but your money is not going to be money tomorrow. And the same thing if you undermine people's trust in the currency with central bank digital coins and this type of micromanaging, then people are going to shun those currencies too and do other things.

[58:05] So are they going to move into private cryptos? Probably, some of them at least. Are they going to sort of revert to gold and silver coins and maybe junk silver as they call it, like old government coins that had a certain fraction of silver in them, like American quarters before 1964, I think, they have a certain amount of silver in them, so they're worth a whole lot more than a quarter. So if you find one, then keep it. And those things you can use to trade with, because people know, well, this is actually silver in there, so it's something, right? Or will it just mean buying stuff and buying things to make sure that you have to just trade with people.

[58:56] I think people will choose different strategies or a mix of them. Which one will end up being the biggest one? I don't know. I hope it's going to be some kind of money. I mean, now we're talking sort of doomsday scenarios, but it's way too easy to see how it could get there, put it that way. Yeah, I was just starting to think that I wasn't expecting, You know, our episode to go so dark, but then I was like, hey, two and a half years ago, we were not exactly thinking that, you know, some stuff would happen. And then suddenly COVID hit and our reality changed. And it changed again, at least in the Europe, maybe worldwide as well, you know, 24th of February earlier this year. Yeah.

[59:43] Who would have thought two years ago that not only would everybody be locked up in their homes, but people would welcome it. So you can't really tell. And we are seeing this technology that it is being developed in the banking sector, especially central banks and so forth. And we have statements from the people on the inside, such as this statement from the Bank of England, saying that, oh, this is great. We can micromanage in people's accounts and wallets. Fantastic. Of course. And we also seeing quite high inflation numbers with that new method they're using. For example, in Estonia, it's in the 20% at the moment. So obviously, there's a lot of commodities people are using.

[1:00:34] Electricity is really high. The heating is expensive. The gas for the cars. All these things you need to buy. The food is going up as well in price. So there's a lot of this happening now. if it's going to accelerate even further, something must give because it's not sustainable if your prices, I mean, your salaries are not going up. So you just cannot live forever like this. Right, and that's an argument. Well, it's something that will probably lead to a political argument for some kind of universal basic income and that the government provides everybody with a handout so that they don't have to work because there are no jobs or something like that. So I can see that as a potential outcome too.

[1:01:24] On the other hand, I think it can also completely reverse its course that people more and more say, screw this, this is not working. Why would we trust these people who have scammed us all along and have caused all these problems? We'll just use something else. We'll just revert to gold. We'll just use Bitcoin and all these other private cryptocurrencies instead. And screw the dollar, screw the euro, screw the whatever. So I can see that as potentially happening too, which would be, from my perspective, a whole lot better. And it would be a much sounder economy. So it could go down the tubes. It could go completely dark. It could also be that it's just going to be a little darker, but then there's light in the tunnel, and that's actually the exit and not the train, right?

[1:02:22] Yeah, and nothing prevents us basically trading in Bitcoin instead of US dollar or euros. It's up to us to do that. Right, exactly. We don't actually need to use, and that's actually the power we have. So basically we can just decide either we use bananas or we use Bitcoin or gold or silver. It's up to us, whatever we decide to choose as a medium of exchange. Exactly. And I have a hard time. I think, I mean, people might think that it's a good idea that central banks adopt modern technology and things like that. And I mean, why not? Technology makes you more effective and productive and what have you. But when they say that, well, with this new digital version of our currency, which we're just moving to right now, we can make your money disappear out of your pocket.

[1:03:15] I mean, just saying that, I don't see why anyone would think that's a good idea. Of course, they're going to launch this as a way of getting rid of money laundering and taking criminals' money away from them, right? So saving us from gangs and saving us from the mafia and things like that. I mean, that's probably how they're going to sell this. But we're going to be using the same type of currency. And if that starts happening, I mean, imagine if the tax agency can just decide how much taxes you owe and just take it from you. Not when you can afford it, but when they think they should just take it. That's a scary thought because, I mean, We need liquidity to survive and live, so we could just be pushed into homelessness and starvation at literally just a strike on a keyboard somewhere by someone we don't know.

[1:04:20] Or it could be just an algorithm that just penalizes all those with tax debt. I mean, it could be automatic, too. So when this type of thing starts happening, and it is the explicit purpose of these CBDCs to do this, it will happen. So as soon as people start realizing that it's happening to people around them, I don't see why they would continue using those things. It would rather be the case that they try to buy stuff with them, which is the point, too. They want us to consume. They think that creates wealth. It's also a very bad theory, but that's what they believe. So we start to consume, which means we might spend everything to buy goods instead.

[1:05:11] They can't really, like you said, they can't take the bananas out of our pockets as easily as they can just destroy coins, digital coins that are in our cell phones. So to steal our bananas, they will have to punch us on the nose first. And people have a harder time with that than just something mysteriously disappearing. But it's super dark. It sounds to me that, yeah, it is. I think we have to sort of shift gears here. So I was thinking that, is it so that the mainstream economics, fiscal and monetary policy, the whole doctrine of fiat money with central banking is completely, utterly, morally bankrupt.

[1:06:03] And we just have to get rid of all these things now because it's like the end of the line. Well, I mean, the short answer is yes, I think so. So economics is supposed to be a field of study serving mankind, helping us understand what is going on around us because economies are just natural. people exchanging stuff and people producing. And the more people there are with specialization and so forth, we can start producing what we're good at producing, even if we don't want what we're producing ourselves. So we can trade it with others who want that stuff. So we can increase productivity enormously and create general universal prosperity, which we have seen too. So that happens without all of these things pretty much, right? So economics try to explain what the heck is going on and why is it happening this way and what are these weird phenomena we're seeing?

[1:07:03] Why are there business cycles in this? Should there really be? I mean, trying to help us understand what's going on to make sense of the world. And modern economics is not about that. Modern economics is about really generating and supporting policy. so trying to it's really the art of central planning in a sense using statistics because economics is really most economists probably are involved in running huge data sets trying to predict what is the outcome of this policy versus that policy and how can you tweak the policy to get the actual outcome you want that's what a lot of economists are working on I mean when I was I might have said this in the previous episode I was in, but when I was in grad school studying towards my PhD, I was in a department where there were several researchers and a lot of grad students too, working on this huge database, collecting a lot of data on the agricultural sector in the US.

[1:08:14] So they had satellite images of fields, They had surveys with farmers asking them, what did you plant? What are you growing? Why? And things like that. And then based off of these, they ran these database procedures trying to figure out, okay, what will the future prices of corn versus cotton versus soybeans and everything be in a year? because we sort of know that if you plant this many seeds, unless they're sort of really dry or really wet year, it's going to give us this type of yield, right? So using this data, they could figure out that, oh, wait a minute, then corn is going to be a little too expensive or more expensive than before and cotton a little more cheaper than before. And maybe we need a little more cotton.

[1:09:03] So they would streamline and tweak the subsidies to different agricultural products so that they could make farmers produce what the government thought they should produce. And that's basically what economists are doing today, a whole lot of them, whether they are working in an insurance company, they're trying to tweak what types of events will cause, what types of payouts, what will the premium be, how can we figure out how to make customers pay enough, and things like that. Or they work in banks, or they work in government agencies, and they're all trying to predict the future in this way using statistics. And this has nothing at all to do with understanding the world. They're just assuming that the world will sort of repeat itself over and over again, because they're using historical data trying to predict the future, which, of course, is impossible when you're dealing with human behavior.

[1:10:03] Entrepreneurs, founders who are building new stuff, doing things nobody has imagined before, and everybody basically is capable of doing new things and changing their behavior and patterns. And we do, right? We do every day. We're responding to these things, and we see things, we imagine things, and we change our dreams and whatnot else. I mean, if you think about it historically, You can say, okay, so when Apple launched the first iPhone and changed completely the landscape for cell phones and that type of communication, why didn't Samsung just hire a bunch of economists to make sure that they could see this coming? Well, it's obvious, right, that they couldn't see this coming, even though the iPhone was really a continuation of the iPod and so forth. So in retrospect, we could see this coming, but we had no clue how people would respond to this new idea or how it was needed to be sold and how it would evolve and whether it would be a success or not.

[1:11:07] All of these things had no clue. Yeah, and even the bigger ones, like the simple stuff, like the housing crisis, it's like quite sort of simple, consider the thinking what's happening with consumer behavior with new innovation. And we're still building houses. We've always been building houses as long as we knew how to build houses. And that's kind of a stable market. The basic concept is still the same. You still have a certain amount of people and you have some stock of houses. And if you're building more, it could be, I guess, more simple even for economists to figure out what's going to happen. But yet we have this huge bubble and the crash. And we have ghost cities in China where they build whole cities because they think that's a good idea and they probably calculated that it would be a good idea to have a city of this size in this area.

[1:12:02] Then that would be whatever socioeconomic calculus they made. And they have the power to force people to go there too. And still they're ghost cities. I mean, so you can't… ecological issue with this building stuff, using resources, for example, concrete is a really bad thing basically with the CO2. And these are useless. And what I understood that some of these cities, they actually just now tearing them apart, breaking them and just completely demolishing them. Nobody ever lived in those. Yeah. Right. And I mean, I've seen interviews with people who actually moved there, like some poor guy who moved there to start like a neighborhood grocery store.

[1:12:58] Well, he gets a shipment of groceries, but then he's going to sit there alone because there's no one living there and there's no one in the streets or anything. So he's not going to be there for very long, right? So he will need a lot of subsidies just to stay there. But even he, where would he get groceries and services and things like that? Because there's no one else around. So he would need to move somewhere else to actually have a decent standard of living. I mean, it's definitely not the case that history predicts the future. And we know this. We've known this for hundreds of years. It's nothing strange. And yet here we are after the fall of the Soviet Union. and we're trying to centrally plan the whole freaking thing because now we have supercomputers.

[1:13:46] No, it doesn't work. Well, we're digitalizing now the central planning. It's not the same thing when we were using pen and papers. Now we have, hey, these computers and AI, and now we can do better. Right, and it's going to be a bigger disaster because it's going to affect more people. And that's the only result that I can see out of this. It's definitely not going to create some utopia. It's not going to create the Garden of Eden. It's not going to help us deal with scarcity. It's just going to destroy people's lives, and it's probably going to destroy lives too. So what can we do? I understood that you've actually been writing a new book. So maybe learning some proper economics would help.

[1:14:36] I would assume that's the hope maybe reading your tweets would help you've been trying to save the world one tweet at a time or at least fix the economy issues one tweet at a time I don't know how it's going but you still keep on doing it almost like per hour so I assume you still believe that you can do that well it might be more my own entertainment than anything else But I think if I can change a couple of minds here and there, and if I can just get people into the right track in how to think about the economy, then it's worth a lot. But of course, at the same time, you have all this nonsense going on and the media pumping out the official version of everything. And most people believe in these equations and everything like that.

[1:15:30] So it's about getting true and sound economic thinking and economic understanding out there. And I mean, in a sense, entrepreneurs, I think, have it sort of intuitively because they are exposed to and they need to understand what is going on around them. And they respond to it. So they have a much better understanding, even though they might not have the terminology. They might not be able to express exactly what is going on. But they sort of see it. they have a feel for it. So they can figure it out or be close enough. And I mean, there are, like you mentioned, the book that is going to be published later this year, still without a title, it's supposed to be a very quick introduction to how to think about the economy, how to understand what the heck is going on and why.

[1:16:23] So it's really short, really simple. The market for it or my sort of imagined customer, the reader that I was trying to convince or provide with this knowledge was someone's grandma. So if someone is sort of an economics nerd and sitting at, say, the Thanksgiving dinner table or something like that, and grandma says, so what is this you're talking about? Why do you get all this stuff? They should be able to just say, here's a very short book, grandma, read this and you'll understand. and grandma should understand it. If I'm... So what you're basically saying is that all the questions I was throwing at your side, basically by reading the book, you can get answers and even give more smart answers that you were giving in this talk because you were like, no, it's not that simple on one hand and on the other hand.

[1:17:23] Right, exactly. And I think economics is supposed to be a way of thinking. it's a way of understanding what is going on. It's not about sifting through data. It's not about statistical analysis. It's not really about prediction. It's not prognostication. It's not any of these things. And you can't really say exactly what's going to happen. If you could, you would probably start a business and make a whole lot of money off of it instead of being an economist. So, I mean, this book is my contribution to the world's understanding of what is going on around us. So it doesn't include any answers. It includes a framework for how to find the answers in a sense. And that's why it's so much more valuable because Per was so kind that I had already a little bit of a peek to the book before we came online.

[1:18:17] So I can recommend it already by just a few pages I managed to check before we went online. But certainly the Austrian economics is a really good way of understanding things. So it's not like the mathematical mambo-champo. And thinking things through yourself, I think that's the most important thing. And that's what it actually gives you tools for. So you can see the causation and you can actually think it through. You don't have to remember anything. You can just basically start to... put the blocks in place and start to sort of walk yourself through the issues and things. And, you know, it's really powerful in that sense. And that's what the ocean economics is doing. Yeah, exactly.

[1:19:05] And I think that is sort of what education is supposed to be about too. That you're not providing people with the content, but you're providing them with the means to understand themselves and draw conclusions from whatever it is that they're experiencing and whatever it is that they're observing and understand it on their own terms, then, of course, if they don't like or don't appreciate or aren't even persuaded by the framework you're giving them, then they discard it. It's up to them. You can't really do that. You're not supposed to just impose a view on them, but provide them with the tools to think things through and see what is actually going on. So that's what I try to do in my teaching, and that's what the book is intended to provide as well. Could we try to test that, what we've just been saying, and eat our own dog food?

[1:19:59] Staple coins. I want to have something with Web3, and I haven't wrapped myself around them properly. First of all, they've been around for many years, almost like 10 years, at least in the conceptual states. For me, it sounds like a fool's errand in a way that I don't see a way that actually a stable coin works in a proper way, in a way that it's not happening like what happened to the Luna. Are there actually any stable coins in a sense, in theoretical sense? Have you looked into this topic or should we actually use our little play matter now and try to figure it out with the awesome Austrian economics and tools and what we know about money and value and all these things? Well, no, I'm not up to date on that at all.

[1:20:55] So I'm not sure what that is about. I mean, I can guess from just the term what it's trying to do just to keep a stable purchasing power or something like that. Is that close? Yeah, the idea is that basically at least one part of it is that you would have exactly like a fixed point that like US dollars, you back it to the US dollar like usually the currencies were back to something. So, so that you are not losing in value, for example, because Bitcoin might be going up and down rather rapidly and it's difficult to trade for example, between. So stable coins idea is that you don't take a currency risk if you will. So it will be stable.

[1:21:43] And the thing is that there are obviously different ways how you can do that. Then that you, the challenge obviously is that it's like a currency is that there's a supply and demand with these coins. If you're buying it and it needs to come from some stock or somebody needs to issue them and what's the measuring point and when something happens with that and because they are currencies as well in a meaning that they should be liquid. So if somebody wants to move out of the position and it's a big position that should be still happening and the coin should still be stable, keeping the back. And that's the challenge and that's obviously the appeal of it. In a way, kind of, I think maybe it's not a good comparison but what in the 70s they were trying to put some baskets. I think Hayek was also suggesting along the lines that you could have some kind of a global index of you know, of something out of the relativeness and have more like absolute value standard, which is more stable.

[1:22:54] For me, it sounds like a bit like a similar idea. And like in physics, there's no absolute time. Everything is relative. And when everything is relative, you cannot really know what's up and down, what is up and what's down. And you cannot compare it to, you know, because there's no background to make some measurements. For me, it sounds like a bit of like a similar thing. Yeah, I can't say it makes sense to me at all. I mean, because we used to have a world currency in gold and silver, and everybody used those. I mean, we called them different things. We called them dollars and pounds and so forth, but we still talked about those weights in gold and silver. And this was a world currency, so there were no currency fluctuations or anything like that. They were perhaps in terms of the bills, the paper bills that represented the coins because they were printing more bills.

[1:23:50] But the coins themselves were, they were completely stable. And there were no fluctuations between countries. Except that they were, I think at least at some point in history, they wanted to have the ratio between the gold and silver coins fixed. To have it more convenient, but that even didn't work. Right, and that's sort of a fool's errand. It assumes that the magnitudes or the volume of gold versus the volume of silver is going to be the same in terms of people's demand even. Of course, that's not the case. You can strike gold, literally, find more gold somewhere and dig it out of the ground, but not silver. Well, that changes the relationship between them. And the same thing if you find a new industrial use, say, for silver, but not for gold, that's also going to change how much silver is available.

[1:24:45] It's going to change what people choose to use the silver for. So, I mean, they have to fluctuate and prices do fluctuate. You can sign contracts to keep them stable for a while, but that's probably going to cause one of the parties to lose and the other party to win. so I mean if you want something stable you should have some kind of commodity money and something that most people will accept throughout the world just like we used gold it's not a panacea in the sense that nothing can happen because there was inflationary crisis with gold too when the Spaniards imported a lot of gold like tons and tons and tons of gold from Latin America, that affected prices.

[1:25:35] Probably suddenly prices, when they got back to Spain, prices just skyrocketed because there was so much gold competing for the goods. So the price of gold just fell. That is, the purchasing power money fell. So that happens too, but it's much harder to produce gold, as a lot of people have tried throughout history, than it is to produce digital coins. So I'm definitely, I'm not necessarily a gold bug in the sense that it has to be gold, but some kind of market-based money that is actually something that would solve a lot of the problems that we have. It would, however, and I think that's the reason why we have these problems, it would cause problems for politicians and for the government, because it would keep them from spending more than they have. and today they are spending much more than they have and thereby imposing inflation upon us.

[1:26:41] I mean, that's basically what is happening. But with gold, they cannot anymore. Yeah, it's an interesting business model if you think about politicians. They're promising stuff with our own money for them to gain the power from us to have the mandate to be doing what they do. So it's completely weird model that you're sort of in the middle of there. And we as a people are then also harming ourselves with these promises and with the fall theories that we can believe on the Santa Claus and the Santa Claus will provide us with these things and it doesn't cost anything and they're coming from Mars or some other place and it's not affecting the rest of the economy of our lives.

[1:27:33] Right. So it's like a grand illusion in a global scale what's happening. Yeah, I think it was Mencken who said that every election is sort of an advanced auction of stolen goods. So, I mean, they're trying to just bribe us with our own stuff, but they haven't taken the stuff yet. They will do that after the election. It's a clever way of putting it, and it's not false. Can we now sink into a bit more deeper waters with MMT? I see you being active. What is the modern monetary theory? And, you know, is that some craziness as well, you know, we should get rid of immediately? And, you know, what is it about?

[1:28:21] Is it actually what we've been discussing the whole time here? Well, I mean, it's close to it. It's this new kid on the block in a sense in, not in economics, because economists don't really accept it because it's not a theory. Someone put it that modern monetary theory is not modern because there's no idea. It's not really monetary and it's not theory either. I mean what it is is really based off of the view that whatever the government spends, first of all the government cannot run out of its own money because it's just printing it it kind of makes sense if you can print as much as you like right, and of course you can pay your own debts by creating more of that money that you have issued the debt in because it's yours which they're actually doing as well Right, and it's not necessarily the case that people will accept it, though.

[1:29:26] Yeah, it's like putting a $100 bill on your left pocket and taking it from your left pocket and putting it in the right and you can keep on doing this and you never run out of money in your pockets. Right, and MMT goes beyond this then and says that, well, people will have to use this money to some extent anyway because they have to pay taxes back to us, the government, using that money. So they sort of issue the money that funds government projects, and it has demand because people will need to pay taxes using this currency. And then these also... It sounds like what Russia is doing nowadays. They're causing a problem first, like destroying the grain, for example, in Ukraine, And then they kindly will offer a solution to relieve this pain, what just happened.

[1:30:20] Right. And that is what politicians do, right? That's what politics does, and that's what the mafia does too, right? I will protect you from someone burning down your house. Well, that someone would be me, right? So the protection fee. But the MMTers will also say that, well, the government spends all this money by buying stuff and services from the private sector. So whatever deficit the government has in terms of its own money is excess or surplus for the private sector. So you even have some proponents of MMT who have said that entrepreneurs can't make profit unless the government first spends money. But now we're getting into nonsense territory.

[1:31:12] Because now you're saying that, well, the only thing I will consider to be money and profit can only be counted in this money is the government's currency. And I don't give a damn about the value of goods or any exchanges or anything like that. So in a sense, they're excluding the whole economy from their theory on the economy, which is a little ironic, you could say. So they're just focusing on really the monetary policy of the state. And in a sense, I should give them a little credit too, because they are describing what is going on between the central bank and the treasury. So they are just shifting numbers back and forth.

[1:32:02] And they are right that they are requiring us to use their currency and things like that. So, they do have some things, right? But then they continue and sort of extrapolate like crazy to include or at least attempt to explain the whole economy based off of this sort of small phenomenon that happens within the government. So they believe that they have a theory of what is money based off of how the state functions, which doesn't make any sense. Because if we think about why do we use money? Well, we use money because we trust that it has purchasing power. That's with or without the government. It's with or without taxation. It has nothing to do with that at all.

[1:32:50] And that just because the government has sort of monopolized national currencies and have disconnected the national currencies from any valued good, because they were mostly gold currencies before and now not, that doesn't mean that all money has to be this way. And we see this in many countries too. I mean, take Zimbabwe or Venezuela or the Weimar Republic. It doesn't matter if it's backed by something or not, officially speaking. If people lose trust in what the government says is money, it will be money no more. Because money is not really, economically speaking, it's not about the coins and bills. Money is the commonly used medium of exchange.

[1:33:42] So it is whatever people commonly use as a medium when they exchange. And they can shift to something else. But the idea of money is already there. We already understand money. We've been brought up to think that, oh, money is whatever the government's central bank is issuing. But that's not necessary at all. It might not be the case. And Bitcoin is a good example of that, right? But it's something that could very well become a money, a commonly used medium exchange. It's already a legal tender in some places. Even that, right? And it's not commonly used, but in certain circles it certainly is. So for them it's money, and it could very well turn into money. So it's not that strange, really. MMTers take sort of a grain of truth in a sense, and then they say that, "Oh, look at this grain.

[1:34:37] This explains the whole field and the forest around it." And it doesn't. And unfortunately, discussing MMT with MMTers, they tend to be among the most economically illiterate I've ever encountered. And that's actually saying a lot. Because like we talked about before, the point of the book is to get people a little bit up to date on how the economy works. Because people have never been exposed to these ideas or how it actually works. And what they observe is typically pretty far from the actual processes that are happening. So economics is supposed to uncover those things. But MMTers, they have their own definitions of terms, and they tend to think of money as something very magic. So it's a government's magic in some sense.

[1:35:34] For instance, they would say that the inflation that we're seeing right now, it's not because there's too much money. It's because there are too few goods that money can buy. And those are just two sides of a coin, of course. So the question then is, well, why isn't the problem that there's too much money, which has been created recently? Why is the problem necessarily that production of goods has not kept up with the central bank's production of money? Well, they say because the price of the goods is supply and demand. Yeah, okay, but there's supply and demand of money too. No, they say, because that's magic. So supply and demand of goods is in money.

[1:36:28] Right? So money has no supply and demand. It has only supply, I guess, or only demand or whatever it is. But they sort of miss this fundamental piece that it's a medium of exchange and every price is a ratio between the two things exchanged. In the money economy, that's money and a good, usually. In the barter economy, it's a good and a good. But they're missing that there's a ratio. I don't even know how to explain. I mean, you can't really discuss these issues. It's like a flat earth. It's kind of difficult to explain to someone that when you're flying, you can see the satellite images, or you can just basically observe if you buy the ocean.

[1:37:16] Just using a bit of a common sense, it's just like inevitable that you cannot go wrong. It's just like if you just do a bit of some kind of thinking. I think that's a good comparison because it is very much like flat earth theory because flat earth theory in itself is I'm no expert but I'm guessing it's fairly consistent right so expert yeah that's not me but I'm guessing the theory itself is consistent just like the Marxist system is consistent but it's based off of very flawed assumptions But then that means that you can't really... Yeah, because you can always tweak the definitions. You can make it consistent by tweaking or leaving something out, and that's always consistent based on the definitions.

[1:38:10] And you can always explain anything practically through just a circular argument. And that's what I see in MMT proponents all the time, that they go back to just a circular argument. When you're talking about anything in the economy, like production or entrepreneurs or whatever, where they have one standard phrase that they use as sort of a Trump card that they think that they win whenever they use it. It just begs the question, why don't they use it to begin with? But they throw it in there when they sort of feel a little pressured, I guess, and they say, but who creates the dollars? Yeah, the government creates the dollars, but that has nothing to do with exchange ratios in the economy. People can still exchange goods even if there were no dollars. And, frankly, there was a dollar before the government monopolized it too.

[1:39:02] There was money before. It was private, and then the government actually asked a bit of a favor to get to the business of doing currencies. Exactly, and all these national currencies, they were monopolized or really expropriated private currencies. I mean, money is a market phenomenon. It's not something that someone created. A banknote. Right, and it's not something that someone created and thought, oh, wouldn't it be great if everybody just used this thing and used it in exchange? No, because why would anybody accept that thing in exchange that has no value in itself? Well, it emerged spontaneously in the marketplace because people realized, and I mean, this is Carl Menger's explanation, for money way back in the 1892 or something like that i think it's sort of a classic piece where he explains how where money comes from you don't need anyone to centrally plant initially you can't do that either because if people don't understand what it is why would they give up their actual goods for the something that they don't understand you have to force it put it basically put a gun to their heads and say you put to take this but what are they going to do with it when they turn around and try to buy something with it, then the government has to be there with the gun to that guy's head to accept it too. Until people are so used to the guns that they go, so I'm just going to do it anyway. But that's a very costly way. That's not what happened. It's not what could happen either.

[1:40:35] To Menger, what he said was, well, imagine a barter society where everybody's just producing whatever they're producing and they're exchanging whatever surplus they have for things that they want. In order for this to happen, they have to find someone who wants what they offer and has what they want to get. So if you have eggs and I have apples, and I want eggs and you want apples, we can figure out how to exchange. But if I want your eggs, but you don't want my apples, we can't trade. And then, of course, I can figure out, well, this third guy over there has beautiful other fruits, pears, and you like pears. Well, then I can, that guy might accept my apples, so I'll exchange apples for pears.

[1:41:26] I don't like pears, I don't want pears, but I think that you want pears. So I can exchange with him to get what you want and thereby get the eggs that I actually want. And then people will engage in this behavior and choose the more saleable good. So maybe there is some other good that more people would want in exchange. And when I figure that out, I will just choose to sell my apples for that thing because it opens up so many more options for me when I trade. I can get so many more things that I want rather than just trade with this guy with pairs. And then eventually, when people do this, they will choose the most saleable good eventually, which will then be money, because it's a commonly used medium of exchange. It's not a good that people acquire because they want the good.

[1:42:15] They want to use it as purchasing power. So money comes from us in our actions. It wasn't imposed on us. And we understand this concept now, which means the government can sort of expropriate or usurp the idea and say that you can't use anything else because we're used to the idea. We understand the idea now. But we created it from the beginning. And of course, what is a money can be destroyed easily. And that's what we see in hyperinflation. When people just say, I'm not going to use that shit anymore because that loses its value and I'm going to just get stuff instead. I don't want to hold it. And when enough people say that, the purchasing power goes to zero. And it's not going to be money anymore.

[1:43:05] So the good news is that if you're a founder and you're producing stuff, you have nothing to worry about. You know, if you're doing something what the other people are actually willing to trade for, you don't need the government money. You just keep on doing what you're doing. And you will find a medium of exchange what the other people exchange, so you can just part of things. So actually I'm in a really good position and it's a hedge against all the craziness what's happening in the world. Yeah, that's a very good point. And I think, I mean, that is what entrepreneurs are in the business of doing, right? They're trying to figure out what people value, not what they themselves value, but what other people value so that they can sell it. And then what they sell it for, well, that's a matter of what would be acceptable at that point. Because if we see hyperinflation, it might not be dollars anymore, it might be something else, but it's dollars today.

[1:43:57] So we can calculate it in dollars, but it might be something else later on. Who knows? But I think that's... I usually say that entrepreneurs are in the business of creating our tomorrow. And what I mean by that is that they're creating all the goods and services that consumers will want in the future but probably don't know anything about today. So entrepreneurs will figure out not only what they might benefit from but also how to package and communicate it to them so that they understand that they, oh, this is something that I really, really want. And just like you said, if they do it right, if they're good, they produce something that other people want and they can get something in return.

[1:44:45] That something, well, that something is something they will have to agree on. So it could be whatever is money at that point. It doesn't have to be the paper currencies we have today. So I think this is a really good point to thank you for the excellent talk today, Per. And I want to also thank all the listeners and those who are actually watching in YouTube as well. And till next time.