WBD574 Audio Transcription
How Capital Misallocation Warps Money with Steven Lubka
Release date: Monday 31st October
Note: the following is a transcription of my interview with Steven Lubka. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
Steven Lubka is Managing Director of Private Client Services at Swan Bitcoin. In this interview, we discuss how the misallocation of money by central banks distorts money, destroys capital, and creates zombie companies. Steven calls for money to be left to find its natural state within a free market.
“If everyone uses a 12-inch ruler to build a house, and then one day, the government wakes up, and they change out all the rulers for an 11-inch ruler, but they don’t tell anybody…that distorts everything in the system because you’re using that as a measure, and the same thing happens with money.”
— Steven Lubka
Interview Transcription
Peter McCormack: Steven, good to see you again, man.
Steven Lubka: Peter, great to be back.
Peter McCormack: How are you?
Steven Lubka: I'm good, man. It's been good, it's been an exciting time. We've had a ton going on. I mean, coming into Pacific Bitcoin, I've got a little announcement we're going to talk about real quick, and obviously never a dull time with Bitcoin, so a lot going on.
Peter McCormack: No, can't make a show without Cory sending you in with some messages to relay to me.
Steven Lubka: No.
Peter McCormack: Did you walk here?
Steven Lubka: I'd like to say yes, but it's not true; I did take a car.
Peter McCormack: I like walking, I do, I like going for a walk. When Danny's in the Australia and I'm in the UK, we sometimes have this thing where, because it's his evening, my morning, I wake up, we phone each other and I go for a walk, anything from half an hour to an hour.
Steven Lubka: I love it!
Peter McCormack: But at most, an hour and a half, but usually about an hour. Now I see you're walking four hours a day, I'm like, "What?"! You're like the Forrest Gump of Bitcoin!
Steven Lubka: At one time, I calculated, I looked at my walking pace and I compared it to Forrest Gump in the movie, and it's like three-and-a-half years, he walks from coast to coast three times, or something, and it works out about to how much I walk, so I got a kick out of that. But I love it and I was talking with Danny before that even if there was no health benefit and there was no anything like that, purely for mental clarity and focus, I would do it. I just feel good, it helps me think, it helps me write, so I'm a big proponent.
Peter McCormack: Is it three walks a day?
Steven Lubka: It's a bunch of small ones. I'm not doing a giant marathon, just if I'm sending emails or responding to Slack messages, or if I have just a normal phone call, or in the morning or at night; but if I can be doing something walking, I usually am
Peter McCormack: So, you do your Slack messages while walking?
Steven Lubka: Yeah, absolutely.
Peter McCormack: And you're averaging about four hours a day, is that right?
Steven Lubka: I think so, yeah. It's about ten miles on average, probably about three-and-a-half to four hours.
Peter McCormack: That's a lot of walking.
Steven Lubka: It is a lot of walking.
Peter McCormack: Do you ever run?
Steven Lubka: No, I don't run. It was said before that running is the shitcoin of walking, and I do believe that, not to hate on any of the runners out there, but walking is pretty much what I do; I get very little exercise apart from that.
Peter McCormack: Okay, so you get up and you walk. Where are you walking?
Steven Lubka: So, I have a house and in the neighbourhood around there, there's literally just a loop, a circle, the neighbourhood's a circle, and I just do laps; it's the same route every day. And for me, it's no friction, there needs to be no friction in the habit. If I had to get into a car and drive somewhere to talk a walk, that kills the whole thing. It's just out the door, immediately going and no interruption between that.
Peter McCormack: Are you like the walking dude in the neighbourhood?
Danny Knowles: The neighbourhood crazy!
Steven Lubka: Oh, absolutely! I mean, this has been in multiple neighbourhoods where I'm known for just walking around the neighbourhood consistently. So, for the first six months that I lived there, everyone thinks I'm a lunatic. But then I get to know everybody and now we're all friends.
Peter McCormack: Yeah, "Darling, that weirdo's walking again. He's doing laps past our house"!
Steven Lubka: I've been called The Walking Guy by the neighbours.
Peter McCormack: Okay, so how many laps of that neighbourhood is one day?
Steven Lubka: It's about a mile, so I think ten laps, give or take.
Peter McCormack: Yeah, so you're walking past everyone's house ten times?
Steven Lubka: Yes, absolutely. And it's Florida, so there's a lot of retirees, so they're just in their house just seeing me go by throughout the day at certain intervals; on the phone too, so I'm always on the phone.
Peter McCormack: Well, listen, I need to get back walking, so you're going to inspire me to get back. I don't think I'm going to do four hours a day, but I don't know, I'll see what I can do. It's about to get cold in the UK though.
Steven Lubka: Yeah. I've built up to that over years. I've done this for a long time, and it definitely didn't start there.
Peter McCormack: So the 10,000 steps a day, you're crushing that!
Steven Lubka: I'm crushing that! I've got 35,000. I had a 40,000 day once.
Peter McCormack: I don't think I've ever done that. Well listen, man, it's good to see you again, really enjoyed our last chat. It tends to be the way, somebody comes on for the first time and you have a great conversation and it's like, "When can we get you back?" and when we were coming back, Danny said, "We've got to get Steven back and he's going to work on something for us, he's going to prepare an article for us about the misallocation of money", which right now, couldn't be more apt in terms of a topic, because we are seeing the insidious impact of the misallocation of money right now, globally, locally, domestically. So, why did you want to tackle this subject yourself?
Steven Lubka: I mean, it's a lot of what you just said. This is this underlying dynamic that I think is just baked into the system, baked into fiat, baked into the way that we approach money and we approach investment, and all of the financial abstractions that have been built on top of that, and we just have abstractions on top of abstractions, we have derivatives on top of derivatives, and we've lost site of what is the core purpose, what is the real purpose of money, of a financial system; why do we have a financial system; why is finance good or beneficial; what does money do?
We've taken it to have a reality of its own, that money has its own existence, and I'm going to kind of argue and lay out some principles that money's existence is terrifically important, it's an incredible institution, but it's interrelated with the real world, it's interrelated with all of these other things.
Peter McCormack: I mentioned recently on a podcast to somebody, it might have been Parker Lewis, I mentioned to him recently that as a bitcoiner, you often get asked what Bitcoin is, and I'm increasingly finding myself not explaining what Bitcoin is, it's what is wrong with money itself.
Steven Lubka: Absolutely.
Peter McCormack: So, what I'm hoping from this interview, this might be one of the ones where I want to say to people, especially at the moment in the UK at my football club, I've got a lot of people saying this; I've even got a session coming soon with the players. I'm going to be sitting down and explaining, they want to understand Bitcoin, because we want to do Lightning tips during games. So, a guy scores a goal, flash up his card, tip him some Lightning, Man of the Match, etc, goalkeeper saves a penalty. But to do that, we've got to get them a wallet. But also, I want them to understand what Bitcoin is.
But I don't want to go in with a conversation of, "This is what Bitcoin is. It's censorship-resistant money, it has --" I don't want to do that. I want to go in and explain what is wrong with money now. And I'm hoping this is the interview I go, "Listen to this, just go and listen to this before we start, because you need to understand what Bitcoin is fixing before you understand how it fixes it".
Steven Lubka: Absolutely. And it's the same thing of what I said, money's only relevant insofar as it relates to these other real structures. Bitcoin's only relevant because there's a problem with money. If there wasn't a problem with money, it wouldn't matter. Bitcoin's a very inefficient system, it's very important that it has those inefficiencies; but the reason we pay those inefficiencies is because there's such a profound problem.
I kind of get to it, I mean the article, it's like 16 pages and it barely mentioned Bitcoin once. And at the end, I apologise to my readers and I say, "I've been very rude to you guys. The only reason you're reading this is because you like Bitcoin and I haven't even talked about it", but it's because it's so important, it's because Bitcoin is contextualised, Bitcoin is understood in its relationship to fiat; they're in a dialogue. I think I said that last time we spoke, that they're just intrinsically in conversation with each other; there's going to be a relationship and I think it goes very deep.
Peter McCormack: Well, we just sat down with Perianne Boring from the Digital Chamber of Commerce, had a fascinating conversation with her. One of the things she raised was that inflation is the number one issue for voters right now. I think if you haven't heard of Bitcoin, well maybe you've heard of it, but you haven't been down the rabbit hole, when you are told there is a problem with inflation, you point to the government, you blame them. Most of the time, what your answer's going to be is, "What are you going to do about it? And if you're not going to do anything about it, what is the opposition political party going to do about it; and I'm going to vote for them". So, even more recently -- can you bring up that Kier Starmer thing?
Danny Knowles: Yeah, the sound money thing?
Peter McCormack: Sound money, but it's not sound money, okay. So, we've got a high inflation problem, we've got all kinds of problems in the UK at the moment; hi, Liz Truss! We've got all kinds of problems in the UK at the moment, but Kier Starmer is the leader of the Labour Party, I don't know if you've heard of him. So, the way it works in the UK is you have a Prime Minister and then you have a Shadow Cabinet, which is the second party, and there are third and fourth parties; but the Shadow Cabinet tends to debate in Parliament. But you have a leader of both. So you have who is the Prime Minister and who wants to be Prime Minister.
They've just had their conference, and Kier Starmer used his conference speech on Tuesday to tell voters that his party stands for sound money. But his idea of sound money is not your and our idea of sound money, it is a marketing term to explain we need to -- I understand what he's trying to say. He's trying to say, "We need our money to have more meaning, we need to have better economic policy", but he's not talking about sound money like we are.
The point being, we look for that other person to vote for. But what we know is inflation is not a single-term issue, it's successive governments and it's the incentive system of the fiat money system. What we're going to talk about here is, this is a completely alternative view, this is the orange party; this is a vote out of the politics and a vote for something new. That's why I think this could be supremely important and I'm hoping, no pressure, Steven, that I'm going to be passing this one on and saying, "Just fucking listen to this". Pressure's on, brother.
Steven Lubka: Okay, I hope to deliver, yeah. Well, before we get going, I want to announce one thing; is that okay?
Peter McCormack: Bit of marketing.
Steven Lubka: Okay. So, we just announced, we are doing a fundraising initiative with the Bitcoin Policy Institute. You know who they are, if the listeners don't know who they are, it is a collection of what I have personally assessed, through hours of conversation, to be in my opinion some of the best, smartest, most high-quality academics that are interested in researching and publishing on Bitcoin. Not only are they really intelligent, there are a lot of smart people in the world; but in my conversations with them, I think they represent Bitcoin well, I think they understand Bitcoin well, and for the right reasons.
So, Swan is working with them to raise money to publish papers in academic journals. The point of this is, recently in the US, we had the White House report on Bitcoin mining and basically, just to keep this short, it cited a bunch of Digiconomist de Vries research and Mora et al --
Peter McCormack: Bullshit.
Steven Lubka: Yeah. And so this research, it's not -- reasonable people can have different opinions, it wasn't, "I'm sceptical of Bitcoin, and I'm over here liking Bitcoin"; it's factually incorrect stuff, like a claim that miners throw out their ASICs after 1.5 years. That's so false. If that's true, Bitcoin community, I will take all of your 1.5-year-old ASICs, you give them to me, I will recycle them. But no one's going to do that, because that's complete false information. So, this is a problem, because it's not just -- reasonable people can disagree. If it was just sceptical, "Oh, we think it's more vulnerable, we think it's [this or that]", okay fine, still worth researching; but this is outright false information and those are my words.
We think it's time that Bitcoin was represented in academic journals appropriately, because we've waited, we've waited years, and there have been a couple; but it seems like there are very few papers and very few academics, especially outside of the BPI fellows, that have stood up to maybe not represent Bitcoin, because it does need to be neutral, it does need to be credible, but to not come at Bitcoin with this heavy bias that we're seeing in this other report and to represent it.
Anyway, we're fundraising. All the money goes to publishing papers, if we raise enough money buying out these fellows' courseloads so they just research Bitcoin full time. We think it's going to be really good for America and policy in DC, academic research, and we're just committed to making that happen.
Peter McCormack: Okay, so how do people support this?
Steven Lubka: We have got a fundraiser and Swan is starting with an initial donation of $5,000, and we've been raising money and there's a bunch of different thresholds that we'll hit that make more papers get published, that make more research happen, and we're just engaging with the community. We're going to have the BPI guys come on some of Swan's shows and talk about it, and you'll be hearing a lot about this.
Peter McCormack: Well, we've had a lot of the BPI guys on our show, we've been supporting that, trying to raise them up. Who have we had? We've had Zell; Andrew Bailey's about to join us; we've had -- is Troy Cross?
Steven Lubka: Yeah.
Peter McCormack: Troy Cross, Margot. Yeah, so we've tried to have nearly everyone.
Danny Knowles: Sorry, not Perianne, Natalie Smolenski.
Peter McCormack: Natalie Smolenski, yeah.
Danny Knowles: She's written a piece for them.
Peter McCormack: I've agreed with you independent of this, I will also match your donation; I'll make a $5,000.
Steven Lubka: That's awesome.
Peter McCormack: I'm trying to work out; has that worked out good for us with the exchange rate?
Danny Knowles: No, it's bad!
Peter McCormack: It's not, it's bad. You could have done it a year ago!
Steven Lubka: That's amazing, thank you, Peter.
Peter McCormack: Yeah, so we'll support you. But let me contextualise this for the people listening because as I said, I want this to be a show that the guys who play for my football team listen to, and my manager and my friends who aren't down the rabbit hole. I know there are a bunch of bitcoiners who will naturally get this but I just made the point that in politics, in a world where successive governments, whether they're left- or right-wing, centrist, they continue to fuck up the money because the incentive system allows them to debase the currency.
Steven Lubka: Yes.
Peter McCormack: They have access to a permanent loan facility that they never have to repay back, and they leave it to other people to pay back in future generations. So, the incentive system's to fuck the money, and I'm saying there is an alternative here. And there's an alternative where we take away access to the money printer by having better money, and we're going to get into all of that.
But in doing so, the incentive system is for them to produce reports or propaganda which is misleading, which misleads press, misleads constituents who might be voters, on what the technology is. Obviously, we represent the orange party, which is no party at all, which is a technology, which looks to make money sound and good again and looks to not distort or warp the money; and in doing so, by supporting these projects, we are supporting accurate information, which will land at the hands of honest politicians, because there are -- honest; there are no honest politicians, that's an oxymoron; more honest politicians who see the benefits of Bitcoin, who might support it.
So, to contextualise it, what we're trying to do is just ensure that people get accurate information. I fully support your project, I think that what you've done is amazing, Steven. I will write a cheque for it, and anybody else who's listening and you want to write a cheque, go to…?
Steven Lubka: We'll put the link in the show notes.
Peter McCormack: Tell them, some people are fucking lazy.
Steven Lubka: Opensats, we've got an opensats donation page, it's on the Swan Twitter, we'll put it in there, it will be in the link.
Peter McCormack: Great, cool.
Steven Lubka: Perfect, thank you.
Peter McCormack: All right, man. Well, listen, well done with that, I know you've put a lot of work into that and yeah, I fully support you. So, let's get into this. Capital misallocation: Bitcoin actually Fixes This. Okay, let's start by a definition, because we're talking about Bitcoin as money, but you're talking about capital. Explain what capital is.
Steven Lubka: Let me start with one principle that I want to just set the stage with, and then I'll answer that question. This is important for the audience to think of, because this doesn't get stated clearly, this isn't well understood, and this is a first principle and I want you to keep this in mind as you listen to this whole dialogue and this whole episode. Money, while abstract, while symbolic, represents something fundamentally real. And what that fundamentally real thing is, is the world of atoms and molecules, factories and cars, labour and people's time. These are all tangible things, they're not abstract; they're real, they're measurable.
Money, in its proper form, and always it can just be distorted, but it always is, is symbolic, it is representative of this real stuff. And this is both in a measuring way; the price, the price of the water bottle, it's measured in money, money's the measuring unit, the denominator, the unit of account. But also, I'm going to talk a lot about interest rates. We'll mention money printing too and expanding the supply; that gets a lot of time and attention. I want to also really focus on interest rates, because that's an important thing.
So, what are interest rates? They're not an arbitrary thing. If you left a market to its own natural state and you didn't intervene in any way by a central authority, there would be a natural interest rate that money would be lent at, not because a bank said, "This is the interest rate [or] this is what the loans need to be", but because the market would naturally aggregate and compute the availability of capital, which we're going to define soon, physical resources, valuable stuff, we'll give a much better definition; the availability of entrepreneurship, as in businesspeople who have ideas, or companies to invest money in. If there's none of those guys, there's nothing to lend money to, so the availability of physical productive resources, the availability of both entrepreneurs and the quality of those entrepreneurs, and the availability of basically skilled workers and a labour force able to do it.
The interaction between all of those things produces the natural interest rate, and that reflects the real world, that reflects reality. It is this incredible translation of this thing we can never measure, because it's not only all the physical resources, but it's people's subjective values of things, their perceptions of the future, their ideas and intuitions about what future people will want or value, and you can never measure those things. It's not physics, it's not objective in that way and yet somehow, the institution of money is able to compress all of that into a number that everybody can relate to.
So, when a central authority comes in and they find a naturally occurring market with an interest rate of 5%, and they say, "No, you can only lend at 2%, we're going to artificially cap that", they're sending a signal to every economic actor saying, "Reality is not as it appears. Reality is not this world of 5% where capital has a certain availability. It's actually this world of 2%", which signals that capital is more abundant typically, and we'll get into all that.
But the thing I want to leave people with is that price, interest rates, the ability of money to store value, they are symbolic representations of the real state of the world. They're not abstract, they're not set, and when you distort that, you send a signal to every economic actor that reality is different. But it's not different, and this causes problems. So, I want to start there.
Peter McCormack: Okay, that was quite interesting, because we brought it up the other day, in that if you go and look at the interest rates in the Bitcoin market, if you want to go to Ledn or BlockFi or anyone else and you go and look at their interest rates, they actually seem quite high. You look at them and go, "That's quite high. If I want to borrow against my Bitcoin, I've got to pay a high interest rate here", and I think that is because we have been conditioned for two things. We've been conditioned to go out and spend more than we have, so if we're going to do that, we don't really want to pay a high interest rate; and we've been conditioned to low interest rates. But actually, what you miss is that behind that high interest rate, there's a high savings rate that correlates with that. So actually, if you're a saver, you also can benefit from a higher interest rate, so that was quite interesting. What was the one at Ledn?
Danny Knowles: I think it was 7%. I'll pull it up.
Peter McCormack: Yeah, which is a natural market rate.
Steven Lubka: It's not, yeah. It's funny, because in the fiat world, it's almost hard to say there's any natural market rates. It's more natural. It's still influenced by this underlying structure, but I agree with you, I get what you're saying.
Peter McCormack: I mean, look, your Bitcoin bank loan's at 7.9% and admin fee, so it's an API 9.9%. And also, because of the loan-to-value, you're actually --
Steven Lubka: Because you're asking savers to actually take risk and lend their money.
Peter McCormack: Exactly.
Steven Lubka: That's not what happens when a bank lends you dollars really.
Peter McCormack: And what was the savings rate? 6%, so you see the spread there, so that all makes sense. That is a proper functional market for whatever you think of companies that provide this; that is a functional market that is setting rates at a market rate where you have to make a conscious decision. So, if you could borrow against your Bitcoin at 0%, it would be like, "Well, I might as well borrow against that Bitcoin at 0%, because I can get access to more capital that I can make to work for me".
Steven Lubka: Of course.
Peter McCormack: And if the interest rate was super-high, it would be like, "Well, I definitely should save, because I get a super-high rate". You get to make a logical -- so if I want to go and buy a house --
Steven Lubka: That was my article; you've said it!
Peter McCormack: But it is, because if I want to go and buy a house and I'm like, "I know I'm a bit short, but I've got some Bitcoin", I have to go, "Do I want to pay that 7.9%? No, I don't".
Steven Lubka: You have to be selective.
Peter McCormack: You have to be selective, because they're proper rates. Whereas -- why am I doing your article for you?! I was about to say, what we've got in this position now is -- because, I purposely didn't read your article, because I wanted you to tell me your article. So, when we have these super-low interest rates, we have this scarce property resource, so we've got people out there buying properties they can't really fucking afford. And then the slightest twitch in the interest rates, so many people are fucked.
Steven Lubka: Exactly, because why wouldn't you borrow at 2% to buy a piece of US real estate, that on average has gone up a lot more than that, barring a few corrections? Yeah, it just makes economic sense; the numbers add up. So, people do it and that is the birth of financialisation and other things. But maybe we'll circle back.
Peter McCormack: Yeah. So, what is the difference between capital and money?
Steven Lubka: So, capital is everything that humans possess that is capable of producing a return. I'm going to define a return in energy terms, which isn't the only way to define it, but I think this will be helpful. A return is where you put 1 MW of energy into something and you get 2 MW of energy of finished product out. You have received more usable energy than what you put in.
An example of this: a field of wheat. Let's look at all the energy that goes into growing a field of wheat. There's the tractor, there's the fuel, there's the fertiliser, there's the human labour, the manufacturing of those products. We won't count the sun, because we don't provide that; that's what makes plants work. So, all of that energy, we add it all up, we assess everything and we compare that to the total usable caloric energy in the wheat, and we discover we got more out of it than we put in, and that's a return. That's kind of in raw energy terms, but it could also be the energy that it takes to put hurricane shutters on a Florida home is far less than what it takes to fix the damage.
Peter McCormack: You'd know all about this!
Steven Lubka: I know all about this, yeah.
Peter McCormack: By the way, quick tangent, everything okay?
Steven Lubka: We're good. I mean, we were fortunate it went 50 miles south of us. We got hit, some trees went down, but we're good, thank you.
Peter McCormack: All right, cool.
Steven Lubka: But it doesn't take that much energy to put the shutters on, and it saves you a lot of damages if you get hit. So, not only is capital factories and cars and trucks and commodities and buildings, but I use a broad definition; it's also knowledge. It's the ability to transmit education, it's technical innovation, it's not patent themselves in the IP sense, but inventions, knowledge, learning how to do something new. It's communication lines, it's the ability to coordinate people. It's everything that allows humans to do more, to produce more, to be more abundant.
Money plays a key role here, but there's a really important distinction. The institution of money: if you look at a market without money and a market with money, it becomes very clear that the institution of money allows the market and the economic system to become radically more abundant than it would otherwise, because people can coordinate; it's this universal synchronising force. But money in your pocket is not capital; it's an abstraction, it doesn't actually produce a return in of itself. You put the money on the table; there's nothing you can do with that money as a physical object, if it was cash, that would produce more. But it's money as it works in the system, the institution of money.
So money, while not itself capital, and the important caveat there: creating money is not creating capital, you can't print your way to capital, you can't print your way to abundance, because money itself, units of money are not capital. But the institution itself plays a critical role in coordination, and it forms this very -- I use the word "complex" to say that it's just inherently…
Money interacts with physical capital to produce, I've called in the article, "spontaneous order". When you look at it, it's not easily definable, it's not easily measurable. The economy is so complex and it's all these individual actors with local knowledge participating in a system. And so, money makes that happen. Money comes in and provides a universal language to the market that allows business owners, consumers, to make decisions, even if they don't know how the economy works; you don't need to know. So, money and capital are different, but money plays a critical role in forming and creating more capital.
Peter McCormack: So, what is capital?
Steven Lubka: Productive resources. Everything we have that is productive that helps us do and have more.
Peter McCormack: But money does do that?
Steven Lubka: As a system, but only as you use it to interact with tangible resources.
Peter McCormack: Right, yeah. And money printing can't create more capital.
Steven Lubka: No.
Peter McCormack: Does money printing therefore destroy capital?
Steven Lubka: It absolutely does, usually does. You could come up with an edge case where the government is just brilliant and they print the money and they just spend it on the best business idea you've ever thought of and create the next Apple. In that case, yeah, they did; but that doesn't really happen in reality. It just destroys capital for the most part, and it distorts, because it injects noise into the system, it distorts signal. So, it has a systematic deterioration that destroys, or depletes capital.
Peter McCormack: So, is money just a messaging system?
Steven Lubka: In a lot of ways, yeah. Money is communication, money is information in a certain source, and Allen Farrington does a phenomenal job, I want to make this point, I'm pulling it fully from Allen, it's common that people say, "Money or price contains information", and this is something that gets said. Allen does this phenomenal job of refuting that in an interesting way, where he actually says about price, if you're going to say it contains some information, yeah, of course it contains some information. But the important thing that he says is, "Price actually reduces information to the bear necessity".
What's really cool about price, and I use this example of a banana in the article, of saying, "Okay, if you have a banana and you go to the store and this banana costs 50 cents, what information can you reconstruct from that price? If price contained information, well it would be in there somewhere. Can you reconstruct how much rainfall the farm got; how many farms were competing in this market; the cost of their labour; how much humidity? No, you can't figure any of that out. All you know is it costs 50 cents.
Peter McCormack: The only information that gives me is how expensive that store is!
Steven Lubka: Yeah, that's a pricey banana! But what price has done is it has simplified the information, it has made it from this really complex thing, where there's a million variables and inputs going into it, and it's brought it down to not just one thing, but even a number that can be compared. You can now compare a banana to a car. If you didn't have a number, you could not compare bananas to cars easily. So, it's this enormous simplification of information, that makes it so you or I, we don't need to know anything about banana production to know if we want to buy a banana, we just look at the price.
Peter McCormack: So, what is the role of price within a market then?
Steven Lubka: So, price allows people to coordinate, and it reflects obviously supply and demand, it reflects the availability of goods and the demand for those goods. So, bringing it back to this discussion of capital formation, if you're an entrepreneur and you're making a business plan, let's say you want to make a shipping company, you use trucks, you're a trucking company, you need to know how much a truck costs to know how much money to raise to know if your business is going to be profitable, to know how much you need to charge for your services. If a truck costs $1 million a truck versus $10,000 a truck, that makes a huge difference.
So, the price allows entrepreneurs to create businesses and to plan and to price things, and it allows this synchronisation, this order, it allows this spontaneous order to emerge, because people can compare things, people can make decisions and it reflects obviously supply and demand. And so, you have this problem in systems where if you distort price, if you print a bunch of money, if you lower interest rates, if you manipulate money as the denominator, money as the measuring stick, you make it tremendously more difficult for entrepreneurs to make good decisions.
Peter McCormack: So a wider question is, where did the distortion come from? Because, money came before we had central planners and interest rates set by central planners, before we had central banks; and how did things operate before then? I don't know if you've done this by your research, and I apologise if you haven't.
Steven Lubka: Yeah, so I'm going to have some limited amount of history in here, and there are a lot of competing views, it's a contentious topic of how money evolved.
Peter McCormack: What came first; taxation or central banks?
Steven Lubka: Taxation for sure, 100%, easily.
Peter McCormack: Without taxation, you wouldn't have had a central bank?
Steven Lubka: Of course. And I mean governments have been doing taxes since Mesopotamia. I mean, in Mesopotamia, you can find interest rates, you can find loans, you can find landlords, you can find all these things. So, the distortion, you asked where the distortion comes from?
Peter McCormack: Yeah.
Steven Lubka: Going back to my first principle, that money reflects the real, prices reflect the real, interest rates naturally occurring reflect the real; the distortion occurs when some central authority that has the ability to manipulate the supply of money, or the time value of money, which is interest, manipulates it. They come in and distort it. And I want to be clear here, because we'll probably talk about low interest rates, money printing; but this could also happen by artificially making interest rates more expensive, raising them, or even destroying money. Either one is an alteration, either one is a distortion, we just don't normally see the other one because it makes life harder for governments.
Peter McCormack: So, pricing is a messaging tool, pricing is used as a messaging system to allow people to understand the cost of something, that allows them to plan what they require for their business, what work they want to accumulate. What is the pitch therefore for a free market; why is the market so efficient?
Steven Lubka: That's kind of this incredible thing. People will call it an emergent property, which I joke basically is like handwaving for, "We have no idea of how this thing emerges". There's all this complexity and this very ordered structure comes out of it. So, it is this interesting synchronisation between the universal and the local. So, all of us are local actors. I know what I know, I interact with you, I interact with Danny, we participate in whatever structures we're in and we have knowledge about those structures. And, because we have certain knowledge, it allows us to make decisions, it allows us to evaluate price and know how much we're getting paid and know how much things cost.
All of that synchronises together on a more universal level to produce this highly structured order that is the economic system, and that's what makes it so good. And it emerges organically from the knowledge of countless individual actors making decisions in their domains of expertise, which is their real lives. And so, it's this signal, this coherency of information that emerges from millions of individual interactions.
So when you have a central authority, when you have a central bank, when you have a government that decides they're going to interfere with the measuring stick, the unit, it's like if everyone uses a 12" ruler to build a house and then one day the government wakes up and they change out all the rulers for an 11" ruler, but they don't tell anybody, so they still think they're using a 12" ruler. That distorts everything in the system, because you're using that as a measure.
The same thing happens with money. If we're using money to price things, we're using interest to price things, and that gets distorted, nobody knows really. It distorts all of those calculations and that cascades through the system.
Peter McCormack: So, do you believe the role of the central bank is with good intention that becomes malicious, or do you think it is a central planning system that can only fail, because everything it's trying to do cannot work?
Steven Lubka: If you look at the history of central planners, they all had good intentions, they had utopian intentions. You look at the modern era and the Soviets, they were trying to build a utopia. And Seeing Like a State, James Scott, he does a great job with this where he looks at the history of central planning failures, and they're always trying to do something really good. But it fails, because it's the same principle as with money, where you have a central authority trying to exert control over an organic system that produces a higher quality of information than that central authority can ever have, and that's the breakdown.
The central authority can never have as much information as the naturally occurring market, and this is why interventions in money produce such chaos, they produce such disorder.
Peter McCormack: Because what appears like one small decision can have a cascading effect through everything?
Steven Lubka: Yeah. It's the second-order impacts, it's the cost-benefit analysis; everything that emerges from it.
Peter McCormack: And it's an unfairer system. A fairer system is one that is bottom-up?
Steven Lubka: Fundamentally. I mean, fundamentally letting money operate naturally is a fairer system, it is an organic system; just don't distort it, don't change it. The governments can go keep themselves busy with something else.
Peter McCormack: Okay, so in a fair freer market, what is the role of interest rates and how should they work?
Steven Lubka: So, internet rates will emerge naturally. We looked at the Ledn dashboard. Nobody told those guys, "Hey, here's what you should lend at". There is an interaction between the supply of capital, of money, and so in a market, there's the availability of capital and physical resources, there's the availability of talent, entrepreneurship, projects to lend to, the quality of those projects, and the demand for those loans. All of those come together and synthesise a bunch of information and produce the interest rate.
If capital became incredibly abundant, that interest rate would come down; if capital got incredibly scarce, that interest rate would go up, all else equal, and so you have this problem. I think it might be helpful -- so, one of the things we see with artificially low interest rates, we have actually a lot of history of this. If you look at the 1700s in England, if you look at the 1800s, you can find all of these examples. This is not the first time in history we've tried artificially low interest rates. People have had the brilliant idea multiple times that we're going to monetise our way to abundance, that if we can just manipulate the money in the right way, if we just make more money, make money abundant, then we'll have growth.
It goes pretty much the same way every time. It produces speculation, it produces asset inflation, it produces capital misallocation and eventually, that collapses in on itself or causes a crisis.
Peter McCormack: And it widens the wealth gap --
Steven Lubka: And it widens the wealth gap.
Peter McCormack: -- because the access to capital is not equal.
Steven Lubka: Yeah. So, asset inflation, whoever already owns the asset, those go up; and access to capital. So, I have some quotes in the article about, I think it's a Bastiat quote, and he's saying that, "Under your system", which was low interest rates, he's debating this guy, Proudhon, "the wealthy will borrow for free and the poor will not be able to borrow at all". So, you think in a low interest rate regime, if you're Apple, you can probably get pretty close to that 0% interest rate when that was available.
Peter McCormack: Well, isn't that pretty much what Saylor has done with his?
Steven Lubka: Yeah. Because of his size and scale, he can borrow capital at rates that if you or I went to a commercial bank, we would not get those rates.
Peter McCormack: So, is he distorting, warping the price of Bitcoin?
Steven Lubka: Next question!
Peter McCormack: No, I think it's a fair question, and I'd happily ask it to Saylor.
Steven Lubka: I mean, no, no, he's not.
Peter McCormack: But it's not even pointing a finger at him, there's nothing he's done wrong here. What I'm saying is, if you warp the money, you warp everything else.
Steven Lubka: I mean, Saylor's increasing the price of Bitcoin. The question is, is that a distortion?
Peter McCormack: Yeah, but if he wasn't able to access the capital at the low rate he had of access to that, would he have borrowed so much money, and therefore would he have bought so much Bitcoin?
Steven Lubka: Probably not, I mean that's clear.
Peter McCormack: Yeah, and there's lots of us doing the same. This isn't me finger-pointing at him. I've taken out the largest mortgage I can get for my property over the longest term with the lowest deposit so I can hold more Bitcoin, because I know over time my Bitcoin will outperform that. I've done the same, just with what I can do. I took out a loan to buy Bitcoin previously, I've done all the things he's done, just at a microscopic level.
Steven Lubka: Yeah, which is a rational decision, given the interest rates and given the comparison between these two assets. It's Pierre Rochard's speculative attack.
Peter McCormack: But at the same time, if we didn't have this misallocation of capital, we probably wouldn't have Bitcoin anyway. So, Bitcoin is a response to the misallocation of capital.
Steven Lubka: Yeah, those things are in communication with each other.
Peter McCormack: So, the artificial interest rates essentially are one of the most damaging parts of it?
Steven Lubka: Yeah, they're really damaging and I want to talk about that, because money printing gets so much airtime in the Bitcoin community. But the artificial interest rates I think are also incredibly damaging, so there's a few ways. One is, I give an example of a factory in the article. Let's say the natural interest rate in a market is 6%. Then a government comes along and says, "Lending money, making interest is evil", which has happened in England in the past; there have been these pushbacks against earning interest off lending money. And so they say, "The maximum you can lend for is 2%".
So, let's say there's a bunch of entrepreneurs, there's a bunch of potential business owners that say, "Great, I can borrow for 2%, that's wonderful". So, 100 of them borrow money and they go try to build factories, because borrowing at 2% is better than borrowing at 6%.
Peter McCormack: Sorry, can we just walk that back a second. That isn't a rate that is set that you can only lend out; that's the base rate at which the banks borrow?
Steven Lubka: In the past, they actually had, "You have to lend at this rate".
Peter McCormack: But that's not true now?
Steven Lubka: No.
Peter McCormack: That's the base rate at which you can borrow money from the government, or the banks can borrow, so that's the base rate.
Steven Lubka: That's the base rate, yes.
Peter McCormack: So, that's slightly different. How does artificially setting the base rate distort the market?
Steven Lubka: Well, it's the same thing, it brings it down. If you set the base rate to 1% and then the banks lend at 2%, it's the same thing as forcing everyone to lend at 2%; it's all about that end number.
Peter McCormack: Yes, but I can still set my own rate above it. Is the issue really the base rate, sorry, I'm just trying to work this through in my head; or, is it that the government is trying to flood the market with capital, allowing it to be lent at that lower rate?
Steven Lubka: I think they're interrelated.
Peter McCormack: I'm sorry, I'm just working through this in my head. Banks have lent money out to people with mortgages; people cannot afford to buy their mortgages. The government ends up buying those mortgage securities and then giving money to the banks to re-lend at that lowered interest rate. That to me feels like where the distortion is happening.
Steven Lubka: Yeah, I mean to have an artificially low rate, you have to kind of subsidise that. That's possible with the central bank. It costs money to do that; you have to actually make those loans.
Peter McCormack: Yeah. Danny, work this through with me. So, essentially by buying those bank securities, they're subsidising that bank's misallocation of capital to people who can't afford to buy those mortgages?
Steven Lubka: Yes.
Danny Knowles: And if the interest rate is set at, say, 1% and you're a bank offering 6%, just no one will go to you; they'll go to someone else, who's offering it at 5%, and then someone will offer it at 4%? So, it's just the competition within the market.
Steven Lubka: Exactly. It's a race to the bottom.
Peter McCormack: If there was no base rate, that competition might still exist.
Steven Lubka: Of course.
Peter McCormack: It's not the government setting the rate, it is the way they've been subsidised. Correct me if I'm wrong; I don't think it's the government base rate which is the issue, I think it's the subsidising of the banks that is the issue, that allows them to have ever-increasing amounts of capital to lend at low rates?
Steven Lubka: So, I just think those things interact with each other, they're not completely separate, and you do have this race to the bottom. If the federal funds rate is 0%, then it is profitable for a bank to lend at slightly above that. And then there's also the bailouts, there's also the subsidisation; it takes the risk away from them for bad loans. I mean, they still have some consequences from bad loans, and I'm not a deep bank plumbing expert, so if I say something wrong here, excuse me, but they still have some responsibility for a non-performing loan, but they have been bailed out, there have been essentially subsidisations there.
I mean, there's a diffusal of responsibility that is really widespread throughout fiat, where large financial institutions are not truly responsible for their own decisions, because there is this ability to create money. So, it plays a key role and they interact. But I think what you really want to focus on is not how it happens or what might happen, but what does happen?
Peter McCormack: Yeah, what does happen?
Steven Lubka: What does happen? What does happen is when that rate is really low, banks lend really low, and it kind of is irrelevant if it could be different, or why in some ways. But what does happen is when the Fed has rates at 0%, I get a 2.5% mortgage. And when that rate goes up, now mortgages are 7% and Treasuries are higher. That's what does happen.
Peter McCormack: So, what is the issue with low rates? Talk to me about your car analogy.
Steven Lubka: Yeah, so the car is on negative rates. The issue with low rates is in the factory. So, let's say we have a world, we artificially bring low interest rates down to, say, 2% and where the market would naturally set those would be 6%. So, all the entrepreneurs, they look at this 2% rate and they say, "Wonderful. Money's available, I can borrow cheaply. The numbers make sense for me to make this long-term investment into my factory". So 100 entrepreneurs, they borrow at that 2% rate and they go to build 100 factories or buildings.
What happens, and we've seen this in history, is they run into a shortage of physical goods. There's not enough bricks, there's not enough wiring, there's not enough of the actual stuff, because the low rate has simulated a world in which those resources were abundant, they were available; it distorted reality. But when they actually go to build the factory, those resources are not available, they're not abundant. We saw this in England, where basically there was a construction boom after the interest rates were lowered, and you basically had the brickmakers, they were shipping off palettes of bricks as soon as they were dry and everyone was fighting for them.
Now, why this is a problem is basically nobody finishes the factory, they're not done. So, you have 100 half-built factories, which helps nobody, which doesn't produce capital, which doesn't help society. You have labour that's on the sideline; the system has lost efficiency.
Peter McCormack: Right, and is that because over time, a system becomes efficient by the aggregation of all the decision, the inputs and outputs, and any kind of harsh -- well, not even harsh, but to change the interest rate is jolting the system; it's like an electric shock to it?
Steven Lubka: Exactly. Well, it's saying reality is not it, it's not real. So, that natural rate emerges, among many things, from the availability of those resources. And so, when you lower it, you're sending signals to the market that resources are abundant when in fact they're scarce. You're distorting what reality is.
Peter McCormack: So, in the free market, that would set, and you could have low interest rates in a free market.
Steven Lubka: You could, absolutely.
Peter McCormack: But that would set, because essentially interest rate is the rent price for money?
Steven Lubka: Yeah.
Peter McCormack: So, what would drive interest rates in a free market?
Steven Lubka: It's the availability of capital, it's the availability of entrepreneurship. So, how would you get to low interest rates in a free market? You would get to low interest rates in a very abundant world. So in a world where, let's say we have all these technology breakthroughs and we can produce stuff super-cheaply, let's say our current world, all else equal, if energy became half the price; everything's the same, energy is half the price, the natural interest rate would come down. We're more abundant, we have more access to resources.
So, in an economy where resources and entrepreneurs and businessowners, they're everywhere and they're efficient and they're good, you have a lower interest rate. It's the signal of a prosperous system, which is why governments throughout time, they've looked at economies that were prosperous and said, "Look, their interest rate is low. Maybe if we had a low interest rate, we would also be prosperous", but it's an inversion of that logic.
Peter McCormack: So, when you see this and you see negative interest rates, what are you thinking then?
Steven Lubka: That's like saying, "I'm going to pay you to borrow my new Mercedes. So, I've got a brand-new Mercedes and I'm going to pay you to drive it around", so borrowing some insane edge case where it costs me $3,000 to park the car, or I'm not a reliable driver and I'm going to crash it. There's no reason in the real world that would ever happen.
Peter McCormack: Because it destroys the value, and I'm paying you to reduce the value in it.
Steven Lubka: And it makes no sense; you would never do it. You're not going to buy a brand-new house and then pay me to live in it, unless you need someone to watch it. But it's a distortion of the way actual real human beings make economic decisions.
There's a thing here, Peter, and it is, why does money command interest; why should money have interest? It's very clear why a factory, like if I was going to rent my factory to you for a year, well I would need to charge interest for that factory. Why? Because that factory could produce economic activity and I'm not going to be able to get that if I give it to you. Money inherits that quality from real capital. The reason that money has interest is because if I didn't lend that money out, I could use it to purchase or rent real capital, like a factory, and make a return.
Peter McCormack: So, opportunity cost and risk.
Steven Lubka: Exactly.
Peter McCormack: So, how has the financialisation of the system sent everything skewy; and what parts of the financialisation of the system are acceptable; where have things gone wrong?
Steven Lubka: I think where things have gone wrong, one thing I really don't like is, there's this thing called a zombie company that emerges from a low interest rate environment. What a zombie company is is a company that needs to keep borrowing debt to stay alive. If they weren't able to access debt, and usually cheap debt, they would not be able to continue normal business operations. In essence, they're not profitable; there's a negative energy return. More energy goes in than comes out; they're wasting resources, they're wasting capital. But because they can borrow cheaply, they're able to stay in business.
There's a lot of these right now, there's a lot of these companies, and they're really bad for a number of reasons, and they're subsidised by low interest rates. One reason they're bad is, usually these companies are fairly big and they might make a product or a service that you actually use, so you think, "I use this thing, it's valuable". But they're doing so in such a way that they're wasting resources, they're inefficient; it's a broken business model. So, in a natural system, there's this creative destruction of capitalism, that company would go bankrupt.
So, what happens is, you've got this start-up over here, you've got this hungry young company with a new business model that comes in, they can buy their capital, their factories, their things; they can hire their skilled employees that were working for the dysfunctional company to come work for the new start-up and get that knowledge and talent; and they can also get the customers that were attending to that business, the new start-up can get it.
If the start-up has a functional new business model, that comes in, it replaces the dysfunctional zombie company and the world benefits from that; we have a functional business in place of a dysfunctional business. But if you keep subsidising the zombie company with cheap debt, that doesn't happen; they just atrophy in the middle of the market, they just sit there burning debt, borrowing people's money, never fixing the problem and that slows growth, that slows capital formation and it causes a problem for everybody.
Peter McCormack: Can you think of any specific examples of companies like that?
Steven Lubka: It's any company -- I would normally mention Uber. I do think they actually had a profitable quarter for the first time recently, so maybe they've turned it around, you always could turn it around, but there's a ton of these. This debt-based model has become incredibly popular because interest rates have been low; you can borrow for almost nothing, or you have been able to. As rates rise, you're going to see, unless they can find some alternate form of financing or the Fed pivots soon, they're going to see the real ramifications of that interest expense.
Peter McCormack: Because all those venture capital funds have been able to raise money so cheaply, there's been such an abundance of money, they've been able to raise money and they can invest in these companies that for years have not made a profit. I mean, some of them go to IPO without ever having made a profit. So, is that a massive distortion of the market?
Steven Lubka: That could happen naturally. You could just say, like Amazon didn't make a profit for a while and they're a very functional business. The story that these investors tell themselves is, "Well, we're just investing in growth. This company is going to be prosperous one day", and that could happen. But a lot of times it doesn't, and so you run into this situation where basically it comes back to, are these companies being subsidised with distorted, manipulated money? If so, chances are, at least across the system, maybe not any one individual company, you are subsidising these companies that would not exist otherwise.
Peter McCormack: So, how does Bitcoin fix this?
Steven Lubka: Bitcoin fixes this because all of these examples, we didn't talk about money printing so much, but you can obviously distort prices by printing more money, you can distort prices by artificially lowering interest rates; it's interventions in the natural market, in the information of the system, the spontaneous order. And so, when a central authority comes in and they intervene, they distort it, that's just the bottom line. These are all just examples of monetary interventions.
This sounds so simple, this sounds so straightforward, but you just don't mess with the money. Money is a measuring tool, it is a communication tool, it holds information, it simplifies things, it helps people make decisions. When you distort that, you distort the efficiency of the system. So, it sounds so simple, but just don't mess with the money, don't distort the actual money itself. You can have financial products built on top of it, you can do loans, you can have banks, you can have credit, you can have all these things; but if you just don't distort the actual monetary medium and the actual price of money, the time value of money, you don't get a lot of these negative effects.
So, why Bitcoin? Because Bitcoin is the first credibly non-interventionary money. The whole innovation of Bitcoin is that it is not able, on a monetary level, to be distorted or altered. You can't change the supply and you could have a government that sets interest rates around Bitcoin as a base money --
Peter McCormack: But good luck enforcing it.
Steven Lubka: And you're left with the consequences, because you can't print more Bitcoin if you make a bad loan; you have to actually eat that bad loan, which disincentivises you from doing it.
Peter McCormack: Yeah, which is another thing, these bailouts that we've had, especially during COVID. There were a number of companies that probably should have been allowed to fail and be reset. That hasn't happened. It's the, "We want the constant boom without any bust. We want expansion of the economy and expansion of GDP without contraction". The only way you can get by without contraction is by manipulating the money.
Steven Lubka: And that's another part of it. It's, how do they justify the zombie companies; how do they justify a lot of this stuff?
Peter McCormack: National security!
Steven Lubka: And through this way we think of GDP, what is GDP really? It's revenue, it's how much revenue that you make.
Peter McCormack: It's not productivity.
Steven Lubka: It's not profit, it doesn't mean it works. You own a business, you operate a business. You know revenue, okay, that's great. Maybe that shows how much -- but if you spent more than that revenue, you didn't make anything, it wasn't profitable. So they look at it, they have this notion, I've talked about this that if we finance…
One of these things is there's this thing that we're just going to spray and pay, we're just going to give out a ton of loans, we're going to fund everything and we're going to hope that it all works. And they justify it through this way of accounting for GDP, of focusing on revenue where, okay, if I give WeWork $10 billion, well they're paying people's salaries and people are using those salaries to buy stuff and they're paying taxes, and so it circulates through the economy.
But what they don't recognise is that, if we fund a bunch of nonsense companies to hire all of our smartest people, the money might be fungible, but those people's time and intellectual output are non-fungible. So, if all those people are working for joke companies, they're not working on fertiliser and rockets and travel, and that is a destruction of capital. We're wasting capital building nothing, building unimportant things, instead of having those people work on meaningful things. So, there's this real impact.
Peter McCormack: And in this Bitcoin world of uncorruptible money that cannot be printed and probably doesn't have interest rates set, what are the things that people would have to get used to, those people that have been conditioned to living in this fiat world; what are the changes they're going to have to get used to?
Steven Lubka: So, it's most likely going to be more expensive to borrow money. You can look at the interest rate. When we were on a gold standard in Europe, the average interest rate was around 6% or 7%, so that was significantly higher.
Peter McCormack: It's easier to save.
Steven Lubka: Exactly, it makes it worth it to save. So interest rate is probably higher, and financial activities are going to carry, in a sense, more risk, or at least you're going to be responsible for your own risk. We kind of talked about it, there's this huge subsidisation, there's this huge bailout culture, there's this huge, trying to remove the impact or responsibility of bad financial decisions from corporations and institutions. And that's possible because you can print the currency, you can financially engineer the system to paper over those liabilities or those bad loans. And in a Bitcoin world, you can't do it. No one's got free money, so no one's going to bail everyone out for no reason, because it costs them something to do it.
Peter McCormack: So, don't fuck with the money.
Steven Lubka: Just don't fuck with the money, just leave it alone. Let the system organise around it, and there'll be plenty of stuff to do there. I keep making this comparison, but it's like distorting the value of a number in maths or in code. It's just like changing the basic measuring unit, it just messes everything up.
It's a little bit along the lines of why we want to promote capital formation, and it's this notion that this is how civilisation advances, this is how we all have more productive lives. And there's a lot of people in the world today that, maybe they subscribe to degrowth or environmental ideologies and concerns, and they might look at growth and capital formation as this bad thing, this negative thing, it's destroying the planet, it's exhausting resources. Actually, in some ways, the exhaustion of resources is the antithesis of capital formation; you're actually destroying capital. Those things are kind of aligned, they can come together.
But capital, we need to create more capital, no matter what you want to do. If you want to save the environment, or you want to have the richest world possible and have a bunch of private jets, either way you need more capital, because it is the productive resources of mankind that allow us to do things, that allow us to exert our will, that allow us to accomplish things. Whether you're building factories to produce more stuff, or you're building nuclear powerplants to mitigate carbon, you're still producing capital.
So this distortion, it isn't just a concern of economists and Wall Street and investors, it's a concern of every human being on this planet, because this is just a way of talking about how humans do things, and how we've done things since the beginning of time. I'm going to throw something out here. This is a pet peeve of mine. There's a lot of people in the world today that don't like capitalism and are very critical of capitalism. And something I've noticed is that if you were to get 50 of them in a room and you were going to ask them to define capitalism, you would get 50 different answers; it's unclear, they don't really know what that word means.
They might say landlords or companies, interest or money or finance or lending. All of those things existed in Mesopotamia. They are fundamental constants to how humanity organises. From the earliest beginnings of civilisation, we have had ownership, money, interest, lending, land, and I think corporations were in Rome for the first time, those came a little later. But these things have been around forever, so that can't be what capitalism is, because if that's what it is, then we've been capitalists for all of human history, and I don't think that's true.
I think capitalism is a system which is concerned with forming capital, with creating more capital, with growing capital. And this is something that affects everybody and it's cohesive, it interacts with I think people on all sides of the fence on a variety of issues, because just going back to it, you need to manage your capital to do environmental stuff and to do economic stuff. You need to have capital if you're going to engage in any big undertakings. Having more productive capacity that is sustainable and real benefits literally everybody.
Peter McCormack: Amazing. Okay, if somebody wants to read this, where can they read it?
Steven Lubka: It's on the Swan Bitcoin blog, so Capital Misallocation: Bitcoin Actually Fixes This, by myself, Steven Lubka. You can find me on Twitter, and you can find that article on Swan.
Peter McCormack: Well, it's a pleasure to sit down with you again, amazing article. Yeah, I'm going to send this out to a few people, I'll let you know the feedback.
Steven Lubka: Okay.
Peter McCormack: Amazing, man, keep going.
Steven Lubka: Great, Peter.
Peter McCormack: See you in LA.
Steven Lubka: See you there.
