WBD670 Audio Transcription
The Lies of Keynesian Economics with Peter St Onge
Release date: Monday 12th June
Note: the following is a transcription of my interview with Jeff Snider and Lyn Alden. 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.
Peter St Onge is an Economist at the Heritage Foundation and a Fellow at the Mises Institute. In this interview, we discuss the differences between Keynesian and Austrian economics, the role of marketing in shaping public opinion, and the potential of Bitcoin to displace central banks and cut off one of the main channels that governments use to seize people's resources.
“I want the frog to understand the water is getting hot before it actually boils. I want the people to understand the crap that’s being done to them before it actually starts to destroy their lives.”
— Peter St Onge
Interview Transcription
Peter McCormack: All right, morning, Peter.
Peter St Onge: Good morning, Peter, it's great to be here.
Peter McCormack: Great to see you. So, Danny has put the pressure on here. He said this is going to be the favourite interview of mine. I'm going to do this whole run of shows, we're doing like 20, 22 interviews, he's like, "Peter St Onge, that is the one that's going to be your favourite".
Peter St Onge: Oh, pressure's on!
Danny Knowles: Every trip, I try and pick one, and this is the one for this trip.
Peter McCormack: Yeah, he's like, "You just wait". He said, "You don't even need this, you don't need notes, you don't need questions". And also, Ben, who is one of our engineers, producers, works on the show, he says you are the person that sound-money-pilled him.
Peter St Onge: Wow, okay, that's an honour, awesome.
Peter McCormack: So you arrive today with a lot of pressure!
Peter St Onge: Yeah, really, I know!
Peter McCormack: All right. So can you please give me your background? Tell the listeners about you, who you are.
Peter St Onge: So, I am a PhD economist. I started my career in marketing, but I'd studied econ in school. So, there was a recession in Canada at the time, so I basically took what I could get, so I took a marketing job. My mom was really disappointed. She was like, "You're an economist, what are you working in this?" And what I found was that the models of human behaviour and marketing are completely different than they are in econ, right? So, in mainstream economics, you've got these really clean models where humans are kind of robot, they respond perfectly to incentives. And then on the other hand, in marketing, you've got a completely different psychological model of how humans behave.
The funny part is that on the one hand, the economists look down on the marketers because, you know, you guys don't have any theory here, this is just all kind of just-so stories. But the thing is that the marketing is the stuff that actually works. So, bad ideas in marketing fade away because they don't pay the bills, right? So, you've got this weird clash where on paper, econ is just this beautiful edifice that is nearly perfect, but it does not actually work. People who actually sell things and actually try to influence human behaviour do not pay attention to academic marketing. So I thought that was pretty weird. And then, you know, the dot-com thing came in around that time. I was single, I had a good salary, I didn't have anything to do with the money, and so I think this is similar to your origin story. So, I put everything I had into Amazon options and just rode that puppy.
I retired at 25 and goofed around, backpacked in Asia and whatnot, and that gets old after a while. And so at that point, I thought I should probably do something useful with life, and I came back to that clash between marketing and economics. So I went back, I found a school that -- I'd come across Rothbard and Mises in the meantime, and Austrian Economics for me really connected those two. So, it is a model of human behaviour that is based on a very, very small number of assumptions about how humans behave that are very logical: humans have goals, they have limitations, they're different from each other; I mean, a very, very small number of premises that are, in Austrian you say apodictically, but that are true. And then from that, you can derive the entirety of economics.
So, rather than the sort of mainstream with these giant equations and this "science" that is apparently useless, you actually have this from the ground, from human nature, you can derive the entirety of economics. So for me, I mean that was just mind-blowing. So, when I was at a loose end and wanted to find something to do with life that was useful, I thought, all right, let me go explore that. So let me look at that nexus, in a way fixed economics, and bring in the insights that we actually know from the real world, the kind of stuff that I'd discovered in marketing.
Peter McCormack: Yeah, there's a lot of parallels with our backgrounds there.
Peter St Onge: Yes, yeah, there are!
Peter McCormack: I mean, I didn't retire at 25 and I don't have a PhD, not that smart, but I do have a background in marketing, and you're right, it does work. And the fantastic thing, I worked in digital marketing, is that you could measure everything.
Peter St Onge: Yes, exactly.
Peter McCormack: And you could test, and did it work, didn't it work, try something else. And it could be anything from the colour of a button to the copy for a headline, the subject line of an email, you would test all these things, and what would work and what wouldn't work. But you would have actionable results that you constantly use to evolve the campaigns.
Peter St Onge: And you have never referenced an economics textbook in your marketing, I'm going to bet, right?
Peter McCormack: Never, never ever. There were a few books, when people used to come work for my agency, we used to buy them three books. Ogilvy on Advertising, it's just a phenomenal book about the basics of advertising. But my favourite book I used to buy for everyone was a book called Don't Make Me Think. I've talked about it on the show before, it's by a guy called Steve Krug, because I was a planner, and with planning you have to think about UX and design. And he had a very simple approach to digital marketing, is every time you make me think, that is a friction point. And that's actually framed how we built this podcast.
So, my entire approach is if somebody says something that I don't fully understand, explain that to me. And look, there are times I understand, but I know other people won't understand. So I'm going, "Explain that to me".
Peter St Onge: Right, exactly, so you're speaking for them.
Peter McCormack: Yeah, but that was the most important book I read, and I'd encourage anyone to read it. But the really interesting thing you said there is, we existed in this Keynesian Economics world. And I studied economics at A level, so high school, studied Keynesian Economics, never from a position of a teacher saying we should question everything, let's critically think this through. This is the model of economics for the world.
Peter St Onge: It has come down from heaven, yeah, right.
Peter McCormack: Yeah, but what's really interesting from what you've just said there, when you discussed the human incentives, it feels like, correct me if I'm wrong, but Keynesian Economics is a school of economics which is trying to influence outcomes, whereas Austrian Economics is trying to manage inputs?
Peter St Onge: Yeah, and I think Austrian starts with the assumption that the goal of economics is for people to be happy, so people are going to behave in a way that they perceive to be in their best interest. Sometimes they make mistakes, there's all kinds of details to that, but the starting assumption in Austrian is, economics is a tool for happiness, sort of like in psychology. So, we assume in psychology that the purpose of this field is that we want individuals to be happy. The purpose of the field is not to turn people into some mouldable clay for some further objective, like reaching the utopian society, or whatever, and I think that is where Keynesian Economics was essentially captured.
So, every conclusion in Keynesian Economics, the punchline is, "So we must give more money or more power to either government or to organisations that are allied with and sponsor government". And any power or money that you're giving to that elite, let's say, is coming out of somebody else. So to me, Keynesian Economics is almost a purpose-built, pro-elite project, and then "economics" is bastardised into a tool to reach those objectives. So there are two very different goals there, right? One is, let's make people happy; the other one is, let's turn people into fodder, into clay, to mould into whatever the utopian society that we're aiming at.
Peter McCormack: Does fairness come into this, in that Keynesian Economics, we have centralised bodies making very important decisions for the economy knowing there's collateral damage, so changes to interest rates, etc, certain policies, they know that will lead to certain industries or sectors perhaps declining, the loss of jobs, but it's for the "net good of the society", but there's this collateral damage; whereas I feel like Austrian Economics is more about the individual, they know the rules and it's up to them to be able to build an outcome for them that's fair within that?
Peter St Onge: Exactly, right. And to be clear, most of the people who are acting in the Keynesian system I think are very decent people. You know, I don't think Jay Powell or Janet Yellen are evil people. Once you have this system, you must necessarily trade off, right? You must harm some so that others are benefited, that's the nature of central planning, it's built into the system. And so, the Keynesian system necessarily, once you've built it that way, it is going to sort of look down from on high and it's going to weigh everybody, and you might hope that it weighs everybody equally, or that it's taking care of everybody, but in fact it is necessarily a political process and there are going to be different interest groups that come in and it's going to end up being perverse. It's not necessarily going to do what people think. To give an example, Keynesian Economics tends to favour Wall Street.
Peter McCormack: Fancy that!
Peter St Onge: Yeah, exactly, and Wall Street does not poll well among the American public, I suspect it doesn't among the British public. It's right behind cholera on opinion polls. And so it's odd, like why do we have this system that that treats Wall Street so well? And the reason is that once you design things on paper, even if you had perfect central planners who received it directly from Moses and it was, "Yes, it's the perfect system", it is going to be corrupted.
This is the model by a guy named Bruce Yandle, called Bootleggers and Baptists. He talks about how policy is created. You may have heard of the model. But the general idea is that you have sort of an activist movement. So they might, in the example he's giving, these might be Baptists who think that it's terrible that you can sell alcohol on Sunday. Okay, so they might come in and say, "This is the demon rum, look at all this social trouble, and so we need to ban alcohol on Sunday". The thing is that the bootleggers, the people who are selling illegal alcohol, they will tend to agree very strongly with that point of view. They will come in, they have the resources where they can buy an audience with politicians, so the activists are going to be the ones who generate the social momentum for whatever intervention the government's going to engage in; but the interested parties are going to be the ones who are actually going to write the legislation, they're going to write the updates.
Once you've got the power to write laws, you're going to do all kinds of fun stuff. You're going to outlaw the competition, you're going to engage in the kinds of things that we see from Wall Street, you're going to end up bending government to give you special privileges. And so, if we look at taking the Wall Street example, there were a number of panics in US history that led to farms being repossessed and you had solid companies going out of business, all these terrible things. And so you had this activist movement for some kind of reform and at that point, politicians responded and the special interests got involved and then the end result is that we get this system today, where I think many of us look around and we say, "How on earth, in democracies, did we get this system that is so anti-democratic, the system that benefits the elite so much at the expense of the masses who, in theory, are the sovereigns of our democracies?"
Peter McCormack: And how? I mean, how did Keynesian Economics win this race? And a question I'm often asked is, why has Austrian Economics always been this niche, underground study of economics?
Peter St Onge: Because we are disfavoured, we don't get the money, is the short story. So, if you go back through economic history and sort of trace through the evolution, so going through the 1400s, 1500s, you had the Spanish scholastics, you had all these interesting innovations. And one by one, they were discovering the pieces of modern economics. That goes straight into what we now call Austrian Economics. In other words, Austrian Economics is normal economics, it is the evolution.
You had this mutation branch off right around the Progressive Era. The big innovation in the Progressive Era, so this is starting around 1890s basically until World War I is when they were victorious, and really all across the West; and the great innovation of the Progressives was capturing huge swaths of society's resources and putting them at the disposal of the government. That was really the genius, that was the purpose of the movement. If we look at both the British and the American economy before the Progressive Era, so this would be the late Victorian era, it was extraordinarily free, it was very, very easy to start a business. If you ran into trouble in life, if you got fired, for example, there were government benefits, but they were not very generous. And so your first reaction would be, go start a business.
I mean, it was just a completely different world than we have today. The levels of innovation were much, much higher. Almost everything that we think of today as high tech, like if you take everything that Elon Musk builds, all of it was invented in a very short period between about 1870 and 1890. Essentially, we are running on the fumes of inventors from a hundred years ago, and I think the reason is because of that Progressive Revolution. They had a very specific strategy to capture certain parts of government, and then they could leverage that into shifting resources over towards their movement. And so a big part of that movement, they were aware that economics was a determinant of public opinion, and so they're very interested in capturing the field of economics.
Within that, Keynes was their figurehead, but really the movement predated Keynes. He was useful for them, and the goal was what had traditionally been called inflationism, which basically, I mean that's just describing the idea that the government, there's various ways that it can take resources; one of them, of course, that it can just print it via fiat. But anyway, at the culmination of this process, you had this capture of economics by this mutant sort of pro-government brand of economics. And so the remnant of economics, the remnant economists, they got gradually forced out of the universities, they didn't get the funding.
Economic funding today overwhelmingly comes from governments. There are tens of thousands of PhDs in the US. Almost every monetary economist in the US takes money from the Federal Reserve. There is no chance that I will get any money from the Federal Reserve. I have to have a day job. So really, the funding can determine the direction of the field and as a result, when you survey the economic landscape it looks like "Austrians" are remnants and I would argue that we are the heirs to the 500-year evolution of economics. Keynes doesn't really deserve to be called economics, it's just a government department.
Peter McCormack: You sound like a conspiracy theorist. What is this crazy talk?
Peter St Onge: The track record for conspiracies the past couple of years has been pretty good.
Peter McCormack: Yeah. I mean look, it's fascinating. We've just talked about it in the previous interview, I have this ever-growing distrust and dislike of the education system. My son is out of it now, my daughter's still in it. I know when I was taught economics, it was Keynes. I know I was taught a completely false model of economics, which benefits government and not me as an individual. I know I was lied to. I don't believe my teachers felt they were lying to us.
Peter McCormack: Absolutely.
Peter St Onge: I felt like they thought this is the model for economics, but I dislike the fact that I didn't know there were multiple models of economics, I dislike the fact that I didn't have Austrian Economics raised to it, I dislike the fact that I wasn't given the opportunity to debate and discuss these things and think through them critically. I don't think we were very often taught to think about things critically, and now it puts me in a position whereby I'm rethinking schooling. It's frustrating.
Peter St Onge: It really is. And I think it's frustrating for all of us the degree to which they have captured the institutions that a lot of us trusted. I also agree that teachers who taught me, they seemed like dedicated, decent people. I'm sure that they did not think that they were propagating propaganda or something. They were decent people, but the government has been very, very clever at how it's gone about it, where once you capture education, you use that to propagate, to spread the virus. And if you brainwash the teachers, then the teachers are going to go on to brainwash people. Even very, very decent teachers are going to do it, because they are not aware what is happening.
So, it's been incredibly clever how they've managed to do it, and unfortunately it puts people like us in a position where we are definitely outside trying to sort of shake people out of this sleep, and show them all of these contradictions that they see. So allegedly, government controls the economy in order to help the little guy, and so let's actually look at government interventions and look at what they're actually doing. They say, "Shut the poor out of decent housing", but on the other hand, they hand trillions of dollars to Wall Street. Is something wrong here? And you know, the government's response is always, "Well, we make mistakes sometimes and we're trying to get better".
Jerome Powell, for example, just last year, he gave a speech. He was asked about the whole transitory inflation thing, and he said, "Well, we've learned a lot about how little we know about inflation". I mean, he actually said it while half laughing, and I mean that's super-hilarious Jay, because we've got how many millions of jobs and companies at risk because you screwed this up? We've got banks collapsing now because the Fed told them, with tens of thousands of PhDs, the Fed told them, "Inflation is going to be very transitory here. We've just got the supply chain thing that will work out". All right, so because the Fed very confidently said that, the US economy, possibly the world economy, is crashing, but this is all very funny to them.
What's screwed up about that system is that what should be happening when they fail is that there should be some basic questions being asked here, right, like, "Are you guys competent to be wielding the power that you have? Is this the ring where nobody can possess this?" because not only you -- Jerome Powell may be pure of heart, but not everybody in that process is pure of heart, and even if they were, you do not have the information. You have tens of thousands of the world's best PhDs money can buy that you have working on this programme and yet you come out with garbage predictions. So, it is both a corrupt process and it is an impossible process, and we've known this for a long time.
This is why a lot of people don't like central planning. Central planning does not work. Even if it is by angels, it is impossible to know. And so the alternative is, get out of the running-the-world business and let the people manage their own affairs. And if we go back to that Victorian Golden Age, actually it's called the Gilded Age in the US, because socialist journalists renamed the Golden Age; if we go back to that period, we had much more individual sovereignty right. Individuals decided how to educate their kids, they decided how to manage their financial life, what kind of business to build.
If we take just education for an example, if we contrast that people-powered world versus government-powered world, I did a study where I looked at inaugural speeches of each president. So each president's every four years, and they give these inaugural speeches, and they promise all the wonderful things they're going to do. What's fun about that is that it gives you a standardised sample that you can compare one to the next. And then I did the Flesch-Kincaid score, the grade level scoring of each speech. And so what you're trying to find out here is how stupid do the speech writers think the American people are? So, this is an indirect measure of how the education system is doing.
Presumably the people who write presidential inauguration speeches are probably the top marketers in politics, okay, they know what they're doing. They are not talking to grade 12 when they should be talking to grade 8, they know exactly what they're doing. So, if you go through those speeches, you go back to 1900 when people had still been educated in that Golden Age, and you've got grade levels of like 12, 13, 14 in modern terms. So, that is high school graduates, first-year, second-year college. That is what they thought the median voter, in other words the median American was.
You go to today. So I think this is from memory, but it had gone down, down, down as public schooling increased. By Barack Obama, it was 8th grade; by Donald Trump, it was 7th grade; by Joe Biden, it was 4th grade. So, unless marketers have gotten so bad now that they do not know who they're talking to, which I don't think is true, I think those are accurate measures.
Peter McCormack: I mean, we've seen it in the UK. I posted a video up of Rishi Sunak. He was in the back of a car, talking to a phone, giving a speech, talking to the electorate, and I said, "I feel like he's talking to a kindergarten". I mean, it was so bad, it was condescending.
Peter St Onge: Yeah. And normal people read political speeches from 100 years ago, and I mean the rhetoric is just astounding. They all sound like works of art to us today, because we are starved for any kind of intellectual…
Peter McCormack: But it's a lack of backbone in politicians these days as well, and again, it's probably just another system of bad incentives. But you know, we're a couple of years away from a general election here in the US, we're fully expecting a Biden v Trump war, but you never know, and there are some interesting people coming out saying some interesting things. You see DeSantis, very critical of CBDCs, so forget the rest of his politics, you're on my side on that topic; we see RFK coming out talking about Bitcoin. You're like, "Okay, you're with me on that topic"; Vivek Ramaswamy, he's been talking about sound money.
So, look, these people see the problem, they're speaking our language; when they get elected, what happens? Do they go in and get sucked into this model of bad incentives, or will they change things? I suspect they get sucked into this model of bad incentives, they can't get things done. It's almost like The Selfish Gene, the selfish gene takes over. Are these people -- is it particular malice, or is it just selfish genes are how we get things done? I don't know.
Peter St Onge: Yeah, we saw an example with Trump. So, Trump was pretty lousy on sound money. I mean, he was just like any other standard politician as far as money went. But on a lot of other issues, whether or not you agree with him, he was trying to change a lot of things. And it is incredible the kinds of walls that he ran into. If we actually do get somebody in there who believes in sound money, I imagine the walls that are built around money are even stronger than what's built around things like education or other power centres of the elite.
Honestly, if we look back through history, the times when soft money flips too hard, it is not an evolutionary process. It takes a crisis that wakes people up, that gets them so pissed off at the system, basically a fall of the Soviet Union type situation where you get this, it's called a preference cascade where like Monday, everybody is a Marxist, maybe not a super-enthusiastic Marxist, but yeah, sure, everybody's a Marxist; and then Tuesday, nobody was ever a Marxist ever in their life. In other words, the system fails so catastrophically and so obviously.
Unfortunately, those failures take a lot of people down with them, there's a lot of collateral damage. When a monetary system fails and you get hyperinflation, then a lot of people go down with it. And so I think people like you and I have two options. One of them is to remind the frog that the water is getting quite hot. Sometimes people get upset at me, they're like, "Why do you always talk about bad things; why don't you talk about good things?" And I'm like, "Because I want the frog to understand the water is getting hot before it actually boils". I want the people to understand the crap that's being done to them before it actually starts to destroy their lives.
Of course, the second thing we can do is the lifeboat, so try to rescue as many people as possible. Even if we take worst-case scenarios like Weimar Germany, a lot of people did come out of that in one piece because they questioned the government in time. For me, that's really key, to break this almost spell that people have where in their mind, they imagine that any time the government says that, "Well, this is an official statement", this is the official truth. And I think that's historically extraordinarily dangerous. And so, to the extent that I can at least get people to question it, they may not jump into the lifeboat yet, whether that's gold or Bitcoin, but at least to get them aware that maybe they're going to have to do that sometime so that when things do start to crash, they can get out in time.
Peter McCormack: And I think there's a lot of evidence out there right now, people are definitely starting to question things, I see it in the UK. We've had high inflation, we've got high debts, we've had attack on public services, that's going to continue. We're still in the cycle, the change of leadership when Labour will win the next election, because they will, because Conservatives are so disliked right now, none of this is going to change, they're facing the same economic problems, they will have the same solutions. And so I know people are questioning it now; they question it, and they've been shown the lifeboat, but you know, the Titanic hasn't split yet, it might still float.
Peter St Onge: That's exactly it. The music is still playing!
Peter McCormack: Yeah, so it's a really interesting time. I feel very fortunate to have been able to spend a lot of time with a lot of very smart people who've explained this to me and opened my eyes to it, but I really struggle to get people to see that. And I think this is why you're right here, it will come from catastrophe, sadly, something way worse than what we saw in 2008.
Peter St Onge: I think it will. If we're looking at the numbers now, we're looking at a bank crisis on 2008 scale, combined with an inflation crisis on 1970 scale, and with an additional piece of debt crisis. So in other words, in 2008, you didn't have terrible inflation; in 1970, you didn't have terrible debt, it's like it just keeps piling on and on. So today in the US, we're looking at between 100% or well over 100% of GDP in just federal debt. And then, of course, the system is just shot through with debt all over, 2008 accelerated that massively. In fact, that's basically their modern response to any sort of crisis, is just to pile on more and more debt. And so in a sense, it's building the Jenga tower higher and higher and increasing the risks.
So, if we look at that process and we compare it to the last two crises in living memory, 2008 and 1970s, then it really does feel like we've got all three of them combined. The only thing we're missing is the meteor strike.
Peter McCormack: Yeah, I hadn't put that one on my Bingo Card!
Peter St Onge: Well, we might get one out of -- we don't necessarily have to get into that, but there are various kinetic events occurring in the world that may give us that one!
Peter McCormack: Look over here, don't look here, yeah. Oh, God. Okay, well also what is interesting is we have this technology, Bitcoin, and we'll get into Bitcoin versus gold, and I know you're a fellow at Mises. But was it Mises who said the quote, "We'll have to wrestle it from their hands"? Peter St Onge: Hayek, yeah.
Peter McCormack: Oh, was it Hayek? He said, "We have to wrestle the money from their hands --"
Peter St Onge: Yeah, he said --
Peter McCormack: "-- a sneaky way", or something.
Peter St Onge: Right, "We can't take them on head-to-head, and so we have to capture the money in a sly, roundabout way that they don't necessarily detect". And so, that is kind of Bitcoin in a sentence, yeah.
Peter McCormack: Yeah, what does it mean to be a Fellow at Mises?
Peter St Onge: I've been asked that. Apparently, Fellow in general in academia is a really elastic term, it just kind of means you hang out together. So sometimes you get paid, I don't get paid for Mises, sometimes you don't, but it just means you're associated. So, I give talks and write articles and such at Mises.
Peter McCormack: I should spend more time on that website.
Peter St Onge: You should be a Fellow at Mises!
Peter McCormack: I mean, I don't know if I -- I think I'd weird people out if I was a fellow at Mises. So, you've travelled a lot, you mentioned you retired at 25, amazing, you travelled a lot. What similarities and differences have you seen around the world on your travels, because obviously, you must have been observing the different economic systems?
Peter St Onge: Yeah, so I have spent a lot of time in specifically Latin America and in East Asia. Those are probably my two most favourite regions, and I like those both culturally and politically, well politically a lot more East Asia. But going through each, what I really like about Latin America is that you can sort of go back in time in a way. Families are much, much stronger. People rely on their families, they keep in touch with their families, even though families are shrinking. Modern Latin Americans have two, three kids, it's not like the stereotype. But even so, people are very, very close, they're close to their extended families, they're close with the people they grew up with, the people they went to school with. There's this social cohesion that I think is missing in, normally I guess I'd say the West, the US and Western Europe, but anyway, I feel like it's really missing there. People don't get married as much, they don't necessarily form traditional families. I think there's a certain amount of instability that you get from that. And I understand why we got there.
I came from a broken household as well, but I sort of like the idea of a society where people are not sort of atoms flying across as if we're at an airport bar just sort of bumping into each other, chit-chatting and then never seeing each other again, but rather that there's a stability. I think you do get that maybe in rural areas, maybe even in England, but certainly in the US, where people are much more stable, but that is something I like about Latin America. The political system in Latin America, I think, is horrific. Broadly speaking, it's even more corrupt than it is in the US and Europe. Of course, there are exceptions, such as the current president of El Salvador, but broadly speaking. East Asia, for me --
Peter McCormack: But even that's questioned.
Peter St Onge: Yeah, for sure. I mean, always. There's so much corruption throughout, I think, the systems in Latin America that even if you've got a couple people who are clean, it is very, very hard to stay away from it.
Peter McCormack: I don't think Bukele's corrupt. He has followed a succession of corrupt presidents.
Peter St Onge: For sure.
Peter McCormack: The main question with regards to him is due process and strength of institutions. We had an interview the other day where we questioned the trade-offs between, I mean, perhaps this is a revolution led by one, and will he rebuild the strength of the institutions? Maybe that's what he needs to do, rather than a revolution of the people. He's very popular. There are questions, but I think that's one we'll see play out. It'll play out like every other dictator, whereby he will stay on too long, and have to control the media to wield his power, or he's a benevolent dictator who does a fantastic job and changes the fortunes of that country and rebuilds the institutions. It's an interesting case study.
Peter St Onge: Yeah, it really is. And if we go back historically, I'm sure you've come across the Hans-Hermann Hoppe sort of monarchy model, and so the question is, most dictators are bad but every so often you do have dictators who act like monarchs, where they do actually care about the country, they treat the country as their own family. But unfortunately, it's rare, and typically the longer they stay around, the worse they get.
But to your earlier question, the other area that I wanted to pitch, the place that I've really spent the biggest chunk of my life has been East Asia. So specifically, I was a professor over in Taiwan and I spent a number of years in Japan, and both of those for me have been really important, because in many ways I think they kind of show the way. They're encouraging that that old world is not dead. You do have those kinds of traditions that you have in Latin America, but then on top of that you have astoundingly competent governments. It's very hard to be an anarcho-capitalist in Taiwan, because everything works.
Peter McCormack: Yeah, I've been to Taiwan, it's amazing. It's amazing, and I fear a Chinese invasion and takeover and destroy. What a brilliant place, a brilliant country, good place to do business.
Peter St Onge: Well, I keep hoping maybe China's provinces will secede and join Taiwan and then we'll have world peace once again.
Peter McCormack: I'm not confident of that. Have you been to Taiwan?
Danny Knowles: No, I've only flown through it.
Peter McCormack: Yeah, it's amazing. I've been to Japan as well, also a very interesting place. I think what I find in both Japan and Taiwan, very respectful places. There's a real class to the way people are, I don't know if that was your experience.
Peter St Onge: Right. And of course economically, I mean they're also wonderful, right? You have low tax rates, it's very, very easy to start a business. I had a friend who started an English school, as one does, and after about a year of operating, the local tax lady came in and she had the local police sergeant sitting with her, and they came in for tea. And she said, "So, we know that you've been running this business and you haven't been paying any taxes, but you're a small business and that's completely understandable. But at this point, we estimate based on the traffic that you're probably making about this much, and so we would hope that you pay roughly this amount of taxes, that's what we would imagine might happen".
But the policeman was there to communicate that it's fine, "You're a startup, life is hard for a startup, we completely understand how it is, but now that we can see that your business is doing really well, you do have to do your share", was the signal. And that is so in contrast to what one gets in the US, or I imagine Britain, where it's almost like it's a war between the regulators and the small businesses like, "Can we find a way to shut you down?" It's like if you go to the DMV and you're going to renew and they're like, "Let me see if I can find some form that you don't have". And you know, as soon as they have, "Ha-ha, you must go home and get this form", they have defeated you!
Peter McCormack: I mean, I have multiple businesses, it's so hard.
Peter St Onge: It's incredible.
Peter McCormack: I mean, the range of things, like my most recent one, I bought a bar. A bar, it's open twice a week, really. My first difficulty was taking over the bank account from the people who had it. I spent six weeks with the bank trying to get it transferred into my name, signing the mandates, taking identity of them, KYC checks, all the registration documents, and a combination of their poor systems and me just being unable to get them to confirm my documents. In the end, I had to give up. I said to them, "I'm going to another bank now, I'm going to a neo bank, which I created in a day, because you cannot transfer the account to me". The licences we would have to have, you know…
If I want to do anything within the property which is a fixed structure, I have to submit a planning application. So, one example is we have a garden and we may want to have a bar in there. If the bar is mobile, it's fine, but if it's a fixed structure, I have to get planning permission and get approval to do that. I mean, I could tell you endless stories, all the different licences I have to pay for. It's just endless difficulty doing business. You know, it's setting up businesses, it's operating businesses, it's getting banking, it is licences, and then there's all the taxes we pay. I'm amazed how many businesses are still operational, but I'm also frustrated because I think how many businesses could start and exist and be operational, but aren't because it's just too hard.
Peter St Onge: Yeah, and you saw Jeremy Clarkson's recent on his farm show, and I mean the entire theme of it was just him going to battle, and this is a guy with significant resources and a significant voice, so how is it for normal people? They are absolutely crushed. And that brings us back to the Keynesian thing, where the purpose of the Keynesian system is not to crush small businesses, for sure. Nobody who designed that thought that's what would happen. But when you concentrate all of these resources into the bureaucracy, the bureaucrats have to find something to do. And, oh well, they'll check licences. And so nowhere in there figures the actual experience of the entrepreneur who is on the business end of all of this. Really, it's just make work to justify budgets, but in the process you then become the product that gets victimised by this.
Peter McCormack: And the bureaucracy always grows.
Peter St Onge: Sure, right, absolutely. And one of the iconic studies of that was actually from Britain. They were looking at, as colonies gained independence and then the budgetary needs of the Commonwealth, and whatever it was, the agency that administered the colonies, and as the number of colonies reduced, the headcount actually grew. It's quite strange because you think, "Well, you don't have as many colonies, perhaps you don't need as many staff any more", but no, it was the contrary.
Peter McCormack: Yeah, I mean look, I find it so frustrating, especially when I look at taxation. You look at taxation as a business owner. You create a business and you employ people and every month, you pay a tax on those employees. You pay their income tax, which is their tax, but you have to pay a national insurance, so the company has to pay that. And at the end of the year, I have to then pay a corporation tax, and then from that I pay myself either a dividend or wages. But they've closed the loophole on dividends v wages, so essentially I still pay the same tax. And with that money I get, I then buy things where I pay a tax on them, whether that is fuel tax, whether it's VAT on products.
It's a continual rent-seeking on all the hard work that I and the team have done. I mean, I don't know how much I end up giving to the government, but I feel like in the end it's 70% maybe, it may be higher. And the most frustrating thing about this, I'm not anti-tax; I think there are things that governments can do and will help, I'm not anti-tax. But what became really obvious is that this podcast we do over the last five years, over the last year is where we really did start to do well, we had a good amount of income coming in. Because that income had come in, I had that in my pocket, I could buy this bar, it became available. And maybe in a year, I can open another bar because I have the capital, which means I can then employ people and create jobs and pay people. And so, it became more evident…
When I got free, when I became free from the economic constraints because of the success of the business, it became more evident about where I could put that money to good work. And so, I'm not anti-tax, I'm not completely anti-government, but I am anti the size of the bureaucracy and what it's become. And all I care about now is, how do we shrink that? It's almost why I've become very sympathetic with the libertarians. I used to think of the libertarians as naïve and, "Your system will never work, what are you on about? It's never going to work". My sympathy now is that all I care about is shrinking government, shrinking power, shrinking control, shrinking tax, because I know if you remove these bureaucratic layers and you reduce tax, more people will start businesses and that will lead to more productivity. It's so obvious now.
Peter St Onge: Right, yeah, absolutely. You know, we were talking earlier about Taiwan. The university I was teaching at was right next to a big night market called Feng Chia Night Market in Taichung, one of the biggest in Taiwan. And the way it worked there, there was a certain amount of mafia involvement in the governance, so they would do things like quality control, make sure that you wash your dishes. But because it was a private sector enforcer, I mean it was a very light touch.
I mean essentially, if you wanted to run a business, you would just go, they had little places where you would rent the truck, the little truck on wheels, the little kitchen on wheels. So you would go down there, you would rent that, you would pay $100 for a guy to do novel signage for you, so you would decide what to name your business and whatnot. You would wheel that over to the market and you would set up shop and then you would pay a little bit of rent and that was it. There were no licences. There was no nothing. There was this private sector quality control to make sure that you don't weren't doing anything crazy, but the end result was that you had thousands and thousands of people who had these little businesses there.
You did not have to be almost maniacally driven in order to actually start a business, which I mean today in a place like Britain or the US, if you don't already have a family business that you're taking over, if you are out of the blue deciding to start manufacturing something in Britain, I mean, there's got to be some special reason you're doing that; maybe because it's inherent to the brand, you've got the flag on it or something. But if you're going to manufacture something normal, pens, in Britain, you've got to have a screw loose, because it is so difficult to do. And nobody wants that. No matter how you vote, nobody on earth hates small business and wants pen factories to be destroyed in their country. I mean, that's just an insane preference.
But the problem is that once you give all of this power to whatever you call it, the government machinery, it starts doing perverse things. It does things that are in its interests and not necessarily in yours. Now, in theory, the voters could then look at that and they could say, "Hey, this is terrible. Look how hard it is to start a business". And so they would communicate to their politicians, their politicians would tell the bureaucrats to stop doing that, and I think that it used to do that. If we go back to that Victorian or the Golden Age, I think that government was small enough that there were transmission mechanisms. So, if the local MP were to hear the fish and chip shops in their neighbourhood would be upset about something, then they would talk and then it would get resolved really quickly.
But today, of course, there are these massive layers of bureaucracy. Everything has got to go through -- I can't imagine how many layers of bureaucratic approval something has to go through. And the bureaucrats don't even have to necessarily listen to you. They have their own goals in life. Maybe there's some program that has a lot of budget potential in the future, and so it's going to be very good for their bureaucratic career, and so they're not particularly interested in what the fish and chip shops need, "This is what I personally need in order to progress the bureaucracy". You get all these perverse incentives in the system.
One expression, this is from Mencius Moldbug, is a self-licking ice cream cone! Like, the system exists to serve itself, it is no longer serving us, the people. The problem of course is that we have to obey that system. That system is our sovereign.
Peter McCormack: There's no opt-out.
Peter St Onge: Right. But in theory, of course, we the people are the sovereign, so something is very wrong in this picture here. We have this ruling Leviathan that has very, very little input from us, it ignores politicians for fun. I mean, I don't have that much respect for politicians, but compared to a ruling Leviathan that does not even care what the people think, I will take politicians any day of the week who are at least somewhat responsive. So, it starts to look like an occupying army.
Peter McCormack: Yeah, and a lot of the times I question what should the role of government be; what do we need government for? Are there fair regulations? When I went up to Wyoming, I met a chap called Tyler up there and he was saying to me, they were trying to get rid of licences. He said when he took over, if you were hairdressers, you needed the licence to be a hairdresser. He said, "You shouldn't need a licence to be a hairdresser. You should just open and cut people's hair. That should be it".
But at the same time, I would contrast that, it's quite a contrast, but I went to an Ai Weiwei exhibition and one of his displays was from the earthquake in China. There was a certain region where lots of properties collapsed and the reason they collapsed because they were badly built. They didn't follow regulations and so when the earthquake hit, these buildings collapsed and then he took the metal steel structures and built sculptures out of them. And that also flipped to me to make me realise that actually, some of these regulations around buildings are designed to protect people.
We had a huge fire in the UK, called Grenfell, it was a block of flats that went up in fire. I think about 85 people died, again because the cladding they used around the building wasn't great. So sometimes I think, well, should we -- and I know there's people out there arguing no, the free market will always solve these problems. I'm not 100% sure. I often come down to, if there are certain mistakes made it would lead to considerable death, maybe that is something that needs regulation. Is there any room for that in a world of sound money and Austrian Economics?
Peter St Onge: Yeah, I mean if we go back to that Victorian/Golden Age, there was some regulation. There was much, much less than there is today. And overwhelmingly, the way that problems like that, basically corporate misbehaviour or individual misbehaviour, the way that those were dealt with was through the common law system of tort. So, if somebody endangered you, then you could bring a lawsuit. Lawsuits were extraordinarily easy to bring. Typically, you would not have to hire a lawyer, you would not have to go through that expense, you would simply go to the magistrate and you would say, "Hey, this person did this", and the magistrate would send his bailiff around to ask the other person, "Come and tell your side of the story", and then he would make a decision. It was very, very easy.
So, that tort system worked fantastically. And the goal was that if somebody harmed you, if they were negligent, then they had to compensate you for the harm. And logically, the reason that you're building it that way is that you're saying, if my business burns down your house, the most economically efficient way to treat that is as if the business burned down his own house, okay, you want to internalise the costs of any kind of risk into the business itself, and that's what the tort system does. And so if tort is functioning, you need government to enforce it.
So, in that scenario, if the magistrate goes to the other guy and he says, "Well I've decided that you've done something reckless". Let's say you set a fire in your backyard and you ended up burning down the neighbour's house, so you have to pay them, well somebody has to force that other person to actually pay what they owe, right? So, I think that there are ways to do that in an in an anarchic system where you have basically individuals self-organise, and then they will choose a village elder and things like that. It's hard to get there from here, especially in a world where countries like China exist, who guarantee if you have a sovereign island that has no police force out in the Pacific, somebody's taking that island.
In fact, that actually happened. I think it was in the 1970s, there was a group of hippies who founded the Republic of -- God, what was it called? Anyway, Nirvana or something. And literally, the neighbouring country, I think it was Tuvalu, came by with four soldiers in a boat with a flag and they showed up. It's like, "Do you have a flag?" So they showed up and they had the guns and they brandished the guns and they put the flag on. They said, "Thank you, this is our territory"! Okay, so there are very practical reasons why you can't quite get from where we are now to anarcho-capitalist, but I think that when we ask about alternatives to regulation, fortunately we have that Golden Age and we can look at how things were resolved back then.
You had very, very small number of regulations. The ones that existed were generally corrupt, such as Bank of England, or we didn't have the Fed quite yet, but you did have some corrupt regulations. It was a much, much smaller number, and for the rest of the world, the sort of free market world, you had tort. And yes, government had to enforce tort in that kind of scenario, but I think we can get there. You know, again, if we look at places like Taiwan, for example, there's a certain magic to simply shrinking the government down to a certain level. The government starts to say there are certain things that it cannot enforce.
So, I grew up in Philadelphia in the 1970s and Philadelphia was kind of a rough town, it still is, and there were certain things that the police did not notice, a lot of business violations that they didn't notice. And why? Well, because their mom went to church with the deli guy's mom, right? There were social connections why people didn't play the whole thing bureaucratically. And there were also budget issues. So, the police were fairly responsive and they wanted to put guys on murders and they didn't want to put them on, "Is your", whatever, "is your deli serving beer without a licence?" That was not considered to be a serious issue.
I think that we can get back to that without necessarily crushing the whole system and rebuilding on the ashes; rather simply (A) restricting budgets, (B) cutting the power of the bureaucracy so that we should not have a civil service that is independent of the people. It should be extraordinarily easy to fire anybody in the government. That would actually fix it in one single go. If the Prime Minister could waltz in and fire everybody in the British hierarchy, you would have a complete cultural transformation, where the entire British government would now work for the politicians. Politicians suck but they are a lot better than a permanent civil service that is completely independent of the people.
Peter McCormack: Well, I had this conversation with my son recently, because I have a growing interest of running for mayor of Bedford.
Peter St Onge: Yes?
Peter McCormack: Yes, seeing what I see and talking to people like you and understanding these problems, and knowing my council's budget and seeing where they spend it. And we're by far not the worst. But I said to my son, I said, "I think the first thing I'm going to do is really piss a lot of people off, because I'm going to just go in and get rid of as many people as I can, doing wasteful jobs". Now that is actually very difficult. It's very difficult to get rid of people in the UK, which is obviously ludicrous, because you want people to be able to learn from being got rid of. You know, it's sports, you learn by winning and losing.
Peter St Onge: And the mayor is the representative of the people, the people are sovereign.
Peter McCormack: Yes, and so I imagine in my little dream fantasy of being Mayor of Bedford, I would walk in first day and I would just go around and find out what everybody does, and then I would go away and I would come back and say, "Well, I'm getting rid of this department and this department and this department, we're getting rid of this, we're going to change this". I know it's not going to happen because there will be power structures and walls that would stop me doing that, but that's what I want to do and I want to do it. My son rightly said, "You won't be able to do that. You just you won't be able to", but I want to have a go.
Peter St Onge: Yeah, absolutely. And I think that kind of thing could inspire movements across the country.
Peter McCormack: Of course.
Peter St Onge: You know, you see what's happening now with the 15-minute cities and the civil disobedience. I think the people of Britain and the people of the US are ripe for that kind of movement that puts more power into the hands of the people.
Peter McCormack: Well, I think it's only so long you can get away with it. We went through boom eras, the 1990s were pretty good, the start of the 2000s were pretty good. Even post-2008, there was a recovery.
Peter St Onge: There was.
Peter McCormack: We got back to a decent stage. I'm not so naïve to not identify there were winners and losers there. Poverty rates in places like the UK have gone up, which is shocking. But I think it's ripe for disruption. Disruption is often used in technology to explain new ideas, I think we're ripe for disruption now. Maybe Bitcoin is a tool of that. Actually, I want to get into that with you as well. As somebody who studied economics, did your PhD, I imagine you did that before Bitcoin arrived?
Peter St Onge: Yes, that was before Bitcoin. And when I first heard about Bitcoin was about 2011. My wife told me to buy, which it's usually the other way around, sorry; my wife told me to buy and I was convinced that the US Government would ban it, so I was in that camp. And they had recently arrested Bernard von NotHaus. I don't know if you remember him.
Peter McCormack: Was that Liberty Reserve?
Peter St Onge: Yeah, Liberty dollars. And he had printed it up in silver and I think he stamped "one dollar" on the front of it. So, this was a coin that had lke maybe $20 silver value, in other words melt value in silver was $20, but the FBI came in and said, "No, it's a counterfeit because you're saying it's $1, but it's not". So, that would make him the worst counterfeiter in the history of the world! But anyway, I saw that where that was just such a BS prosecution, I thought, "Okay, there's no way they're going to allow Bitcoin", and I've been completely shocked at their incompetence. I thought they would go after and try to figure out who Satoshi is, this shadowy super-coder who could undermine the entire world economy, but they haven't. They did not get their butts in gear, thankfully.
Peter McCormack: But were you a gold bug first then?
Peter St Onge: Absolutely.
Peter McCormack: Absolutely, okay. And what is your position now? Bitcoin and gold?
Peter St Onge: I think on a fundamental level, I think Bitcoin is definitely better than gold. It has a couple of advantages. Number one, it is completely independent of the state. The problem with gold is that it's physical. This is usually why gold bugs say it's so super, because it's physical, because that constrains supply. The problem with being physical is that you have to store it somewhere. Once you're storing it somewhere, gold's valuable, and so you've got to put walls around it and alligators and laser beams on their heads. And that means that the government is going to know where the gold is. It is impossible to store large amounts of gold and not have the government know where it is, and that means that the government can visit you. So, gold necessarily becomes controlled by governments. And I think that's the answer.
One of the challenges of being a gold bug is that fiat boys, they ask, "Well, if gold is so amazing, then how come there's no countries in the world using gold? Why has fiat won the market competition?" You say, "No, violence won the market competition, so government seized gold". And so Bitcoin surmounts that fundamental problem. You cannot seize private wallets. And then of course, meanwhile you know gold is not particularly useful in the modern economy, like how many transactions do you engage in where paper from hand to hand could be involved in it? Almost zero. Almost every dollar you transact, certainly of your business, just about every dollar or every bit of money you transact is electronic, and so I think gold has two fundamental flaws.
At the same time, if the question is, if fiat collapses, what are people going to turn to? I think that's a question of timeline simply because Bitcoin, more and more people are learning about it, but it's still probably 10 or 20 years before grandma feels comfortable using Bitcoin. So, if the system collapsed next year, which it won't, but anyway, I imagine people would go to gold. A certain percent would go to Bitcoin, but gold would be the standard money, and then gradually, just as today, more and more people would be learning about Bitcoin. And then I think that over time, people would shift from gold to Bitcoin.
On the other hand, if the system is not going to collapse for 20 or 30 years, then I think at that point enough people know about Bitcoin that we just skip gold, we just go directly to Bitcoin, which I do think is a superior form of gold. And one of the big questions, I think, in Bitcoin is the technical, how do we teach more people about it? And I don't think that's necessarily a part of it. I think, honestly, it's just more about time. If Bitcoin's been around long enough, then people accept it. And I think a good metaphor there is credit cards. So, grandma uses credit cards. Ask grandma how a credit card works. No idea.
So people don't understand fiat, and in fact fiat money, with the central banks and the fractional reserve and the rehypothecate, it is far more complex than Bitcoin. So there's this meme in Bitcoin that, "Oh, it's tricky, how are we ever going to get people to understand it?" People don't understand fiat, right? They accept it because they see other people doing it and they don't lose all their money. They used a credit card and it worked and, okay. So, I don't even necessarily think that we need to educate that much, I think it's just automatic. As time goes on and people get used to the idea that there's this Bitcoin, the price probably stops fluctuating so much as more people come in, you just get a thicker market, and so even if we don't do anything whatsoever, if Bitcoin just kind of trundles along little by little, picking up new people, then I think that eventually Bitcoin is going to take over one way or the other.
Peter McCormack: Why do you think there's still a large number of people who are Austrian Economists that still don't get Bitcoin?
Peter St Onge: I know.
Peter McCormack: Someone like a Tom Woods.
Peter St Onge: Yeah.
Peter McCormack: Tom Woods, I love his podcast, I think it's great, and he will cover Bitcoin. He'll have Saifedean, I don't think I've been on it, he will have people on talk about it. But it isn't central to him, and it feels like it is the solution to a lot of the things he talks about.
Peter St Onge: Yeah, and Peter Schiff as a more concentrated version. Almost everything he says I love, but Bitcoin.
Peter McCormack: He's clearly a Bitcoiner.
Peter St Onge: Peter Schiff?
Peter McCormack: Yeah, without saying it. No, he is a Bitcoiner, but he doesn't know it.
Peter St Onge: Yeah, absolutely, exactly. And I think that a lot of it is just age.
Peter McCormack: It's the boomers!
Peter St Onge: I think frankly, it is. I wrote the first pro-Bitcoin article at Mises Institute. And back then, everybody in the Austrian community was hostile to Bitcoin. And in fact, when I first wrote it, this was Jeff Deist, who was the president at the time, and all credit to him. So, I wanted to write this pro-Bitcoin thing and he was like, "That's going to be a lift", because he knew there was going to be pushback. It was like, "Okay, can you just --" he made me change it to cryptocurrencies, because he didn't want it to look too self-interested, as if we were pushing for one single one. But it was, I mean, the whole thing is about Bitcoin.
Peter McCormack: But there's an argument against that. If you want to write something about gold and he pushes it and says, "Well, you've got to write about silver, copper and everything else…"
Peter St Onge: This was 2013 or 2014 so it wasn't as politicised yet.
Peter McCormack: We've sharpened our knives now then.
Peter St Onge: The knives are a heck of a lot sharper today, yeah. So, I mean I didn't push back because it wasn't really a thing back then. Now, of course, it is a thing. But anyway, that was the first pro-Bitcoin, and throughout the article I'm saying Bitcoin is that, and essentially the argument in it is that the usefulness of a money does not come from whether it is backed by something physical, the usefulness of a money comes from what you can do with it. And so that's a very marketing-centric perspective, right? Like, what's the value of a pen? It is not the plastic, it's what it allows you to do, so it's feature first. So the value for anything derives from the feature. Of course, it's core to Austrian Economics, right, the subjective value.
I think that that's also true for Bitcoin, and in fact I was arguing in that article that if you're an Austrian Economist, then you must evaluate money based on subjective. In other words, what can you do with it? So you can transmit over distance, quasi-anonymously at that time, at very low fees, and this has sovereign resistance, you have controlled supply. And so all of these things are extremely useful. And the argument essentially is still true today. And I still think that the true Austrian money is Bitcoin for those reasons; it's a superior version of gold.
But indeed, you've, I think, tried to orange-pill a lot of older people who should be Bitcoiners but are not yet. And honestly, there's an expression that, "Science progresses funeral by funeral", and not to get too maudlin but frankly, if they change their minds, then that's wonderful, but I'm not expecting too much.
Peter McCormack: Do you have any doubts, any particular areas of Bitcoin that you have criticism for, doubts around, concerns? Do you think it's perfect?
Peter St Onge: I think it's fantastic. There's the question of usefulness for transactions and whether Lightning Network is all that it could be, and I there are various flaws in there. I do hope that people will keep working on things like Lightning Network and that maybe we'll even replace it with something better. It would be really nice to have some way to transmit it that was more perfect. But I mean, even just Layer 1, you know, if Bitcoin's fate is to be a clearance type currency as digital gold, then I still think that that is the vast majority of the value in it.
Throughout history, there have been a lot of periods where you've had bimetallism, where you had gold for the kind of underpinnings of the whole system, and then you had silver or copper that people were transacting day-to-day. If Bitcoin is that base layer, and then people are running around flipping tokens, when I say tokens I mean like fiat currency or something, I think that's relatively harmless.
Peter McCormack: So, you could have fiat backed by Bitcoin?
Peter St Onge: No, I mean I think they would be completely separate. So today for example, casino chips are a little tricky, but in various contexts, like prisons, or candy in Brazil given as change, there are various contexts where people can use really low-value tokens for basically trivial transactions. And there, you can achieve that for small areas just by controlling the supply and demand.
So, in other words, what I'm getting at is that the fundamental way that I think money transforms the world is that base layer, and there I'm not too worried about transaction fees and things like that, I think that Bitcoin can do that. And then you could have some sort of layer on top of that, some sort of transaction layer that's using something else; it could be fiat, it could be copper coins or something that is asset-backed. I think that the value in that sort of transaction layer is actually quite a bit lower, so that could be different things. Most likely, it would just be some representation of Bitcoin, maybe through an intermediary. So there would be trading sats, and you would have to trust that intermediary, but those would be for relatively small amounts. And then for the large amounts, those would all be on the base layer.
But I think that there is room for innovation on those sort of transmission tokens, but for me personally, in a way, that's also not very interesting. That isn't the fundamental moving parts of the economy where that base layer, if we go back to bimetallism, what was always represented by gold, that gold, I think that function can only be a Bitcoin.
Peter McCormack: And in terms of Bitcoin continuing to grow, if we move towards a hyperbitcoinised world, what are the implications of that you're most excited about? Is it ending central banking; is it naturally reducing the size of government; or is it everything?
Peter St Onge: Yeah, I think those are probably the two biggest. On the one hand, I hate talking about government. I honestly do, I despise government. I would love to never talk about government, and I sort of resent that I have to talk about it. So, to say that the most beautiful thing about Bitcoin is that it shrinks government, it sort of feels like you're vandalising a beautiful work of art! You know, government is not good enough for Bitcoin. But unfortunately, that's the world we live in, and I do think that by displacing central banks, by therefore cutting off one of the main channels that governments use to seize the people's resources, I think that you get a massive shrinkage of government that then leads to, I think, a whole lot of social benefits. I think they have less control over education, less over "science". There are just a number of fields that I think improve. So I think that that is the single biggest difference.
I know that there are people who talk about the implications for time preferences, for example, like Saifedean. And honestly, I think that a lot of those effects probably have more to do with just government shrinking. If we look at, for example, the travesty of buildings in cities today compared to what governments used to build and what they build now, I think that really has a lot more to do with just government being independent of the people, no longer feeling like they actually have a client who they have to satisfy. In the old days, they had to make beautiful buildings because otherwise the people would say, "What is this crap?" and they would get in trouble. But now, what do they care about trouble?!
Peter McCormack: Well, I mean it's great to talk to you. You're a proper bitcoiner, which is great. I love it. Did you enjoy the conference?
Peter St Onge: Yeah, yeah, I loved it. Yeah, there were tons of people there. It was smaller than last year, but in a sense we got the true believers, so I'm happy either way. I love seeing more people getting on the lifeboat, but on the other hand, in the Bitcoin winters is when you kind of catch up with all the old friends. And so I'm very happy with the community either way.
Peter St Onge: Yeah, I much preferred it from last year. I had to walk a lot less, which was great! I want them to be successful though so I want them to have big events and I'm looking forward to going to it in Nashville next year.
With the banks, we've obviously had a few collapse recently, and it feels like the entire sector is on the verge of collapse, different dominoes falling at different points. And I know they won't and they'll be bailed out, and the smaller ones will be gobbled up by the bigger ones. I know that will happen, but why is this happening?
Peter St Onge: Fundamentally, the banking system is structured in a way that it is unsustainable. So, it's built on fractional reserve. Fractional reserve means that you put your dollar in the bank, the bank essentially Xeroxes it, puts a picture of it there and says, "Yes, your dollar is right here anytime you want it", and then it goes off and lends that. It could lend that to some tech bro, it could lend it to Argentina, that money's off doing crazy things.
Normally, if the bank were completely up front about this, if the bank sat you down and explained and gave you a little quiz and said, "Okay, you understand your money's not really here, right?" Of course, the easy way to do that is just to do something called a time deposit, like a CD where the bank says, "Okay, well put your money here, you can't have it for three months because we're going to go lend it out somewhere", and that's keeping the relationship straightforward. But the way that all banking really worldwide works is that the bank gets to do that fractional-reserve thing instead, where it pretends that the money is there, it's available for you anytime you want, but actually the money is not, the money's somewhere else.
Once you allow that kind of system, you necessarily are going to need some kind of government or some kind of organisation to bail out the banks that get in trouble, because they are claiming something that is not true. It's like institutional permanent fraud. The customer has been told one thing, but the truth is something else. And so this has been a problem throughout history, that banks have wanted to engage in that fractional reserve, and traditionally because they know that once you start fractional reserve, you're going to start having banks fail, because it's inherently fraudulent, they try to get cartels like groups of banks to get together to agree to bail each other out.
So, the most recent event of this in the US, for example, was the Panic of 1907. The banks got in trouble, they started collapsing and so JPMorgan came around and he basically passed the hat and he said, Okay, everybody put in and anybody who doesn't put in is not my friend any more", which had dire consequences in 1907. And then of course after that crisis passed, they got together and had the novel idea that perhaps they would prefer taxpayers do this instead, so that rather than having to bail each other out for this permanent fraud, they would have taxpayers do it.
So, that brings us to the system we have today, which is where it is permanently bankrupt, it is by design bankrupt because it's fractional reserve, it's pretending your dollar is in two places at once. And so you must have the central bank at that point to sustain that kind of what I would call fraud. So, we are basically going through yet one more episode of again and again this happened, what, 15 years ago in both of our countries, it's going to happen again, it's going to happen permanently until we put a stop to it. And you could actually put a stop to it, right? You could simply tell banks, look, if you have a demand deposit, meaning that if you promise somebody that their money is there any time they want, then you actually have to have the money there anytime they want.
In practice, about 20% of bank deposits, if we go back through history, they are checking accounts. So, people would save about 20% of their dollars in the bank and they would expect to come in and get that any time, and that money would be in the vault. So, it would look just like grandma thinks banks work, right, it would have actual money in the vault. And then the rest of it, they would get a 4% or 5% interest rate from the bank and put it in the CD, and then the bank could go run around Argentina or whatever with that money. That would not be an inherently bankrupt system, and that would not collapse, it would not need central banking.
But of course, it is extraordinarily profitable for banks to be able to pretend to have $2 in the same place at once, right, because they can lend $1 out, even as they have to pay almost no interest on the other. So, that system is not going to change, but what it means is that these built-in bank crises, they're part of the system. This isn't a question of one bank screwed up or some regulator screwed up, they are going to be there forever. And at this point, they're going to keep increasing because basically central banks and governments have been so reckless that they have created this wave of money, that the only way to stop that was to put these incredible stresses on banks through interest rates that is going to continue crushing banks. If we look back through history, it is probably going to crush quite a few more. We have already seen shockwaves going into Switzerland and places like that. I think next, we are going to start to see other banks in Europe, possibly UK, possibly in Asia. So, I think we are just at the beginning of that crisis.
Peter McCormack: Gosh. All right, well at least we have Bitcoin. Tell people where to find you.
Peter St Onge: I do daily videos. You can find me on Twitter, pretty much everybody's on Twitter nowadays. And then I've also got a Substack and I've got a podcast. That's right. I just round up the weekly videos, it is nowhere near as good as What Bitcoin Did, but anyway, if you don't want to track down the daily videos, find them over there.
Peter McCormack: We will put that all in the show notes. This was everything that Danny promised. Did you want to ask anything?
Danny Knowles: No, I think we covered it.
Peter McCormack: Thank you so much. Hopefully we can do this again. Is it public where you're based?
Peter St Onge: Yeah, I'm in Orlando, so just up the road.
Peter McCormack: Okay, so not far from here.
Peter St Onge: Yeah, I'd love to do it.
Peter McCormack: Yeah, I'd definitely like to do this again. I think we should do it with Ben.
Danny Knowles: That would be great.
Peter McCormack: Get Ben on a trip, have Ben on the show, I think he would love that.
Peter St Onge: Fantastic.
Peter McCormack: Peter, great to see you.
Peter St Onge: It was great to see you, Peter.
