In The Fiat Standard, world-renowned economist, Saifedean Ammous applies his unique analytical lens to the Fiat Monetary System, explaining it as a feat of engineering and technology, just as he did for bitcoin and his global bestseller, The Bitcoin Standard. This time, Ammous delves into the world’s earlier shift from the gold standard to today’s system of government-backed Fiat money.

Outlining the Fiat Standard’s purposes and failures, deriving the wider economic political, and social implications of its use, and examining how Bitcoin will affect it over time. Here’s my conversation with Saifedean Ammous.

This is the Author Hour, I’m your host Benji Block and today, we’re honored to have Saifedean Ammous on the Author Hour with us. He’s just released a new book, titled, The Fiat Standard and Saifedean, we’re so glad to have you here today.

Saifedean Ammous: Thank you very much for having me, it’s a pleasure.

Benji Block: Many are going to be familiar with your work but for listeners who may be new and need an introduction, could you tell us a little bit about yourself and your background?

Saifedean Ammous: I used to be a university professor in economics and then I wrote a book about Bitcoin. I was interested in Bitcoin pretty early on. As an academic, I was studying it and looking into it. As it started to get bigger, I wrote a book about it and then the book took off and became pretty popular.

I’ve left my job at university and now I’m an author and an independent educator. I teach economics on my own website, saifedean.com. My first book, The Bitcoin Standard, was a study of the economic system around Bitcoin, and then as a follow-up, I decided to basically do the sequel studying the Fiat economic system, which is the dominant economic system that we have today, looking at it from the perspective of an engineer and an economist looking at a monetary system. Similar to what I did with The Bitcoin Standard, but this time with The Fiat Standard. 

It’s kind of weird to think about it and write about it this way because this is the economic system in which we live, so it’s kind of like asking a fish to describe water, but if you take the fish out of water— or maybe that’s a bad metaphor— if you take the fish out of water, it’ll suffocate. But it is looking at it from the lens of somebody who has moved on to Bitcoin using the analytic lens of Bitcoin and how Bitcoin works, applying the same framework for understanding the Fiat system and how the Fiat systems works.

Benji Block: Yeah. Was it a conscious decision to come out with the Bitcoin Standard first then, knowing you were going to go into the Fiat Standard? It almost seems in some ways like you went backwards, but you did it on purpose.

Saifedean Ammous: Yeah, no. I mean, I wrote The Bitcoin Standard without considering, without having thought about writing The Fiat Standard so it was just writing a book on Bitcoin. Then, after I wrote it, a year or two later, I had a whole bunch of ideas that I was writing about how Bitcoin’s progress and growth will continue and how I would expect it to grow in the modern world and then I decided that the best way to frame this study would be to study the Fiat system in order to then be able to synthesize the two books together and figure out how Bitcoin evolves in the Fiat standard.

Even though this is named after the Fiat Standard, it is predominantly a Bitcoin book. It leads to— the third part of the book is about Bitcoin and about how Bitcoin rises within Fiat, informed by the first two parts.


Make It Make Sense

Benji Block: Rewind for me for a second; what originally got you interested and intrigued about economics as a whole?

Saifedean Ammous: It was just something that I found very interesting early on. I actually studied engineering in my university. And engineering gives you this kind of very no-nonsense way of looking at the world, which I would apply to thinking about economic questions. It was always very interesting, and a lot of things didn’t make sense. As I took one course of economics in my undergraduate but then I decided for my graduate studies, I wanted to study economics more in-depth. I did that for my masters and for my Ph.D. at Columbia University and it was just a topic that really drew me in because it was just not making a lot of sense.

It really only started to make sense for me towards the end of my Ph.D. when I started coming across the work of what is known as the Austrian School of Economics, which is different really from the mainstream views on economics, but I find it a far more powerful tool and mechanism for understanding the world.

Benji Block: I love that your curiosity led you to continue down that path because for many, when something doesn’t make sense, they stop there. For you, it’s like, “This doesn’t make sense. I’m going to continue to go down this black hole of information and try to figure out economics.” Was there one or two issues that really stood out to you that go, “Man, I really want to do more research on this because it doesn’t make sense?”

Saifedean Ammous: Yeah, I guess the big issue was really the money and in particular, after the 2008 financial crisis. That’s when I really thought, “There’s a lot of red flags here, things don’t really make a lot of sense the way that they are laid out”, and I think the fascinating thing was to just watch how at Columbia and in the media and with my university professors, the only kind of perspective that you see is just rationalizing the decisions of the federal reserve, you know? 

It’s very far from the scientific way of looking at things. It’s very far from what a normal inquisitive brain would try and develop if they’re trying to understand things. This just comes across as the decisions I’ve taken from above and then these academics are trying hard to rationalize and explain why these decisions are correct and it doesn’t quite cut it. So, I found the perspective of the Austrian schools far more powerful and far more explanatory. Then, once you start becoming more familiar with it, you start understanding why it’s not very popular because it kind of flows against the conclusions of the idea — the entire idea that you need to have a monopoly central bank managing the currency, that you need to have a government institution, that is in charge of the money supply that is in charge of the banking system; that all of these things need to be regulated with a monopoly entity.

Benji Block: Let’s dive into The Fiat Standard. Let’s talk about maybe how this system was born and what gave it some level of sticking power, because now it’s been around for a hundred years. What makes it tick and what’s some of the history there?

Saifedean Ammous: In the first chapter, I dig into some of the history and interestingly enough, there’s a couple of very important historical events that only became well-known in the last couple of years. In 2017 and 2019, The Bank of England released some information that had been hiding in their basements for about a century.

A couple of interesting historical tidbits, this isn’t a history book, but I begin the book with a couple of interesting historical stories about how this financial system came about. They’re from The Bank of England and they were only released in 2017 and 2019. Two very interesting sets of historical documents that explain what was going on in the period of World War I when The Bank of England effectively went off the gold standard even though this isn’t really— 

When people think about when the world went off the gold standard, they think 1971 but in reality, it was 1914. What happened was that The Bank of England, the British Government, issued bonds to finance its participation in World War I, and then these bonds were undersubscribed. Only about a third of them were sold. Then, the British government had a problem because how were they going to finance the war when people don’t want to buy the bonds. People had better things to do than spend their money on fighting pointless wars in Europe. 

What The Bank of England did was that it got two high ranking officials in The Bank of England to buy the other two-thirds of those bonds in their own name, with money from The Bank of England and then got the financial press, particularly The Financial Times, to publish an article saying that the bond issue was oversubscribed and that’s how they financed the war. But, of course, that meant that the Bank of England effectively printed a whole bunch of money to buy those bonds, it was like quantitative easing what we see today.

Benji Block: Yeah.

Saifedean Ammous: That then left The Bank of England with a problem, which is that it had a lot more notes outstanding than it had gold to back them up. The next step was and that The Bank of England effectively started confiscating the gold from people in England and it was a systematic process over five years from 1914 to 1919 where post offices and banks were told to take payment in gold and only give payment in banknotes in order to try and reduce the amount of gold in people’s hands and take the gold for the Bank of England to allow the Bank of England to keep the exchange rate between the banknotes and gold fixed and have to finance the war effort.

This, of course, led to rises in prices. So, prices had practically doubled by the end of World War I, which was a massive problem for the British economy and that inflation, that price inflation, that happened was a big problem for Britain after the war because Britain wanted to go back on the gold standard, but they couldn’t go back from the old exchange rate. Because, if they did, there was a lot more pound notes than there was gold backing them.

They would run out of gold if they were to offer redemption. They kept kicking the can down the road and trying to prevent people from redeeming their gold and eventually, they gave up on the gold standard in 1931, and this is the kind of perverse part here, which is they blamed the gold standard for their failures for all of the economic problems that were caused by abandoning the gold standard.

This is kind of the big misconception that people have today that the Great Depression happened because of the gold standard. In fact, the Great Depression happened because of the abandonment of the gold standard in the 1920s and in World War I.

What Is Hard Money? What Is Soft Money?

Benji Block: Wow, that is some history and it really does set up much of what you discuss because it seems like the Fiat Standard, you would pull back the curtain and there would be these real systems and thought-through planning, but it feels like it’s more been this haphazard. Like what you said, it’s kicking the can further down the road.

Saifedean Ammous: Yeah, absolutely. When you read the economic textbooks today, this is presented as if it was a better engineering design that somebody figured out, “Hey, we don’t need to have gold there if we just have government credit function as money, then we can have faster, better, easier payments” or whatever. It wasn’t like that. 

What actually happened was governments were practically insolvent and they covered up their insolvency by figuring out ways of basically kicking the can down the road and trying to get their people to accept their credit as a substitute for gold. And they kept on kicking the can down the road and it’s survived for a century. This is where my attempt to study this as an engineer have given me some appreciation of this kind of system, which I didn’t really have when I wrote The Bitcoin Standard. 

In that, okay, it was more now the government default, but it does have some redeeming quality, which is that— what allowed it to survive for a century, which is the fact that it allows for quick payments as supposed to gold. The reason that this Fiat System didn’t collapse and get replaced by gold, is that you just can’t send gold around the world. You have to have government-approved banks and central banks and clearance mechanisms in order to allow gold to travel. So, government money can travel much faster than gold because it has the license of government.

In the sense of salability across space, being able to move money across space, Fiat is better than gold and that’s what has allowed it to survive for a hundred years even though it’s much more inflationary than gold.

Benji Block: It may be important here to just have you explain a little bit of the difference between hard money and soft money because it seems like we’re going to end up going in that direction a little bit. Could you explain the difference between hard and soft money?

Saifedean Ammous: Yeah, this is a key point in my first book, The Bitcoin Standard. The hard money is money whose supply is hard to produce and so you can’t just make more of it. This is the term that’s more commonly known today in third-world countries and countries that have inflation problems than it is in the US or in Europe.

If you go to Lebanon or Turkey or Brazil today, everybody knows the difference between easy money and hard money. Easy money is the local currency, which the Central Bank is printing in ever-increasing quantities to pay off its bills and the government’s bills.

Then hard money is the dollar or the Euro, which the local central bank cannot print. So, everybody in the country is trying to get their hands on as many dollars as they can and trying to get rid of their local lira or riyal or whatever it’s called, or peso, as quickly as they can because they know that this is easy, and the central bank is making more of it.

Whereas the dollar is harder because nobody in the local economy can make more of it and the foreign central banks that make it are a lot more restrained in its production. This is a key analytical point— or the key analytical focus of The Bitcoin Standard is to argue that money is inevitably going to be whatever is the hardest to produce.

Historically, gold ended up being money because it is the hardest money, because it is the hardest metal, because it’s very hard to increase the quantity of gold that is available on the market. For me, the importance of Bitcoin, it’s the hardest money ever because it’s going to become harder than gold over the next few years and that its annual supply growth rate is going to drop below this annual supply growth rate of gold.

That means, ultimately, supply and demand, where all other money, their supplies increase at a faster annual growth rate than Bitcoin. So, you get 10 years from now, we’re going to have a lot more dollars, a lot more euros, a lot more liras and pesos and all of these currencies, but we’re only going to have a very small amount of increase in the supply of Bitcoin. You would expect that this would mean that the value of Bitcoin’s going to rise while the value of the other currencies of each unit of the other currency’s going to decline.

Why Debt Is A Good Thing

Benji Block: Wow, that’s a great explanation. I have to say, one of the disheartening learnings in your book for me, because I’m not an economist, I was unaware of the reality of the Fiat system really just being built on debt but it explains a lot and so I am going to quote you here and then I’ll have you expand on this a little bit. You said, “Anyone who finds a way to get other people into debt, profits not only from a positive interest rate return but also bringing new money into existence. Getting others into debt is the Fiat Standard’s version of gold prospecting.” How does that play such a key role in the system? 

Saifedean Ammous: This is really, I think, the powerful realization that allowed me to understand how this monetary system works after studying it for quite a while, which is that by analogizing it to Bitcoin or gold, you know with gold and Bitcoin, there is a mining process where new Bitcoins are produced according to a schedule or with gold, people dig and they find gold and they put it on the market but with Fiat, there’s no mining. 

There’s no Fiat mine, there is no dollar mine where you go and get it. In fact, the majority of dollars are not physical dollars that get printed. The vast majority are digital entries on ledgers of banks that are all connected to the Central Bank and the way that these dollars come into existence is through lending. When you go to a bank, say you want to take out a loan for a million dollars in order to buy a house, the bank is not going to take the million dollars from somebody else’s deposits or from its own capital and give you those million dollars so that you can go and buy the house. 

They are actually going to just make a new one million dollars out of thin air, that’s where the money creation happens. New money is always being created every time a new loan comes into existence, and it is also — money is being destroyed when loans are being paid off. When you pay the money back to the bank, that money has gone out of circulation, and it goes out— and so the money supply declines. Or, if you default your loan, you can’t pay your bank back. 

That money goes out of this money supply, so the way that the supply in Fiat works is that it’s created with debt creation and then it’s destroyed with debt when debt is wiped out, and that helps us understand why debt is so pervasive in the modern economy. This is why everybody is in debt. You know, individuals are in debt and it makes sense. You know, we all grew up being told by our grandmothers that you shouldn’t get into debt. 

You should spend only the money that you have, but it turns out grandma was wrong. Grandma was right throughout all of human history, but it doesn’t work in this kind of monetary system because in this monetary system, if you buy a house from your savings, the time it takes you to save money as you are saving that money, that money is losing value because other people are being able to mine new money and so they’re devaluing your existing savings. 

On the other hand, if you just pay for that house by debt, not only are you not having to save and therefore not having to suffer from inflation, you’re actually benefiting from the inflation, because when the bank is giving you those million dollars, the bank has effectively made a million dollars out of thin air. So, you know, they want you to do that and so they’re going to cut you in on some of the profits of making that bank. 

That’s why it makes sense for you to take out the loan for a million dollars to buy a million-dollar house because, over time, the value of the loan is going to decline in real terms, because the value of the money declines, and because the bank is making money. So, as an individual you do it. As a company, all companies are constantly borrowing, governments are constantly borrowing, everybody is in debt and that’s just how the system works. 

It is an ever-growing bubble of debt that just keeps growing and growing and growing and the currency continues to devalue and decline in value over time, that’s just how the system works. 

Benji Block: If this is the water that we’re swimming in, how do we maybe change our approach? Because we still have to operate within some level of this system while also, thinking to like what you’re talking about with Bitcoin. I think you present some great thoughts there, but you talk about even maybe shorting the Fiat System. Would you talk a little bit about that and maybe a new way of approaching it once our eyes are opened to the fact that debt is such a crucial part of our economy?

Saifedean Ammous: I think the traditional way that most people think about the Fiat System, most people who are critical of it would say, “Well, this is all a big giant debt bubble and it is all going to collapse. I don’t want to have anything to do with it and I am going to buy gold because gold is nobody’s liability, it holds its value and it’s better to just be in gold.” But it turns out that has not worked out. 

You know, gold doesn’t keep up with inflation. Gold’s value doesn’t rise as much as the inflation. In fact, it turns out that the best way to navigate the Fiat system is to be short Fiat, which is effectively to borrow Fiat, to have your liabilities denominated in Fiat. That’s really the best way to navigate it because when you do that, you are benefiting from the decline in the value of the Fiat money over time. 

That is why it makes sense to get into debt. But of course, you have to remember that this is dangerous, because debt is dangerous. If you can’t make payments for a couple of months then you get wiped out, you lose your business or you lose your house. It is very reckless and this is why, I think, the second part of my book is just discussing the social and broader societal implications of this. 

One of them is the fact that nobody is secure, you know? Because no matter how much money you have, if you have money it’s constantly losing value so you can’t just have money. You can’t just be rich; you can’t just be financially secure. No matter how much money you have, you will expect that money to lose value over time and the only way that you can hedge against that, the only way that you can protect yourself against that is to leverage, get into debt and therefore, be on the edge. 

You will either get robbed of the value that you store over time, or you need to take on risks and constantly be on the edge and constantly have to manage your payments, and making all your monthly payments and then, if you have a couple of bad months, you can get wiped out. The result is massive insecurity across society, and it makes people’s time horizon much shorter. The ability of people to plan for the future is compromised because the future is far more uncertain in this kind of world. 

Planning for the Future Requires Money That Retains Its Value

Benji Block: Yeah, I’d love actually to go right there because you do talk about several things. Basically, we have like 100 years now to look back on and we can analyze The Fiat Standard. We can see the toll it’s taken as we use debt basically as money. So, there’s clear consequences and this idea of time is one of them. Break that down for me a little bit and how it kind of disrupts the natural order. 

Saifedean Ammous: Yeah, absolutely. This is also one of the key points of The Bitcoin Standard, which is that as money gets harder. As you have access to hard money, you are able to plan better for the future. When you can’t save, then you cannot provide for your future so you tend to live day-to-day and moment-to-moment. You know, you eat a corn seed, basically, because you don’t know if you are going to be able to save it until tomorrow. 

With money, with a hard money that can hold onto value, you have a reliable way of providing for yourself tomorrow, so you can put your money, you can put your wealth, you can put the value that you produce in the hard money. And you have a pretty good chance of having it there for you next year. So then next year becomes less uncertain. Because it is less uncertain, you start thinking about next year. 

That’s really the process of human civilization, the ability of us to think further into the future to provide for our future more and more and to discount the future less and less. That’s what allows us to save for the future. That’s what allows us to invest capital for the future and accumulate more and more capital, and that results in an increase in our productivity. This is basically the old human industry. 

We are constantly moving to harder monies, we’re constantly accumulating more capital, we’re constantly investing more and increasing our productivity. Then Fiat money comes along and effectively reverses that process because it takes away from us the ability to provide for the future. We went from, in the late 19th century, we had a form of money that was gold whose supplied globally increased by around 2% per year. 

You would expect that your money would hold on to its value pretty well next year because everything else is increasing at a rate higher than 2% every year. You know, we have more apples, more oranges, more houses, more cars, more everything, more than 2% of all those things but only 2% more of money, so money ends up having more value over time. But then, with The Fiat System, and I ran the numbers over the last 60 years, on average, the average Fiat currency has increased in supply at around 30% per year. 

If you weigh that by the value of the currency so that we don’t give equal weight to the Venezuelan bolivar and the US dollar— we measure it in terms of weight, so that the dollar is more represented in that calculation because a lot more value is stored in the dollar than there is in the Venezuelan Bolivar— we still get an average of 14%. We went from a 2% increase per year to about a 14% increase per year in the supply of the money that we have. 

Think about it globally. That’s just taking away from people the ability to plan for the future. I think you see this reflected across all aspects of life in the 20th century. You see it in how our art, you know, people spend a lot less time working on their art or on their music as they did in the 19th century. You see it in architecture, we build buildings that fall apart in 30 years whereas, in the 19th century, they built buildings that last 300 years. 

You see it in people’s commitment to family; people were far more committed to their families in the 19th century. Now, families become less and less valuable for people because it’s one of these long-term things that is difficult to provide for them when you don’t have a form of money that holds onto its value very well. 

Benji Block: Wow, it’s fascinating to hear you draw those conclusions and see how money is underlying all of that. You do a great job throughout the book of highlighting so many different ways that it— you talk about schools and universities, you talk about diet. I wonder if there would be maybe one more you’d want to highlight before we’d start to wrap up here. 

Saifedean Ammous: Yeah, I think one of my favorite topics is food and I think in the 20th century, we’ve moved toward eating all of these substances that we think of as food and that are promoted by food, and that governments have subsidized and promoted heavily and told us to eat, but really, they’re not really healthy foods. In fact, if you look at the 19th century, the average American used to eat something like two or three times as much meat as they do right now. 

They used to eat more meat back in the 19th century, and meat is the most nutritious thing that you could eat. It has all the nutrients that your body could eat. Instead, today, people don’t eat as much meat and instead they eat, effectively, a lot of industrial products or industrial byproducts. For instance, a lot of the cooking oils that people use today as a substitute for traditional animal fats, they are effectively industrial waste. 

Canola oil is industrial waste. Soybean oil is industrial waste and these things have been repackaged and sold as food and they’ve been combined with highly addictive sugary substances and highly addictive substances to make these very palatable foods that become highly addictive. It is part of the process of a rising time preference that people can indulge in this stuff because they think more about the present rather than the future. 

Then on the flip side, you know, the other side of it is that as the government is constantly devaluing the currency in order to finance its spending, that’s leading to a rise of the price of the valuable kinds of food, the scarce foods that are difficult to produce. How can the government keep CPI statistics down? How can the government make you think that inflation isn’t very high? The way they do that is by promoting all of these cheap food substitutes rather than food. 

If you look at the prices of real foods, they are going up. But if everybody switches from eating real food to eating inferior foods, then prices aren’t going up all that much. 

Benji Block: Wow. Man, once you start to have the curtain pulled back, I can see how you probably just obsess over this because you see it everywhere. 

Saifedean Ammous: Yeah, that’s what a lot of people tell me that, once you see Fiat somewhere, you can’t just see it— you can’t unsee it. 

Benji Block: Well, thanks for doing that for me man. It’s incredible. I want to close with just this question. How do you see Bitcoin scaling into the future as you just look maybe in the next five to ten years and any fears around that, as far as like government stepping in or anything there? But what do you see as far as Bitcoin scaling? 

Saifedean Ammous: I think, not to ruin the book, well, I will ruin the book for people, but basically Bitcoin fixes all of this. Bitcoin is the solution for this because it’s a form of money that is debt-free. It is the monetization of a hard asset that does not have anybody’s liability in order to make it— it does not need anybody’s liability in order to make its value constant, in order to hold its value. The difference between it and gold is that Bitcoin can travel around the world much faster than gold and it doesn’t need government or need permission. It doesn’t need central banks in order for it to travel. 

There is a much bigger scope for conducting many, many, many more transactions across the world with Bitcoin. I think the really powerful thing that’s happening with Bitcoin— and I think a lot of people might be tempted to just dismiss Bitcoin as just another TikTok or another Twitter or social network or something like that— I think it is a far more significant thing because it’s really allowing us to upgrade our monetary operating system from an easy money to a harder money. 

From money that is hard to move around to a money that is very quick in moving around, so I think it’s absolutely fascinating to witness this and Bitcoin’s continued rise, you know, its price just keeps going up over time, suggests that, in my opinion, this is a superior technology that is replacing an inferior technology. 

Benji Block: Wow. Well, thanks so much for taking the time to be with us here on Author Hour today. For those that want to stay connected to you, what are good places maybe online to follow your work and how could people reach out?

Saifedean Ammous: I’m very active on Twitter @saifedean as well as on my website, saifedean.com, and there is also a mailing list on my website you can sign up for, where you can take my courses on the website and yeah, my book should be out now. You can order it from Amazon as well as pretty much anywhere where books are sold.

Benji Block: Amazing, the book is The Fiat Standard. Saifedean, we were so privileged to have you here on Author Hour today. I know this book is going to be another great resource for so many. 

Saifedean Ammous: Thank you. Thank you so much for having me.