The Saylor Series | Episode 9 | Economics, Inflation, Interest Rates, and Natural Competition
Robert Breedlove [03:27]: Alright guys, welcome back to Episode 9 of the Saylor Series. Today is another deep episode. We’re actually getting towards the end of the line here and covering some of the last ground in the macroeconomic domain and tying it back actually to some philosophy towards the end. Today we’re going to talk a bit about how Bitcoin is an elemental innovation, tying us back to Episode 1 where we discussed Stone Age technologies including Fire, Water, and Missiles. We’re making the case that Bitcoin is an elemental invention akin to one of these Stone Age technologies. Which as a reminder if you haven’t seen those prior episodes I highly recommend you go check those out because they build a long and strong intellectual edifice to get us to this point. Secondly we’re gonna talk about fiat currency and how it’s a contaminated form of money that leads to socioeconomic decay. And we’re gonna go into interest rates, an area that’s commonly misunderstood by even people that are typically considered financially sophisticated. Then we’re gonna talk a bit about central bank price manipulation, how that influences markets. We’re also gonna talk about market competition and the law of decimation and how that plays out in nature and throughout history. Then we’re gonna get into the philosophical domain, and we’re gonna touch on a bit of Stoicism and how Saylor has used this in his own life and how he sees its importance in markets in general. Finally we’ll leave off with a bit of discussion on antifragility and the vitality of life. So I’m excited for this one, another crazy episode with the incredibly brilliant Michael Saylor. So with that let’s dive in!
Robert Breedlove [05:30]: Sort of the purpose of humanity has been to channel energy through our intellect. It’s how we’ve developed everything, essentially! And I’m reminded of a quote by Alfred North Whitehead that I’ll paraphrase. He said that it’s common wisdom for people to say you should think before you act, but that in fact civilization advances by us being able to execute more important operations without having to think about them! So we’re actually — when we can embed these certain important actions in a protocol that we don’t need to think about as much, it frees us up to do other things — that’s kind of the layers upon which we’ve built civilization. It just seems like this Digital Age we’re going into is something radically new! It seems to be as profound as the Renaissance, or as profound as the Enlightenment! Do you see it that way? Are we co-evolving with the tools that we’re creating and that the next 500 years are gonna be something so fundamentally different than what history has been that it will be difficult to recognize it in a few hundred years?
Michael Saylor [06:48]: I do think that the creation of Bitcoin and the creation of the first effective crypto network is an elemental force that is a true invention akin to the discovery of fire or the discovery of atomic energy or the discovery of — we can make a list of a lot of fundamental things. Maybe one interesting thing is just the science of sterilization. Germs — modern medicine and the awareness and the importance of sterilizing instruments and the way that the disease spreads! Immunology. Once we figured that out, we were able to go from living 50 years to living 70 years because we realized that every time we entered into a medical procedure including the birth of a child, we were entering into a non-sterile environment that was life-threatening, soul-sucking, life-stealing. The death rate from childbirth was huge, right? The average life expectancy was short, and we needed that breakthrough to realize that we were swimming in germs, and the very simple solution is: Wash your hands! Sterilize your instruments! And you put that together with antibiotics and human life expectancy jumps by 50%! What if we’re actually doing economics with dirty money? And so we’ve been using monetary energy which is bleeding, right? It’s the same way as operating with non-sterile instruments, and the patient keeps dying and we don’t know why. The significance of Bitcoin is: We’re going from defective money, which is somewhere between toxic — it may just been ineffective, bleeding 2, 3, 4% a year—or it’s toxic when it gets to -10% or -15% real yield. So using toxic money, how is that different than using toxic instruments when I commit surgery on you? How is it different than feeding you toxic food? I think we’re breaking through this new world, we sterilize our instruments, we encrypt our money, we’re moving to a science of non-toxic economic energy. Madame Curie died of radiation poisoning. She died of cancer from the radiation. They didn’t realize that radiation killed you, that it caused cancer. There’s a lot of basics in life that we don’t understand. A big breakthrough in health was when we realized that sugar was toxic. My mother didn’t know that sugar was toxic! Conventional wisdom and governmental advice was you need your four favorite food groups and pursue a low-fat diet but starch and sugar was fine. And of course now we know that too much starch and too much sugar makes you insulin-resistant, makes you Type-2 diabetic, gives you cancer. My mother became diabetic, became overweight, got cancer. We thought it was just unfortunate. The doctors said, We don’t know why these things are happening, it’s just unfortunate. If I could go back in time I’d be like, I know exactly why it happens! I know exactly how to solve it now! Like, don’t eat sugar, don’t eat starch — stop eating! Fast! I never eat before 1 in the afternoon, I only eat in an 8-hour window and I’ll go 2–3 days and I won’t eat. I adopt fasting and I won’t drink anything with sugar in it. You want to live a long time, don’t dose yourself with sugar, it’s toxic! The instruments are toxic. The germs are toxic. We killed George Washington — we bled him to death! Toxic. The money is toxic. That’s fundamentally the issue. The money is toxic. I mean, that’s the fundamental issue with inflation, and if we segue into the discussion of inflation, everybody keeps thinking there is no inflation because everybody focuses upon a market basket of consumer goods. And if you look in the US and you look in Europe, they leave food and energy out of the basket of consumer goods and they say, We left out the highly volatile food and energy from the index. Well highly volatile means it went up! [And if you put them in, 12:06] the number would change! Volatility in other words is the signal! We’ve left out everything that actually changes in price from our price index. It literally is like a Jedi Mind Trick, and it’s like a triple mind trick. It’s like: We have a consumer price index and we’ve left the prices that vary out of the index. We have a consumer price index — well first of all it’s not a scalar, it’s a vector. It’s an indimensional vector dynamically changing in time — you’ve just created a scalar. We’ve created a market basket of things that we think you want. Yes, your basket is what I want! The market basket of things that you want does not include assets. No! I would never want to buy assets, only rich people buy assets! Poor people do not buy assets! How did poor people get rich? You have to buy assets to go from being poor to being rich. I didn’t go from being poor to being wealthy by not buying assets or not creating assets — you create them or you buy them. So the entire field of inflation is defective, and the irony is that 99% of the economists that talk about it, they’ve already accepted the notion that a market basket of consumer products and services is acceptable, and it’s acceptable to throw out energy and good. And I’ve never seen an economist say, Why don’t we actually define the things that a working 22-year old is gonna want to buy by the time they’re 32? And here’s one thing: Early retirement! I want to buy early retirement by the time I’m 32. How do I do that? I need to buy a bond that pays me $75,000 a year in interest risk-free, and I need for the $75,000 a year to pay my living expenses. And if the interest rate was 7% then I’d need $1 Million for that. But if the interest rate goes to 0.7% I’d need $10 Million for that. So from 2010 to 2020 the interest rate went down to 60 basis points on a 10-year government bond which meant that the bond went from $1 Million to $10 Million, which meant that the 22-year old was suffering from 22% inflation on early retirement! But because that’s not in the basket —because that’s not something that you would ever want to give them — there’s no inflation! You can actually track it and you can see that the inflation rate changes across a thousand different — if you just started with a simple principle: Inflation is a basket of products, services, or assets. If you just did that, that’s kind of the equivalent of saying, Oh it’s possible the Sun revolves around the Earth, it’s possible the Earth revolves around the Sun — let’s find out which! Has anybody ever asked the question whether or not the basket should include assets? Or products or services? No one’s even questioning the most basic premise! It’s pernicious rule of propaganda, and it’s attributed to Joseph Goebbels in the Nazi regime who said — and it’s also attributed to [Ogilvy 15:31], so maybe it’s apocryphal — but he said, All of our focus groups show us and tell us we can’t tell people what to think. But we can tell them what to think about! I cannot change your mind once you’ve made it up—and if you have an opinion — but I can get you to focus upon something. So if I just keep saying inflation, CPI, and it didn’t go up and this is what it is—When’s the last time 100 Million people said, What we really wanted to buy was early retirement? I didn’t even know that was a product I could buy! Because I couldn’t conceive of it! Well it is a product you can buy: It’s a government 30-year bond that yields 6% interest in a non-inflationary environment — that’s a risk-free retirement. You can buy that! Right now, the problem is at 140 basis points that would cost you $30 Million for $60,000 a year. How do I make that at $75,000 a year salary saving $15,000? If I’m making $500,000 a year and I save $100,000—you know, I pay $200,000 in tax, I make $300,000, I save $100,000 — if I save $100,000 for 20 years I’ve got $2 Million, and investing that in a government bond at 60 basis points or 100 basis points, you get nothing! [17:07] So the problem starts with the fact that inflation is misdefined. The right way to think about it is: Every single product, service, or asset has an inflation co-efficient. And the inflationary co-efficient, that’s the rate at which the price will change as I pump fiat into the money system. And so the co-efficients vary, and they’re a function of the scarcity of the asset, the demand of the asset, the information content of the asset, the material cost or the variable cost of the asset, and then the modularity of the asset. If I can stamp out the asset a million times out of a factory, it’s gonna be less inflationary because the fixed cost is higher and the variable cost is lower. Mobile phones will not be inflationary because everything’s in the fab. Software will not be inflationary because there’s no variable cost. Streaming music on Amazon Music or Apple Music will not be inflationary because I can stream it a billion times. A Picasso will be inflationary because there’s only 20, 50, 100. The best 5 acres of beachfront property in the middle of Miami Beach will be inflationary to the extent people want Miami Beach. 5 acres in Ohio will not be inflationary because there’s a lot of land in the world. The only land people want is in the middle of New York, the middle of London, the Hamptons, Miami Beach, the middle of LA, the middle of San Francisco, the middle of Tokyo. You fly across this country and look down, there’s enough land to park 10 Billion people on 5 acres each! It’s just gotta be in demand and scarce.
Robert Breedlove [19:05]: May I ask you a question about this? So the co-efficient itself in my mind would be a product of the scarcity of the good or service relative to the scarcity of the money it’s denominated in, such that if the money supply is outpacing the production of the good or service, that good or service would inflate in price, right? So to your point it’s not a single variable — it’s not CPI is inflation — everything has its own inflation rate. The second part of that question would be: Why is the narrative surrounding inflation so distorted? Do you think it’s intentional by governments that are clearly heavily indebted? I don’t see any equitable benefit to inflation whatsoever, it’s purely a mechanism for reallocating wealth, and I don’t understand why the narrative’s so distorted!
Michael Saylor [20:00]: 200 years ago people thought they had to bleed George Washington to death to save his life, and everybody agreed on it! The whole point of paradigm shifts is: Everybody agreed that the Sun revolved around the Earth. Everybody agreed the world was flat. Everybody agreed that humans would never fly. Everybody agrees on stuff until they realize that they’re just utterly and totally and horrifically wrong! So in this particular case, I blow a bunch of liquidity into the system. Let’s say there’s $50 Trillion worth of energy and I blow $10 Trillion worth of money in the system. So there’s still $50 Trillion worth of energy, but now the money is diluted by 20%, right? So if I have a product and I can measure the pure energy content of the product, then if it’s 100% pure energy, the price has gotta go up by 20% if I expand the money supply by 20% assuming it’s completely liquid and in demand. What’s an example of that? Maybe a bond! A pure financial instrument, something that —
Robert Breedlove: A ribeye!
Michael Saylor: Something that is tangible and you cannot produce it with any less energy. This is why proof of work in Bitcoin is [inaudible 21:36]. If it takes me a tangible amount of energy to produce that thing then it’s inflation co-efficient is going to be like 100%. And on the other hand, the cost to produce a streaming YouTube video, the energy content is 1% of the value added or the value of use. And 99% of the value-in-use is information and non-scarce information. So it’s got a variable cost of 1%. An iPhone’s got a variable cost of 30, 35, 40%. Everything’s got a different variable cost. Gold’s got a much higher variable cost, right? Because it’s holding its energy. So when you look at all these things you’ll be able to calculate different inflation co-efficients and therefore different inflation rates across an array of thousands of things. It’d be different inflation rates in New York City, Manhattan versus farmland in Kansas. It’d be different! So you can’t really say, Oh this asset class. There will be different inflation rates on different stocks. You notice that if the cash flows are likely to continue from the stock, or less affected by inflation, then it’s gonna go up. So I think the pernicious mistake everybody makes is: They don’t really think about energy density and information density of their products, services, and assets. They’re not applying conservation of energy. If the law of conservation of energy applies, when I increase the money supply by 20% and if the energy is constant, then all of the numbers have to change. And if they didn’t change on the deflationary products, they must have changed more on something else! So you can’t very well be printing 10% more money and not have the inflation. It’s just: We’re choosing to pick just 1% of the things that are inflated — the deflationary assets we put them in a bucket. And it’s almost too easy. If I get to throw out all assets, all real estate, all stocks, all bonds, and then I get to throw out energy, and then I get to throw away food, well how could you possibly generate inflation? Because you could print a hundred-kazillion-trillion-billion dollars and the cost of free, streaming Twitter and YouTube is not going up!
Robert Breedlove: Yeah! You’re throwing out anything that changes! So it’s self-defeating.
Michael Saylor [24:45]: So bottom line is: There’s no such thing as a free lunch, but the inflation that’s being reported is an irrelevant metric. I call it a metaphysical metric that’s been artificially defined in order to provide some comfort. And it’s working! The great majority of people, not only do they not think there’s inflation, you literally have politicians lamenting that they can’t create inflation and how important it is to create inflation, even as they’re inflating every scarce asset on Earth to the point where no one can afford — look, Robert, like, I’m a rich man! I’m a very wealthy man! I can’t afford to buy a house in the Hamptons! Like I’ll go look at these things and I’m like, Who’s paying $47 Million? They’re selling houses for $25 Million on 2 acres! I’m like, Are you guys out of your minds? Or you go to New York City and someone’s paying $25 Million for a 5,000 square foot apartment. $5,000 a square foot! At the end of the day, it’s obscene. And what you can see is: We’re running 10–20% inflation for the past decade, we’re just running it on all of the scarce luxury assets that have high energy value. I mean, what’s the definition of scarce, right? Maybe the definition of scarce is that it has high energy value, because if I could stamp out a billion-trillion of ’em for the same unit of energy I must be diluting the energy down, right?
Robert Breedlove: Right, right. Just take things that are hard to produce! So gold and Bitcoin are all inflating. And I would say that it is a lie, right? I’m not sure necessarily about the intentionality, you could argue about that. But it’s definitely a lie, that CPI is inflation. And it seems like it’s being used to cover up this widespread system of theft that is monetary inflation.
Michael Saylor [27:08]: I’m not even sure that they realize that it is theft or that they’re doing it! I’m half-convinced that 80% of the people in government don’t even realize that the inflation metric is a wrong metric and irrelevant! It’s like I’m burning myself to death and I’m calculating the temperature on the counter 6 feet away and I’m burning but I need to keep turning the thermostat down. And I guess it’s like they’re just not feeling the pain. And because of that it takes us to the issue of interest, right? If you think inflation is not coming so you keep printing money and you keep driving the interest rate down, the problem we have is really just a war on currency, a war on time, we render the money toxic if you hold the money. Once you understand that the real inflation rate is 10–15% because that’s how the assets were [clocking 28:10], then you realize that any currency you’re holding is draining energy from your life at 10% a year. It’s almost like I put in a battery that drains 1–2% a month. I can’t store energy! You know another metaphor for what happens in the human body when you can’t store energy? It’s like, Robert if I took you and I dropped you in the middle of the Arctic Circle and it was 20 below, your body would start losing energy at a rapid rate, you’d freeze to death. It’s literally like I come into your office and I crank the temperature down 20 degrees and I’m freezing you to death because I’m pulling the energy off your skin. And so what do you do? Insulate, cover up, right? But what if you can’t? If you’re a wealthy person you put on a fur coat, right? Or maybe you’re smart enough to realize: What do wealthy people do? You drop them in the Arctic and they get on their jet and they fly to the Caribbean where it’s warm because they can! And what do you do if you’re poor? I drop you in the Arctic, or even worse I go to your hometown and I just turn the temperature down to 20 below and you can’t leave! But you know it’s like I slowly freeze you to death. I don’t do it fast. You don’t even realize it’s happening if it happened at a gradual enough rate. It’s like, I know I’m working hard I’m just not getting ahead. I’m working hard but I’m not getting ahead, because every time I put money in the bank the price of everything keeps going up. The price of a house in Miami Beach it was $1 Million on the street where I live, and then it’s 2, 3, 4, 5, 8, $10 Million. I’m not talking about every decade, I’m talking about every year! I’m talking 2000–2010 during that administration we were printing money so fast that we had this housing boom and everybody that owned houses were happy — they’re refinancing their houses — but you look at it and you’re like, How is it possible that people bought this house in 1998 for $1 Million and I’m being asked to pay $10 Million for the same house? If you happen to be working for cash — it’s what Pomp would say — if you’re working for cash and paying taxes and then you’re putting the cash in the bank, then you’re suffering from inflation —
Robert Breedlove: Shadow tax.
Michael Saylor: Your life energy is being robbed from you! And so that actually takes us to this issue of real yield, right? If the actual nominal yield is 1.5% on the 30-year T-Bill or it’s 0% on short-term money, and if the asset inflation rate blended across all liquid assets — stocks and bonds and the like — it’s probably 15% right now, maybe 12, 13, 14, 15%. But let’s just say it’s only 10% just to be nice. Well then you’re looking at a real yield of -10%! You’ve never seen that number printed in any kind of public media. No one would dare say we have a negative real yield of -10%, it would create a panic! But if you did think negative real yield of -10%, what happens next? You cycle through and you say, Well, if my cash flows of the stock aren’t going up by more than 10%, that’s diluted. The only equity you can buy where you’re gonna make out on is where the company’s able to grow its cash flows more than 10% a year, right? And then you gotta buy it at a decent price. So if your cash flows are growing 20–30% a year maybe it’s good deal. That’s why people like tech like Facebook or Google or Amazon because they did for a while! I don’t know if they will going forward. It’s a lot harder, over the next 36 months it seems much less likely that you’ll see 20% cash flows. Will you see 10%? I don’t — what percentage of the S&P 500 will grow cash flows more than 10% this year? Any? 5%? 10%? Probably not more than 10%, right? We could figure it out but if you’re not doing that then you’re diluted. Of course that means that any fixed bonds that aren’t generating 10%, they’re long-term diluted. So where does that leave Bitcoin? Well Bitcoin’s got a positive real yield because you’re not getting hit with that -10% currency debasement.
Robert Breedlove: Let me ask you: Just to jump back a little bit to Bitcoin as a unit of account or a financial frame of reference. Do you suggest here that it is actually useful—I guess you could do this with either Bitcoin or gold — to look at the historic price charts denominated in Bitcoin or gold to strip out a lot of this central bank induced market manipulation via inflation?
Michael Saylor: I think that that will be a lot more useful in the next 10 years with Bitcoin. The first 10 years with Bitcoin, it was so developmental going from zero. You have this asymptotic zero number, so I think that if you look over the next 10 years that’ll become a valuable thing. People have done it in gold and I think it’s a more stable application because gold is a bit more stable through this time period. But again it’s manipulated to a certain extent and its got its own problems.
Robert Breedlove: This would help eliminate some confusion I think for people that think the S&P is just going up forever. If you actually denominate it in gold the chart doesn’t look that great, right? It had a boom in 2001 but it’s not been good ever since.
Michael Saylor [34:32]: If you simply divide it by the monetary supply, if the monetary supply is going up by 7% and the S&P is going up by 8%, then the overall market’s flat. And that makes sense because why do people think that stocks should always go up 8%? I’m in business, Robert, it’s hideously competitive! Do you think that we don’t have a competitive market for everything in this country? It’s obscenely competitive! And so what you’ve got if you look at the NASDAQ is you have like 5 companies — Apple, Amazon, Facebook, Google, Microsoft — those 5. And aren’t they responsible for like 80% of the game? Everybody else is competing and it’s a competitive market! And what does that mean? It means it’s hard to grow 20% a year because whenever you do anything someone else is copying you and they’re pushing on you. So unless you get a dominant digital network with a near-monopoly with these massive, exploding economies of scale on a zero variable cost, low variable cost, it’s very very difficult to perform. And most of the S&P isn’t! To the extent that the S&P isn’t Apple, Amazon, Facebook, Google, Microsoft, they’re just a bunch of companies competing with each other, so you would think that they would grow at the productivity growth rate of the overall company which is 2–3%. If you had hard money — by the way, coming back to that theory of Bitcoin network value — Bitcoin network value goes through the roof, skyrockets in the early days when there’s massive adoption and massive technology explosion, but in the later stages of the S-curve when it’s fully diffused and when it’s mature, it just grows with the GDP. It grows with the productivity of the people in the network. If they grow 2% a year, it grows 2% a year! So in a mature equity market you would expect equity indexes, equity prices to grow with the GDP. If they’re growing faster, it’s the monetary expansion, right? Expand the monetary supply 7%, expand the GDP 1%, S&P should go up 8%! It’s gonna be disproportionate. The big tech, the leading-edge, innovative tech, is gonna be double, triple, quadruple that, and then the trailing-edge laggards are gonna be tanking, and then everyone that’s working their asses off as hard as they can is gonna be barely keeping up! Because you have to do 100,000 things right just to stay in business in a real Darwinian capitalist economy. It’s like: Being flat means defeating 99% of the rest of the market — being flat. To be up, you have to, you know — Amazon’s up because they beat 15,000 companies! The next two are just slightly okay, and there’s some that are flat, and everybody else is destroyed because of the natural effect there.
Robert Breedlove [38:03]: This reminds me of the Red Queen from Alice in Wonderland who said, In my kingdom, everyone has to run as fast as they can just to stand still.
Michael Saylor: I’ll give you another example. There are 3,500 publicly traded companies. [To be the best you have to better than 38:36] 99.99% of humanity. That makes you the number 1 out of 10,000 people. If you were smarter than 99.99% of humanity, there are 750,000 people on the planet smarter than you! And 99% of them want what you have, if you have a billion dollars. If you have a publicly traded company, 99% of the people that are smarter than 10,000 other people don’t have what you have, and they can probably raise $1 Billion and chase you, right? They’re harder, they’re smarter, they’re faster, they’re stronger than you are! Like I’m sitting at a company — one of 3,500 — and the world is full of people that are smarter than me that can raise $1 Billion that want what we have, want what I have. That’s Darwinian competition! There’s the view from one side of the table which is, Oh yeah well you made it, you’re successful. There’s the deal on the other side of the table, which is: There’s a guy that’s gonna work 80 hours a week that’s gonna be surrounded with 100 other people that are gonna work 70 hours a week that are gonna raise infinite money that are going to target you and do everything they can to take their market from you. Now that’s a very humbling observation, that’s why you can’t rest on your laurels. There’s something beautiful in that terrifying concept! That’s what drives humanity forward!
Robert Breedlove: It keeps you honest, right?
Michael Saylor: It is the core of Stoicism and it reminds you, your best chance is to focus all of your energy, all of your assets on just this one thing that you’re gonna be the best in the world at, and you better stay humble! If I take my own business — I became public in 1998 — there’s a 99% mortality rate. 99 out of the 100 companies I competed with are gone. Out of my peers, I’m the only person — I’m talking about 100 publicly traded companies — there’s probably 500 CEOs that launched a company with 20, 30, 50, $100 Million of capital, and they’re all gone! That’s what the open market, the free market, will do. And it is what it is. I mean that’s why the human race is what they are. There’s always someone. And when they attack, if you’re distracted, if you’re arrogant, if you’re fat, dumb, happy, comfortable, they’re going to eat you! And if you’re half-focused or de-focused, they’re gonna take your arm off! And if you’re completely focused, you can react. If there’s something they’re doing that’s good, you channel it, you inherit it, you evolve, you live and you grow stronger. And otherwise you shrink and they squeeze you out of the entire market. There’s something I observed and again it’s very Stoic, it’s: Everybody thinks when you’re young you wanna acquire as much as you can acquire. So young men are acquisitive. Young business people are acquisitive. Can you acquire the thing? That’s generally the easiest hurdle to jump. The next question is: Can you maintain the thing? Can you stay competitive? That’s 10 times harder! And the biggest hurdle is: Are you going to be able to commercialize the thing or profit from it? Can you buy something or build something and continuously improve it forever so that you’re competitive and then do it in a manner that is cheaper such that you can charge more for it than it costs you to do that thing. That’s obscenely hard! So typically everybody think that they can acquire something, then when they realize the maintenance requirements they fail, and then very people ever get to the point where they could commercialize something. By the way you can apply it to a boat: Everybody wants to buy a boat, and then they’re like, Oh my God! This is really expensive to maintain a boat and I can’t afford to maintain the boat. But if they buy the boat, they gotta spend 10% a year to maintain it. And then at some point the question is, Can you enjoy the boat? They’re like, Oh! I’m spending all this money on the boat but I never have time to go and use the boat — this is just crazy! This is weighing around my neck! I gotta get rid of this! It’s an example of being too ambitious in your acquisitiveness, and it illustrates the law of decimation. And the law of decimation is: In the ancient Roman republic if the legion screwed up, they killed 1 out of every 10 men in the legion. Actually the made the 9 kill the 10th in order to remind them that they should stay disciplined.
Robert Breedlove: At random, right?
Michael Saylor [44:12]: Yeah, random. They didn’t kill them all because then there would be no legion left! But 1 out of 10 is gonna die if you break ranks and retreat so it was their ultimate punishment, the law of decimation. But you can apply it to anything in life, Robert, but it goes like this: The universe tends towards entropy and disorder. If something will go wrong it does go wrong. That’s Murphy’s law. The law of decimation is: 1/10th of all the moving parts in anything will break in any given year. If you have 10 employees, 1 will quit or become unhappy. If you have 10 moving parts, 1 will break. If you have 10 plans, 1 will blow up in your face. If you have 10 features, 1 of them will stop working. If you have 100? 10 of them will stop working. If you spend $100 Million on something, you have to spend $10 Million to maintain it. You’re gonna have to divert 10% of the cost of anything to maintain something. I talked about, Steel will last forever — if you maintain it! Most people don’t maintain it! It costs a lot of money to paint a steel ship. Most people, they budget for the acquisition, and then they underestimate the maintenance because they don’t have the humility or the life experience. This is the problem with building Rube Goldberg devices in the crypto network. That’s the problem with all the complexity with Etherium and all the complexity with some of these things: It sounds good on paper, but when you put 187 moving parts into something and when 1 of them breaks and the entire thing crashes and burns and you die, it wasn’t worth it! When you’re young, you overestimate the value of functionality and acquisition, and you underestimate how expensive it’s going to be to maintain things, and then you really underestimate this last issue: Can you enjoy it? This is a basic rule of life: Can I buy the thing? Can I maintain the thing? Can I enjoy the thing? Men are always reaching beyond their fingertips. Sometimes women too. They want too much. They’re empire-builders. This is why Napoleon should not have gone to Moscow. This is why Hitler should have not have gone to Moscow. This is why you don’t fight a war on two fronts. And this is the essence of Stoicism, but Stoicism is really a philosophy that is very consistent with thermodynamics and entropy and complexity theory. And if you’ve ever run anything complicated or built anything complicated or have been responsible for anything complicated, you know stuff breaks!
Robert Breedlove: Do you think this — we’ll call it a law of nature, this 10% of the components in a complex system break down yearly, annually, and require maintenance — is this connected to the religious tithing, do you think? Where you’re actually supposed to feed the flame with 10% of your profit to maintain the institution?
Michael Saylor [47:46]: I think it’s interesting the extent to which you see this 10% number pop up on an annual basis. 10% is the maintenance obligation on a boat. 10% is the tithing obligation for thousands of years. 10% is a reasonable estimate for a house with 187 light bulbs, 18 of ’em will burn out, right? It just pops up over and over again! And my only real explanation is just: friction, randomness, chaos, life, corrosion, weather, termites, bugs, bacteria. The same would be true with your body, right? If you’re talking about maintaining yourself. You’ve got to actually allocate time and energy to maintain yourself and a lot of times people under-invest in their own health. And then when they under-invest in those things they blame it on genetics or they blame it on some unfortunate occurrence. We don’t know why these this happened it’s very unfortunately — these things just happen sometimes. I’ll end with one thought on Stoicism. And Nicholas Taleb would appreciate this one too. It’s like, The words don’t matter — the action matters. Okay? Words are just words. And that applies to Stoics: you and me and Marcus Aurelius. I think one of the great paradoxes of history is Marcus Aurelius was the last emperor in the line of the Antonines during the golden age of Rome and there was Trajan, and there was Hadrian, Marcus Antoninus, etc., and for about 100 years that was the Pax Romana, and each of those emperors was elected based on virtue as an adult and he adopted his heir, and they typically adopted a 40-year old emperor who had had a career in the military of virtue and he was tough and responsible and grounded in reality. And if you’re a general in the army campaigning and you get drunk and screw around your soldiers put a knife in you! You’re not gonna make it! In order to keep the respect and stay alive in war-time around a bunch of guys with weapons, you better be a good leader and they better respect you because you’re leading them to their death, if they don’t respect you! So if you actually rose through that meritocracy, maybe you had a chance. So Marcus Aurelius writes the Meditations and it’s the quintessential text on Stoicism. And he says, Just because you can do a thing doesn’t mean you should do a thing. He said, Soon you will have forgotten all and all will have forgotten you, and you should know your place in the universe, and you should submit yourself and do the right thing for everyone else, and that’s all good! But at the end of the day, the single most important decision Marcus Aurelius made in his entire career, in his life, was the decision on an heir, and when it came time to make that decision he failed miserably and he appointed his son Commodus to be the emperor. And Commodus was a minor and of weak moral and intellectual constitution and in no way shape or form qualified to be emperor of all the known world. And by so doing that Marcus Aurelius plunged the Roman Empire into chaos and turmoil for hundreds of years, resulting in the deaths of millions if not tens or hundreds of millions of people — awful! Awful! And there’s your philosopher-king! He’s remembered today as somebody that’s written a good book and had been a great Stoic. But if you look at his actions, the actual action he took was the least Stoic, most foolish, most painful action of any of his forbears and it just makes the blood curdle!
Robert Breedlove [52:21]: Yeah! I’ve been anxiously waiting to talk about this actually because I’m a huge fan of Marcus Aurelius. That particular episode is documented somewhat well in the movie Gladiator for people that want to go out and watch it. But he is also known to have been one of the greatest emperors of all time, right? Up until that point where he made that fateful decision.
Michael Saylor: He was great until the succession. He had all of the power of the Western World in his hands. He had the keys, right? The crypto keys to all the wealth and power in the Roman Empire! In Gladiator it was implied that he was murdered by his son, but in the history books they’re pretty candid that he handed those keys to Commodus and Commodus was a disaster.
Robert Breedlove [53:14]: And he was that Platonic ideal of the philosopher king! Arguably the only successful philosopher king throughout history. And I think one of his other quotes that I really liked is, No man can lose any other life than he now lives, nor can he live any other life than he now loses. Stoicism’s been big in my life personally and I think it’s necessary for everything we’ve talked about today, for this eternal contention we have with reality. If you don’t adopt a Stoic philosophy, how do you keep yourself together?
Michael Saylor [53:55]: I think Stoicism is critical, and I think he was a good writer. I would even probably admit he was a good emperor until that final decision, which I just lay out as a paradox. And maybe it’s a warning and the warning is: You could live a great life and you can be a great writer and you can be a great thinker, but at any given point it’s always that last decision. You still have time to snatch defeat from the jaws of victory.
Robert Breedlove: Did he choose love over his principles? Was that what it was? Love for his son over principles of succession?
Michael Saylor: Presumably. You can read up on it and come to your own conclusions. It’s a short chapter. Our last point just on vitality: A synonym for antifragility could be genetic vitality, Darwinian vitality. If I’m evolving in response to threats as a life force, then I’m antifragile.
Robert Breedlove: And this was Darwin’s famous quote, It’s not the strongest, fastest, or smartest species that survives, but the one that’s most adaptive to change. Which makes it antifragile.
Michael Saylor: Which makes it over time the strongest! It’s just not in the near-term. Yeah, there’s a certain terrifying beauty in nature. There are no ugly animals. You look at a bird that is beautiful. You look at a lion in the wild, it’s beautiful. No one’s got a mangy coat, there’s no unhealthy anything, and that’s our ideal of beauty, right? We think nature is beautiful, all the trees are beautiful, the plants are beautiful, the birds are beautiful, they chirp their beautiful sounds, the flowers are beautiful. What they don’t really think about is what’s going on behind the scenes, because they’ve got this simple zoo backyard view of nature. The truth is, everything’s at its finest when tomorrow is uncertain. When the life of the creature is uncertain. I’ve actually got this beautiful banyan vine trees in the back of my house in Florida. One day on a beautiful sunny day I walked by and I stood and stared at the tree and I saw a bunch of ants running up and down. And when I traced the ants I saw that there were thousands of ants and I saw that there was a centipede. Some kind of millipede about a hundred times bigger than a normal ant. And those ants had decided that they’re going to eat that. They were actually gonna haul that millipede back to their queen as dinner. And they attacked it relentlessly, relentlessly. And I watched hundreds and hundreds and then thousands and then thousands of ants going into this one millipede. And it’s fighting for its life and I swear I watched for 45 minutes like a war non-stop on a beautiful sunny day. If you looked around you would’ve saw grass and blue sky and pretty water and birds chirping, but there was knock-down, drag-out war to devour this millipede and it’s fighting for its life. And I watched it crawl up the tree and the ants dragged it down and it did everything it could and they kept coming and it just had this horrific, terrifying, sad conclusion. It’s gonna die. Unless a massive rainstorm spins up to blow water down and create some disruption it’s got no chance. It’s going to get eaten alive. And it’s horrific and it’s terrifying, and that’s life! That’s nature! And then you start to realize, on all those pretty National Geographic TV shows, you see the lions attack the antelope or the gazelle and they try and this miss like, Well, no dinner for you tonight! No, the antelope trot off happy with their babies and the lions trot off happy with a little smirk. And everybody’s like, That’s about as much nature as they want! Nobody wants any more nature! When you think about it a bit more you realize, Well they’re gonna miss 3–4 days, they’re gonna hit 1 of those a week, and the 99% of them are gonna live but 1 of them is gonna die, and over 3 years they’re all gonna die. And over 3 years they were all gonna be eaten by the lions. And that’s nature! Every week that goes by, it’s like they’re clicking on a carousel. And the oldest one is getting slower, and a little bit more tired, and a little bit less flexible, and if they don’t get the old one, they’re gonna get the unlucky one. And that’s why every one of them is beautiful! Because they’re all in the prime of their life! And the same is true with all the predators: they’re all in the prime of their life. When they get a little bit old, a little bit hurt, they get driven out of the tribe or out of the pride and that’s the end of it. So in nature the life expectancy of those wolves or those predators or those lions is 5 years, and in the zoo it’s 15 years. Now if you want to see a fat, mangy, lame one, you’ll find one in the zoo. You won’t find one in the wild. And the same is true with the rest. And when those two herds, when they go at each other like that viciously, they’re both strengthening. You take away the wolves from the deer, the deer overpopulate, they eat all of the trees, the trees all die, the trees die, they destabilize the embankment of the river, the river erodes, the riverbank gets screwed up, all the greenery dies, all the deer are gone, all the wolves are gone. You wanna fix the river? You put the wolves back in. The wolves scare away the deer, the trees grow, the roots stabilize the bank, the river flows, all the wildlife returns. This beautiful thing we call nature is in continual dynamic equilibrium, and everything about it is getting stronger and harder and faster and getting culled all the time. And mother nature is supreme, and men with delusions that they will defeat her are gonna be disappointed, right? I guess the great challenge is this paradox: the paradox is the paradox of the engineer versus the zookeeper. We see nature, we want to engineer a better world for ourselves, and it can be done. But we can also reach too far and try too hard and try to make water flow uphill and try to make time flow backwards. We can try to shake our fist at mother nature, we can defeat all of those natural forces, and if we try to do that, the energy consumption goes up exponentially. And eventually it goes up to such a level that we deplete ourselves of energy, and we end up like those natives on Easter Island where you chop down every tree to build your monuments to your gods and pretty soon there’s no canoes and pretty soon there’s no fish and pretty soon there’s no food and pretty soon there’s no you! All you’ve got is your monuments to your god and you’re all dead because you depleted the energy in the ecosystem in pursuit of over-engineering your reality.
Robert Breedlove [1:02:11]: Let me ask you about that point, which I think is fantastic: it seems to me like the free market is the economic expression of that Darwinian equilibrium, and that possibly with the implementation of central banking, which is antithetical to a free market institution, that is it’s a monopoly. I guess in our attempt to over-engineer the economy we have disturbed that Darwinian equilibrium in the economy and that’s why we have all these haywire consequences like inflation and negative rates and so on and so forth?
Michael Saylor: Yeah we’ve stopped it, right? We’ve attempted to stop time and interfere with nature. We’re trying to freeze that dynamic equilibrium that’s being continually calculated all the time. We’re trying to turn nature into a zoo.
Robert Breedlove [1:03:38]: Okay! So that was Episode 9 of Saylor here at the Saylor Series and wow! What an episode! We started off this series actually with a discussion of Stone Age technologies, which Michael laid out his thesis of how mankind is the dominant animal in the world because we channel energy across time and space more intelligently than any other animal. And he really built the foundation by drilling into our use of fire, one of the primordial energy networks, our use of water as a hydraulic energy network for overcoming gravity, and our use of missiles for actually competing at a distance. And in that lens, if we consider that that is the overarching goal of humanity is to more intelligently or more precisely channel energy across time and space, Bitcoin is an elemental innovation. It’s the only system we’ve ever had throughout history that allows us to channel energy effectively at the speed of light, and store it in a way that is virtually totally loss-minimized. There’s no unexpected inflation for instance, and there’s very minimal transaction fees, just enough to sustain the network. [1:05:06] And you could contrast this with something like gold, which we touched on earlier, that just depreciates at 2% per year at least, or something like fiat currency which tends to depreciate much faster. So it takes a lot maybe to get to here. It’s a whole re-framing of your worldview, but I think Saylor just does an excellent job of that. And I love the example he gave describing immunology — another one of these elemental innovations — where we figured out antiseptics, we figured out how to use clean medical instruments and disinfectants and whatnot, and the discovery of penicillin for instance — all of these things that helped us insulate ourselves from the entropy of microbes to conduct medical and biological experiments and operations with less exposure to the entropy of nature just catapulted our life expectancy! Almost overnight it went from say 50-year average life expectancy to 70 years. So I wonder — and I love the way he described it as, Doing business, we’re conducting economics thus far in history with dirty money, with contaminated money. And you could analogize this to doing surgery with contaminated medical instruments! If you don’t decontaminate your medical instruments and you try to perform surgery on someone, you’re going to cause an infection and you’re going to cause death. And this was actually a major cause of death throughout most of history. So through a similar lens, if we’re trying to build socioeconomic systems using a money that’s contaminated with the uncertainty of inflation or confiscation or de-authorization, it tends to make me believe that the system that we would build would be more vulnerable to death as well! And I think that a quick study of history will show you that typically the debasement of money tends to presage the collapse of the civilization. So when the money becomes extra contaminated, this tends to be a specter or a harbinger of its ultimate demise. So I love this analogy! And it really gets into the entropy aspect again. We just consider that entropy is uncertainty. [1:07:35] We want medical instruments that are free from the uncertainty of microbial infection. We want economic instruments that are free from the uncertainty of inflation and de-authorization and confiscation. Like, it just makes sense. The more certainty we can add to our tool set whether in the medical or the economic domain, the more longevity we can give the organism or the organization, right? It just makes sense. And as Saylor said earlier, Monetary energy being the highest form of energy that humans can channel, and channeling energy across space and time being the highest aim of man, that effectively monetary energy is life energy! It gives us a claim on all other forms of energy. So we can think of encryption actually — I think Saylor Tweeted this at some point — that the destiny of all money is to be encrypted. We can think of encryption itself as a sterilization function or process for money. We’ve actually disinfected the money by encrypting its rules and its supply. That hearkens back to consumer packaged goods, when we’re able to vacuum seal foods and store food energy in a stable fashion at room temperature — that was a game changer! All of a sudden we had this abundance of economic surplus in food energy that we could distribute around the world, and this led to a surge in population growth. So all these analogies pointing back to this breakthrough that is Bitcoin that again we’ve been building on in earlier episodes I just found to be super-exciting! And then in that lens, Saylor also talked about the story of his mother being diabetic. And the connection I made there was that she was essentially following a governmental food advisory, just eating the typical food pyramid that governments — at least the US government — used to advise, which had carbs as the staple, the big thing at the bottom: bread, pasta, etc., and worked its way up. Whereas in fact, anyone that studied ketogenics and the paleodiets and whatnot, it tends to actually be the opposite: you want low-carb, high-fat or high protein diets. And it’s not the same, it’s not one size fits all, but a lot of diseases we suffer from today like diabetes is from excessive carb consumption. So the connection I made there was that this government food pyramid scheme or mistake — whatever you want to call it, whether the intention was good or bad — it’s actually rooted in the government fiat currency pyramid scheme, where we have contaminated the money. So we’ve contaminated even the ideologies we put out in terms of nutrition, and it just has these cascading effects. Inflation is not just contaminating our economic efforts, but it actually bleeds over into the biological domain. So as Saylor said, Fiat currency is toxic money. It’s just not sound. It is not entropy-free. It’s infected with entropy, and this has all these second-order effects with everything that it touches. [1:11:10] And the main problem is this misunderstanding about inflation. We have this whole economic sphere today focused on CPI as inflation. But it doesn’t make any sense at all. There’s deeper reasons why if you read a book like Human Action by Mises that you can can never have an index for inflation, because, sort of like value itself or beauty, it’s subjective, right? It’s based on the things that you individually desire, based on the course of your own goal-directed action, so there’s not a universal index that can fit everyone. Your own inflation number is a basket of these goods that you’re seeking. And the government metric is just taking what they assume to be things that are desirable, but exclude assets. So it’s like they’re excluding the fact that anyone wants to get wealthy, which is absurd. Also excluding food and energy and other volatile assets. Volatile meaning they changed in price! We’re talking about a metric that is intended to reflect price changes excluding things that changed in price. It is a non-starter, it’s absolutely crazy! And this is still the benchmark number that so many people are focused on and it’s just amazing to me that it still goes on. And the discussion flowed into understanding inflation, which for me I think this makes more sense which is: If you think about it in rate of change terms, as in how many Dollars are being produced? The growth in Dollar production relative to the growth in good or service production. If you pace a fiat currency production that’s outpacing the productivity gains or the output on a particular good or service, it’s going to inflate in price because you’re going to have more dollars chasing the same or only slightly growing goods or services. So another way to say that is: How energy-intensive is the good? The example that I like to think about is ribeye steak. We’re not gonna invent a technological breakthrough that makes cows grow faster. It still requires the same amount of sunlight and energy and time and processing to deliver a ribeye steak, and it turns out historically that actually the purchasing power of gold maps pretty nicely to ribeye steak, or cows more generally. [1:13:48] So in that way inflation is not a single universal phenomenon that we can peg to one index number. It’s occurring differently for every asset and every person in every place at every time. It’s just this undulating sphere of changing economic values. You can’t possibly just put a number to it and say that is inflation. Another way to say that is it’s just uneven across space and time. So you’re dumping new money supply into the system, that money itself is distributed unevenly, and then the aims of economic actors are shifting unevenly as well, supply and demand. So it’s just hubris to think that we could peg it all to one index number! To that point, Saylor makes a more sound argument that a more appropriate measure of inflation — knowing that we can’t peg it to a number — but what we can do is say, What are things that people generally desire, and how much are their prices changing year over year? He gave the example earlier of retirement, premier real estate, things like this — things that people actually want in life! You don’t go to work to think, I just want to put food on the table for the rest of my life. At some point you’d like to work towards an aim or a goal whether that’s a nice home, living in a nice neighborhood, possibly I love the example of early retirement where you can just buy a government bond that pays you a “risk-free” rate for the next 30 years, and looking at the price of government bonds and how much that’s jumped based on monetary policy. So I thought that was just a great example. It’s interesting because when you really get to first principles on it, fiat currency inflation as we define it is just an arbitrary increase in the money supply that adds no economic value to an economy whatsoever. It’s very important to understand that by “printing money”, you’re not infusing an economy with any new factors of production, whether this is human time, ingenuity, tools to put in factories, there’s nothing being added to the economy. You’ve just reshuffled the paper claims on those productive factors. You’ve taken away from those relying on fiat currency or the Dollar as a store of value. You’ve reallocated those claims to whoever can get their hands on the new printed money first and spend it first. So it is a mechanism for theft. I don’t know what else to call it, frankly. It only has one purpose. You can argue about the intentionality — whatever. I’m not going to debate that. I can just tell you that the tool, fiat currency — the inflation of fiat currency — has only one purpose: To reallocate wealth from some and allocate to others against their will. So I don’t know what else you could call it really besides theft. And it seems to me like this Keynesian ideology feels like a coverup! I don’t if they just believe what they’re saying about inflation. Saylor was arguing that they bled George Washington to death and they thought that was the best course of action — maybe that is the case! Maybe Keynesian economics are so deeply steeped in this ideology that they just can’t see their own hand in front of their face so to speak. Or perhaps it’s something more nefarious, more of a propaganda stick thing. But regardless, I love the point that — he tied this into an old German propaganda machine. He said: The studies show them that they can’t tell people what to think, but they can tell people what to think about. And it is amazing to me how many sophisticated investors I’ve talked to about Bitcoin and macroeconomics over the years, and people are just anchored to CPI as inflation. It’s as if this wool has just been pulled over their eyes, that they are satisfied with the answer presented to them versus thinking more deeply about it. And I can’t help think it’s related to this, right? It’s pushed as the representation of inflation and people just accept it at face value, which is just a really bad deal all the way around. [1:18:37] So we got into a bit of discussion about interest rates, and his analogy of actually suppressing interest rates is freezing out market participants or sucking the air out of the room. If you consider that the interest rate is the price of money, money is this tool for trading time and energy, we could consider that the interest rate is the price of time or energy, effectively. And when you try and suppress it, you’re fighting against the natural flow of time, if you will. It’s this misguided attempt to try and mute entropy that causes — Taleb would call this an iatrogenic effect. So it’s harm caused by the healer. When someone overmedicates — again back to George Washington — they thought they were helping George Washington by bleeding him, but they were actually hurting him. They actually killed him by doing that. You know, many doctors today will prescribe you a pill for your cholesterol or your anxiety or whatever it may be. Whereas in fact the right treatment of the core problem — not just a drug to cover up the symptoms — could be something more like removal. Elimination of certain foods from your diet or fasting or whatever it may be. And this to me, it points towards what central banks ostensibly at least have been trying to do, is that their explicit aim is price stability and low unemployment. So price stability, you’re saying that you want supply and demand worldwide to be like consistently close enough to keep prices stable. It just doesn’t make any sense. You’re arguing against the entropy of nature again. And when you try and artificially inflate the money supply to create this veneer of stability, you’re actually just delaying — first of all you’re manipulating market prices — supply and demand, buyers and sellers, are having trouble getting matched up correctly, which is what the market does because of this distortion in the marketplace. But you’re also delaying and exacerbating the ultimate correction, because you can’t fool economic reality. In that way I see — the vision I have in mind — is central banking is kind of like an air conditioner. An air conditioner is a heat pump, so it’s pulling entropy out of the room. It’s not actually putting cold air into the room, it’s pulling hot air out of the room, or heat energy out of the room. And if you’ve ever stood behind an air conditioner, you’ll feel it! You’ll feel the heat coming off of it that it’s pumping out of that room that it’s air conditioning. And it seems like a central bank is trying to accomplish that in a way, it’s trying to paper over the entropy, the natural entropy of price stability and unemployment. But in doing so it’s pumping out — it’s creating certainty for its shareholders, let’s say , so it’s decreasing entropy for its shareholders—but it’s pumping out entropy onto broader society in the form of price distortions, an exacerbated boom and bust business cycle, and you could even throw warfare in there! Central banks were originally set up to fund warfare, to give governments a virtual limitless mechanism for funding the war. Where instead of just needing to rely on their own savings they could just print money and siphon savings off the entire productive economy. So that’s my central banking air conditioning analogy, that it’s trying to cool the room for its shareholders but it’s pumping heat onto broader society and it’s just disastrous. [1:22:52] So we got into the relationship between inflation rates and the risk-free rate. The risk-free rate would be yield on government bonds. So in finance we say that — and this is a “risk-free” rate — that the US government for instance cannot default on its debt because it can always just print more money to pay its principle. What that actually means is that it can never default on its debt because it can externalize the cost of that debt onto society via inflation. So that’s your risk-free rate, whatever the US 10 or 30-year treasury is yielding. And then there’s the inflation rate — again not CPI — our proxy is how quickly is the US M2 increasing on a percentage basis. And the delta between these two is a negative real yield! If I can only get 2% on US treasuries — it’s lower than that today — but US M2 is growing at 15% year over year, it’s expected to do that over the next few years, then I’ve got a negative real yield of of -13%! So unless I’m growing my business or my own personal cash flows by more than 13% year over year, then I’m being diluted! I’m losing money! So this is the hurdle rate, basically, to use another investment term. You need to at least exceed the delta between inflation and the risk-free rate to even be accretive to your business or your household, whatever it may be. So the only way to do this is you need to buy an equity — and a lot of people are doing this — they’re buying equities as a store of value that is expected to appreciate faster than that negative real yield. A lot of this is in tech because tech has just a ton of productivity gains associated with it, and it had a great decade so there start to be market actor expectations built into the price, where if you look at the P/E ratio of something like Zoom or even Tesla or Facebook, they’re astronomically high relative to historic averages! Another way to think about that is: There’s nowhere to store your value that’s safe except these equities that are expected to grow and outpace the hurdle rate and remain relatively scarce. So that leaves with these bonds that are yielding less than the inflation rate, they’re long-term dilutive, and then those negative real yields, that’s driving and incentivizing people to buy scarce assets. Again: equities, real estate, gold, and then this is also the bucket you put Bitcoin’s value prop in, is that it’s the scarcest liquid asset in human history, so of course it’s gonna benefit from this centrally planned market manipulation in both the bond and the fiat currency markets. And we talked a bit about this, just one way to strip out central banking market manipulation and get an honest assessment of what’s going on, is to just price the index in gold or Bitcoin — again Bitcoin’s a bit more noisy because it’s emergent — gold has a much longer history. Or to Saylor’s point you could also price it in the change in money supply. And this will strip out a lot of the manipulation. So if you look at the past decade in the S&P, it’s been one long bull market — you price that same chart in gold, it’s flat. There hasn’t been a lot. So that’s I think really important as far as changing your economic frame of reference, which is what’s so tricky about talking about these things, about like What is Money? [1:26:51] Because it’s an a priori perception. An a priori means “no priors.” You’re looking at what is looking, so to speak. And people just — the a priori economic way in which we’re in today is Dollars for most people: this is what they think in, that’s what they trade in and negotiate in. But you have to look at the dilution occurring in that frame of reference, which is the Dollar. So it’s a bit of a meta-thinking, but it’s really important for coming to sound economic conclusions and calculations. Then we got into the competition and the law of decimation. Saylor made the point that, Even if you’re smarter than 99% — say you are one of the top 0.1% most intelligent people in the world, you were smarter than 99.99% of humanity, there are still on this planet 750,000 people smarter than you! That was just crazy to me to think of it that way. And in the digital age, I think what we’re entering into is this Age of Excellency almost where because the bounds of location have been lifted through digital tools and technologies, it’s no longer good enough to just be the best local guy at whatever it is — singing, for instance. Maybe you’re a Billy Joel impersonator or something. It’s no longer a good career strategy to just be the best Billy Joel impersonator in your neighborhood. Because people have YouTube now! They can go and look at the best Billy Joel impersonator of all time, or maybe even Billy Joel himself, and they can seek their entertainment there. So you start competing for audience with the best of the best in any domain that can be conducted remotely, which increasingly is every domain. So this means that excellency is gonna have more of a tendency to rise to the surface, and that markets more typically are gonna converge on winner-take-all dynamics. It changes things a lot! This non-locality or not being bound by geography really changes the game a lot in a lot of ways. So Saylor’s point was: You’ve got to focus your energies to compete well on your speciality — whatever that is, whatever skillset or unique ability you have, whatever gift you might have — and you’ve got to stay humble, and you really have to focus on that, developing it to the best of your ability, but also maintain the humility I think necessary to succeed and learn and grow. [1:29:44] Any time — as he was describing his experiences at Microstrategy, it’s ferociously competitive! — any time you become arrogant or comfortable or resting on your laurels, 1 of those 750,000 are just gonna eat you up! They could go out, raise a bunch of money, they want what you have by definition if you’re successful. If anything, digital tech has made the world more fiercely competitive, which I thought was really interesting. As far as the law of decimation, we brought up the point that in Ancient Rome, the law of decimation was: Any time the soldiers broke ranks or retreated, 10% of them would randomly be put to death, and they would make the other 9 put the 10th to death. And what this was was a massive disincentive to malperformance. Everyone had a big incentive to hold the line so to speak, and to act in a concerted effort, because if they didn’t, if they got fearful or started operating in their own individual best interest in a battle, when you need the collective effort of the battalion to win, then they’re engaging in this lottery where either they’re gonna be put to death or at least 1 in 10 of their friends is gonna be put to death. A really good system for inducing skin in the game. And it turns out that this is—again getting back to the natural law — it’s sort of a reflection of what we observe in nature, in that 1 in 10 of any system with 10 moving parts, 1 is gonna break down over a year, roughly. A 10% breakdown in parts or features per year! I observe that as just being —again we’re creating these systems that are intended to confront the entropy of nature and deal with it in certain ways — well that has a cost, right? And every year, by some universal magic that number tends to be about 10%. And this pointed back to steel: as Saylor referred to, Steel will last forever if you maintain it! So you need to expend the 10% per year painting it to maintain it. Maybe this is also related to the religious tithing which we see as a 10% contribution annually to the institution — and that’s across a number of religions. And I think this too points to a strength of Bitcoin, is that it actually has minimized moving parts. And it’s open source so anything that does break down, there’s as many eyes on it as possible to repair it. But it minimizes its — say in comparison to Ethereum that just has countless moving parts — it’s gonna suffer more from this law of decimation over time than something like Bitcoin will, which optimizes for survivability. Finally we got into the philosophy of Stoicism. And this is a philosophy which ties back into everything that we’ve been talking about: It’s consistent with thermodynamics. So again if we’re just saying it in a purely physics sense, Truth is an accurate portrayal of reality. We know that everything in the universe is energy. So therefore conservation of energy — which is the first law of thermodynamics — that is truthfulness! So the systems, the strategies, the techniques, the businesses, the individuals that optimize for energy conservation — this doesn’t just mean defending all of the energy you have, you can actually increase energy efficiency through innovation. So being exploratory, figuring out a new way of doing things can actually add to your energy efficiency as well. So there’s this ratcheting effect between defending what you’ve gained and gaining new innovation. So Stoicism is this thermodynamic philosophy if you will, which I think is so cool, that it’s a way that many of the ancients accorded their behavior, and it directly maps onto innovation and general biological success. So the Stoic — again we had this law of decimation, we had these systems encountering the chaos of nature, there’s a little bit of breakdown over time — the Stoic embraces that! The Stoic knows and willingly embraces death, the potential death of your child, the potential loss of your business or your fortune. There are all these practices when you get into Stoicism like negative visualization, where you may imagine for instance the next time you hug your mother, you just imagine that that may be the last time that you ever hug her. And through that mental practice you’re actually training yourself to be more grateful for something in the moment, and you’re preparing yourself for the inevitable loss that will come, right? Your mother will be gone one day. So Stoicism is a deep rabbit hole in an unto itself. And I’ll just leave it at one example. I just thought it was really cool that Stoics embrace entropy and choose to accept it and strive on valiantly nonetheless. And I think that’s the only proper approach to life if you’re gonna be successful. Saylor went into a paradox of Marcus Aurelius which I had ever heard before — I’m a big fan of Marcus. Marcus was this great philosopher king, great writer, but in the end, sort of blew it on one decision. And Saylor’s point here was, Words don’t matter, actions do, ultimately. And even one action can undo a lifetime of good action. This reminded me of Taleb’s, Don’t tell me what you think, just show me what’s in your portfolio. It’s more about what actions you take with skin in the game versus your cognitive beliefs. And for me personally I tied this back to religion actually is that, people always want to argue, Do you believe in God? Do you not believe in God? I love Jordan Peterson’s answer to this: I act as if God exists! God doesn’t care about my cognitive beliefs, it’s more about my embodied action and my moral behavior that really matters in the world. So it’s a bit of an Occam’s Razor thing there. But anyways, the story of Marcus is, he had the keys to the kingdom. One of the most successful emperors of all time, he was the Platonic ideal of the philosopher king, and on his final decision essentially as emperor of Rome, decided to break duty, break with tradition, break with the Stoic protocol if you will of appointing the most competent man for the job for succession, and instead appointed Commodus, which was his son. And there’s something really deep here. There’s this age-old struggle between duty and love. I don’t know—this one left me thinking! So I’d be excited to hear some of your guys’ feedback on this. But it’s really fascinating to me that we had this guy we’d held in such high regard and then at the last yard-line so to speak he just fumbled the ball! But I don’t know if this was based on love for his son or something else, but it’d be really interesting, right? If he made this decision out of love so to speak, yet it still proved to be wrong decision for civilization. Just a mind-bending thing, but I thought it was super interesting. And the warning there is: You can live a good life, you can be a good leader, a good writer, whatever, but you have to always remain humble and never become arrogant no matter how much success you’ve had because there’s always that opportunity to snatch defeat from the jaws of victory, as Saylor put it, which I thought was brilliant. Then finally we completed the episode with a discussion of antifragility and vitality. And I love this point that animals in the wild are all beautiful because they’re constantly being conditioned against the chaos of nature! Once they went past the tipping point of misfitness they’re no longer serving their highest and best function in the world, something else eats them. They’re gone. So it’s nature rolling forward and becoming better through this process, this dynamic equilibrium between predator and prey, and it’s this Darwinian natural selection that’s constantly promulgating excellence and beauty in the world. And it’s great to behold! If you’ve ever watched a nature documentary it’s one of the most awe-inspiring things I think that we can watch! So another way to think about this is just nature constantly sharpening her own strategies against herself. So the strategies of animals — the survival strategies — are constantly being tested against the environment. And those that succeed roll forward and those that do not are weeded out and so you’re left with by definition the most fit creature for its environment. When we try and disturb that dynamic equilibrium we’re just exacerbating that correction. Instead of having these little corrections along the way, we’re giving time for the strategy and the environment to diverge significantly to where an ultimate cataclysmic return is necessary. That’s what nature does! It always selects and it always restores balance. So all of that tying back into — again when I think that central banking is just a failure of an institution because it’s tried to over-engineer this dynamic equilibrium of nature where we have price instability and unemployment as a natural product of the business cycle, it’s trying to paper over that, it’s trying to eliminate this dynamic equilibrium and create something that’s predictable. It’s trying to subdue the entropy of nature if you will, which could be a good intention but clearly has a poor result, which leads to suppressed interest rates which is like trying to reverse the flow of time. So it’s all of this effort going countervailing to nature that always fails! That’s the core point here. It turns nature into a zoo! Right? We said that every animal is beautiful, but if you really want to see some not-beautiful animals you can actually go to a zoo. They’re sad, they’re in a cage, they’re not fulfilling the function for which they were evolved, and I think central banking sort of turns society into a zoo. It softens us — in this process of trying to “protect us” from price instability and unemployment, it’s actually reducing our skin in the game, softening us, externalizing entropy onto society. So yeah! Just another awesome episode. Hope you guys enjoyed this. Saylor and I are gonna do at least 1 more episode, maybe more after that, we’re gonna see how it goes. But I hope you enjoyed this one as much as I did, and I’ll see you here again soon! Thanks!