Episode 7: Money is fiction Episode Transcript Samantha Yap [00:03]: Hi! I’m Samantha Yap. Welcome to The Story of Money by YAP Cast where we talk about where money is heading. Join me and Jacob Goldstein on this episode of the Story of Money by YAP Cast. What is money? We’ve talked about it a lot on this show, and indeed, that’s kind of the point of the show. But we’ve always worked from the assumption that we’re trying to define something that is real. After all, you can put a coin, a note or whatever in your hand, and you can touch it. Sure, we have credit cards and other mechanisms that abstract out the coin or banknote. But we sort of know that somewhere behind it is some real money. Either it’s ours or we’re borrowing it, and we know that people will accept that credit card as payment, and trust the system enough to know they won’t be cheated. So, we know what money is, and we know what it can be converted into. But maybe we’re looking at it all wrong.  Maybe money is just a figment of the collective imagination. Maybe money is, well, fake news. This is the jumping off point for my next guest, Jacob Goldstein. Jacob is a journalist, spent time at the WSJ covering healthcare, shifted to money and then hosted the popular Planet Money podcast by NPR. He is the Author of a Book called Money: The True Story of a Made-Up Thing which was published in September 2020. Now he is the host of What’s your Problem? which aims to helps listeners understand the problems really smart people are trying to solve right now. A surprising idea: Money isn’t real So, Jacob, firstly, I'd love to start with your story. Could you tell me a little bit about your background as a reporter, Host of Planet Money and now the author of Money: A true story of a made-up thing? Jacob Goldstein [02:00]: Yeah. I came to money somewhat late in life. In college, I studied English. I became a reporter. I was a newspaper reporter. I covered healthcare, and it was when the financial crisis hit in 2008 that I got really interested in money. I was working at the Wall Street Journal, so like finance was sort of all around me, but I was covering healthcare at the time. I remember, there is this sort of key moment that I talk about in the beginning of the book where the financial crisis is happening and it seems like trillions of dollars are just disappearing. Disappearing from the stock market, disappearing from real estate prices. And I went out to dinner with my aunt who was a very successful businesswoman and had an MBA, was like a powerful executive in New York City. And I asked her, all that money that just disappeared, just where did it go? What happened to it? She said money is fiction. It's not real. It's not like it was ever really there in the first place. So, it's not like a real thing. And that was kind of a big, exciting, surprising idea to me. And that sort of set me on this path, and then I wound up hosting this podcast, Planet Money and studying the history of money and, as you said, writing this book about money. Samantha Yap [03:21]: Okay, that's what led you to write this book about money. So then let's touch on your point about how money is fiction or it's this made-up thing. Yeah? Could you just set the scene here and expand a little bit about that? Jacob Goldstein [03:34]: I think for most people you just sort of take money as given. Like certainly, in my case, before I started thinking about it, I just assumed that it existed in the world, right? It does kind of. You go about your life and you get money, and you spend money and you worry that you don't have enough money. But you don't actually think about the underlying mechanisms and to the extent that you do it just seems like a fact in the world, like water or gravity or something. It seems like something, part of nature. And the big insight for me is that that is not true. Right? Money is a thing that people made up, and not just a thing that people made up once, but that people have been making up in an ongoing way. Reinventing as technology has changed, as society has changed, as power has changed. Money has been kind of reinvented again and again. So not only is it a thing people made up, it's a thing people are still making up. Money as an agreed-upon shared system Samantha Yap [04:26]: What would you say to the part that's real? I mean, it's real to me that I can transact something and get groceries, or I can pay for my rent. So that's a real part of it. Is that something that’s tangible? Jacob Goldstein [04:43]: Yeah, it's amazing. Right? I mean the money part is what's not tangible. Right? You go to the grocery store and you fill your cart with food, with real tangible food. And then you wave your phone in front of the little payment thing and you get to walk out with all the food. Right? The food is definitely real. The payment part is this amazing sort of shared system we've all agreed to abide by it, but there's no thing there, right? There's no thing there. There's just basically a ledger, right? I mean, if this is crypto blockchain people listening to this, they’ll know that money is basically a ledger, right? We're all sort of keeping accounts. And we agree to use each other's accounts. So, what you can buy with money is definitely real. And it's definitely important, right? Obviously to say that it's made up, to say that its fiction is not to say that it doesn't matter. Obviously, it's wildly important, but at some level, there's no there-there. Samantha Yap [05:37]: I like how you challenge that and yeah, when you put it that way, I can see how it's something that’s a bit - it's not there – but it changes the way we live our lives. So, yeah, why is this something that anyone anywhere in the world can understand and compare. Everyone in the world needs money or works for money to survive. Jacob Goldstein [05:58]: Yes. I mean, money is an incredibly useful technology basically, right? If you go back in history and development, there are societies that are very small societies that don't have money or don’t have, you know, money like we would think of it, but they tend to be very, very small. Everybody knows each other. They're basically self-sufficient, there's not a lot of trade. And so, once you get beyond that size of society, you pretty much need money to function, to engage in the distribution and exchange of material goods and services. Profound crises leading to dramatic regime changes Samantha Yap [06:37]: But yeah, if it's fiction and if it's kind of not there, could we ever stop believing in it? Jacob Goldstein [06:44]: Yeah, that's an interesting question. I mean, one analogy that comes to mind when we're talking about this side of it is the law, right? There are laws, there's enforcement of laws. Law doesn't exist in the natural world. Right? But we create laws, we more or less follow the laws, and the laws are more or less enforced. There are times when there are revolutions, there are regime changes, laws change, and profoundly everybody suddenly stops following the law. And with money, there are somewhat analogous things that happen. Right? So, it seems quite hard to imagine a world where there is not money. That world would be profoundly poor relative to our world. We'd be screwed basically if people suddenly stop using money, that would be a catastrophe.  You do see times when the monetary system changes. I would say the most recent big dramatic shift came during the depression, right? In the 1930s one country after another essentially abandoned the gold standard. You can say, well, technically, there was a gold standard until the 1970s, but really the big action came in the 1930s. People really believed in the gold standard. Even more, I think, than today, people are attached to our monetary regime. People in power, really important people just believed in their bones, that the only real way to do money was the gold standard. And then suddenly it wasn't anymore. Roosevelt, Franklin Roosevelt, the president of the United States, his own advisors were like, “whatever you do, don't go off the gold standard”. And Roosevelt was like, “you know what, we're gonna go off the gold standard”. And his advisors when he said it, were like, “okay, that's it. That's the end of Western civilization. It's over. Goodbye. It was a good run.” But Roosevelt was right. His advisors were wrong. The gold standard was a problem in the depression. Going off the gold standard actually helped, and so there was this profound monetary shift. I think a lot of people did realize what a big deal it was. There were Supreme court cases about it, etc., but the depth of the shift was extraordinary and not that long ago, so certainly we can have a big change in the monetary regime. Samantha Yap [08:54]: Yeah when you put it that way that must have been a crazy time to have a shift in a belief in something, so yeah. What does it say about the psychology of money? You know, one minute we can think that gold is gold and hard money is the way to go, and then kind of going off it. Jacob Goldstein [09:12]: Yeah, that's an interesting, complicated question. I mean, on the one hand, you can look at how long people clung to gold and just how profoundly bad the depression was. Right? People don't want to change monetary regimes basically, right? People aren't excited to abandon the monetary system. I think, on the contrary, people tend to assume that the monetary system that exists at a given time is the right way to do it. So, it took the depression, right? It took the depression to do it. And, you know, Herbert Hoover, who lost to Roosevelt, would not have abandoned the gold standard. He gave speeches when he was running for election in 1932, like, no, there's no way we're gonna go off the gold standard. England only went off the gold standard because the Central Bank ran out of gold and they had to. So, it's a complicated question. I guess people don't want to change the monetary regime is one piece of it. But then in like a profound crisis, it happens whether people want to or not. Cash as an ever-increasing form of money – can we move away? Samantha Yap [10:11]: Let's move on to the forms of money. So, let's talk about cash because you talk about cash a lot in your book and we nowadays, don't carry about cash anymore. As you said, I wave my phone when I pay for my groceries. So, are we moving away completely from cash? Jacob Goldstein [05:58]: You know, that's a really interesting one. It feels like it. Why do you even need cash? Right? Unless you want to pay somebody off the books. And yet the amount of cash in the world keeps increasing, keeps going up. There's more paper money in the world than ever before. I haven't checked lately, but when I wrote the book a couple of years ago, it was something like $4,000, just in hundred dollars bills for every man, woman and child in America. Right? Which is wild! One fun question is: where are they all? I don't have $4,000 in hundreds for every person in my family and there are a couple of answers. One is they're outside the US, right? We know, in the case of the United States, the US dollar is the global reserve currency. And you see that on an institutional level, with central banks holding, dollar-denominated assets, but you also see them on an individual level, where lots of people in countries where the banks are unreliable, where currencies are unreliable, will hold, paper money, dollar bills under the mattress as their savings. So that's one part of the answer to what's going on with paper money. I mean, the other part of the answer is crime, right? Paper money is an amazingly good way to move around purchasing power without anybody knowing about it, to buy stuff without anybody knowing about it. So those are the two use cases for hundreds, as far as I can tell. And they're really popular use cases, and the government doesn't seem interested in getting rid of the hundred, despite the fact that it's this sort of this crime vehicle and something for foreigners to use as savings. I mean, partly because, you know, the government can make a hundred dollars bill for a lot less than a hundred dollars and essentially get a hundred bucks for a piece of paper. So, it's kind of a good business. I would be in that business if I could be. David Chaum, Dossier Societies and why we don’t really care about privacy Samantha Yap [12:18]: Yeah. When you put it that way, we think that money is this finite thing, that we can account for. But then, as you said, there are probably hundred dollars bills somewhere around the world that we might never know where they are, and then people are using them to exchange value. I mean, yeah, when you put it that way, it's a fresh perspective and a kind of true one. But what do you think of the invention and the dream of digital cash by David Chaum? Jacob Goldstein [12:43]: Yeah. So, I was thinking about him just as we were talking just now. Right? So, cash, paper money, is an amazing technology for anonymous transactions, right? You walk into a store, you give somebody a piece of paper, they give you some stuff, or maybe it's not a store. Maybe you meet a guy in an alley and you give him some paper and he gives you some stuff. Nobody has to know. You don't need a receipt. It's just done. Right? It's the most anonymous transaction you can imagine. And so, David Chaum is sort of the kind of intellectual godfather of crypto, right? A generation or two before Satoshi, he was a cryptographer, and in the 1980s, he wrote this incredible paper, incredibly prescient, where he talked about how we were moving into what he called a Dossier Society. And he foresaw that cash was going to be replaced by digital transactions and he foresaw that digital transactions could be tracked in a way that cash could not. So, this idea of the Dossier Society is what some people now call surveillance capitalism, right? This idea is what he was looking out for in the 1980s, saying, "In the future, everything's going to be digital," which means, everything can be tracked. And he was a cryptographer, he was like a privacy guy. And so, what he wanted to invent was anonymous, digital cash, right? He wanted to take the anonymity of paper money and bring it to the digital era. And he came up with this very complex, very clever way to do it.  And relative to what we think about today with crypto, a big difference was there was a trusted central intermediary. There was basically like a bank and there was sort of a complicated technological idea he had that would let the bank verify to a merchant that a customer had enough money to buy something digitally, but the bank wouldn't know anything about what the customer was buying. Right? So, it's not disintermediated, it's not peer-to-peer. There's an intermediary, but it is anonymized. This was his big idea. He was an academic. He was a professor at Berkeley, but he actually quit. You know, in kind of a modern fashion quit and started a company. Everybody was excited about his company in the 90s. It was called DigiCash. It got written up in the New York times magazine and Wired, like the kind of hype cycle that we're all familiar with now. And interestingly, nobody was really that interested in using it. I think, partly because the main selling point was privacy. One of the things we've seen since then in the 21st century is people might say, "oh yeah, sure. I care about privacy." But billions of people use Facebook and Instagram and people clearly don't care that much about their privacy. What happened was, as the world digitized, nobody used digital cash. Everybody just used their credit cards, which are like totally trackable, and convenient. Everybody's fine with it. So DigiCash went away and digital cash went away. CBDCs and getting behind financial privacy Samantha Yap [15:52]: Interesting. And on that topic, and before I get to Bitcoin and Ethereum, you talked about privacy and you also mentioned briefly a potential surveillance-like tool. So, let's talk about the Central Bank Backed Digital Currencies. What do you think of that as part of the progression of this move towards digital cash? And you mentioned the e-krona in your book as well, so yeah. What do you think of CBDCs? Jacob Goldstein [16:20]: Well, they certainly seem trackable. I mean, it depends on how they're implemented, but it is notable to me that the big country that seems farthest along with the Central Bank Backed Digital Currencies is China, which is maybe the most intense technologically-driven surveillance State in history. Right? And so, the idea that cash - paper money is fundamentally untraceable and China wants to replace it with the Central Bank Digital Currency seems to me to be very surveillance driven. Now, I don't know the details, but just superficially that seems like the most logical story there. Samantha Yap [16:57]: Yeah. You mentioned not very many people care about privacy, but yeah, if a country like China and also even, I think, in the UK, there's like Britcoin and other countries are exploring digital currencies, national currencies. Yeah? Are you concerned about this on a financial privacy level? Jacob Goldstein [17:16]: I mean, I guess personally, I'm not to tell you the truth. For example, look, I pay all my bills online now. Right? Like, I basically do all of my transactions over the internet with a credit card. So, I've already given up that fight, right? It's not like I'm going to the airport and handing over a wad of a hundred-dollar bills when I buy a plane ticket or anything, you know. So, I'm already in the Dossier Society. I lost. You know what I mean? And like, frankly, I'm kind of okay with it. I guess there's an interesting question, right? To me, it would be interesting if governments ever tried to get rid of paper money, because clearly there is this option now. Like if you really care, if you really want your privacy, just go get paper money, and pay with paper money. First-generation crypto and the surprising lack of privacy Samantha Yap [18:01]: That's real privacy because I do not know if you've been following this Tornado Cash situation on the crypto level. We can expand on that a little bit, but privacy coins have started to emerge as well, which are digital currencies that have mixers in them to conceal privacy. What do you think about that? Jacob Goldstein [18:20]: I think one of the things that have been surprising at least to the general public is the lack of privacy of first-generation crypto, right? Every time somebody gets tracked down through the blockchain when they say use Bitcoin for a ransom, right? And then the authorities just find them through the blockchain. It's like, we've got an immutable ledger we could use to go figure out who has this money. That to me is an interesting story. It seems like there's been a long effort almost in a way from before the time Bitcoin was created, way back to David Chaum in the 1980s to create anonymous, truly anonymous, not just pseudonymous digital currency. It certainly seems technologically plausible.  There is some complicated set of factors about adoption and regulation that we'll have to see, but it'll be interesting to see what happens. Samantha Yap [19:17]: That’s me talking to Jacob Goldstein, Author of a Book called Money: The True Story of a Made Up Thing. It’s really interesting to hear Jacob’s view — that essentially money is a convenient fiction, a way for us all to collaborate and co-exist. And that fiction is not just one idea, but one that keeps changing as we change, and our needs change. And how now, we’re in a world where our transactions are being tracked — either by the government, demanding our banks share our data with them, — or by companies, in so-called surveillance capitalism, where our ‘value’ is to a shadowy ecosystem of advertisers, who obsessively monitor and monetize what we do, what we read, what we’re looking for, what we buy, where we go. So, can crypto help us in that? Is crypto another ‘made-up thing’ for us to participate on a more even playing field? Or is its transparency going to be the future? Thanks for tuning in to another episode of YAP Cast. I’m Samantha Yap. For new episodes, follow The Story of Money by YAP Cast.