Transcript of Episode 47 – Mark Burgess on the Physics of Money

The following is a rough transcript which has not been revised by The Jim Rutt Show or by Mark Burgess. Please check with us before using any quotations from this transcript. Thank you.

Jim: Howdy. This is Jim Rutt and this is the Jim Rutt Show.

Jim: Listeners have asked us to provide pointers to some of the resources we talk about on the show. We now have links to books and articles referenced in recent podcasts that are available on our website, we also offer full transcripts.

Jim: Today’s guest is Mark Burgess, an independent researcher and writer.

Mark: Hey Jim. Thanks for having me back.

Jim: Yeah, it’s great to have you back on. Our first episode was so interesting. I figured, damn, let’s find out what he knows about money, the other thing he’s written about. Mark is a theoretical physicist by training. He’s also a technologist, scientist in various domains, and an advisor to public and private organizations globally. He’s also what I might call a practical philosopher with his development of promise theory. And Yale, he writes fiction and composes music.

Jim: Today we’re going to examine another of his interests, money. Mark has written a very interesting book on the topic, Money, Ownership. and Agency: As an Application of Promise Theory. As always, we’ll have a link to it on Mark’s episode page at Check it out. The foundation of your work on money is your earlier work on promise theory. Could you very briefly outline promise theory for our audience?

Mark: Sure. Promise theory is really a way of modeling stuff that happens and in a way that tries to build systems from the bottom up. So you look at the smallest pieces of a system and then try to see how they compose to create the whole. And you do it by basically breaking everything down into a bunch of agents. Agents can be people, things, machines, mineral, animal, vegetable, whatever, and the promises they make to one another. And promises are statements of intent or alignment of intent. And by creating that network between agents of the intent and the direction in which they’re moving, you hope to model systems and their outcomes. So I guess that’s a short version.

Jim: Well, that’s great. It’s a really very rich theory and we talk about it in considerably more detail in EP28 where Mark was a guest on the Jim Rutt show. So just type in Mark Burgess, EP28 Jim Rutt show into Google and you will find it. Let’s now jump into money. Very big picture in your mind, Mark, what is money for?

Mark: I like that picture jumping into money. I could do that, I could do that all day. What is money for? I think money is for communicating intent in a sense, but it’s deeper than that because money is not an expression of intent in the normal way that we think of money, at least in the modern version of money that we’re used to using. It’s the layer below that, which is more of a transport mechanism on top of which intentions ride. But it’s a medium of exchange and whenever you have exchanges, you have people interacting over a length of time and building up a relationship with one another.

Mark: And so money has this important role in our society of maintaining relationships even when perhaps we don’t communicate by talking on the phone or visit one another for dinner so much anymore. As long as we’re sending little packets of money back and forth, we still have a relationship going. So it becomes a proxy for maintaining relationships and therefore trust.

Jim: Very good. The first thing I learned reading your book that caused me to raise my eyebrows and say, “Here’s something I hadn’t thought of quite like this before.” As you describe money as a network transfer system, very clever insight. Could you tell us more about that?

Mark: Yeah, so having money is a go-between. And exchanges has a lot of advantages, right? So some writers claim that barter proceeded money in some version of history. And others I think convincingly argue that there was never really a time in which money wasn’t used in some sense. And when we get into promise theory, we can explain that bartered goods are really a kind of private currency by looking at the patterns that it represents, almost like a one time pad.

Mark: But barter was the way that we started to exchange things in the past when you had a certain kind of good that you wanted to sell me a bunch of wheat and I’d give you back a bunch of wood or honey or whatever it was. And we would make these exchanges with much more personal contacts than in the past. But then as time went by trade expanded, became more global. There was the Silk Road and the Islamic empire spread its wings or its donkeys or camels across the world, and trade really took on a global dimension where you didn’t really want to be carrying tons of wheat, or camels, or honey around the world to exchange things if you could get away with it.

Mark: If you took something in one direction, it would be nice just to have a monetary note to give in return to say, “Okay, you owe me something in return, you’re going to have to give it to me right now, but we’ll make a note of that and we will settle up later on.” And so that role information in a virtual sense of information rather than a physical representation of information started to enter into the dialogue that was trade. And that’s really where the networking concept began.

Mark: Having money as a go-between has a lot of advantages because it has no opinion, no affinity to a particular thing, wheat or honey or anything like that. And then it also allows us to maintain a clean separation between entities if you like, a kind of locality of decision making, which sometimes is desirable, sometimes it isn’t. But it’s desirable if you want to think of private property and incentives within society for funnel profit.

Mark: So money begins as this kind of virtual communicating device to settle trades, but then it takes on this new information dimension and trust-building context and can even become a motivation in its own right to hold a lot of his stuff, gives you a lot of mobility because you can exchange one good for another. It’s fungible. It doesn’t even require me to get something back from you. If you give me something, I don’t have to give you something back. I could give somebody else something and they could give you something. So there’s this, it extends and expands the network dimensions, if you will, of exchanges and trades in a way that we now understand networks to do.

Jim: Yep. And it also allowed much longer range trade. Right? Particularly when money started to become denser like gold or even better in book entries like the Northern Italian bankers in the 13th century. Trade networks could now be linked by these money signals from Northern Italy to the Netherlands and back at the rate of horseback or sailing ship, but certainly much quicker than having to haul a vast wad of wheat from Genoa to Rotterdam.

Mark: Yeah, exactly. And the one that I like is we still use the name check from the French root of the Persian word shah for King, which was basically by the order of the King. We would have these money orders or promissory notes that could be sent back and forth rather than a train of camels to carry gold or whatever. But this use of this gold is interesting as well because you begin with bulk amounts of things like wheat and similar substances which are enormous volumes, heavy weights, and difficult to transport, but then you have things like gold and silver, which are precious substances with a very small weight. You consider them to be worth very much more and so you can keep a little, a few coins of gold in your pocket and buy a huge bunch of wheat, much easier to carry around but still problematic because the gold still has intrinsic value so it’s still a bit risky to carry it around.

Mark: And then we go all the way to simple paper checks and promissory notes, and the paper money, and the valueless coins that were later invented to avoid things like coin clipping, which allow you to totally separate the function of remembering debt’s if you will, remembering how to settle up there an accounting brick as you would have in a game board from the actual valuable thing itself, which is much more and difficult to carry around.

Jim: Yep, that’s absolutely true. You talked about medium of exchange as one of the features that money has. Historically, it’s described as having three features, medium of exchange, store value, and numeraire a measure of value. Let’s talk a little bit about store of value, one of the other interesting things that the emergence of money provides. I’d love to get your perspective on this is to store value. And, in fact, if we then lay that onto your concept of network, we might be able to think of money, something like a capacitor in the network. It allows us to store some amount of our “energy”, for some period of time because it may be that I’m willing to sell my wheat today, but I don’t really want to buy some bread until Tuesday. And having money in between lets me easily and at lower risk essentially store that energy for some period of time. And, of course, while it probably started out as short term storage over time, the amount of storage has tended to increase. So now we have not just capacitors, but probably batteries as well.

Mark: Yeah, I liked that picture of a capacitor as a store. There’s a sociology of money as well as a network. Any network has a kind of social function, of course. When the agents are independent things, each makes up its own decision. Unlike an electric circuit in a capacitor where you have something driving the next part and it’s all kind of quasi deterministic. But when you have agents that are acting independently more like a bunch of cells, then the dynamics of that network are a little bit different. So by holding money, you’re trying to separate the notion of a fair exchange and measuring that fair exchange on some scale.

Mark: What we now idolize as the concept of value, which is a kind of proxy for fairness, were we fair in our transactions, from the actual functional things that money does, the exchange details of it. And money is not supposed to have an intrinsic purpose. It’s just a memory or accounting like this game brick that I was talking about. But what’s interesting is when you have this way of counting, you can then accumulate these counters as you say, and it becomes a kind of a store, a trusted store, and that allows us to play a game with time in the way that capacitors and other stores of energy allow us to do in the physical world. If we build up a store of something, we can then use it all in one go.

Mark: So by saving up a pile of money, we can afford something that we wouldn’t be able to afford given the rate of our normal earnings. Or if we come into some sudden wealth, we can spin that out over a longer period of time and survive for a longer period of time. So it has a buffering capacity as you described, which is pretty important because there are many things in the world that we simply can’t afford to do. We don’t have enough resources to climb over a wall. You’re stuck in prison. If you have a bunch of money, you might be able to bribe your way out. Or if you have a bunch of energy, you might be able to leap across the wall and overcome that potential energy with your rocket suit and then escape captivity.

Mark: So this ability to play with resources have to build up a reserve and then to use it in sudden amounts or a sudden burst allows us to play with space and time. As a physicist, that appeals to me. And of course, it comes back in subjects like quantum mechanics as well. But this ability to play with time allows us to achieve some things which would simply be impossible in the normal world of agents in their normal time rates and spatial rates. So I think money has this important function which has enabled a new level of society to take place where we can build these amazing buildings, and create cities, and buy houses, and do things that would simply be impossible by normal work.

Jim: Sounds good. Next, if we think of money itself being a buffer, there’s another very interesting kind of elastic aspect to money that became accreted on, some people would say from the beginning if you believe David Graeber, and that’s money and debt. Could you talk a little bit about both the nature of the relationship between money and debt and their asymmetry?

Mark: Yeah. This is something which I thought was really nice in promise theory. When I started this I didn’t know too much about money. I read pretty much everything I could find once the bug had finally bitten me. And I read David Graeber’s book, excellent book, Debt: The First 5,000 Years for our avid readers. What promise theory kind of shows is that money and debt are not exact inverses of one another. There’s another great book by Mirowski, which is called More Heat than Light. And he describes the history of economics, I suppose, money and economics in the 20th century, actually from the 18th century through the 20th century, and describes how economists, they were very enamored by physics. They had physics envy as many subjects do because physicists had been so successful in describing the world in terms of laws and rules and could perform these marvelous calculations to predict the future. And everyone wanted that for money.

Mark: And there was an obvious analogy between money and energy. Energy is basically an accounting parameter in calculations about momentum and motion in the Newtonian formulation of physics. And so people saw this connection between money or this analogy, if you will, between money and energy, and they wanted that for economics. And they started to create these theories based around that. And one of the ideas that you have in energy is that energy is conserved. Once created, it’s never destroyed. But if you create energy, as you sometimes can in quantum processes, you create an anti version of that as well. You create matter and anti-matter. And then if they are ever destroyed, they would turn back into energy so that the accounting is never broken. You never lose track of anything as you’re not supposed to in money either we should say.

Mark: But so this is interesting because of course there’s no reason why money should be conserved. If you got a bunch of coins, you can lose some, you can melt them, you can eat them, you can counterfeit your new money, print new bills and so on. This is all allowed, but it’s very handy to have a system in which we pretend that money is also conserved and we shouldn’t throw it away. We shouldn’t print our own and we should pay back our debts to try to eliminate them. And all of this becomes part of the narrative of money over time. And we almost take it for granted today until we come to the point where we eliminated things like the gold standard of money where we had physical measurements of money. And you then ask the question, where does money come from?

Mark: And in the Marxist sense, there’s a narrative. We still use this phrase, we need to make money. I mean we imagine people working in a mine and digging up something and this turns magically into money. And of course, it doesn’t in a world in which money is simply a bunch of notes and exchange media that you have to get your hands on in order to pay for things. If you’re just exchanging goods, yes, okay, you can exchange and barter with those goods that you’ve worked for. But in the world of virtualized money in which it becomes this kind of network layer, you actually need to get hold of that networking material, that medium of money. And the only way we could do that now is through banks.

Mark: Banks are the initiator of money and money is created through debt. So you don’t get given money for digging up coal or growing wheat. You have to go to the bank and say, “I’d like to borrow some money,” and they will give you money that you can spend in return for paying it back later. And all of the other stuff, the bartering, and the trading, and the exchanging, you’ve got to do in your own time. The money takes on a story of its own. But this is kind of interesting because so first of all, to get money that means you need a bank account. And even today there are whole swathes of population around the world where people are unable to get into the banking system because they’re not creditworthy, they come from the wrong caste, they’re the wrong color, they live in the wrong part of town and so on. You’re not part of the club with the secret handshake. You need a way into that system. So that’s the first part. It becomes a social network and potentially a closed one.

Mark: And then once you’ve managed to get money from the bank or whatever, you create this debt. That debt actually carries with it more information than the money that they give you in return. So in order to get that money, you may have to give up details, personal details, your credit history, how trustworthy were you in the past. And they keep this information and that, of course, spreads through their private network. So even after you’ve paid back the money, which you think might annihilate the debt in the sense that particles and antiparticles may annihilate one another in physics, you may not completely annihilate your debt because the memory of all the semantics, the memory of that history follows you around.

Mark: And so this ledger of transactions that follows you around in the world as you go becomes a kind of almost like in physics we talk about this virtual cloud that hangs around bare particles. In monetary terms, we have this dark cloud of foreboding, which is our credit history if you will. It follows us around as well. And that, of course, may influence transactions in the future. So debt and money superficially seem to be the opposite of one another, but in fact, debt carries with it memories that are far more complex and networked than the money itself.

Jim: Very, very good point. One of the key attributes of debt is interest. What is it and what’s the rationale for it?

Mark: Yeah. Interest is one of those complex things that I always find it extremely hard to understand. And going back in history, we’ve been through epochs in which interest was banned, forbidden. In the Islamic banking system, it’s still forbidden in principle. Interest is this idea that when you borrow money, that’s a service and you should perhaps pay for that service. So you have a service fee. You have to pay a certain amount to compensate the lender, which is kind of absurd in a sense because it didn’t cost banks anything to create the money, especially in the modern system. Right? You’re not doing them out of anything by borrowing the money, in fact, quite the contrary. But we’ve taken on this narrative of interest as a form of compensation for the money being unavailable to somebody else. So we should pay them for that service, for the privilege of handling the money.

Mark: … service for that, so the privilege of handling the money. That’s one version of what interest is. Another one is that the interest rate that we hear about on the news is quite a confusing beast. It’s only vaguely related to the rate of interest we pay on our mortgages, which may or may not be a service fee or whatever, but that makes economics pretty difficult for ordinary folks to understand and a highly illusory game, even for bankers to understand. What they’re trying to do is to try to incorporate projections for what money might be worth in the future. If I hold onto a bunch of money instead of passing it on to somebody else, what happens if the buying power of that money, the purchasing power of that money is less because I’m holding onto it because prices are rising? Then by holding on to that money, I may be losing or winning depending on whether the prices are going up or down. I may need to be compensated for that loss.

Mark: The fact that in any kind of world of processes, processes are always racing one another in time. Is one process becoming more expensive than another? Will we have to pay more for it? Is it going at a faster rate than the growth of the thing that we’re hanging on to? Will I be able to catch the train? If I run fast enough, do I have to borrow money in order to catch my train? This idea of racing processes is also present in money. If we loan money to pay for a house, but the house price’s increased before we pay for it, we’ve already lost somehow.

Mark: There’s this concept in which interest is also part of playing with time and space and for transactions there as well. And we’re trying to compensate perhaps, people holding onto money or people who’ve lent money for what it could have been, what they could have done with it had they had the money themselves. And again, this goes back to this notion that money is imagined to be a conserved quantity in which if I have it, you can’t have it and so on. It’s not really true, but it’s the game that we play by strange rules and we play it by rules that people make up as they go along. But that’s part of the rationale about how you try to motivate people to pay you back the money that you’ve lent them.

Jim: Okay, very good. I will add, you basically laid out two rationales for interest. One, is time value of money as a commodity, and the second is currency risk, as I extracted what you were saying. But there is, of course, a third one about real interest rates, which is default risk. So while that does not apply to so-called risk-free monies, for instance, perhaps and maybe not anymore, government bonds, in the real world, like we when we purchase a car, as you talked about before, our credit history will modify quite significantly the interest rate we actually pay. I just want to make that point for the listener.

Jim: Now, let me ask you one of these crazy questions that money nerds always ask each other and scratch their head. I’d love to hear your answer. One of the conundrums of bank interest money is that the money is created at the bank for the principal, but not for the interest. What does that mean? What implications does that have for the financial system?

Mark: I’m not sure I understand the question, Jim.

Jim: Okay, so let’s say I buy a house, I borrow $100,000 from the bank, buy the house. That $100,000 flows to the builder and off to his workers, et cetera, but I’m now on the hook to pay 5% annual interest. No money was created in the system to pay that interest.

Mark: Got it.

Jim: Some people say that this is a crazed treadmill, which means that if the banking system isn’t growing, it’ll catastrophic collapse. Love to know your take on that seeming anomaly.

Mark: Yes. So this is the paradox of money and the assumption that money is conserved. If you borrow 10 bucks and you have to pay back more than that, then where does that money come from to pay back more than you actually borrowed, if the money had to be created by debt in the first place? So how’d you get more money back for what you borrowed, than what you initially borrowed to to be able to pay back the interest?

Jim: Let me hop in and say, I’m a little interested in what it means to me as the borrower, but I’m more interested in the systematics. The fact that the total sum of payments is now greater than the sum of money in the system.

Mark: Yeah, I understand. And that’s what I’m getting to that.

Jim: Okay. Great.

Mark: If everyone’s borrowing money and they all have to pay it back, how can they be more money in the system to pay it back then there was created by the banks in the first place? Well, one answer to that also could be related to a phenomenon in physics called renormalization, where over time, the value of money, and I hate that… We’ll come back to talk about that in a bit perhaps. The value of money, what its purchasing power is changes because prices are rising. Because prices rise, we have to pump more money into the system to be able to pay for things and of course, as more people on the planet are born, more money has to be created for them to buy things as well. So there is a need for more and more money all the time and that means people have to be borrowing more and more money over time. It seems to make no sense.

Mark: It seems like we would be in permanent debt and, of course, we are in permanent debt all of the time. But the fact that prices are rising and you can be paid back more, leads through the concept of inflation, which allows you to get back more money than you perhaps paid for something and make profit. And that margin, assuming that it’s always racing the creation of money and doing reasonably well, and you don’t care too much about the debt, you can try to make that game work in such a way that you’re paying back your debts as somebody else is borrowing kind of on your behalf, somewhere else in the world. And the network effect of that is rooting money to you at just the right way that you’re pushing debt away from you all of the time.

Mark: But of course, new debt is being created all of the time at the edge, which has never being paid back. And so there’s this kind of pyramid game ongoing and our economic story around profit and interests and so on is essentially a gigantic pyramid scheme, in which that is continuously being created, devalued, and the semantics of it being scattered around like entropy so that we don’t care about it anymore, in order to continue to play.

Mark: I mean, it scares the heck out of me. I don’t know about anyone else, but when I look at the way the financial system works, it’s amazing to me, every single day, that it can possibly work. And yet, it seems to have periods of stability and instability of course, but it seems to sometimes.

Jim: Yeah. It’s sort of, where I call it meta stable, right?

Mark: Yeah.

Jim: It’s kind of like when you’re running, a human running is actually falling, it’s a controlled fall. And sometimes when you’re running, your foot hits a curb or you step on a toy some kid left on the sidewalk and you go on your face. I think of our monetary and financial system is that, a controlled running fall, which mostly works, but sometimes you fall down and sometimes you fall down hard enough to break your noggin.

Jim: Now, you’ve talked about inflation and interest. We have been, really since 2008, in a very strange world where from time to time, deflation has raised its head. In Japan, basically has been in deflation or close to it, for the last 20 years, and deflation has flickered on and off in Europe and terrified the hell out of the central bankers. Also, more peculiarly, in your book you talk about negative interest rate, but you noted it as more of a historical curiosity. Today, it’s a reality.

Jim: For the last several years there’s been negative interest rates on short and even medium term bonds from Switzerland, Germany, Japan, several other countries. I check yesterday and the Swiss rate, I think on three year bills is now minus 0.8% and Germany, it’s about 0.5%. I haven’t done the research to confirm it, but I understand in Europe some of the triple A rated corporate bonds are now mildly negative on their interest rates. What does a world of deflation and negative interest rates indicate to us about money and how does your theory of money even account for that?

Mark: Yeah, this is a huge topic and you’re absolutely right, negative interest rates are now pervasive in Japan and Europe, and the Euro Zone in particular. I have to say, I’m not an expert on it. First of all, I’m not an economist, by any means. One of the interesting books that got me interested in the question of money in the beginning was, first of all, Yanis Varoufakis’ books. The first one was, And the Weak Suffer What They Must?, which was about the Greek debt crisis in Europe. And then actually his earlier book, but I read that afterwards, called The Global [inaudible 00:09:47], which is about the financial crisis and the monetary system. And then after that I stumbled across an interview with Steve Keen, an Australian economist who wrote this fabulous book called Debunking Economics. He belongs to the church of Minsky, Hyman Minsky and his death models. Minsky wrote a book called Stabilizing an Unstable Economy. And can it happen again around these various deflationary episodes and these financial crises that seem to recur every 10 years or so? The mother of all being the one in 2007 and ’08.

Mark: They have models for describing these scenarios which go far beyond the kind of monetary modeling that I’ve undertaken using promise theory. They use these differential rate-based models, based on average statistical measures and the econometrics that economists use, like interest rates and GDP and so on, which allow you to model money on a timescale of decades and years and over long, long periods of time. Of course, they then try to apply them to money markets on the scale of days and weeks and months, which is kind of absurd and leads to this meta stability that you were just talking about.

Mark: I find this sort of extraordinary because this got me interested in the concept of money and whether or not that network of effects could work on the timescale of those microscopic interactions. My promise theory money is really a microscopic view of money, if you will. It’s a transactional view at the level of our everyday payments for things, the trust incurred in the relationships between us. What allows one person to pay for something and what will make your client be willing to pay you for your services? How do those relationships get started in order to bootstrap that whole motor or machine engine of the world? I think that’s what Ayn Rand called it, the engine of the world. And that engine of the worldview is what the macro economists like to study, and to model, and talk about, that microscopic version of money is a totally different beast than the microscopic version that we were talking about in terms of transactions.

Mark: I think people began to realize this after the original depression during the ’30s, where John Maynard Keynes, the British economist, became a force of nature or force of economics, if you will, talking about the role of debts and the fact that the way in which banks create money was an important thing that had to be taken into account. Because it may seem bizarre for our readers to hear that economist economics didn’t model money. To this day, many economists talk about economics, GDP, and debt, and interest rates, and unemployment without ever referring to money as a medium and what it does. This is quite extraordinary and Steve Keen makes a big point of this in his book, which I found very illuminating and inspired me to try to get to the bottom of what money was all about.

Mark: What these guys do is they look at these global indicators like GDP, unemployment, and they use kind of straight line or polynomial relationships between them, simple deterministic laws, a bit like the laws of physics that I was alluding to before, going back to this time when economists wanted economics to be like the laws of physics and have this physics envy; you just solve your differential equation, subject to some boundary conditions and then you predict next year’s economy. And people still do this with these Goodwin Minsky models that are used in various degrees of approximation, to try to look at the trends that are ongoing.

Mark: But to me, from a promise theory perspective, this goes back to something which I call the principle of separation of scales, which with your background in complexity science, you recognize as well, has been one of the most important things of complex systems, how systems exist on different scales and they make different promises at each different scale. So there is an interaction story at each identifiable or separable scale of a system, which tells a story of its own. And those stories are not necessarily clearly related or in a simple way related. Of course, this means that economics and the story of money and the story of society that it tells, is not one simple story. It’s a story on many levels. Economists separate themselves into micro economists, macro economists. There should probably be mezzo economists in there as well. But I never heard of them before.

Mark: But I think economics is attempting to go through a revolution to reinvent itself along these lines. And some of those advocates, like Minsky was an early one, largely forgotten today. Keens, of course, wildly misrepresented in his version of events. His theory was kind of a hijacked by the neoclassical economists and misrepresented for many years. And then, sort of the modern advocates like Yanis Varoufakis and Steve Keen and even old guys like Schiller, the Nobel prize winner, his latest books on narrative economics and so on, indicating how we try to separate the storylines of the different scales in the economy to to predict how stuff happens.

Mark: A long and rambling answer to your question, real economics being a complex system is a complex thing to describe, with many different scales and we have to have different stories about it at each of these scales. The nature and characteristics of those stories at different scales, of course, are very different.

Jim: Absolutely. Very good perspective. I will second the call out to Steve Keen’s, Economics Debunked, which is a must-read if you want to understand why our economists have led us so far astray. I’ve got Schiller’s Narrative Economics on my soon to be read stack. Another one I’d call out, and this is actually my touchstone on my own work in monetary theory, The Money Illusion by Irving Fisher, very iconic classic economist back in the ’20s and ’30s, who I still believe saw money more accurately than anybody else.

Jim: And finally, if you want to see the Ruttian view about money, I do have a talk on the internet. Type in dividend money, Jim Rutt, on YouTube, and you will see my 90-minute talk about an alternative money system that doesn’t require debt.

Jim: Let’s move on. Another thing that you’ve talked about in your book in some considerable detail, something that’s frankly right at the edge of my understanding of money and one of the things that makes it so damn complicated is how foreign exchange changes our analysis on money. Could you talk to us a little bit about foreign exchange and how that couples to any given country’s monetary system?

Mark: So we started with this idea that banks create money, and each sovereign realm, with its own banking system, can create money of its own. In fact, you or I, could tomorrow, just create our own currency right off the bat if we wanted to. Anyone is free to do that at any time. Companies do it from time to time. We have coffee cards and flight miles and so on, these loyalty systems that people create. Of course, there are many reasons for doing this, but let’s not get into that right now.

Mark: The trick of creating your own money is to get people to accept it. If someone will agree to use your currency and give it back, to such a degree that it forms a network, then it starts to become a useful thing. It’s like if you’re on the internet, if you have a bunch of internet packets, TCP packets, but no one else supports TCP, you’re stuck. You’re not going anywhere. But if the whole world adopts TCP IP, then suddenly you’ve got an internet. In a similar way, you would like to have a global currency in which everybody could pay everyone else and you could just sell things and buy things freely.

Mark: But because of the relationship to politics, not everyone really wants to do that, because who gets to decide how much money is in circulation will affect how well-off people will be, which is a political issue, who gets to borrow money, and if some people start getting too rich, how will we control that? So there’s a lever of control, which is implicit in money, which is highly political. Of course, governments and, and banks even, and private corporations want to be able to control that to some extent. Sovereignty over money and its controls is an important thing.

Mark: After the Second World War, the Marshall plan and all of the enormous war costs and reparations that had to be made, Keens apparently, propose the idea of a global currency. But this was actually fought down by Washington because Washington wanted to have an advantage over the rest of the world to control certain resources like the oil and so on, for political gains and still maintains that control lever, which allows it to perform sanctions on countries and so on. So this political dimension means that the national boundaries of countries now play a role in currencies.

Mark: Exchanging money, if you want to pay for something in another country, you have to go through this rather complex dance of buying currency, using your own currency. Now, how does that work? If money is created only in the foreign country and you can only get money by paying in your own currency, and it doesn’t work in the other country, how’s that going to work? Well, of course, what happens is that each country basically has bank accounts in each other’s banks. The foreign banks have bank accounts in one another’s banks and they will issue debts in order to issue currency in the foreign currency. Again, it’s a game of virtual debt, floating around with bonds and other instruments. We don’t have to get into the details. If I even understood, a fraction of it…

Mark: If I even understood a fraction of it, but it’s basically the technology of debts and ledgers creating debt and instantiating money in the currency required, but then of course there’s another story around what is that money worth in terms of what you can buy for it? The basic rule, I think, which is easy to understand for everyone, is that money is worth exactly as much as you can get for it. You offer somebody a dollar, you may get bubblegum, you may get a car. It just depends what people are feeling on the day. So there’s a trust aspect to that. There’s also a market-based aspect of that. If I can get something from somebody else cheaper than … prices fluctuate, so there’s a whole language of prices, which is a story unto itself, but that means that the effective purchasing power of money, what we like to call the value of money, is a highly relativistic, highly fickle, and mercurial aspect of global communication, which is constantly fluctuating.

Mark: It means that money we thought we had can just vanish overnight because markets are suddenly taking different rates of money for something. This happened to friends of mine who borrowed money from one bank in one currency or ordered something online in one currency and then the order was canceled and they were paid back. They were refunded the amount, but the amount was either less or more in the interim than what they paid for it originally. So you could either make a profit or a loss just by canceling an order, which is one of those extraordinary uncertainties in the modern world, but this is again all part of this promise theoretic story in which you have independent agents, in this case, the national sovereignties or the central banks, actually the private banks too, each maintaining their own version of money, their own rates of interest, and their own rules essentially about how to repay debt. The semantics of all of that impinge upon the effective amount of money that people have in their accounts over time.

Jim: Of course it manifests itself in some interesting ways. For the individual, small scale foreign exchange can be horrendously expensive. You go to those goddamn money things at the airport. What do they hit you, 8 or 10%? If you’re a, let’s say an economic migrant, a third world person working in the first world to get your remittance back to your family, it could be more than that.

Mark: Yep.

Jim: Part of the system that has not somehow evolved to be very efficient. One of the things that we’ve talked about a little bit is the supply of money. One of the things that I don’t think was in your book too much, and unfortunately you don’t have a Kindle edition, so I couldn’t search and see, is the velocity of money. Have you thought a little bit about how the quantity and supply of money interact?

Mark: So this concept of the velocity of money is how quickly, in some sense, money is changing hands. Unlike velocity in the Newtonian sense of physics, it’s not a simple concept. It can be discussed as a statistical concept on the scale of these macro economic models, but the meaning of that thing I think is a bit iffy. I wouldn’t place too much sway in that concept, but I don’t know what macro economists would say about it.

Mark: Personally, to me it doesn’t make too much sense for the simple reason that you or I operate with money only on the scale of agents and transactions, not these statistical averages over time, but what’s important about this concept of how fast money moves is that if money pools in places, if somebody hoards money for too long, the supply of money is effectively stunted for other people. You need a certain amount of money flowing in order to be able to buy stuff. If somebody’s stashed 90% of the money in their bank account, then it means that only 10% of the money are available for the rest of the world to buy stuff, which may not be enough for what they need to do. So you then need to borrow more. So it’s important that money maintains this sort of fluidity or liquidity, as they say in economics. It keeps moving. It doesn’t stay still for too long.

Mark: Now, this is at odds with the idea that you want to accumulate buffers of money in order to perform these extraordinary acts of building or borrowing to overcome obstacles and barriers along the way. This is the discussion … if you like, the difference between the Western debt-based economics that is a popular in America and Britain and the German version of monetary economics in which you’re supposed to save up in advance, your good savers putting away for a rainy day and you never take on too much debt. You pay back your debts.

Mark: This has been studied at great length in David Gruber’s book, again, and not only his book but Thomas Pigott, his book on capital, which I liked very much. He studies the history of debt and lending and borrowing and whether or not having huge debts instead of stockpiling money over time is in any way good or bad for you. I think by studying the records, especially in Britain and France who have kept records longer than many other countries, he concludes that debt is not all that bad, is not as bad as we think it is and this German model of “You’d better save up your pennies in your piggy bank if you want to afford something rather than borrowing” is actually false. Debt is more or less harmless over time because of inflation. If you don’t lose your cool, it can be the better way, perhaps, of overcoming financial obstacles rather than trying to stop money from flowing.

Mark: So, whereas we Europeans look at you Americans as big spenders going into debt, maxing out credit cards, as being sort of “Wow, this is sort of shocking to a European mentality,” in the long run, perhaps it doesn’t really matter and that might actually be the way to get ahead in the financial system, such as it is. So this is a pretty interesting issue, which I have a small understanding of, but I think it’s based around … at the level I understand it, it’s based around the individual agents and their willingness to accumulate money and pass it on, depending on their own private policies.

Jim: Yeah, it’s interesting. It’s been a secular downward trend in velocity in the U.S. For instance, I just pulled up the federal reserve velocity of M2 money stock. In 1996, in the hot economy, the velocity of money was about 2.2, meaning that the typical dollar was spent twice in a year. It’s currently down around 1.4. Of course what that is is that money times velocity equals GDP. It’s essentially a derived function. So GDP continues to grow. Money supply has grown tremendously with the various QEs, et cetera, during the financial crisis. We now have a much bigger money supply than we used to and the GDP has been growing relatively slowly. So, algebraically, the velocity has to have come down, which basically means people are sitting on money more, or money is stuck in places where it can’t do anything. This is something you hear from bankers that, “Well, we got money in our lending capacity, but there really isn’t as much demand for lending as there used to be, at least credit worthy lending.” That’s an interesting phenomenon that we’re in.

Mark: Yeah, and Jim, this comes back to your point about the negative interest rates again. The negative interest rate is an incentive for people to not hold onto money. If you’ve got money in the bank, you’re actually being charged now for having it there rather than being offered a premium for keeping it there. So, the negative interest rates are a way of trying to kick people up the ass and get them to spend their money a little bit and lend their money in order to get the money moving around the system again.

Jim: I think, in terms of designing alternative money systems, there’s a concept called demurrage, which is a charge for storing money. Of course, it goes way back to the days when gold was money and people would have gold notes that they’d get from their bankers, but at the same time, the bank would charge you a fee to hold your money. One could imagine that in a new cryptocurrency or other kind of cyber currency where you could actually have a negative interest rate built into the system. Even though money may not come from actual debt, you could actually have a charge to encourage people to move it and you could indeed adjust that demurrage to either speed up or slow down the money.

Mark: I think however you organize your economy, whether it’s a cryptocurrency with a maximum amount of Bitcoin or whatever, an upper limit on that. Whether you allow money to grow without limit, as in Zimbabwe, or with the extraordinary inflation rates, there’s this multi-scale aspect of money which you’re never going to escape, one way or another, which is that the longterm trends of spending, GDP, interest rates, and all the mechanisms, the leavers which people use to encourage, to manipulate, to motivate us to interact with one another, those long scale things act as a kind of a boundary condition in forming the much faster transactions that apply to us in our daily lives. So, they affect the rate in which we are allowed to borrow money, in other words, the rate at which we can now acquire money to solve problems.

Mark: So there’s this feedback system between the bankers and the world of finances, who are dealing with things like GDP, which is an utterly meaningless concept to most of us. The interest rates that we hear on the news, again, utterly meaningless concepts to most of us, and then the way they get turned into decisions made at your local bank for how much it’s going to cost you to pay your mortgage this week and whether or not you can afford to buy food at the supermarket or whatever. So, this feedback system is a multi-scale feedback system, which makes it a complex system and it’s poorly understood and, as you say, matter stable for that reason.

Jim: Let’s dig into a couple of little more technical areas that you had some very interesting things to say about, the entropy of network money and how we think about that and what does it mean?

Mark: Entropy is one of those concepts, I almost hate it when people bring it up because it’s something people love to pull the wool over others’ eyes with John von Neumann even made that point, I think to Claude Shannon, back in the day of … he was working on communications theory. If you call it entropy, no one will understand where you’re talking about, but entropy is … it’s essentially a measure of how distributed something is in a system. If everyone has exactly the same amount of something, you say the entropy of that thing is maximal. So, if we all have the same amount of money, the attribute of money would be maximal. If we all had the same amount of wheat, the entropy of wheat would be maximal. The minimum amount of entropy is sort of the opposite of that, where one person has all of it and nobody else has any. This is obviously important for trade and transactions because if we all have the same amount of something, then we’ve got no incentive to trade anything. So we definitely don’t want to end up in a situation of maximum entropy in money, economics, commodities, or whatever.

Mark: Similarly, we don’t want one person to have everything because then it would just be a charity show and you’d be getting handouts from somebody who is basically the ruler. So there’s this concept, much in physics, about how entropy represents the motor of the system. If a system has reached maximum entropy, the system ain’t going around no more, nothing’s going to happen. So, we’re trying to avoid that from happening. One of the antidotes to that happening is exactly the banking system where banks can create new money in order to create a surplus of purchasing power.

Mark: Then of course we need entrepreneurs and companies to create surpluses of goods here and there to prevent the heat death or the wheat death of the universe on that kind of score. So, it’s a little bit related to this concept of velocity of money. It’s a very broad concept, a theoretical concept if you like, not too useful. We certainly hope that we never get to the point where entropy becomes a useful measure.

Jim: It would be a sort of, as you say, the heat death of the economic system. It is interesting. Even though I do criticize the fractional reserve banking style of money, one of the things it does do is it forces the circulation, right? Because typically loans are for relatively short periods of time. I think they average about four or five years and so money comes into the banks, is destroyed, literally. When you repay principal on a loan, the money is destroyed and then the bank typically lends it back out, creating new money, and that money then diffuses back out into the system. So we essentially have a circular flow of money out to loans, back to the bank, and then back out again, which does provide a fairly strong force away from entropy.

Mark: Right. The part we didn’t talk about earlier is that banks can’t just create any amount of money any more. There are limits on deposits that they have to hold in order to create new money by regulation. This is simply a convention. It’s not a law of nature, but it’s a legal convention, I guess, in different countries.

Jim: And they can adjust it for political or economic purposes.

Mark: Yep.

Jim: Let’s go into some stuff that maybe gets a little closer to easily understood promise theory, and that’s the idea of payments. There’s lots of different ways that things can be paid, and interestingly, payments have attributes that aren’t necessarily obvious on the surface. For instance, despite all these fancy Bitcoins and this and that, credit cards still have a big role to play in the economy.

Jim: Frankly, I always pay for anything I can with a high-end credit card, like an American Express, because it has a special attribute of renunciation, right? American Express, since I’ve been a customer for 50 years or something, 40 years, trust me when I say, “Take the money back from that asshole,” right? The goods they gave was no damn good! They’ll just do it. American Express will just take the money back from the vendor. Talk about payments and how that whole thing works and how it’s much more nuanced than it appears on the surface.

Mark: Yeah. This is an incredibly interesting point, especially in this world of Bitcoins and cryptocurrencies that have taken off on the idea of mistrusting the banking system. The concept of money as a fungible network packet layer of communication is pretty important. In order to carry out that function, you should have as few labels, as few semantics as possible. Just as in the internet, you want the IP layer or the TCP/IP layer to have relatively few markers and labels and things that identify it. You don’t want money to be tied to a particular person, because you want it to flow between people. You don’t want it to be specific to a particular kind of good, you know, “You can only use this money for wheat,” Even though we create many of these loyalty systems now, like air miles and coffee cards that can only be redeemed with certain suppliers and so on.

Mark: These are ways of playing games with trust, by adding labels to money to bring people back and to sort of maintain relationships by encouraging, with incentives, people to come back to and maintain the same relationships rather than allowing money to flow freely and diffuse without opinion, if you will. Part of this, of course, happens with banks as well, although when you have a national currency, like the dollar or the pound or the Euro which works within a certain sovereign realm, the money kind of is tied to that central bank and then you have foreign exchanges, as we discussed before, but if you ever begin to mistrust the role of that intermediary, the money itself, or the third party that you go through, like a bank that maintains a ledger for you to pay on, it could be your credit card or simply your checking account or whatever, then you may want to try to go back to this concept of barter, individual handing over the goods directly again, but by doing so you would lose a lot of value. All of those things we discussed previously about the time, the ability to play with time, the ability to resend your payment, as you mentioned, you know, “I regret that decision, please take it back.” All of those things become impossible in a world in which you don’t have some kind of service layer in the middle.

Mark: So these trusted third parties, like the banks and the credit card companies, while at one point being able to have considerable power as network hubs, as exchange hubs within whatever currency they belong to, they also are able to provide smart services like lending, like resending money, like tracing certain transactions. They even can perform services for the police to be able to track money laundering and things like this, although they don’t do a terribly good job on that. The argument that came up after the 2008 crash that led to Bitcoin and the cryptocurrencies was, well, these, these banks, because of their games with lending and refinancing of loans and monetary instrumentation, has gone wild. They’ve lost control of themselves. They now wield too much power over ordinary people. Let’s claim back trust by taking away that need to trust the middleman. Of course, that’s entirely misplaced because you’re still trusting a middleman. There is still a middleman in the cryptocurrencies. It’s now a software system instead of a banking entity, so it may be slightly more predictable in some senses, but not in others because it’s still a market making it work and it’s still fluctuating based on the weather of who happens to be running Bitcoin mining operations at the time.

Mark: So it’s very, very complicated picture, but this ability to put services in between is extremely analogous to this RSI model of networking layers from the bottommost layers of transport to the topmost layers of smart services that we expect from the web, but you got to be careful about where you put different functions in the different layers of the network stack. So should we have smart dollar bills? Would that be good? Could we add labels to the money? Well, no, you’re not allowed to write on the bills, so we’re not allowed to add money there. That’s good. Okay. That means money is still fungible, but then that prevents you from creating loyalty points and creating customer value through additional services that you could provide. So, we want to be able to add those things at a high level of abstraction and this is a role of the banks and the-

Mark: This is a role of the banks and the money handlers that I think has been greatly underestimated in the West. In China, people are very good at doing this. They’ve come far further than us in the Western world, by adding these smart services to money. Taking a promise theory perspective, as you mentioned in the beginning. Okay, so in the promise theory you have agents and you have the promises. Money are promises and the proxies that carry those promises, the network packets, if you like, are the bills and the trusted third parties, the network hubs like the banks. But then what about the end agents? The agents at the end. If you put your intelligence into those guys, like it used to be in the world of bartering, you could say, “Well, I’m going to put all of my smart services into the endpoints instead of the pricing.”

Mark: How is the service offered? What is included in the price? Is it just a number? How much you’re willing to pay? Or is it a form to fill out? Do I have to give you additional information? Will I add some extra stuff coming back to you as a service alongside this? This is kind of interesting, we’re starting to see banks realizing they’ve been caught with their pants down here because they are network hubs at the center of this vast network technology that is money, and they could be exploiting that hub advantage to provide additional services like authentication of users.

Mark: Your identity is essentially your bank account ID, right? In my home country, Scandinavia in Norway, the banks have taken on this role of validating authenticating users for the government now. So we see banks as third party network providers starting to realize they have other services they can offer than simply routing money. They can route other kinds of information too. They’re in a great position to do that. But no one is quite sure how to go about this at the moment. We see all kinds of inconsistent schemes.

Mark: Except in China where there’s been a far greater homogenization and willingness to interact and innovate around this space. So those guys in China have their social media platform, WeChat, and the Alibaba’s payment system. They use those, they interact, and you can lend money. You can borrow money just through your phone app at the push of a button in a very simple way. All of these financial services easily available. They’re tied into other network services like facial recognition. So you go to the supermarket. You can just walk out, and it’ll see your face, and your pay with your face. So all of these possibilities can be embedded within the network architecture that is money. The question is where do we want to put it? In the money packets in the pricing at the edge points? In the agents or in the network transactions?

Jim: That’s good. We’re getting a little late on time, so I’m going to skip over some more details about our current money system from your book, I’d encourage the listeners to read the book if they’re interested on those details. Let’s talk about the wild new world of new monies. Well, actually before we do that, it sounds like a fair amount about these Chinese payment systems, which I do not. Are those payment systems using banks as intermediaries, but just doing so efficiently and quickly? Or is there a near money or something else that’s just outside the banking system there?

Mark: Yeah, this is very interesting. It was a great question. In the beginning, Alibaba and WeChat had monetary systems completely outside the banking world. So compare them to the airlines and the systems of air miles that you can use to buy within the airline networks. An airline has so many resources, it has such huge buffers of money, and it’s into every kind of commodity you can imagine. It needs transportation, oil, fuel. It is basically its own virtual sovereignty. It’s able to manage huge pools of money in debt simply within that framework without involving banks at all.

Mark: In a similar way of these massive companies, the extraordinary success of Alibaba and WeChat to enable them to create essentially their own virtual money. They could do this completely outside the normal banking system. But then the banks caught wind of this, and didn’t like it, and fought back. Eventually the government had to sort of tie it all together in one consistent system. So keeping the banks in the loop, in order to stabilize the economy without letting the banks collapse, essentially.

Jim: Also, they need to be able to do it for macro purposes, control money supply and velocity, I suspect. So now these days is Alibaba, WeChat have their own banks, essentially, so they can get the kind of speed and low cost they need?

Mark: They are banks themselves, yeah. I think, yeah.

Jim: Let’s step over to the next topic. I’m sure our listeners have been waiting for it, is your thoughts on cryptocurrencies. Let’s start with Bitcoin and the claim that it is a trustless system.

Mark: Yeah, a promise theory, basically puts a hammer on the head to that idea. There’s no such thing as a trustless system. You can only move trust around because money is a promise. It’s a promise to redeem a value in the future. It’s a time promise. We’re using this token. I will give you something in return at a later time. If that promise fails to be kept, you would lose trust in the money. So regardless of whether you’re using Bitcoin, dollars, Euros, or whatever, you need to trust the money.

Mark: Now, what do you mean by money? Is it a trusted third party, like a bank ledger? A Checking account, a Visa account, PayPal, Alibaba? Whatever it is. There is some intermediary, whether it’s a peer-to-peer network of libertarians that want to reclaim sovereignty of the monetary system by melting polar ice caps, or do we simply pay a company to do it for us on our behalf and trust them?

Mark: The key fact that I think they got wrong in this essentially libertarian view of the economy is that you can’t get away with not having trust. Trust is the very glue of society. If you lose trust in your third parties, your institutions, that glue society together. If you lose trust in your network, you’ve lost society itself. You start to fragment off into different trenches, and you start firing at each other instead of cooperating. So trust is the glue of cooperation. You can’t do without it.

Mark: Now all these cryptocurrencies do is they replace trust in the banks and a centralized service with trust in a decentralized service and a bunch of software which is presumably certified, which nobody verifies or validates even if they have the ability in principle to do it because of open source, and that they serve no function that cannot equally be served by regulation.

Mark: We don’t have a way of running society without government in the modern world. Throughout history, there have only been two examples that I know of, of governmentless societies. One was centuries ago in the Niger Delta, Northern Africa; and one was in Middle China in antiquity. But in the modern world, we’ve always built societies around central seeds that allow us to route our trust through intermediaries. It goes back to the ability to scale society.

Mark: Society began with kinship, family relations. Anyone not in your tribe, you fight against. it’s either us or them. One of your previous speakers talked about hobbits and hooligans and Vulcans. If you’re not in my tribe, you’re in another tribe. I’m going to hate you because you’re in the other tribe. That’s an unstable situation on which to build trade and trust in society and larger scale cooperation.

Mark: So if you want to scale cooperation, you want to move away from kinship, from tribal relations to these impartial organs, which are the foundations of modern society, the banks, the institutions of government, and so on. This depersonalization of society is the thing that allowed us to scale it. So if we’re going to retreat from that position by saying, “I no longer want to trust those institutions,” then we will retreat from the model of society we have today.

Mark: You mentioned the beginning, one of the fiction books that I wrote many years ago, a book called Slogans. I sort of anticipated this back in 2002 or 3 or something that our electronic devices, or today our smartphones, didn’t exist at the time I read the book. But these smartphones essentially allow us to have what we wanted the push of a button without having to interact closely with bartering opponents.

Mark: So we have no knowledge of them. No Dunbar relationship between them, in which we know them at the level of our friends to be trustworthy. That means these impersonal channels of communication, the ability to mail order, erode the fabric of trust on which society is built. You can see it as you walk down the street now. People don’t tip their hats to each other anymore. Maybe quite the opposite. So this is potential risk, I believe, in society in the way that it works today, that we may lose our sense of society if we’re not careful by introducing too many of these go-betweens that appear to eliminate the need to know your opponents and trust them.

Jim: Very interesting perspective. You also did mention melting the polar ice caps. I have a good friend who describes Bitcoin as accelerating the heat death of the universe. The same idea.

Mark: Yep.

Jim: Probably to no good point, as you describe. On the other hand, the other big thrust of innovation in cryptocurrencies, I find much more interesting, and that’s the smart contracts that sit on top of [etheria 01:14:07]. In fact, when I was reading your first book on promise theory-

Mark: Promises and Applications, I think, wasn’t it? I can’t remember.

Jim: We’ll figure it out. We’ll put it on the website. Anyway, when I was reading that book, I said, “Damn! Smart contracts would be a very interesting way to formally create some of these promises you were talking about.” Do you have any thoughts on how things like smart contract systems map onto your promise theory?

Mark: Yeah, I also got interested in this question and until, again, I realized that the cost of it all. I mean, first of all, smart contracts, great idea. So then you’re putting some of the intelligence in the trusted third party. In this case, the trusted third party is a mobile entity, or decentralized entity rather than a centralized one like a bank. There’s no reason why you couldn’t have smart contracts in a bank, a regular bank, right?

Mark: So there’s nothing specific about cryptocurrencies that makes them able to do… Or blockchain I should say, that enables it to perform these smart services that couldn’t be done with centralized services equally well and much cheaper and much faster, to mention something else. But, yes, you’re absolutely right. So smart contracts, absolutely powerful concept. How much intelligence do you want to put into the machinery of the network itself?

Mark: There’s a story around this which goes, if we go to internet technologies now, the corresponding thing in the world of Cisco and Huawei and the network providers. These guys had an idea when the cloud came along of something called network function virtualization, in which all of those boxes, essentially the routers and the switches that we use to route packets, used to be just giant boxes of metal which performed this function in hardware. They wanted to replace all that using virtual machines and to virtualize those functions in a simple way. They call that network function virtualization. They had a very kind of poorly thought through idea of what that would be, just to replace the routers with virtual machines. But they missed an opportunity to see an enormous opportunity there in the ability to add smart functions, which we would now associate with things like data pipelining, smart transformations of data coming in one side, going out the other.

Mark: In a similar way, smart transactions coming in with certain amount of information and then being turned into something else. Enabling go-betweens, like putting certain payments in escrow so that you can regret and reverse them as you could do with your American Express card, we talked about earlier. So all of those kinds of smart functions, additional services, we’re dying to put those into smart devices somewhere. The question is, do you put them into the money, into the third parties or do you have them in the edge in your smart devices? In a way it depends a little bit on where the information is and where the data need to be in order to maintain privacy restrictions and other concerns of that kind of a nature.

Jim: And also to be robust, right?

Mark: Yeah.

Jim: You don’t want all the brains to be in your smart phone and all your data, I suppose you drop it in the toilet, you’re screwed. Right?

Mark: Yeah, absolutely. I mean, I constantly use this… I forget the name of the episode, but that old episode of Star Trek where the whole of society ends up worshiping this giant computer because they’ve basically given all of their trust to the machinery, and they no longer know how to do anything by themselves. This is what our smartphones will eventually do to us unless we take steps to avoid that kind of demise.

Jim: Yep, that’s true. Now, for our listeners who have the entrepreneurial mindset, Mark just handed you a multibillion dollar opportunity. It’s one I have mentioned to people before. I can still do a very small amount of early stage startup investing. For a while I was getting way too many blockchain, Bitcoin, cryptocurrency ideas, and I kept pushing back saying, “Why does this have to be on a blockchain?” Seldom could anybody answer it. So one of you entrepreneurs should build a smart contract infrastructure on top of a single ledger or mildly distributed high-speed ledger and push that out into the world. That would actually be useful.

Mark: When you get funding, come and talk to Jim and me, and we’ll join you as advisors.

Jim: Absolutely, absolutely. If I wasn’t so old and so rich, I might do it myself, but let’s leave that to the next generation. All right, Mark, we’re getting near to the end point now. What are some thoughts that you might have for the future of money? We are where we are, what could we expect to see next?

Mark: Yeah. This is something I wrote a little bit about in the final chapter of the book, just speculating a little bit. One of the things that got me reading and engaged in this was the story of DevOps and this realization in the world of IT, the developers and operations people within a software team communicate extremely poorly and tend to throw stuff over the wall to each other. So developers will write some software, and they’ll throw it over the wall to the operations people, and say, “Run this for me.” Then they get all the flack for it. When it goes wrong, the users come back and hit the operators and say, “You’re not running this properly.” They get all the blame while the developers sit in their ivory tower and take the money.

Mark: This hasn’t been going down well, and it hasn’t been leading to much cooperation. So they realized that the dev and the ops people needed to communicate better, form a Dunbar relationship to one another and get some proper cooperative entanglement going between them. This is a form of money. It’s a form of trust building. This occurred to me that this is a kind of currency that is required in the world of work. So in the future of work in which we are more distributed, more nuanced in our functions and our roles, I think it’s safe to say that we need to reinvent the concept of money entirely to be smarter and to deal with those ways of building and maintaining trust. Now we’ve seen this with the micro things, like loyalty schemes air miles for your favorite airline, or One World Alliance or whatever it is. We’ve seen it for your Starbucks and the different coffee houses and Amazon and so on.

Mark: This question of loyalty and trust is surfacing its ugly head because we have neglected the role of trust in society, and I think people are starting to realize just how important trust is. Ask any sales guy why they made their sales quota, and they’ll say, “It was because we have a relationship with the client.” It’s not because my product is best or because I have superior technology. It’s because they trust you enough to give you money. It’s the foundation of business. It’s a foundation of society. Without that glue of trust, our world will begin to unravel. So for me that is the future of money. Figuring out how to rekindle trust.

Jim: Yeah, I love it. I love that you mentioned DevOps. It happens to be one of my pet things, also. I was fortunate enough to be invited to become chairman of the board of an early stage tech company in 2002, who actually built the whole agile DevOps philosophy into their business from the get go. Man, was that a different world than the world that you described, that I was used to in the 90s, where the developers would throw some pile of shit over the wall, people would test it, it would break, and then the developers would grudgingly fix it, and then throw it over the wall two weeks later, and then the ops people install it. “It doesn’t work!”

Jim: In DevOps, everything is built every day, and it really amazingly has changed the way software development is done. In some sense it’s a way that trust, as you described, Dunbar level trust has been able to be built between the development the operational community. For those of you looking for a career, young folks, DevOps is probably one of the hottest tickets out there in our economy today.

Jim: To your bigger vision of somehow using money or money like systems to build more trust in more ways, I applaud that tremendously. Trust is what holds our society together after all. If you have anything to say to wrap up?

Mark: Yeah, how do you top that? That was a great ending, so.

Jim: Thanks, Mark for an amazingly interesting deep dive into money. It was wonderful to have you on the show again, and maybe in the future we’ll have you back and talk about something else.

Mark: Well, it’s always great to come and chat to you, so I would love to do that anytime. Thanks, Jim.

Jim: All right, this has been great. Thanks.

Production services and audio editing by Jared Janes Consulting. Music by Tom Muller