world economy

The World From An Anarchist-Anachronist-Economist’s View with Dr. David Friedman

TWS 10 | Anarchist Anachronist Economist


American economist, physicist, legal scholar, and libertarian theorist, Dr. David Friedman, enlightens us about his view of the world by title, which is the anarchist-anachronist-economist. As he breaks down each of these three terms, he shares his understanding of each based on how they apply to his life. Dr. Friedman has written numerous books, including the notable Legal Systems Very Different From Ours where he describes a number of societies and how they work. He also gives a brief background on how his father, the famous economist Milton Friedman, has influenced his view of the world and general approach to economics. Based on his views on economics and markets, he describes the role of an entrepreneur, what the entrepreneurial drive is, and what drives people. Learn some more amazing concepts in this very informative episode with Dr. Friedman.

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The World From An Anarchist-Anachronist-Economist’s View with Dr. David Friedman

This episode is an interesting one. It’s an interview with the son of Milton Friedman, one of the most famous American economists. He won the Nobel Peace Prize back in the 1970s. His son is also an intellectual. He has written a few books and also an emeritus professor in law and a few other subjects. This was a profoundly intellectual conversation and it was about some of the philosophy of economics and politics. It got deep and it was intimidating for me because of how it made me think and process some of the information that David was saying. This season of The Wealth Standard is on the entrepreneur, so my intention with David was to get into the environment in which the entrepreneurial mind operates. We definitely got there but it was in a way that I did not anticipate.

If you like what you’re learning on the show, you’re probably asking yourself, “How can I apply this?” That’s why I wrote the book that I released in 2018 called Heads I Win, Tails You Lose: A Financial Strategy to Reignite the American Dream. That saying is interesting. That’s your pretty old saying and it alludes to a system set up for a certain party to win. In most cases, it applies to the political and economic system that we all operate in, which I argue in the book is not set up for us to win but set up for them to win. The book teaches you how to turn that table. For a limited time, you can get the book for the cost of shipping and I’m throwing in the audiobook as well for no cost. Go ahead and head over to

David, thank you so much for joining us. I can’t wait for this interview. I’ve been looking forward to it. The best way to start the conversation is the way you describe the world by title, which is the anarchist-anachronist-economist. Would you mind may be going into some details of what that means?

The anachronist is irrelevant for your purposes. One of my hobbies is historical recreation in an organization called the Society for Creative Anachronism. I’ve been involved with that to varying degrees for many years and it’s a lot of fun. I, my wife and daughter cooked from very old cookbooks back to about the 10th century. I build furniture, make jewelry, tell stories and write poems, it’s a lot of fun but it had not much to do with my political interests. They only very occasionally overlap. Economist because economics to me is a way of making sense of the world. It’s not the study of money or prices or whatever. It’s understanding behavior on the assumption that individuals are rational. What we mean by rational is not how they think but that they tend to get the right answer. On the whole, if you want to go somewhere, you’re likely to start in the right direction. If you’d been there a few times, you’re likely to take the shortest route and much more generally, that you can make a good deal of sense. Not perfect sense but a good deal of sense out of the behavior of people on that simple assumption and that’s what economics is built on.

It then becomes a way of making sense of not only what we usually think of as economic behavior but questions such as, “Why are marriages less stable than they used to be? What affects crime rates?” A whole bunch of anything that comes down to human behavior, you have at least a possibility of understanding with economics. That’s what I’ve done professionally for a very long time but it’s also a way of thinking that I find not the only way of making sense of the world but a very attractive and interesting one. Anarchist, what I mean by that is the ideal society would not have a government. I don’t think that a society without a government is stable under all possible circumstances. In that sense, I’m pessimistic but there is a fairly wide range of circumstances in which that society could work.

My first book, among other things, sketched a hypothetical picture of what a society with private property and trade and without government might look like, where you had what we think of as the fundamental government functions all being provided privately. That was published in the early ‘70s and the third edition with another 100 pages or so, came out maybe a couple of years ago. My book, Legal Systems Very Different from Ours, is where I was looking at a whole lot of mostly historical legal systems. I concluded that, in a sense, what I’ve been doing in my first book was reinventing the wheel because there are historical societies in noticeable number in which law enforcement was private and decentralized. I described a number of such societies in the book, Legal Systems.

One of my chapters is a discussion of how societies work. What I sketched in my first book was a fancy modern society version of what those societies were. When you write an economics textbook or teach a course, you may start out with Robinson Crusoe and Friday and a very simplified picture. There’s a sense in which I was doing the fancy version of what the simplified picture of which it had existed. That was one of the interesting things and it was a fun book to write because I ended up learning about Amish, Romany and Imperial Chinese, a legal system that lasted about 2,000 years. It’s one of the world record holders for longevity and in Athens, which I like to describe as the legal system with the mad economists because they’ve got all clever ideas, which might or might not work.

I’m going to skip ahead to a couple of questions that I had for you. With your specific book coming out, as long ago as it did, a lot of things have transpired since then. The updates you’ve made to the book, what’s changed or have you experienced a rise in a stronger centrally planned government than may have existed in the early ‘70s? What has been your experience in looking at that and analyzing it?

After that, it’s true that as far as I can tell, things are changing in both directions at once. On the one hand, a lot of the bad ideas of the early ‘70s are much less fashionable. Everybody takes floating exchange rates for granted for example. General deregulation to some significant degree happened. The trucking industry and the airlines got deregulated. At the same time, environmentalism has, in an odd sense, substituted for socialism. Back when I was writing, a lot of reasonable people thought that something like the Soviet model worked. A fairly popular view was it’s not a very attractive society. It’s not a very free society. Maybe we want to do that but economically it works. They are developing and they’re going to catch up with us and so forth.

Socialism, in the old sense, is dead. Environmentalism has replaced it. Click To Tweet

We know that wasn’t true. It is as it were by its own standards was a flop. There are people who call themselves socialists but most of them don’t mean, “We should have the government running the steel industry and the auto industry and everything,” which was the Soviet model. They mean a number of different things, it’s socialism. Even back when I wrote Machinery, I pointed out that socialism had become a term with no content and positive feel-good value because it can mean a lot of different things for different people. The most common usage is to refer to a welfare state like the Scandinavian countries, which are basically market societies. In some ways, they’re more free markets than the US but have quite a lot of redistribution.

Socialism, in the old sense, is dead. Environmentalism has replaced it. In that environmentalism provides a new set of arguments for why the government should interfere with the free market. In one sense, that’s progress because there are better arguments. Socialists resist wrong. The environmentalist argument is not inherently wrong. On the other hand, in practice, you end up with governments doing undesirable things with environmental excuses. Maybe the clearest example of that would be biofuels. The US is the world’s largest producer of corn or maize and the US is turning something like a quarter of its corn crop into alcohol. The excuse for doing this was the claim that would reduce CO2 output. Apparently, it isn’t true. That is as far as I can tell, the people who were serious about environmentalism eventually came to the conclusion that you were producing at least as much CO2 in the process of growing your crops.

The theory of it is that the crops absorb CO2 when they’re growing to produce your maize and then put it back so that’s nothing, but you also have tractors and trucks moving the corn around and so forth. I gather at least that it doesn’t but having biofuels does push up the price of corn and that’s something farmers like. We are putting a good deal of effort into making poor people in the world hungry by making one of the major food crops more expensive in the world on the excuse of environmentalism. That’s true of quite a lot if you look at it, of what’s going on so that environmentalism has substituted for socialism in the sense of a different set of arguments for the government interfering. However, it’s the case that we have no good way of getting governments to do the right thing. The way I like to put it is there is a term market failure which describes most generally ways in which individually rational behavior doesn’t combine for rational group behavior. For people who are familiar with the prisoner’s dilemma, that’s the two-person version of market failures.

Market failure is not about markets. It is a pattern in human behavior which occurs in a whole lot of different contexts. When I give a talk about it, that includes things like the failure of the market to produce the public good where you can’t control who gets it. It also includes rational ignorance and voting because when you figure out who’s the best person to vote for, you’re producing a public good and you’re producing a benefit which almost all of which goes to other people. You have very little incentive to do that and the result is that most Americans don’t know most of the things they would need to know to have a respectable opinion on who to vote for and they’re rational in that. My view at least is that it’s not that the market is perfect, it’s only that the same things that cause the market sometimes to fail caused the political alternative to failing usually. That market failure ultimately comes because I am taking action where you are varying the cost or where you are getting the benefit either way. If I’m taking action where other people bear the costs, it pays me to take it even if the total costs are larger as long as I get a benefit. If I’m taking action where other people get the benefit, it doesn’t pay me to take it even if total benefits are larger in total costs.

On the market, that’s a fairly unusual situation if it takes a semester or so of Price Theory but roughly to a first approximation. When you buy something, you’re paying all of the costs associated. When you produced something, you’re receiving all the benefits as a result of producing it. Roughly speaking, you have the ideal situation where each individual actor gets the benefits and pays the cost of his action and then he takes the right action. There are exceptions but those are exceptions on the market and those are the normal situation on the political system. A political system almost never does someone making a decision to bear the costs or receive the benefits of it. The result is that with environmentalism, you’ve got a legitimate argument for why if the government did the right thing is it could improve things but the government mostly doesn’t do the right things and therefore, it becomes an argument that has bad effects.

I understand that they don’t do the right things because there are benefits when they make decisions but the consequences don’t necessarily exist.

TWS 10 | Anarchist Anachronist Economist

Legal Systems Very Different from Ours

To begin with, if you took the global warming argument seriously, no country would do anything at all about it unless they had an agreement with all the other countries to do it. I’m in California and it does various expensive things to reduce CO2 output. California CO2 output is less than 1% of the world’s CO2 output. Hence, anything it reduces means that temperatures 100 years from now will be perhaps 100th of a degree centigrade less than they would be if they didn’t do those things. It’s absolutely crazy to do them if you’re thinking of people in California benefiting California by controlling global warming. On the other hand, there may be other reasons to do them as in my biofuel’s case, which is in California but the US federal government, you can get the votes of farmers. Al Gore to his credit, admitted at one point that he was pushing biofuels because he was running for president and it was an early primary. That was a point after he decided it was a mistake.

Because it would help farmers.

Yeah, it would increase the income of farmers by bidding up the price of one of their main crops.

Let’s take a couple of steps back because your view of the world is significant and your explanations have been incredible. You’ve been influenced to be aware of economics and be aware of society in a different way from your family history, which is Milton Freidman being one of the early parts of the Chicago school of economics. Maybe talk a little bit about some of the things that he did that influenced you the most and why?

One thing was lessons in child-rearing. In my view, there are two theories of children. One is that they are pets who can talk and one is they’re small people who don’t know very much yet. I believe in the second theory. As far as I can remember, I never had an argument with my father where he said, “I’m the grownup, I’m right.” It was always, “Here are the reasons.” If I had better reasons, fine. If he has better reasons, fine. That was a very important lesson about interacting with people in general, even at the level of an adult interacting with a child. That would only be one important lesson. My general approach to economics has been very much influenced by his. The way I think of the Chicago school approach, I consider myself a Chicago school economist, is that economic theory gives you plausible guesses but not certain conclusions. It’s very hard to think of any real-world conclusion, which couldn’t be truly consistent with economics. If you make sufficiently extreme assumptions about things like what people value or how you produce things, which economics doesn’t tell you.

Economics takes utility functions, which is what people value and production function, which is how you make stuff as somebody you get from the outside. My example of that used to be the Minimum Wage Law that Jim Buchanan who was a colleague of mine early on used to say that all economists agree that Minimum Wage Laws cause unemployment. That’s not an empirical statement. That’s a definition of an economist. He’s wrong because although you would certainly expect it to happen, you can imagine some circumstances in which it would. My old example was to imagine that there are a lot of consumers who hate the thought that they’re buying something produced by very low wage labor and therefore, they’ll buy more of the stuff that the unskilled labor is produced if it’s paid more. That used to be my example but in fact, there was an article a long time that got quite a lot of attention.

Unfortunately, it has bad effects, but it was a good article in which somebody had an economic theory, which didn’t require his wild assumption in which increasing the minimum wage under some circumstances would increase the employment of low skilled workers. It was a very clever idea. It had to do with assuming that the employers were monopsonies, were monopoly employers and were therefore hiring fewer people in order to hold wage levels down. If you push the wage level up and they can’t do it anymore, then they hire more people. Unfortunately, it’s then get used by people who want to push high minimum wages, which I incur a mistake.

Nonetheless, it demonstrated that not only could you make a wildly unlikely argument for this wrong conclusion. You can make a non-absurd argument for this wrong conclusion. The Chicago method, as I understand it, is you form your conjectures from the theory and you then find ways of testing them against real-world facts. My first journal article a very long time ago was an economic theory of the size and shape of nations in which I claimed to explain features of the map of Europe from the fall of the Roman Empire to the present. I submitted it to the Journal of Political Economy. George Stigler, who was the editor, rejected it on the grounds that I had no empirical tests of my theory. How do you test the theory about the size of nations? I thought of some ways and some predictions the theory made about certain patterns of the shapes of countries at various times.

Market failure is not about markets. It is a pattern in human behavior which occurs in a whole lot of different context. Click To Tweet

I revised the article and George accepted it. One result of that was I have a little more evidence that my theory is true. The other result it turned out was that I had to think much more carefully about what my theory actually was saying in order to figure out how to test it. If you’re trying to link your mathematical model to the real world, you have to be a little more careful about what each term needs. In that sense, a good methodological approach for economics is to use the theory to figure out what you think is true and then say, “If I am right, what implications will it have? What facts or reality that I don’t already know could I observe to test the theory?” That was certainly, I suppose, the largest intellectual influence. My father was a classical liberal. I am a more extreme classical liberal, anarcho-capitalist. It was certainly an influence on me in that way as well. In terms of formal economics, I may well have learned more from other things.

One of the questions I wanted to ask relates to this point, which is how you have come to understand freedom and the different theories of economics that are out there and how has it changed over time? You went back to the past and started to understand patterns and identify patterns. It seems like a lot of the cause of the lack of progress or the cause of cycles is in part by the same force, which as from what you’re saying is a central drive from a government power as opposed to it being done by the people.

There are a bunch of reasons why things aren’t as good as they should be. Certainly, one of them is that governments have the wrong incentives. Another one, going back to my rational ignorance point, is that voters in a democracy have the wrong incentive. That it makes very little sense unless you’re an extraordinarily benevolent person to spend effort figuring out what policies are best for your country. Yet the sensible thing to do if you’re going to be involved in politics is to figure out what political position will make you most popular with the people who matter to you, who might be your family or might be your neighbors, they might be your coworkers and persuade yourself of that policy. There’s some very interesting work by Dan, a Yale law professor, who has looked at issues where positions have become markers of group identity. If you think about evolution for example, that saying you’re against evolution puts you in a particular group as it were or views on global warming or gun control, those would all do that.

His claim is that if you measure how intellectually able people are, the more intellectually able someone is, the more likely he is to agree with the group he’s a part of holds, whether that means believing in evolution or not believing in evolution. He has an explanation for this. He says, “This is rational behavior because whether I believe in evolution as essentially no effect on the world, it’s going to happen with or without me. It has a large effect on my relation to the people around me.” If I’m a professor at an elite American university and I say that I don’t believe in evolution, all of my colleagues are going to say, “Look at that stupid non-educated fellow.” If I’m somebody living in a small town where everybody is a member of the same fundamentalist church and I say, “I believe in evolution,” nobody’s going to want to marry my daughter or me. In that sense, he’s right that it makes sense that it’s in your interest not to believe what’s true in those contexts.

You want to believe what’s true in things where your decisions affect you. You want to believe what’s true about what cars will or won’t run. Whether there’s global warming, it doesn’t much matter from that standpoint, but it matters for how you get along with people around you. In that sense, we do not have a good mechanism for making those decisions. There isn’t one and I’ve argued in the past that shifting more and more things to the market at least gets you closer. There’s this famous quote from Winston Churchill, “Democracy is the worst form of government ever invented by the mind of man, except for all of the others that have been tried.” People usually take that as a defense of democracy, but it isn’t. It’s a critique of government. What it’s saying is the best form of government we have works terribly. I take that as an argument saying wherever possible, shift things away from the government model to the market exchange money. I like to say that the very best form of government is a competitive dictatorship. That’s how we run restaurants and hotels. I get no vote on what’s on the menu but an absolute vote on whether I go to that restaurant and then the person running the restaurant has an incentive to put the things on the menu that his customers want.

I like to shift as much in that direction as possible. What I’ve argued is that you may be able to move everything in that direction. There will still be problems because as I say, the market doesn’t always get the right result and it’s got better odds than the alternative. If you can’t do everything, you can at least move a lot of things in that direction but that’s been my view. I’ve thought through it a little bit more over the years but that’s been my basic view for a long time. The only view I can think of that has changed is I am less optimistic about using the tort system as a substitute for regulation. You think about what seemed like a good argument, which is to say you don’t need to have regular rules against people doing bad things because you can have them sued instead. That only works if you believe the legal system does a good job of figuring out who damaged whom.

TWS 10 | Anarchist Anachronist Economist

The Machinery of Freedom: Guide to a Radical Capitalism

We’ve had a case, which hopefully is not finished, but where somebody was awarded a multibillion-dollar judgment against Monsanto for a product which essentially everybody who is seriously expert in it believes is harmless, but they claimed they got cancer due to it. Some people got cancer. If you’ve got cancer and you handled Roundup glyphosate, you can claim and you can even believe it’s because of that. If you can persuade a jury, first they figure out the cause of cancer, then they say, “We want to punish them because of all these other people.” You can get very bad results. At this point, I’m less optimistic about that as an alternative. The system I want is one in which the laws themselves are generated on the market. That’s what I sketch in Machinery of Freedom, that would do better. I have one chapter in the new edition on market failure on the market for law in which I’m discussing where my best system will still give the wrong answer and then there are places where it predictably will. It’s that I don’t know of anything better.

We’re definitely complex creatures.

There are a lot of us and we are interacting in complicated ways.

You are maybe going on a different angle. This season, I’ve tried to focus on the entrepreneur and the value that they have in the world. As you’ve understood economics and as you’ve understood markets, how do you describe the role of the entrepreneur?

It’s not something I’ve thought about very much that the kind of economics we understand best is Price Theory. It usually starts out by assuming that everybody makes the right decisions. It’s therefore missing a lot of issues necessarily of the person who figures out that everybody else is doing it wrong and then does it right. Individually, I believe in that and that I have various points. I’ve made investments where I was basically betting my prediction of the future against the market prediction. The first one was when I bought Apple stock and that was when the Macintosh first came out, the original Mac. I was a professor at Tulane Business School at the time. I told one of my colleagues that I was planning to buy a Mac and he said, “Why don’t you get a PCjr instead?”

It occurred to me that was a natural question for him to ask because they’re about the same physical size. It was an absurd question to anybody who was familiar with the technology because the Mac was one of the very first machines to use a graphic interface, which is what we all take for granted. I knew about graphic interfaces because I had seen a movie about the Xerox PARC work with the original graphic interface. I also knew that the processor the Mac used was a Motorola 68000, which was a much more powerful processor than the probably 8086 or 8088 that the PCjr used. It was one before that was normally used from multi-user machines. Why was that? Because running the graphics interface takes a lot of horsepower. There’s a lot of processing invisible to you as the user that goes on to do it in the way we now do it rather than doing it in the way we had done it.

I had a computer before that, neither of those before the Mac existed. I knew about the normal way of doing what’s called a command-line interface, which is much clumsier but much easier with the computer. I said, “I know that his question is silly. His question is the question that almost everybody investing in the market would ask.” A very small fraction of the people in the market a long time ago were sufficiently into computer technology to know about Xerox PARC, to know about graphics interfaces and to know about different processors. Therefore I said, “The market is probably pricing Apple correctly in every other respect. They’re missing a very large positive, therefore the stock is underpriced.” I wasn’t an entrepreneur in the sense of starting a company, but I was willing to bet against the world. I’ve made a number of such bets, some of which had done very well.

Going to that example, you identified something but then also the nature of the Mac coming into the marketplace. They understood that there would be a competitive advantage possibly maybe it was a bet that they made but there’ll be a competitive advantage having a more graphic interface because of how people respond to colors and to graphics.

You want to believe what's true in things where your decisions affect you. Click To Tweet

It’s not responding to colors and graphics. It’s the difference between doing something by moving stuff around on the screen and doing something by typing in words. We try to imagine eating dinner using a text-based interface and you say, “Take a fork, stick a fork in spaghetti, twirl fork around, move fork,” as opposed to fork. It was a much easier and more intuitive way of interacting. I should say Bill Gates knew it too. My second successful investment was in Microsoft. The reason there was that I observed that the dominant word processor and spreadsheet on the Mac were both made by Microsoft. I said, “Why in the world is Microsoft investing its resources in a platform where they have no advantage?” Microsoft was running the operating system for MS-DOS at the time because it was pre-Windows, yet they are willing to go to a considerable effort to have a word processor and a spreadsheet on the Mac OS where they’ve got no advantage over anybody else.

I know that graphics interfaces are the path to the future. I bet Bill Gates knows that too. I know that you can’t run a graphics interface successfully on the current PCs because they don’t have enough horsepower to do it but that’s going to change. Processes are getting faster. The people building those computers are going to build faster computers. I bet what Bill Gates is doing is using the Mac, which is a tiny market compared to the PC market, as the testbed to develop a word processor and a spreadsheet that worked well in a graphic interface. Then in another few years, when his world moves to graphic interfaces, which was Windows, he’s going to walk into the market already having his testing programs. That’s in my view why Word and Excel are the dominant word processor and spreadsheet. I said, “If Gates is clever enough to do that, I ought to buy stock in this company.”

Do you define whether it’s Steve Jobs or Bill Gates and their drive to come up with these products that don’t necessarily exist or to make these company decisions to test and eventually get on the marketplace, do you describe that as an entrepreneurial drive?

That’s entrepreneurial behavior but it’s not something that I can fit into economics beyond observing that exists. There are other things like that. There are technologies that are very important to the economics that we don’t understand.

Is it natural for that behavior to occur if you have a specific type of framework?

It probably occurs in most frameworks though. I bet there were entrepreneurs in the Soviet Union and they were entrepreneurial about different things. They were entrepreneurial about. “How do I get my kid into a good school? Who do I have to do favors for?” It was a perverse system so they weren’t doing useful things mostly. There are certainly social entrepreneurs, people who are good at making other people like them and good at creating friendship groups. Entrepreneurial behavior is broader than the market, but it certainly plays an important role in the market. Let me give you a different example of a technology I don’t understand though I appreciate it and that’s why some companies are happy. There was a lumber yard near here, which unfortunately no longer exists. My general feeling buying lumber there for projects I was doing was the people there liked each other and liked their customers and felt like that kind of place.

On the whole, I get that feeling about Southwest Airlines. I like riding them and everybody tries to give that impression. I’m sure to some extent it’s true of some of the competitors. How do you do it? If you are the president of a company, what are the decisions that result? You can see it’s not a trivial problem because, on the one hand, you want to punish employees who do a bad job. On the other hand, punishing people will make you unpopular with them and their friends. There’s clearly a highly developed technology for running companies. All I can say is for me as an economist, that’s a black box that we describe it as a production function. You put some inputs in and you get some outputs out and you might be able to observe the production function but don’t understand it. It’s just as I don’t understand the details on how they make cars. That’s got to be very complicated.

TWS 10 | Anarchist Anachronist Economist

Anarchist Anachronist Economist: Behavioral economics explains why people make mistakes and why lots of people make the same mistakes.


I was reading a review of a book, which was discussing the difficulty of primitive technology. It was an interesting story but I don’t know if he’s right. His account is that there are a number of cases in the nineteenth century where you’ve got European explorers who end up somehow stranded in an environment where the local primitives are doing fine and starve to death. His point is that surviving as an Eskimo or surviving as a hunter-gatherer in the Amazon requires a lot of very sophisticated skills. He goes through details of this long sequence of things you have to do to hunt seals, most of which would never occur to you. One of the main foods in South America is manioc, which is poisonous. Therefore, there are elaborate procedures for purifying it. There are lots of technologies we tend to think more about modern technologies but human beings have been doing complicated things for a very long time.

Have you studied behavioral economics or looked into what drives people? Why do they behave and do certain things based on certain circumstances?

I’ve read Kahneman’s book, Thinking, Fast and Slow. It was a very good book and that was our Christmas book. It was the book we gave as a present to anybody we didn’t have a present for. What he’s doing is explaining why people make mistakes. The basic logic of that book is that we have two different metal machines for doing things, what he calls the fast mind and the slow mind. The slow mind is what we normally think of as thinking rational thought. When I look at a screen, what I am seeing is not some gray here and some pink here, some little round brown circles with black dots in the middle there. I’m seeing a human face and a wall of an office and eyes and pupils and so forth. I’m not doing any explicit analysis to do that. I’ve got incoming a pattern of colors and yet very fast background processing. It resolves that into a picture of what I’m actually seeing.

Kahneman’s argument is that the slow mind is a very scarce resource that consequently, we can’t afford to think everything through. We have a whole bunch of rules of thumb which worked pretty well but not perfectly for the 99% of our thinking that’s done in the background. If you analyze what those rules of thumb are, you can sometimes figure out what mistakes we’ll make. That’s a neat idea. I don’t think I’ve seen any interesting economics using that. Certainly, people are trying to use that in economics but that’s because, in order to be a successful academic, you’ve got to do something that looks new. If you have an issue that smart people have been thinking about for 100 years, saying something new about it is hard. One way is saying, “We’ve got a new approach. We’ve got this thing called behavioral economics. Let’s do the behavioral economics of X, Y and Z.”

Maybe there’s something good being done in there but I haven’t actually seen anything which struck me as my knowing anymore as a result. What I want people to do behavioral economics with is not my field. It’s macroeconomics. If you think about why there are recessions and depressions, involuntary unemployment and stuff like that. In the part of economics that I understand, none of that happens. In ordinary Price Theory, prices always moved quantity supply to quantity demanded labor like everything else. It’s a nice model. It’s something we understand and it describes quite a large part of reality but it clearly doesn’t describe all of it because you do have these episodes. I don’t do macro but as far as I can tell of the people who do macro, almost all of them involve a theory in which people are making the same mistake over and over. What the mistake is buried with a different version of macro.

As best as I understand Austrian Business Cycle Theory, which I don’t understand very well, it involves the idea that the government produces money, drives down the interest rate and businesspeople then assume the aggravate will be low forever. Make investments on that basis and then discover lo and behold, the government stops producing money. Interest rates go back up. We’ve got to liquidate a bunch of stuff but that’s stupid. It will be stupid the sixth time it happened. You would say after a while, “We know why interest rates are low. It’s only going to apply for the next year.” Various short-term investments you can do even if they pay with a low-interest rate than long-term. Similarly, the simple versions of Monetarist Business Cycle Theory are, as I understand it, that you’ve got some level of rate of increase in the money supply will result in a certain level of inflation. Everyone takes that for granted, then the government stops increasing the money supply.

Workers still expect the annual wage rise implied by that inflation but at that wage, employers don’t want to hire as many workers as they want to work. You’ve got unemployment. You would think that after a few times, people would start saying, “Let’s watch the money supply figures.” One of the things that behavioral economics does is explain why people make mistakes and why lots of people make the same mistakes. I want somebody who’s interested in macro to see if he can use behavioral economics in order to explain why people don’t solve these things in the way I’m describing but that’s not my project. That’s just a project I’m trying to sell it to someone else who does stuff. I have a variety of such projects that I try to get other people interested in.

The slow mind is a very scarce resource that, consequently, we can't afford to think everything through. Click To Tweet

What are ways in which the audience can learn more about you, follow what you’re up to and some of the projects you’re working on and so forth?

To start with, I’ve got a webpage which is On that webpage, there are links to most of my published articles and the full text of several of my books. That’s probably the easiest way. There’s also a link to my blog and it has interesting stuff on it but I post very rarely to it because I got interested in somebody else’s blog, which has a lot more activity and lots of interesting conversations. Mostly, I’m doing things on Slate Star Codex, which is the name of a blog that I don’t run but where I participate. In terms of my writing, I have a book called Legal Systems Very Different from Ours. You can get on Amazon and it’s a very inexpensive Kindle. I don’t remember whether I made it $5 or $3 but something like that. The Machinery of Freedom, which was my first book and the third edition, is also an inexpensive Kindle as well as the print version.

Not in audio format?

Machinery is also in audio format. I haven’t checked if anybody’s buying it. Part of the reasons in audio format is that I self-published Legal Systems, I needed somebody to do a cover for me. A nice lady on Facebook, who obviously was familiar with my work, designed a very nice cover for it, which I used. She also said that I ought to have Machinery as an audiobook. I figured she’d done a favor for me, I would do one for her and she might be right. It might be useful. Machinery third edition you can get as an audiobook. My only other audiobook is my first novel, which is called Harald and that one I had recorded a long time ago for other reasons and then once audiobooks became important, I figured I might as well turn it into an audiobook. I’d like to do an audiobook of Hidden Order but that depends on whether or not we get the rights back from the publisher. I wrote a Price Theory textbook a long time ago and I’m in the final stages of creating a third edition of that as a Kindle, which I’m going to self-publish because it went out of print and when it goes out of print, the rights revert to me.

Hidden Order was basically the Price Theory textbook rewritten into a book for the interested layman. It’s not intended as a textbook. It’s a book to anybody who wants to teach himself economics. I’m sure you can still buy copies but I don’t think they’re actually printing it anymore. I’m hoping that it’s sufficiently out of print and I can get the rights back and then I’ll make that into a Kindle and maybe also into an audiobook. I’m less certain of that. I’ve got a variety of other books people might find interesting. My second novel Salamander, which I like, and I’m going to have a third novel fairly shortly. Those were all for fun. None of them were very successful but some people liked them and I liked them. My book Law’s Order, which is an explanation of the economic analysis of law, which was what I’ve been doing professionally for a good deal for many years. I hope people would find that interesting. I have a book, Future Imperfect, which is looking at ways in which technological change may radically change the world over the next many years.

Is that in the works?

That released years ago and that’s available. I don’t even know if it’s a Kindle because it was commercially published. I wasn’t doing it but it probably is. Certainly, there is a print version. I could make an audiobook, but I need permission from the publisher. That one, my view is that the future is very uncertain. When people talk seriously on we have to solve problems 100 years from now, they’re making a mistake that we don’t know enough about what the world is going to be like 100 years from now to do those calculations. What I’m doing there is looking at a bunch of different technological revolutions that might happen. If it happens, what are the implications? What are the problems? How might you deal with them? After I wrote and published that book, I gave a talk at Google on the book. I started out by saying that I thought global warming was a pretty wimpy catastrophe. Temperatures go up by a few degrees centigrade, sea level goes up by a meter or so in 100 years. I’ve got three different ways of wiping out the human race faster and I do. In fact, you could see I also have on my webpage a link to a whole lot of videos of talks I gave.

Does it include the one you did with Google?

That is in fact there but lots of talks on different things. Some of them are audio and some of them like that one is video. If you go to my webpage, it’s not a very fancy webpage but if you look down and you can find the link to my recorded web talks and interviews, that will give you lots more of those.

David, this has been fascinating. Thank you for taking some time to share your expertise. This went pretty deep but this has been a great addition to this season and people got a lot out of it. Thank you so much.

Important Links:

About Dr. David Friedman

TWS 10 | Anarchist Anachronist EconomistDr. David D. Friedman is an American economist, physicist, legal scholar, and libertarian theorist. He is known for his textbook writings on microeconomics and the libertarian theory of anarcho-capitalism, which is the subject of his most popular book, The Machinery of Freedom. Besides The Machinery of Freedom, he has authored several other books and articles, including Price Theory: An Intermediate Text, Law’s Order: What Economics Has to Do with Law and Why It Matters, Hidden Order: The Economics of Everyday Life, and Future Imperfect.
David Friedman is the son of economists Rose and Milton Friedman. He graduated magna cum laude from Harvard University in 1965, with a bachelor’s degree in chemistry and physics. He later earned a master’s and a PhD in theoretical physics from the University of Chicago. He is currently a professor of law at Santa Clara University and a contributing editor for Liberty magazine.


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Chris Martenson on How The Money Works In The System, The Economy, And The World

TWS 9 | How Money Works


There are some remarkable people who never let their curiosity die even as the world fails to provide them an answer. Chris Martenson, the co-Founder of Peak Prosperity, kept on seeking the answers to how the money works in the system, how it was created, and how the economy works. In this episode, we peel back some of the layers on the knowledge and insights gained from his perspective of the world as he taps into how we can create a world worth inheriting, not only from the economic side but the personal and natural side as well. Take a deep dive with Chris as he talks about reconciling the advances that have been made in the oil and energy sectors, the geopolitics with other countries, the system of unfairness that perpetuates in this world, and more.

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Chris Martenson on How The Money Works In The System, The Economy, And The World

I have an individual who I’ve known for several years. His name is Chris Martenson. He’s the Cofounder of and also the co-author of the book, Prosper!: How to Prepare for the Future and Create a World Worth Inheriting. We get into some interesting topics. We peel back some of the layers on his perspective of the world. Please welcome my guest for this episode, Chris Martenson.

Chris, it’s awesome to have you on. Thank you so much for taking the time. I imagine some of our readers know who you are. For those who don’t, would you mind telling your story and what led up to what you and Adam are doing with

This is a story. If I’m favorable to myself, I’ll call it enlightened self-interest. I was a genius like everybody, investing in the 2000 stock market. I was a corporate guy at that point in time. All of a sudden, my portfolio got shredded. I’m a curious guy, I started asking questions my broker couldn’t respond to. My background is a scientist, so I like data. I like digging around and forming hypotheses. One thing led to another. Soon, I was asking him uncomfortable questions that he couldn’t respond to. I read this book called The Creature from Jekyll Island by G Edward Griffin. It talks about the money system and how it works, which surprised me. I’ve got a PhD in biological science and an MBA. Somehow, in all that education more than anybody should go through, I hadn’t learned how money works in the system. I was taught how to compete for it and all that stuff, but not how it was made. This seemed like I discovered the headwaters to the Nile like, “A lot of important stuff happens here.” That led to this inquiry. Within a few years, I lost my passion for my job. I exited that carefully. I spent two or three years in sabbatical, trading the markets and developing other ideas.

I ran across this idea of how money was created and how the economy works. I was looking at macroeconomics and at debt levels. I came across energy, peak oil and all those issues. The environment wrapped in as well. I put all these pieces together and said, “I have to tell people about this.” It became a mission of mine. I was down in church basements talking to anybody who will come. It’s bad presentations when I started. These are terrible. For anybody reading who sat through those, bless you. They were awful. It was such a big amount of material, it took forever to figure out how to distill it. That’s what I did. I went through this distillation process. Somebody in the audience said, “You should put that online. A hundred people a pop are not enough.” I couldn’t figure out how to do that and struggled. I started putting it online. This thing is called The Crash Course. The last chapter was finished in October of 2008. Things fell apart and people were interested in the message. It got this thing called The Crash Course, which should be a disaster. It’s some guy speaking over about three hours of slides.

I remember it coming out. It was a voiceover PowerPoint.

It’s just a voice. I don’t even think I used my face, maybe on the first slide and that was it. It ended up catching on. People were ready for something to explain a little bit larger about the world. I’m an educator at heart so it was a very educational material. People came to me saying, “I learned something. I feel smarter. I feel like I understand something. Why isn’t anybody else talking about this? Why didn’t my teachers explain this to me?” It caught on and got translated into twelve languages. I ended up, through that experience interacting with and meeting my business partner, Adam Taggart. He’s got all the skills that I needed because I was running a one-man show. He’s got all this business and marketing savvy. He was the Vice President of marketing for North American Mobile Yahoo. He was ready to leave that. We joined forces and created this thing called Peak Prosperity, which is our website. That’s the short version of how we got here.

You used the word surprised when you read The Creature from Jekyll Island. That’s a monster of a book. What was the single most important surprise that you’ve identified?

It’s that this is an ongoing pattern of bailout and trouble. I understood that this system of capitalism we’re in is not capitalism. You have this creative destruction by Schumpeter. Businesses undergo that process quite frequently, but not the banking system. They’re shielded for everything. It’s a heads-they-win, tails-you-lose. G Edward goes through many years of history. It’s savings and loan, the railroad crisis and all these different crises to show that the banks made all this money while they were busy inflating, doing dumb things and taking risks they shouldn’t. Things crash and they got bailed out. Heads they win, tails you lose. Wash, rinse and repeat. When I read that, it was almost as eerily prescient as 1984 by George Orwell. Once I had read that, I understood the blueprint for what was going to happen from the crisis onwards. Everything that he wrote about happened again. That was surprising to me that it’s this well-known, this obvious, this repeated and it’s still not talked about. It surprised me to find it in his book. I had to go and research it. I thought, “This guy must be wrong.” It turns out he wasn’t wrong.

When I had a chance to interview him a few years ago, I let off with a question. I said, “Your Wikipedia opening paragraph says, ‘G Edward Griffin is a noted American conspiracy theorist.’” It said all this denigrating stuff. The Creature from Jekyll Island came out somewhere back in 1996. I said, “Many years have passed. How many people have come to you with a concrete thing saying, ‘Here’s where you got this wrong in your book because it’s all names and dates and it’s all sourced?’” He said in the entire time it’s been out, he hasn’t received one single piece of counterfactual information. He hasn’t had to issue any retractions. He hasn’t had to correct anything. Still, he’s the conspiracy guy. What he did was he touched a nerve. He showed how the banking system operates. That’s a no-no in our culture. Thanks to him for doing that. The biggest surprise is, “How did I not know about this?” You’d think about all that education, going through all this system and getting to the level. I made it to vice president of SAIC. I’m not an unaccomplished person and I’d never even heard this information before. To be hidden in plain sight is a shock.

A lot of the information he goes through isn’t part of the typical narrative of what finance is and what politics is. You have that book that’s written and you have a lot of people still speaking about not exactly what that book alludes to. There’s more they’d understood in what led up to the 2008 crisis and maybe more of what’s going on with where we’re at. Yet, the typical American is not aware of how banking works. They’re also not aware of what history shows us in regards to how intervention leads to unintended consequences. Peak Prosperity is a podcast and a blog. You write a tremendous amount. What is its mission and vision? Does it carry what you have discovered over the years due to more people or is there something different?

It’s two big parts. One is problem definition and education around that. Without appropriate context, the other part of our mission, which is about helping people become more resilient and more prepared on the solution side, you can’t even start with a solution until you understand what you’re up against. We ask everybody to start with the context. You don’t have to agree with us. Look at it. You have your own opinions. Say we’re completely wrong. That’s all fine. For people who look at the world this way, it’s a lot of data. Look at all three E’s in the story: economy, energy and environment. When you look at them from a systems perspective, you go, “This is unsustainable. It’s going to change.” The big question is, “How and how do we prepare for that?” Those are the two big pieces.

It’s a little bit like Hidden Secrets of Money by Mike Maloney. He’s doing an incredible job about money, but we’re also layering in this ecological context that’s necessary. The energy context is also necessary. You get that in one spot. It gives you this point of view of where the world is going to head. What do you do about it? That’s part two. This is why we exist. Our mission at Peak Prosperity is to create a world worth inheriting. I’m pretty convinced based on all the data and trajectories I’ve got, we’re on the wrong path. We’re not doing that. I wake up every day. I’m actively trying to figure out how to create that world worth inheriting. It means, mostly, we have to change the narratives that people hold so they can align their actions with that new narrative.

You can’t start with a solution until you understand what you’re up against. Click To Tweet

First off, explain what the data is telling you about where we’re at. Going to your mission, how is the context and the narrative that you see the world differently than mainstream?

Narratives are hard to change, even at the individual level. They get even, in order of magnitude, harder to change at the cultural level. At the cultural level, you might have something like, “Here’s a statement. Be fruitful and multiply.” That was a great guiding principle 2,000 years ago. It’s a little bit less obvious that’s the biggest challenge before us or the thing we should be focused on, but there it is. What we’ve had is this narrative that said humans are at risk. We’re at war with nature. Even 100 years ago, people are still battling with nature. Now we’ve hit the edge of the globe. The data is all parked there. When you look at the number of fish declines in the ocean or seabirds, the disappearing insects, what’s happening with the soils, their disappearance and the fact that glaciers are disappearing at this point in time. You can say, “We don’t have that same narrative of 100 years ago,” which our imperative is to grow as fast as possible. That’s the story we all live by. Every portfolio and every investment is geared for infinite perpetual growth. That might happen, but the data I have says, “Let’s look at that imperative for growth.” All growth comes from energy. You would know this if you were an organism and your primary source of energy is food. If you deprive an organism of food, it gets stunted. At worst, it dies. The question is, “Where is all this energy going to come from?”

When you wander with me over to the energy field, look at where we are in terms of global oil discoveries. We’re tapping more stuff in the shales place, but they’re not tasty like the old ones. They’re a little harder. It’s still worth getting but not the easy stuff. It’s like we’ve eaten through the fat on the seal. Now we’re on some ribs. That’s fine. The question is, “What’s after the ribs?” In this story, there’s nothing. The ribs in the story are the basement rocks. There are no pre-basement rocks. This is the source of stuff. We don’t have a plan for what we’re going to do when those run out. This isn’t super far in the future. This is within our lifetimes that they’ll probably tip over and go backward. The EIA itself in the United States thinks that shale grows until about 2025 and then it’s in permanent decline thereafter. 2025 is like tomorrow. Particularly if you’re a parent, you’ll realize, “These years pass quickly.” The amount of changes we’re going to have to make to live in a world where we have slightly less oil instead of slightly more oil is enormous. It impacts jobs, careers, portfolios, hopes and dreams, pensions and everything you can imagine. It touches that.

The truth is energy is the dominant thing and everything else is a subset of that. If you don’t have this energy, you get none. That’s the part I’ve been trying to alert people to is to have this bigger perspective. What I’m trying to do is teach fish about water. We’re so surrounded by this water, this energy that we don’t notice. I’ve got lights on me in 71 degrees. All this stuff that’s the equivalent of having hundreds of energy is bringing me this amazingness. That’s something to appreciate and have gratitude for. Don’t take it for granted. Think through what happens when that begins to go away. Our country is not prepared for this at all. There’s zero preparation for that.

How do you help people reconcile the advances that have been made in other energy sectors? I look at the things you’ve been saying regarding peak oil for a number of years. There have been lots of innovation and different alternatives. How do you help leaders reconcile this idea that we’re going to run out of oil and there isn’t an alternative to it?

It’s hard because the average person reading this doesn’t have almost to become an expert in it to understand it. The headlines that you might read about it are always geared towards puffing up the current narrative. I get these all the time. People say, “Look at this. The scientist took something and here’s a beaker of it,” or, “They’ve got this new battery that can do extra. Look at these ultracapacitors.” Every time I scratch at it, they go, “It’s on a bench somewhere.” They’re using rare materials so it won’t scale possibly or it’s wicked expensive. In many cases, people are confusing a source of energy with a store of energy. Once you start picking at that a little bit, you discover that the time to scale the cost in the story is extraordinary. Let’s imagine we all want to drive electric cars. What do you have to do? In the United States, we need a whole new electrical grid. We’re going to supply that amount of electricity. We need to discover new sources of electricity, which is going to be a challenge all on its own.

TWS 9 | How Money Works

Prosper!: How to Prepare for the Future and Create a World Worth Inheriting

Is there enough lithium and cobalt? Not right now, but maybe if the price went up a lot. Are there enough plants to build this? Not yet. Do we have enough engineers? We don’t. Once you start looking at it, it’s hard in this consumer culture. I go on Amazon. I click a button and the big round rolls up. What I’m unaware of is the incredible logistics and supply chain that had to be in place for that to be true. That’s all equally true in the energy space only. We don’t have that Amazon warehouse built yet. We don’t have the supply chains. We don’t have the infrastructure in place. None of that has been done yet. That’s the thing I keep coming back to people with. It’s like, “I’m as hopeful as the next person,” but we’re not putting our attention there yet. We will. I hope not before it’s too late. Nowadays, our attention is creating trouble with Iran or pumping more money into the stock market so it goes higher. We’re doing things that are buying us time but we’re not using the time. That’s my prime complaint we’re around this.

The way in which we process information these days is superficial. We only go one or two levels deep. As I’ve followed you over the years, you could look to those innovations. They’re there. When you start to go into the third to sixth layer and see how integrated the oil world is, whether it’s in the supply chain or in the plants or the origination of the actual energy, it’s fascinating. You’re still seeing a problem even though there have been innovations and improvements on that first or second level. In those deeper levels, there are still some pretty significant issues.

It’s fairly complex, but not really if you think it through in a little bit. People say, “What about renewable energy?” Nate Hagens re-termed it for me and it stuck ever since. It’s replaceable energy. Let’s look at a solar panel. The cost has come down a lot. They can create electricity at a fairly cheap rate when the sun is shining. The question is, “How did the panel get there?” Some workers showed up. What did they eat? Food. How did the food get there? It was grown on a field. Once you find every single thing involved in getting that panel there, there was oil involved somewhere from the mining of the silica to the manufacturing plant. We have this many examples so far where we have a replaceable energy system, be it a wind tower, a solar panel or electric car where that entire thing is created using only the energy from that same system.

We understand it intuitively with farming. The sun is the energy in the system. If a farmer can’t grow more crops using that energy in calories, they’re expanding. They’re going to go into deficit. If a cheetah spends 1,000 calories catching 800 calories of gazelle, they run into trouble. The question is, “Can we create these replaceable energy systems using only their own energy?” The answer is we don’t know. That would be a great experiment instead of another $500 billion to the bankers, let’s put $10 billion towards creating a model place where that’s exactly what happens. Put up panels. Build them only with electricity using electronics from panels and create more panels. Watch what happens. Do that one or two turns of the cycle. That would be a good experiment. There’s so much hidden fossil fuel subsidy in that whole part. It’s a mistake to think that you click the button and the panel shows up. There’s a lot in between those two steps.

Especially with what’s going on in the Middle East, the turmoil is increasing. No one knows what’s going to happen. Typically, it’s always associated with oil to some degree.

If you don’t understand where we are in the oil story, none of the geopolitics makes sense. It has nothing to do with Iran. We don’t like their leaders. There are horrible leaders all over the world that the United States never says anything about. They don’t happen to be sitting on any oil. I’ve been to China. I’ve talked with people that are fairly high up in the Chinese leadership structure. There are a lot of scientists there. They got a lot of PhDs. One gentleman there said to me, this was when Obama was president. He somewhat caustically said, “We don’t have any community organizers at the top.” That’s Obama’s background. He was a community organizer. “What do you mean by that?” He said, “To get anywhere in China, you have to have managed at least 100 million people for a couple of years. You break your way up and you work through. Everybody has an advanced degree.” They don’t have lawyers. That’s not a specialty that they revere. Compare that with Washington, DC. Almost all are lawyers.

Unfairness is one of the worst social sins you can commit. Click To Tweet

When I talked with them about the resource stuff, they get it. They said, “The business of China is business. The business of the United States is war.” That’s fine. We think we’d rather go about this with our magic checkbook. They understand where they are in the oil story. They admitted to themselves when their own peak of oil was going to happen, which was 2018. It’s in the rearview mirror. China has publicly announced that. They know they’ve got big issues. They also know they can walk to the Middle East, which is a distinct advantage to countries that have to sail there. They’ve got their eye on the prize. That’s the larger game that’s happening here behind the scenes. You want to know about Russia and why the United States is so at odds with Russia. You have to understand the power Russia has, given that it’s very few people have massive eight times their own property with a lot of natural resources. It includes oil and gas, which they’re supplying to Europe and increasingly to China. That’s an important lens to have in the story.

I’m assuming your audiences are not just domestic. You have audiences that are around the world. What are you seeing them take away from what you’re teaching them regarding these points and the other things you write and talk about?

In the English-speaking countries, primarily the UK and Australia, I’m noticing a lot of people who are gravitating to this message saying, “We’re on the same path.” There’s no, “Here’s how we’re doing this amazingly over here.” There’s almost a resignation that it looks like things are going to have to get worse before they get better. This is noted in every English-speaking country. Most of Europe too is on the same path, which is increasing totalitarian age. It means the organization of their society. It’s more oversight, fewer civilian liberties as it were and an increasing neoliberal event, which means very few people are getting most of the gains. The pyramid is getting tall and top-heavy. Italy broke that model. We’re all starting to see that rise of populous pressure as the unfairness of that. In the tippy top of this pyramid, these people didn’t get there because they built more awesome stuff for the most part. Most of them got there because they siphoned money out of a system that creates money. They’re skimmers. That’s fine, but it’s a very unfair thing. We’re all primates. We don’t like unfairness. Unfairness is one of the worst social sins you can commit. It was Plutarch, all the way back. He said, “The oldest and most fatal ailment of all republics is the gap between the rich and the poor.” If that gap is created out of thin air at no work and no risk and handed to a small crew of people, it’s where the unfairness builds.

The strong narrative regarding media and news is you still have a huge influence from that top. Do you see that going away?

They’re working harder at it. They’ve gotten a lot better at that control as well. This is something that myself, and a number of people I consider colleagues, are observing very much. We get heavily throttled on places like Twitter, Facebook, Instagram and other places where they have algorithms. As soon as you say something about the system and about the unfairness of it, you’ll notice that you put that tweet out and it’ll get maybe 8% to 9% of the engagement that would be typical. It was throttled in some way, shape or form. That ability to shape the narrative is critical. There are two ways about that as well. One is the sin of commission. They lie and make stuff up. There’s omission where they don’t talk about stuff. One of the biggest omissions I saw has been the yellow vests movement in France. There are hundreds of thousands of people and lots of injuries. It’s got blood, violence and gore. It wasn’t picked up. It wasn’t talked about. There was almost a virtual ban on that in the US media. I talked to people all the time. They’re like, “I didn’t hear about that.” It’s one of the biggest things ever. That’s the sin of omission, where they leave stuff out.

It’s a horse race where social media and the internet for a while was allowing people to go out and find that new information. There are throttles on it. You’ve seen YouTube say, “We’ve got algorithms. We’re going to ban anything that they consider hate speech, a conspiracy theory or whatever. These things always start with one thing you could justify. It spreads rapidly. If you wanted a better definition of fascism, it’s a merger of corporate and state. The so-called progressives in this story are engaging in some of the most fascist behavior I’ve seen, which is, “We’re going to burn books.” That’s the equivalent of burning books when you’re like, “We know which ideas are harmful.” I grew up at a time when ideas, even if they were harmful, you were free to go, “I don’t like this one.” You could encounter them and wrestle with them. I don’t agree with this idea that there are harmful ideas and if you expose people to them, it ruins them. I don’t fall under that. For the many state people, they do. They think they hold the right views and they have to protect other people who aren’t as sophisticated as them. It’s a very patronizing I’m-better-than-you thing.

TWS 9 | How Money Works


The funny part is a lot of people who are ideologues on both sides are some of the most misinformed people I know about. They get their own little echo chambers around things. That polarization is strong. I never thought I’d find myself here in the United States as quickly. I understand the seeds of civil war now. I never quite got the Balkans and what happened. Now I get it. What happens is you have powerful people who splinter groups and stand them up against each other. What I’ve been trying to do is to get those two groups to understand, “You’re fighting the wrong people in the story.” Police and protesters are on the same side of the story. These protesters are usually saying, “I’m getting screwed somehow.” If the police understood what was happening with their pensions, they’d understand that this is where the problem is. Everything that can be done to prevent that discussion of the top, it’s what I see going on. It’s a shame on those in the media who are complicit in that, whether overtly or covertly, whether they understand that or not. They ought to be asking questions about freedom of speech and providing appropriate context so we can have the right conversations. The trend we’re on ends in a bad future that I want to avoid. I’m not dark, gloom and doom. I’m a very hopeful guy, but we don’t have a lot of time to wrestle the ship to a new direction.

What do you see as some signs of hope out there? It sounds like, from your perspective, there may not be any. Do you see any reasons to be optimistic?

There are plenty of reasons. A lot of the young people in the story have a surprising amount. All revolutions start with the young, in some way, shape or form. This is setting up to be a generational thing. I do talk to a lot of the older generation because they have the wealth they want to preserve. I get that. You don’t want to spend your whole life building up. There’s the brass ring. Now would be a bad time for it to all go away. The young people are looking at the story increasingly and saying, “I don’t have anything to gain from preserving the status quo.” We’ve seen the million-plus student marches against climate change in Europe.

Young people I talked to are out there doing incredible and creative things around farming, in a way that’s regenerative and not disruptive or extractive. It’s hard work, but you have to understand systems on a whole different level. It’s different from saying, “I know exactly when to apply the roundup and the Unix.” It’s a different story. I see people wanting to do the right thing. I see people doing the right thing. The enemy in the story, if there has to be one, is the keepers of the status quo. They don’t want anything to change. They want to keep their power. They’ll do increasingly desperate things to keep that power locked in. The more they do, the more this gets compressed. The hope that exists for me is there will come a time when it breaks again. We can then have the right conversations. It’s only if people have the right understanding, the right context and are ready to take the right actions.

Going into the way in which you analyze things, which is very quantitative, where do you see the role of the entrepreneur? Sometimes it’s difficult to put into an equation. Do you see that there are those that are young or maybe even aware of these issues and trying to do something about it?

A couple of things are nested in there. First is the role of the entrepreneur. I’ve trained all my kids to be entrepreneurs. I don’t believe in working for a paycheck anymore. I haven’t for a long time. You need to have multiple sources of income. Lots of people have been forced into that regime anyway. You’ve got to be an Uber driver on the side to make ends meet or the so-called gig economy thing. An entrepreneur is saying, “There are needs out there. I can meet those needs in some way, shape or form. Here’s what I’m good at. Here’s what I’m not good at. I’ll get a team together. We’ll go and do that.” That is the way to the future. Anybody who’s just sitting there and relying on a single source paycheck is exposed. In the next big downturn, it could go away. I don’t care if you’re a highfalutin lawyer at a white-shoe firm or you’re a driver for a long-haul trucking company. If all you got is that one paycheck, you’re at risk. Everybody needs to understand assets and understand the system, as it exists. I get to talk with and hear a lot of stuff from Robert Kiyosaki of Rich Dad Poor Dad. He keeps drawing the same grid. He keeps pointing out that the people who draw a paycheck are tax donkeys. They get hit the hardest.

All revolutions start with the young in some way, shape, or form. Click To Tweet

If you’re a small businessperson, you’re the so-called entrepreneur. If you have a practice, a CPA firm, dentistry or something like that, you’re the worst. They’re crushing you. It’s 60% marginal tax rates when all is said and done. For people who are out in real estate or the investor class, the taxes go away. When I came in contact with them, they’re like, “Where was this information? Where was my dad with this information? Where were my schools?” It’s like this hidden secret. It came out into the fore when Hillary Clinton, during the primary debates, asks Trump, “You pay zero in taxes.” He said, “That’s because I’m smart.” It’s true if humans respond to incentives. There are incentive structures out there that entrepreneurs find out about faster. Everybody should learn what the system is, how it works, what it punishes and what it rewards. I came to that story late in life. Once I found it out, I’m like, “I’m going to use the system as it exists.” It’s not something that’s widely talked about.

That’s an example. You said, “What are the narratives that have to be changed?” Do you know how hard it is to convince somebody that the whole narrative of, “I go to a good school. I got to Harvard and I’m working for McKinsey on a partner,” even in that job arc, it’s still a job. Nobody ever got rich working for a paycheck. Those people are still plugged into that system of, “I have to give the right answers and do the right things to earn this paycheck.” It takes time to back people away from that, deconstruct the narrative, help them understand what the tax code looks like. Help them think about where their value is. Help them think about what wealth is and how you generate it. Not all things can be measured in dollars. There’s a lot of unpacking. It has to be done before somebody is ready to step off, bite the bullet and go down that particular path. The future is going to belong to people who can be nimble, be flexible and add value to whatever situation. The way I waggishly put this is I tell people, even if you were in Leavenworth supermax prison, there’s an economy in there. You can get whatever you want. Humans will always have an economy. Don’t worry about that. The question always in any circumstance is, “What’s an offer? What do I have to offer? How do I get what I want?” Those are the pieces that entrepreneurs figure out earlier and faster.

I’ve heard you speak about this before and you’ve written about it as well. You have those entrepreneurs that are naturally driven, that will take the initiative, see problems and come up with solutions. Normally, the process is there is some extreme pain. There’s extreme adversity where the narrative changes. The context and the way of doing things change. Speak to that. You have been writing a lot about potential Black Swan events. Can you comment on those two things?

If you’re an entrepreneur, you’re out taking risks. You’re going to fail. Things are going to go wrong. With entrepreneurs, you need to learn quickly that failure is another way of finding out more rapidly what doesn’t work. That took me a lot of deprogramming. If we’re thinking about, “What’s a new campaign? How can we reach more people?” I’m going to try and plot this whole thing out. There’s something to be said for the fail early, often fail and fail quickly. Try something. Learn from it and keep going. Our school system punishes that behavior. Everything is supposed to be the next right step. Entrepreneurs, you need to find out very quickly what you’re good at, what you’re not good at and who are people you can rely on. Build your team. Do all of that stuff and figure out how you can move quickly. Some people are wired for that. They end up being entrepreneurs. They drop out of Harvard because they have to start something called Microsoft. For other people and for me, it’s a learning process. How can I be okay with that? I know people who changed me because I watched them. They’re excited by their failures like, “That bidded early.” I would be a little bit more hesitant around that.

Even though with everything that’s going on in the world, as you and I are talking, I don’t know that a tanker didn’t get sunk in the strait and oils are about to triple in price, which could blow up a million business plans. You need to be aware that these Black Swan events can happen. For people reading, the Black Swan event is coined by Nassim Taleb. He’s a quantic economist guy. A Black Swan event has three characteristics. One is nobody saw it coming. It’s rather unanticipated. It has a big impact. Afterward, all the experts are going to tell you why it happened. They’ll explain it post-facto. It’s because they didn’t see it coming, they probably didn’t have a good understanding. Black Swans are a feature, not a bug. They’re a feature of complex systems. All the scene was trying to say is in a normal bell curve of possible outcomes, the tails are fatter than we’re wired to believe. These things happen more frequently. We need to plan for them. How do you plan for something that you can’t anticipate? You have to have resilience and buffers. You have to be ready to change your operating methods very rapidly if something happens.

China decides they’re not going to trade with the US anymore and shuts their ports down. A million companies are screwed because their supply chains are entirely linked to that. The ones that survive are going to be those that spent zero minutes worrying about that and saying, “That’s a done deal.” They found a new supply chain. These things happen. You’ve got to be adaptable and flexible. What we found though is that this is almost entirely a psychological process. It’s not something you can teach at a martial arts studio like, “Do this. Wave your hand like that and you’ll be good.” Instead it’s like, “Can you train yourself to be flexible so that when something comes, you’re able to have something other than a tunnel vision still?” “I’m ruined.” That’s a point of view. “I’m not going to be ruined. Other people will. I’m moving. I’ve got to keep skating in this story.” The psychology of it is very important. That’s why we talk about eight forms of capital people can build up. That’s on the solution side. We didn’t spend a lot of time there.

TWS 9 | How Money Works

The Crash Course: The Unsustainable Future of Our Economy, Energy, and Environment

The most important form of capital is not financial capital. It’s your emotional capital. If you fall apart at the first sign of trouble, I don’t care how much money you have. That’s what we learned from all these crises that you study how and why people thrived if not beyond survived. They thrived in Zimbabwe. Even now, certain families are making their new fortunes down in Venezuela. You see all the chaos and the people who are screwed. Their tunnel vision is too tight. Russia broke apart in the USSR into Russia and the satellite states, fabulous fortunes were made. The difference in every single time was there were people who looked at that breaking moment, saw the opportunity in it and skated into it as hard and fast as they could. Luck plays a little bit of a role, but chance favors the prepared. That’s how we’re looking at this. It’s to understand the context so that you aren’t surprised. You can spend the least amount of time being surprised. You can keep moving. There’s going to be a lot of opportunity in the story and a lot of loss too.

The catalyst for those that win in the end is preparation.

I like what Scott Adams, the creator of Dilbert, says about this in a book. He says, “Goals are for losers. It’s systems.” The example he says is if you say, “I want to lose ten pounds. That’s my goal.” Almost nobody achieves that goal. You put a system in place, which is, “I’m going to wake up fifteen minutes earlier. I’m going to eat like this instead of that.” You put your system in place. Your system runs. Before you know it, you’ve achieved all these other goals.” The question is, “What are your systems of mental preparation? How are you taking the time in any given day to make sure that you are as balanced and have as much mental space in your life?” It’s that you’re appropriately charged, recharged, looking at the right things, asking the right questions and not being afraid to ask the hard questions, which is, “Am I doing the right thing or should I even be doing this at all?” Those are the successful practices that are going to separate those who thrive from those who don’t.

What are some of the things that you are paying attention to? You’re focused on it as information that’s worthy of what you have learned about the past, whether it’s stuff that’s going on in the Middle East, whether it’s the political environment, the economic environment in some of those micro sectors? What are you paying attention to that you’re assuming is going to tell you about what’s to come in the future?

Nobody can predict Black Swans. They come when they come. Afterward, we’ll all try and figure out what happened. I’m fortunate to have this job that I do, to call it a job even. It’s to read all day. I’m probably reading close to eight to ten hours a day and then writing and synthesizing. I spent about a quarter of that on world events. I’m not a geopolitical specialist or analyst. That’s most likely where we’re going to see a Black Swan event come. I spent about a quarter there. I spent maybe 40% on watching the financial markets. We have this theory. It’s called from the outside end. Troubles are always going to start at the periphery. Everybody’s talking about the stock market, “Did you see what the NASDAQ did?” I’m watching the edge of this thing. I’m looking at the triple C junk debt. I’m looking at funding that’s happening at the margins. I’m watching the weaker countries. This is where you’re going to see the first warning signs that something’s gathering steam towards the center. I spend the rest of it stretching my mind out.

I’m checking out a full lecture series by a Stanford professor on human behavior. I’m trying to understand how humans are wired. There’s a biological side. That’s fun. You can get a Stanford education for free if you have YouTube. There are great lecture series there. I’m reading a lot of books about things like NLP, human psychology, trauma and things like that. I’m trying to understand how we’re wired and how that comes together. What I care about is not that people have information but that they take actions. There’s always a gap between those two things. Understanding belief systems and how we’re wired are critical things to understand. You give somebody all the information in the world, but they may still not make the right decision. Marketers have known this for years. People make decisions based on an emotional. This is not denigrated. Emotions have steered us well for many millions of years of evolution. They’re finely tuned. I tell people to trust their intuition a lot. The question is, “Is there a way to hack into that system and understand how I can change my own belief system even faster?” If I find that, I’ll share that.

Failure is another way of finding out more rapidly what doesn’t work. Click To Tweet

There are lots of books out there that discuss our unique way of looking at the world and our decision-making process, which you’ve alluded to is, for the most part, done through our emotional and instinctive reactions to things. You find people very seldom that are able to create that system of making a decision, where they’re able to balance or mitigate their emotion. Oftentimes, emotion doesn’t do the best outcome. Have you read Robert Greene’s new book, The Laws of Human Nature?

I have not.

He wrote The 48 Laws of Power and a few other New York Times best-selling books.

I’ve read that one. That was a great one.

I haven’t commented that much but this is what we’ve been discussing on the show. It’s a lot of these topics. It’s interesting to see the alignment. I see a lot of others that are speaking to these things as well. Hopefully, this convergence of theory around what’s to come in the future allows there to have some breakthroughs by people to take control. In the end, the theory and the strength of that theory aren’t one person. It comes down to a larger group of people that are able to help to combat the status quo, which is also in a sense gaining power.

I love the topic area. I’m learning a lot about it. It’s a little bit of art and a little bit of science. I love where science is going with this. Once upon a time, you had this crude ego, id, Carl Jung, great giants. We’ve learned more since then. We understand the neurobiology and the neuroendocrinology. We understand the sympathetic and the parasympathetic system. We understand our amygdala. We understand the wiring a little bit. Even with that, understanding is nice but insufficient. We can understand how to take our associate thought trees and begin to use those to rewire things. Our brains are more plastic than we thought. This is a dialogue between the emotion and the cortex. There are ways to get to change that more rapidly.

Seeing how that’s advanced and how that’s developed and you’re watching all these bright people start to put some pieces together, here’s my operative model. It’s mind, body and spirit or energy. If you get all three of those in alignment, I’ve seen people make changes in minutes, including people who have been stuck in so-called talk therapy or pharma therapy for years if not decades. In minutes, with the right combination, those changes happen. Most of those things are found at the edges. That’s why I told you I spend my time at the edges. It’s a mainstream orthodoxy. Go get your main clinical psychology degree out of Case Western. They’re many years behind, what’s out there on the forefront. It proves into putting. It’s to work or not work. I’ve seen with my own eyes and my own experience that these things work. That’s good enough for me. I’m a pretty skeptical guy.

I would love to go off on that tangent about all of what you said. I’m assuming you’ve written about that on your blog and talked about that in your podcast.

It’s smattered around. It’s there, but I have all these big areas that we’re looking at. I’m trying to synthesize them into some coherent story. It’s a lot to look at. We live in the information age.

We’re overwhelmed with it. How can readers learn more about you, Peak Prosperity, your podcast and what you’re up to?

There are lots of ways. is the main website. It has a public and also a subscription newsletter service. The subscription side is for people who want to go a little deeper into these topics and have these conversations one-on-one in a commentary behind the scene. We’re on Twitter, @ChrisMartenson. We’re also on YouTube, @ChrisMartensondotcom. You’ll find lots of people who want to start somewhere. The first time they’ve heard of me, they haven’t watched anything. Start with the Accelerated Crash Course. It’s 53 minutes. It takes the entire body of the three E’s and plunks it down into one spot. That will change your life if you haven’t watched it before. It has for a lot of people. Start there. Our book, Prosper!, on Amazon is the solution set. We go into each of those eight forms of capital, financial capital and emotional capital. There are six others. We break each one of those down with the hypothesis that if you’re rich across all eight, you’re going to be resilient, happier, healthier and more ready for whatever’s coming in the future, whatever that is and whenever it comes.

Chris, it’s been an honor to have you on. Thank you so much for sharing your wisdom.

Thank you.

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About Chris Martenson

TWS 9 | How Money WorksChris Martenson, Ph.D. (Duke), MBA (Cornell) is an economic researcher and futurist specializing in energy and resource depletion, and co-founder of (along with Adam Taggart). As one of the early Econo-bloggers who forecasted the housing market collapse and stock market correction, Chris rose to prominence with the launch of his seminal video seminar: The Crash Course (also published in book form, Wiley, March 2011).

It’s a popular and well-regarded distillation of the interconnected forces in the Economy, Energy and the Environment (the “Three Es” as Chris calls them) that are shaping the future, one that will be defined by increasing challenges to growth as we have known it. Of course, such warnings need solutions, which is why he and Taggart published the manual Prosper! How to Prepare for the Future and Create a World Worth Inheriting.

In addition to the analysis and commentary he writes for millions of readers at his site, Chris’ insights are in high demand by the media as well as academic, civic and private organizations around the world, including institutions such as the UN, the UK House of Commons and US State Legislatures.


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