Niall Ferguson: History of Money, Power, War, and Truth | Lex Fridman Podcast #239

1. 0:00 – 1:34

   Introduction

   1. LFLex Fridman0:00

      The following is a conversation with Niall Ferguson, one of the great historians of our time. At times controversial and always brilliant, whether you agree with him or not. He's an author of 16 books on topics covering the history of money, power, war, pandemics, and empire. Previously at Harvard, currently at Stanford, and today launching a new university here in Austin, Texas called the University of Austin, a new institution built from the ground up to encourage open inquiry and discourse by both thinkers and doers, from philosophers and historians, to scientists and engineers, embracing debate, dissent, and self-examination, free to speak, to disagree, to think, to explore truly novel ideas. The advisory board includes Steven Pinker, Jonathan Haidt, and many other amazing people with one exception: me. I was graciously invited to be on the advisory board, which I accepted in hope of doing my small part in helping build the future of education and open discourse, especially in the fields of artificial intelligence, robotics, and computing. We spend the first hour of this conversation talking about this new university before switching to talking about some of the darkest moments in human history and what they reveal about human nature. This is the Lex Fridman Podcast. To support it, please check out our sponsors in the description. And now, here's my conversation with Niall Ferguson.

2. 1:34 – 34:29

   University of Austin (UATX)

   1. LFLex Fridman1:35

      You are one of the great historians of our time, respected, sometimes controversial. You have flourished in some of the best universities in the world, from NYU to London School of Economics, to Harvard, and now to Hoover Institution at Stanford. Before we talk about the history of money, war, and power, let us talk about a new university you're a part of launching here in Austin, Texas. It is called University of Austin, UATX. What is its mission, its goals, its plan?

   2. NFNiall Ferguson2:09

      I think it's pretty obvious to a lot of people in higher education that there's a problem, and that problem manifests itself in a great many different ways. But I would sum up the problem as being a drastic chilling of the atmosphere that constrains free, uh, speech, free exchange, even free thought. And I had never anticipated that this would happen in my lifetime. My academic career began in Oxford in the 1980s when anything went. One sensed that a university was a place where one could risk saying the unsayable and debate the undebatable. So the fact that in a relatively short space of time, a variety of ideas, critical race theory or wokeism, whatever you want to call it, a variety of ideas have come along that seek to limit, and quite drastically limit, what we can talk about strikes me as deeply unhealthy. And I'm not sure, and I've thought about this for a long time, you can fix it with the existing institutions. I think you need to create a new one. And so after much deliberation, we decided to do it, and I think, uh, it's a hugely timely opportunity to do what people used to do in this country, which was to create new institutions. I mean, that used to be the default setting of America. We sort of stopped doing that. I mean, I look back and I go, "Why, why, why are there no new universities? Or at least if there are, why do they have so little impact?" It seems like we have the billionaires. Uh, we have the need. Let's do it.

   3. LFLex Fridman3:50

      So you still believe in institutions, in the university, in the ideal of the university?

   4. NFNiall Ferguson3:56

      I believe passionately in that ideal. There's a reason they've been around for nearly a millennium. There is a, a unique thing that happens on a university campus when it's done right, and that is the transfer of knowledge between generations. That is a very sacred activity, and it seems to withstand major changes in technology. So this form that we call the university predates the printing press, survived the printing press, continued to function through the scientific revolution, the enlightenment, uh, the industrial revolution to this day. And I think it's because, maybe because of evolutionary psychology, we need to be together in one relatively confined space when we're in our late teens and early 20s for the knowledge transfer between the generations to happen. It... That's my feeling about this. But in order for it to work well, there need to be very few constraints. There needs to be a sense that one can take intellectual risk. Remember, people in their late teens and early 20s are adults, but they're inexperienced adults. And if I look back on my own time as an undergraduate, saying stupid things was my MO.

   5. LFLex Fridman5:21

      Mm-hmm.

   6. NFNiall Ferguson5:21

      My way to finding good ideas was through a minefield of, of bad ideas. I feel so sorry for my... for people like me today, people age 18, 19, 20 today who are, uh, intellectually very curious, ambitious, but inexperienced because the minefields today are absolutely lethal, and, you know, one wrong foot and it's cancellation. I said this to Peter Thiel the other day. Imagine being us now. I mean, we were obnoxious undergraduates. There's nothing that Peter did at Stanford that Andrew Sullivan and I were not doing at Oxford, and perhaps we were even worse.But it was so-

   7. LFLex Fridman6:10

      (laughs)

   8. NFNiall Ferguson6:10

      ... so not career-ending to be-

   9. LFLex Fridman6:12

      Yeah.

   10. NFNiall Ferguson6:12

       ... to be an absolutely insufferable, obnoxious undergraduate then. Today if we, if we, if people like us exist today, they must live in a state of, of constant anxiety that they're going to be outed for some heretical statement that they made five years ago on social media. So, part of what motivates me is the, is the desire (laughs) to give, uh, the mes of today a shot at free-thinking and really... I- I- I'd call it, uh, aggressive learning, learning where you're really pushed. And I just think that's stopped happening on the, the major campuses because whether at Harvard where I used to teach or at Stanford where I'm now based, I- I sense a kind of suffocating atmosphere of self-censorship that, that means people are afraid to take even minimal risk in, in class. I mean, just, just take for example a survey that was published earlier this year that revealed... This is of undergraduates in four-year programs in the US. 85% of self-described liberal students said they would report a professor to the university administration if he or she said something they considered offensive. And something like 75% said, said they'd do it to a fellow undergraduate. That's the kind of culture that's evolved in our universities. So we need a new university in which none of that is true, in which you can speak your mind, say stupid things, get it completely wrong, and live to- to tell the tale. There is a lot more going on, I think, because when you start thinking about what's wrong with the modern university, many, many more things suggest themselves. And I think there's an opportunity here to build something that's radically new in- in some ways and radically traditional in other ways. For example, I have a strong preference for the tutorial system that you see at Oxford and Cambridge, which is small group teaching and- and highly Socratic in its structure. I think it'd be great to bring that to the United States where it doesn't really exist, but at the same time I think we should be doing some very 21st century things, making sure that while people are reading and studying classic works, they're also going to be immersed in the real world of technological innovation, a world that you know very well. Uh, and I- I'd love to get a synthesis of the ancient and classical, which we're gradually letting fade away, with the novel, uh, and technological. So we- we wanna produce people who can simultaneously talk intelligently about Adam Smith or for that matter Shakespeare or Proust and have a conversation with you about where AI is going and how long it will be before I can get driven here by a self-driving vehicle allowing me to have my lunch and prepare rather than focus on the other crazy people on the road. So, that's the dream, that we can create something which is, you know, partly classical and partly 21st century, and we look around and we- we don't see it. If you- if you don't see an institution that you really think should exist, I think you have a moral responsibility to create it.

   11. LFLex Fridman9:38

       So you're thinking including something bigger than just liberal education, also including science, engineering, and technology. And I should also comment that, you know, I mostly stay out of politics and out of some of these, uh, aspects of liberal education that kind of been the most controversial and difficult within the university, but there is a kind of ripple effect of fear within that space into science and engineering and technology that I think has a, has a nature that's difficult to describe. It's- it doesn't have a controversial nature, it just has a nature of fear where you're not... You know, y- you mentioned saying stupid stuff as a- a young 20-year-old. You know, for example, deep learning, uh, machine learning is really popular in the computer science now for- as an approach for creating artificial intelligence systems. It's- it- it is controversial in that space to say that... Anything against machine learning, saying... So sort of exploring ideas that's saying this is going to l- lead to a dead end. Um, now, that- that takes some guts to do as a young 20-year-old within, uh, within a classroom to think like that, to raise that question in a machine learning course. It sounds ridiculous 'cause it's like who's going to, uh, complain about this? But the- the fear that starts in a- in a- in a course on history or, uh, on- on the co- s- some course that covers society, the fear ripples and affects those students that are asking big out-of-the-box questions about engineering, about computer science. And there's a lot... You know, there's like linear algebra that's not going to change, but then there's like applied linear algebra which is machine learning, and that's when ro- robots and real systems touch human beings. And that's when you have to ask yourself these difficult questions about, about humanity even in engineering and science and technology courses.

   12. NFNiall Ferguson11:43

       And these are not separate worlds in two senses. I've just, uh, taken delivery of my copy of the book that Eric Schmidt and Henry Kissinger have-

   13. LFLex Fridman11:52

       Mm-hmm.

   14. NFNiall Ferguson11:53

       ... uh, co-authored on artificial intelligence. The central question of which is what does this mean for us broadly? But they're not separate worlds, you know, in C.P. Snow's sense of, you know, the- the chasm between science and arts because on a university campus...... everything is contagious, from a novel coronavirus to the behaviors that are occurring in the English department. Those behaviors, if denunciation becomes a norm, you know, undergraduate denounces professor, teaching assistant denounces undergraduate, those behaviors are contagious and will spread inexorably, first to social science and then to, to natural sciences. And I think that's, that's part of the reason why when this started to happen, when we started to get the origins of, of disinfe- disinvitation and cancel culture, it was not just a few conservative professors in the humanities who had to worry. Everybody had to worry because eventually it was going to come even to the most apparently hard STEM part of the, the campus. It's, it's contagious. This is something Nicholas Christakis should look at because he's very good at looking at the way in which social networks, like the ones that exist in a university, can spread everything. But I think when, when we look back and ask, "Why did wokeism spread so rapidly and rapidly out of humanities into other parts of universities? And why did it spread across the country and beyond the United States to the other English-speaking universities?" It's because it's a contagion. Uh, and, and these behaviors are contagious. The president of a university I won't name said to me that he receives every day at least one denunciation, one call for somebody or other to be fired for something that they said. That's the cr- crazy kind of totalitarianism light that now exists in our, o- our universities. And of course, the people who want to downplay this say, "Oh, well, there only have been a hundred and something in- disinvitations." Or, "Oh, there really aren't that many cases." But the point is that the famous events, the events that get the attention, are responsible for a general chilling that, as you say, spreads to every part of the university and creates a, a very familiar culture in which people are afraid to say what they think. Self-censorship, look at the Heterodox Academy data on this, grows and grows. So now a majority of students will say, this is clear from the latest Heterodox Academy surveys, "We are scared to say what we think in case we get denounced, in case we get canceled." Well, that's just not the correct atmosphere for a university in a free society. To me, what's really creepy is how many of the behaviors I see on university campuses today are reminiscent of the way (laughs) that people used to behave in the Soviet Union or in the Soviet Bloc or in Mao's China. The sort of totalitarianism light that I think we're, we're contending with here, which manifests itself as denunciations, people informing on superiors, some people using it for career advantage, other people reduced to hapless, desperate apology to try to exonerate themselves, people disappearing, metaphorically, if not literally. All of this is so reminiscent of the totalitarian regimes that I studied earlier in my career that it makes me feel sick. And what makes me really feel sick is that the people doing this stuff, the people who write the letters of denunciation are apparently unaware that they're behaving exactly like people in Stalin's Soviet Union. They don't know that. So they clearly have... There's been a massive educational failure if somebody can write an anonymous or non-anonymous letter of denunciation and not feel shame. I mean, you should feel morally completely contaminated as you're doing that. But, but people haven't been taught the realities of totalitarianism. For all these reasons, I think you need to try at least to create a new institution where those pathologies will be structurally excluded.

   15. LFLex Fridman16:01

       So maybe a difficult question, maybe you'll push back on this. But you're widely seen politically as a conservative, Hoover Institution is politically conservative. What is the role of politics at the University of Austin? Because some of the ideas, people listening to this, when they hear the ideas you're expressing, they may think there's a lean to these ideas, there's a conservative lean to these ideas. Is there such a lean?

   16. NFNiall Ferguson16:28

       There will certainly be people who say that, because the standard mode of trying to discredit any new initiative is to say, "Oh, this is a sinister, conservative, uh, plot." But one of our, uh, co-founders, Heather Heying, is definitely not a conservative. Uh, she's as committed to the idea of academic freedom as I am, but I think on political issues, we probably agree on almost nothing.

   17. LFLex Fridman16:57

       (laughs)

   18. NFNiall Ferguson16:57

       And... At least I, I would guess.

   19. LFLex Fridman16:59

       Yeah.

   20. NFNiall Ferguson17:00

       But, but politics... Max Weber made this point a long time ago, that politics really should stop at the threshold of the, the classroom, of the lecture hall. And in my career, I've always tried to make sure that when I'm teaching, it's not clear where I stand politically, though, of course, undergraduates in- insatiably, curiously want to know. But it shouldn't be clear from what I say because indoctrination on a political basis is an abuse of the power of the professor, as Weber rightly said. So I think one of the key principles of, of the University of Austin will be that Weberian principle, that politics is not an appropriate, uh, subject for the lecture hall, for the classroom, and we should pursue truth and enshrine liberty of thought. If that's a political issue, then I can't help you. I mean, if you're against freedom of thought, then we don't really have much of a discussion to have. And clearly, there are some people who politically seem quite hostile to it. But my sense is that there are plenty of people on the left in academia. I think of that interesting partnership between Cornel West and Robbie George.... which has been institutionalized in the Academic Freedom Alliance. It's bipartisan, this issue. It really, really is. After all, 50 years ago, it was the left that was in favor of free speech. The right still has an anti-free speech e- element to it. Look how quickly they're out to, to ban critical race theory. Critical race theory won't be banned at the University of Texas. Wokeism won't be banned. Everything will be up for discussion. But the rules of engagement will be clear, Chicago principles, those will be enforced. And if you have to give a lecture on, well, let's just take a recent example, uh, the Dorian Abbot case. If you're giving a lecture on astrophysics, but it turns out that in some different venue you express skepticism about affirmative action, well, it doesn't matter. It's irrelevant. We want to know what your thoughts are on astrophysics 'cause that's what you're supposed to be giving a lecture on. That used to be understood. I mean, at the Oxford of the 1980s, there were communists and there were ultra Tories. At Cambridge, there were people who were so reactionary that they celebrated Franco's birthday, but they were also out-and-out communists down the road at King's College. The understanding was that that kind of intellectual diversity was part and parcel of university life. And frankly, for an undergraduate, it was great fun to cross the road and go from, you know, outright conservatism, ultra Toryism to communism. One learns a lot that way. Uh, but the issue is when you're promoting or hiring or tenuring people, their politics is not relevant. It really isn't. And when it started to become relevant, and I remember this coming up at the Harvard History Department late in my time there, I felt deeply, deeply uneasy that we were having conversations that amounted to, "Well, we can't hire X person despite their obvious academic qualifications because of some political issue." That, that's not what should happen at a healthy university.

   21. LFLex Fridman20:28

       Some practical questions. Will University of Austin be a physical in-person university or a virtual university? What are some, uh, in that aspect where the classroom is?

   22. NFNiall Ferguson20:42

       It will be a real space institution. There may be an online dimension to it because there clearly are a lot of things that you can do, uh, via the internet. But the core activity of, of teaching and learning I think requires real space. And I've, I've thought about this a long time, debated Sebastian Thrun about this many, many years ago-

   23. LFLex Fridman21:07

       (laughs)

   24. NFNiall Ferguson21:07

       ... when he was a complete believer in, let's call it the metaversity to go with the Metaverse. I mean, the metaversity was going to happen, wasn't it? But I never really believed in the metaversity. I didn't do MOOCs because I just didn't think you'd, A, be able to retain the attention, B, be able to cope with the scale, scaled grading that was involved. I think there's a reason universities have been around in th- their form for about a millennium. You kind of need to all be in the same place. So I think answer to that question, definitely a campus in the Austin area, that's where we'll start. And if we can allow some of our content to be available online, great, we'll certainly do that.

   25. LFLex Fridman21:48

       Another question is, what kind of courses and programming will it offer? Is that something you can speak to? What's your vision here?

   26. NFNiall Ferguson21:55

       We think that we need to begin more like a startup than like a full-service university from day one. So, our vision is that we start with a summer school, uh, which will offer provocatively the forbidden courses. We, we want, I think, to begin by giving a platform to the professors who've been most subject to cancel culture and also to give an opportunity to students who want to hear them to come. So we'll start with a summer school that will be somewhat in the tradition of, uh, of those institutions in the interwar period that were havens for refugees. So we're, we are dealing here-

   27. LFLex Fridman22:36

       (laughs)

   28. NFNiall Ferguson22:36

       ... with the internal refugees of, uh, of the woke era. We'll start there. Uh, it'll be an opportunity to test out some, uh, some content, see what, uh, students will come, uh, and spend time in Austin to hear. So that's part A, that's the sort of, uh, if, if you like the launch product, and then we go straight to a master's, uh, program. I don't think you can go to undergraduate education right away because the established brands in undergraduate education are offering something it's impossible to compete with initially because they have, uh, the brand, Harvard, Yale, Stanford, and, uh, they offer also this peer network, uh, which is part of the reason people want so badly to go to those places, not really the professors, it's the classmates. So we don't want to compete there initially. Where there is, I think, room for new entrants is in a master's program, and the first one will be in entrepreneurship and, and leadership because I think there's a huge hunger amongst people who want to get into particularly the technology world to learn about those things, and they know they're not really going to learn about them at business schools. The people who are not going to teach them leadership and entrepreneurship are professors.

   29. LFLex Fridman23:55

       Mm-hmm.

   30. NFNiall Ferguson23:55

       So we want to create something that will be a little like the very successful Schwarzman program in China, which was come and spend a year in China and find out about China. We'll be doing the same, essentially saying, come and spend a year and, and find out about technology, and there'll be a mix of academic content-We want people to understand some of the first principles of what they're studying. There are first principles of entrepreneurship and leadership, but we also want them to spend time with people like one of our co-founders, Joe Lonsdale, who's been a hugely access- successful venture capitalist and, and learn directly from people like him. So, that's the kind of initial offering. I think there are other master's programs that we will look to roll out quite quickly. I have a particular passion for a Master's in Applied History or Politics and Applied History. I'm a historian driven crazy by the tendency of, of academic historians to drift away from what seemed to me the important questions, and certainly to drift away from addressing policy-relevant questions. So I would love to be involved in, in, in a Master's in Applied History. And we'll, we'll build some programs like that before we get to the full liberal arts, uh, experience that we envisage for an undergraduate program. And that undergraduate program is an exciting one because I think we can be innovative there too. I, I, I would say two years would be spent doing some very classical and difficult classical things, bridging those old divides between arts and sciences. But then there would also be in the second, uh, in the second half, in the junior and senior years, something somewhat more of an apprenticeship where we'll have centers, including a center for, uh, technology, engineering, mathematics, that will be designed to, to help people make that transition from the theoretical to the, the practical. So that's the vision. Uh, and I think like any, like any early stage, uh, idea, we'll doubtless tweak it as we go along. We'll find things that work and things that don't work. But I have a very clear sense in my own mind of how this should look five years from now. And I don't know about you. I mean, I, I'm unusual as an academic because I quite like starting new institutions and I've done a bit of it in my career. You got to kind of know what it should look like-
3. 34:29 – 52:56

   Sam Harris

   1. NFNiall Ferguson34:29

      So the idea here is, is to grow this organically. Uh, we need, uh, rather like the Academic Freedom Alliance that Robbie George created earlier this year, we need breadth, uh, and we need to show that this is not some kind of, uh, institutionalization of the intellectual dark web, though we welcome founding members of that, that, uh, nebulous body. It's really something designed for all of academia to provide a kind of reboot that I- I think we all agree is needed.

   2. LFLex Fridman35:00

      Is there a George Washington type figure who is... Is there a president elected yet or is, is... What... Who's going to lead this institution?

   3. NFNiall Ferguson35:07

      Panayiotis Panaykanelos, the former president of St. John's is the president of University of Austin, and so he is our George Washington.

   4. LFLex Fridman35:15

      (laughs)

   5. NFNiall Ferguson35:15

      I don't know who Alexander Hamilton is. I'll leave you to guess.

   6. LFLex Fridman35:18

      It's funny you mentioned IDW, Intellectually Dark Web. Have you, uh, talked to your friend Sam Harris about, about any of this? He, um, he is another person I really admire and I- I've talked to online and offline quite a bit for not belonging to any tribe. He stands boldly on his convictions when he knows they're not going to be popular with... Like he bas- (laughs) he basically gets canceled by every group. He sort of... He doesn't shy away from controversy and not for the sake of controversy itself. He is one of the best examples to me of a person who thinks freely. I disagree with him on a few... quite a few things, but I deeply admire that he is l- he, he is what it looks like to think freely by himself. It feels to me like he represents a lot of the ideals of this kind of effort.

   7. NFNiall Ferguson36:16

      Yes. He would be a, a natural fit. Sam, if you're listening, I hope you're in. Uh, I think in, in the course of his recent intellectual quests, he did collide with one of our founders, Heather Heying. So we'll have to model civil disagreement at the University of Austin. It's extremely important that we should all disagree about many things but do it amicably.... uh, one of the things that has been lost sight of, perhaps it's all the fault of Twitter or maybe it's something more profound, is that it is possible to disagree in a civil way and, and still be friends. I certainly had friends at Oxford who were far to the left of me politically and they are still among my best friends. So, the University of Austin has to be a place where we can disagree. Uh, we can disagree vehemently, but we can then go and have a beer afterwards. That's, that's, in my mind, a really important part of university life, learning the difference between the political and the, and the personal. So Sam is a, I think a, a good example, as are you, of a certain kind of intellectual hero who has been willing to go into the cyber, uh, sphere, the metaverse, and carve out an intellectual space, uh, the, the podcast, and debate everything fearlessly. His, uh, essay, it was really an essay on Black Lives Matter and the question of police racism was a masterpiece of 2020. And, uh, and so he, I think, is a, a model of what we believe in. But we can't save the world with podcasts, good though yours is, because there's a kind of solo element-

   8. LFLex Fridman38:11

      Mm-hmm.

   9. NFNiall Ferguson38:11

      ... to this form of, of public intellectual activity. It's, it's also there in Substack, where all our best writers, uh, now seem to be, including our founder, Bari Weiss. The danger with this, uh, approach is ultimately your subscribers are the people who already agree with you, and we are all therefore in danger of preaching to the choir. I think what makes an institution like University of Austin so attractive is that (laughs) we get everybody together, uh, at least part of the year, and we do that informal interaction at lunch, at dinner, uh, that allows, in my experience, the best ideas to form. Intellectual activity isn't really a solo voyage. Historians often make it seem that way, but I've realized over time that I do my best work in a collaborative way. And, and scientists have been better at this than people in the humanities. But what really matters, what, what's magical about a good university is that interdisciplinary serendipitous conversation that happens on campus. Tom Sargent, the great Nobel Prize-winning economist and I used to have these kind of random conversations in elevators at NYU or in corridors at Stanford, and sometimes they'd be quite short conversations, but in that short serendipitous exchange, I would have more intellectual stimulus than in, in many a seminar lasting an hour and a half. So I think we want to get the Sam Harris' and, and Lex Friedman's out of their darkened rooms and give them a chance to interact in a m- a much less structured way than we've got, got used to. Again, it's that, it's that sense that sometimes you need some freewheeling unstructured debate to get the really good ideas. I mean, to talk anecdotally for a moment, I look back on my Oxford undergraduate experience, and I wrote a lot of essays and attended a lot of classes, but intellectually the most important thing I did was to write an essay on the Viennese satirist Karl Kraus for a, an undergraduate discussion group called The Canning Club-

   10. LFLex Fridman40:27

       (laughs) .

   11. NFNiall Ferguson40:27

       ... and I probably put more work into that paper than I put into anything else, except maybe my final examinations, even although there was only really one senior member present, the historian Jeremy Catto. I was really just trying to impress my contemporaries. And that's the kind of thing we want. The great intellectuals... The great intellectual leaps forward occurred often in somewhat unstructured settings. I'm from Scotland. You can tell from my accent a little, at least. The enlightenment happened in late 18th century Scotland in a very interesting interplay between the universities, which were very important, uh, Glasgow, Edinburgh St. Andrews, and the coffee houses and, and pubs of, uh, the Scottish cities where a lot of unstructured discussion, often fueled by copious amounts of wine, took place.

   12. LFLex Fridman41:24

       (laughs) .

   13. NFNiall Ferguson41:24

       That's what I've missed over the last few years. Let's, let's just think about how hard academic social life has become, that we've reached the point that Amy Chua becomes the object of a full-blown investigation and media storm for inviting two Yale Law School students over to her house to talk. I mean, when I was at Oxford, it was regarded as a tremendous honor to be asked to go to one of our tutor's homes. The social life of Oxford and Cambridge is one of their great strengths. There's a sort of requirement to sip unpleasant sherry with the dons, and we've kind of killed all that.

   14. LFLex Fridman42:08

       (laughs) .

   15. NFNiall Ferguson42:08

       We've killed all that in the US-

   16. LFLex Fridman42:09

       Yeah.

   17. NFNiall Ferguson42:09

       ... 'cause nobody dares have a social interaction with an undergraduate or exchange an informal email in case the whole thing ends up on the front page of the local or student newspaper. So that, that's what we need to kind of restore, the, the social life of academia.

   18. LFLex Fridman42:25

       So there's magic. We didn't really address this sort of explicitly, but-... there's magic to the interaction between students, there's magic in the interaction between faculty, the people that teach, and there's the magic in the interaction between the students and the faculty and it's- it's an iterative process that changes everybody involved.

   19. NFNiall Ferguson42:45

       Yeah.

   20. LFLex Fridman42:46

       So it's like world experts in a particular discipline are changed as much as the students, as the 20-year-olds with the- with the wild ideas. Each are changed and that's the magic of it, and that applies in liberal education, that applies in the s- in the sciences too. That's probably, maybe you can speak to this, why so much scientific innovation has happened in universities. There's something about the youthful energy of, like, young minds, graduate students and the graduate students that inspire some of the world experts to do some of the best work of their lives.

   21. NFNiall Ferguson43:21

       Yeah. Well, the human brain, we know, is at its most dynamic, uh, when people are pretty young. Uh, you know this with your background in math. People don't get better at math after the age of 30. And, uh, this is important when you think about the inter-generational character of a university. The older people, the professors have the experience, but they're fading intellectually from much earlier than anybody really wants to admit and so you get this intellectual shot in the arm from hanging out with people who are circa 20, don't know shit-

   22. LFLex Fridman44:00

       (laughs)

   23. NFNiall Ferguson44:00

       ... but brains are kind of like cooking.

   24. LFLex Fridman44:03

       Yeah. (laughs)

   25. NFNiall Ferguson44:04

       I look back on the career I've had in teaching, which is over 25 years at... were Cambridge, Oxford, NYU, Harvard and, uh, I have extremely strong relationships with- with students, uh, from those institutions because they would show up, whether it was at office hours or in tutorials, and disagree with me. And for me, it's always been about encouraging some active intellectual rebellion. Telling people, "I don't want your essay to echo my views. If you can find something wrong with what I wrote, great. Or if you can find something I missed that's new, fantastic." So there is definitely, as you said, a magic in that interaction across the generations and it's extraordinarily difficult, I think, for an intellectual to make the same progress in a project, in isolation, compared with the progress that can be made in these very, very special communities. What- what does a university do? Amongst other things, it creates a somewhat artificial environment of- of- of abnormal job security, and that's the whole idea of giving people tenure, uh, and then a relatively high turnover, new faces each year, and an institutionalization of thought experiments and actual experiments. And then you get everybody living in the same kind of vicinity so that it can spill over into 3:00 AM conversation. Well, that- that always seems to me to be a pretty potent combination. Let's ask ourselves a counterfactual question next. (laughs) Let's imagine- let's imagine that, uh, the- the World Wars happen but- but there are no universities. I mean, how does the Manhattan Project happen with- with no academia? To- to take just one of many examples. In truth, how does Britain even stay in the war without Bletchley Park, without, uh, be- being able to crack the German, uh, cipher? The- the academics are unsung, or partly sung heroes of these conflicts. Uh, the same is true in the Soviet Union. The Soviet Union was a terribly evil and repressive system, but it was good at science and that kept it in the game, not only in- in World War II, it kept it in the Cold War. So, it's clear that universities are incredibly powerful intellectual force multipliers and our- our history without them would look very different. Sure, some innovations would have happened without them. That's clear. The Industrial Revolution didn't need universities. In fact, they played a very marginal role in the key technological breakthroughs of the Industrial Revolution in its first phase. But by the Second Industrial Revolution in the late 19th century, German industry would not have leapt ahead of British industry if the universities had not been superior, and it was the fact that the Germans institutionalized scientific research in the way that they did that really produced a powerful, powerful advantage. Uh, the problem was that... and this is a really interesting point that Friedrich Meinecke makes in Die Deutsche Katastrophe, The German Catastrophe, that German intellectuals became technocrats, homo faber, he says. They knew a great deal about their speciality, but they were alienated from, broadly speaking, humanism. And that is his explanation, or one of his explanations, for why this very scientifically advanced Germany goes down the path of hell, led by Hitler. So when I come back and ask myself, what is it that we want to do with a new university? We wanna make sure that we- we don't fall into that- that German pit where very high levels of technical and scientific expertise are decoupled from the fundamental foundations of- of a free society. Uh, so liberal arts are there, I think, to stop the scientists making Faustian pacts, and that- that's why it's really important that people working on AI read Shakespeare.

   26. LFLex Fridman48:15

       I think you said that academics are unsung heroes of the 20th century. I think there's kind of an intellectual... a lazy, intellectual desire to kind of, uh, destroy the academics, that the academics are the source of all problems in the world. (laughs) And, uh, I personally believe that, exactly as you said, we need to recognize that university is probably where the ideas that will protect us from the catastrophes that are looming ahead of us is, that's where those ideas are going to come from.

   27. NFNiall Ferguson48:52

       People who, who work on economics can argue back and forth about John Maynard Keynes, but I think it's pretty clear that he was the most important economist, and certainly the most influential economist, of the 20th century. And I think his ideas are looking better today in the wake of the financial crisis than they have at any time since the 1970s. But imagine, imagine John Maynard Keynes without Cambridge. You can't-

   28. LFLex Fridman49:20

       Yeah.

   29. NFNiall Ferguson49:21

       ... because someone like that doesn't actually, doesn't actually exist without the incredible hothouse, uh, that a place like Cambridge was in Keynes' life. He was a product of a kind of hereditary intellectual elite. It had its vices, but you can't help but admire the sheer power of the mind. I've spent a lot of my career reading Keynes, and I, I revere that intellect. It's so, so powerful. But you can't have people like that if you're not prepared to have King's College, Cambridge. And, and it comes with redundancy. I think that's the point. There are lots and lots of things that are very annoying about academic life-

   30. LFLex Fridman50:02

       (laughs)
4. 52:56 – 1:01:15

   Elon Musk

   1. NFNiall Ferguson52:56

   2. LFLex Fridman52:56

      Elon Musk mentioned in his usual humorous way on Twitter that he wants to launch the Texas Institute of Technology and Science, TITS. Some people thought this was sexist because of the acronym TITS. So first of all, I understand their viewpoint, uh, but I also think there needs to be a place for humor (laughs) on the internet, even from CEOs. So, on this podcast I've gotten a chance to talk to quite a few CEOs, and what I love to see is authenticity. And humor is often a sign of authenticity. The, um, the quirkiness that you mentioned is such a beautiful characteristic of, uh, professors and faculty in great universities, is also beautiful to see as CEOs, especially founding CEOs. So, anyway, uh, the deeper point he was making is showing an excitement for the university as a place for big ideas in science, technology, engineering. So, to me, if there's some kind of way... If there is a serious thought that he had behind this tweet, (laughs) not to analyze Elon Musk's, uh, Twitter like it's Shakespeare-

   3. NFNiall Ferguson54:11

      (laughs)

   4. LFLex Fridman54:11

      ... but if there's a serious thought, um, I would love to see him supporting, uh, the- the flourishing of Austin as a place for science, technology, for these kinds of intellectual developments that, uh, um, that- that- that we're talking about. Like, make- um, make a place for free inquiry, civil disagreements, coupled with great education, uh, and conversations about artificial intelligence, about technology, about engineering. So I'm actually gonna, uh...... I hope there's a serious idea behind that tweet, and I'm gonna, I'm gonna chat with him about it.

   5. NFNiall Ferguson54:46

      I do too. I do too. I, uh, most of the, uh, biggest, uh, storms in teacups of my academic career have been caused by bad jokes that I've made.

   6. LFLex Fridman55:00

      (laughs)

   7. NFNiall Ferguson55:00

      These days, if you want to make bad jokes, being a billionaire is a great idea. Uh, I'm not here to defend Elon's, uh, Twitter style or sense of humor. He's not gonna be remembered for his tweets, I think. Uh, he's gonna be remembered for the astonishing companies that he's built and his, his contributions in a whole range of, of fields from SpaceX to, to Tesla, uh, and solar energy, and I very much hope that we can interest Elon in this project. We need not only Elon, but a whole range of, uh, his peers, uh, because, uh, this takes resources. Universities are not cheap things to run, especially if, as I hope, we can make as much of, uh, the, the tuition, uh, covered by scholarships and bursaries. We, we want to attract the best intellectual talent to this institution. The best intellectual talent is somewhat randomly distributed through society, and some of it is in the bottom quintile of the income distribution, and that makes it hard to get to elite education. So, this will take resources. The last generation of super wealthy plutocrats, the generation of the Gilded Age of the late 19th century, did a pretty good job of founding universities. Uh, Chicago wouldn't exist, uh, but for the money of that era. And so my message to, not only to Elon, but to all of the, the peers, all of those people who made their billions, uh, out of technology over the last couple of decades is, this is your time, I mean, and this is your opportunity to create something new. I can't really understand why the wealthy of our time are content to hand their money. I mean, think of the vast sums Mike Bloomberg recently gave to Johns Hopkins, to established institutions, when on close inspection those institutions don't seem to spend the money terribly well. And in fact, one of the mysteries of our time is the lack of due diligence that hard-nosed billionaires seem to do when it comes to philanthropy. So, I think there's an opportunity here for this generation of, of very talented, wealthy people to, to do what their, their counterparts did in the late 19th and early 20th century and, and create some new institutions. And they don't need to put their names on the buildings. They just need to do what, what the founders of, of Chicago, University of Chicago did: create something new that will, that will endure.

   8. LFLex Fridman57:45

      Yeah, uh, MIT is launching a College of Computing and, um, Stephen Schwarzman has, has, has given quite a large sum of money. I think in total, a billion dollars. And as somebody who loves computing and somebody who loves MIT, I want some accountability, uh, for MIT becoming a better institution. And this is, once again, why I'm excited about University of Austin, 'cause it serves as a beacon. "Look, you can create something new, and this is what the great institutions of the future should look like."

   9. NFNiall Ferguson58:18

      And Steve Schwarzman, uh, is also a, an innovator. The idea of creating a college on the Tsinghua campus and creating a kind of Rhodes program for students from the Western world to come study in China was, was Steve's idea. And, and I was somewhat involved, did some visiting professing there. It taught me that you can create something new, uh, in that area of graduate education and quite quickly attract really strong applicants, because the people who finish their four years at Harvard or Stanford know that they don't know a lot. And I, having taught a lot of people in that group, know how intellectually dissatisfied they often are at the end of four years.

   10. LFLex Fridman59:07

       Mm-hmm.

   11. NFNiall Ferguson59:08

       I mean, they may have beautifully gamed the system to graduate summa or magna cum laude, but they kind of know. They, they'll confess it after a drink or two. They know that they gamed the system and that intellectually it wasn't the fulfilling experience they wanted, and they also know that an MBA from a comparable institution would not be a massive intellectual step forward. So, I think what we want to say, uh, is, "Here's something really novel, exciting, that will be intellectually very challenging." I, I do think (laughs) the University of Austin has to be difficult.

   12. LFLex Fridman59:41

       Yeah.

   13. NFNiall Ferguson59:42

       Um, I'd like it to feel a little bit like surviving Navy SEAL training-

   14. LFLex Fridman59:46

       Mm-hmm.

   15. NFNiall Ferguson59:46

       ... to come through this program, because it will be intellectually demanding. That, I think, should be a magnet. So-

   16. LFLex Fridman59:52

       Yes.

   17. NFNiall Ferguson59:52

       Yeah, Steve, if you're listening, uh, please join Elon in, in supporting this, and, and, and, and Peter Thiel, if you're listening, I know how skeptical you are about the idea of creating a new university 'cause heaven knows Peter and I have been discussing this idea for years, and he's always said, "Well, no, we thought about this and it just isn't gonna work." But I really think we've got a, we got a responsibility to, to do this.

   18. LFLex Fridman1:00:15

       Well, Steve's been on this podcast before. We've, uh, spoken a few times, so I'll send this to him. I hope he does actually get behind it as well. So, I'm, I'm super excited by the ideas that we've been talking about that this, uh, effort represents and what ripple effect it has on the rest of society. So, thank you. That was a time beautifully spent. (laughs) And I'm really grateful for the, the fortune of getting a chance to talk to you at this moment in history, because I've been a big fan of your work, and the reason I wanted to talk to you today is...... uh, about all the excellent books you've written about various aspects of history through money, war, power, pandemics, all of that. But I'm glad that this c- we got a chance to talk about this, which is not looking at history, it's looking at the future. This is a beautiful little, uh, fortuitous, uh, moment. I appreciate you talking about it.

5. 1:01:15 – 1:11:10

   Money

   1. LFLex Fridman1:01:15

      In the book Ascent of Money, you give a history of the world through the lens of money. If the financial system is, uh, evolutionary in nature, much like life on Earth, what is the origin of money on Earth?

   2. NFNiall Ferguson1:01:30

      The origin of money predates coins. Most people kind of assume I'll talk about coins, but coins are relatively late developments. Back in ancient Mesopotamia, so I don't know, 5,000 years ago, there were, uh, relations between creditors and debtors. There, there are even in the simplest economy, uh, because of the way in which agriculture works, "Hey, I need, I need to plant these seeds, but I'm not gonna have crops for X months." So we have clay tablets in which simple debt transactions are inscribed. I remember looking at great numbers of these in the British Museum when I was writing The Ascent of Money, and that's really the beginning of money. The, the minute you start recording a relationship between a creditor and a debtor, you have something that is quasi money, and that is probably what these, um, clay tablets mostly denoted. From that point on, there's a great evolutionary experiment to see what the most convenient way is to record, uh, relations between creditors and debtors. And what emerges, uh, in the time of the ancient Greeks are coins, metal tokens, uh, sometimes, uh, a valuable metal, sometimes not, usually bearing the imprint of a state or a monarch. And that's the sort of more familiar form of, of money that we still use today for very, very small transactions. I expect coins will all be gone by the time my youngest son is my age, but, but they're a last remnant of a very, very old way of, of doing, of doing simple transactions and, and-

   3. LFLex Fridman1:03:24

      By the way, when you say coins, you mean physical coins?

   4. NFNiall Ferguson1:03:28

      I'm talking abou- (laughs)

   5. LFLex Fridman1:03:28

      Because the term coins has been rebranded into digital space as well.

   6. NFNiall Ferguson1:03:31

      Yeah, not Coinbase coins, actual coin-coins. You know, the ones that jangle in your, in your pocket and you kind of don't know quite what to do with once you have some. So th- th- that, that became an incredibly pervasive form of, of, of paying for things. Money's just a... It's just a crystallization of a relationship between a debtor and a creditor, and coins are just very fungible. Uh, you know, whereas a clay tablet relates to a specific transaction, uh, coins are generic and fungible. They can be used in, in any transaction. So that was an important evolutionary advance. If you think of financial history, and this was the point of The Ascent of Money, as an evolutionary story, there are punctuated equilibria. People get by with coins for a long time, despite their defects as a means of payment, such as that they can be debased, they can be clipped. Uh, it's very hard to avoid fake or debased money entering the system. But coinage is still kind of the basis of payments all the way through the Roman Empire, out the other end into the so-called Dark Ages, it's still how most things are settled in cash transactions in the early 1300s. You don't get a big shift until after the Black Death when there is such a need to monetize the economy because of chronic labor shortages and feudalism begins to unravel, that you, you just don't have a sufficient, uh, amount of coinage. And so you get bills of exchange, and I'm really into bills of exchange, uh, because, and this I hope will capture your listeners', uh, and viewers' imaginations, when they start using bills of exchange, which, which are really just pieces of paper saying, you know, "I owe you over a three-month period while goods are in transit from Florence to London," you get the first, uh, peer-to-peer payment system, which is network verified, 'cause they're, they're not coins. They don't have a king's head on them. They're just pieces of paper, and the verification comes in the form of signatures. And you, you need ultimately some kind of guarantee if I write an IOU to you, bills of exchange, I mean, you don't really know me that well. We only just met. So you might wanna get endorsed by, I don't know, somebody really creditworthy like Elon.

   7. LFLex Fridman1:05:54

      (laughs)

   8. NFNiall Ferguson1:05:54

      Uh, and so we, we actually can see in the late 14th century in Northern Italy and in England and elsewhere the evolution of, uh, a peer-to-peer network system of, of payment. And that's actually how world trade grows, 'cause you just couldn't settle long oceanic transactions with coinage. It just wasn't practical. All those treasure chests full of doubloons, which were part of the way in which the Spanish Empire worked were really inefficient. So bills of exchange are an exciting, uh, part of the story, and they illustrate something I should have made more clear in The Ascent of Money, that not everything used in payment needs to be money. Classically, economists will tell you, "Ah, well, money. Money has three different functions." It's... You've heard this a zillion times, right? It's a unit of account, it's a store of value, and it's a medium of exchange. Now, there are three or four things that are worth saying about this, and I'll just say two. One, th-It may be that those three things are a trilemma and it's very difficult for anything to be all of them. This point was made by my Hoover colleague, Manny Rincon-Cruz, last year and I still wish he would write this up as a paper because it's a great insight. The second thing that's really interesting to me is that payments don't need to be money. And if we go around, as economists love to do, saying, "Well, Bitcoin's not money because it doesn't fulfill these criteria," we're missing the point that you could build a system of payments, which I think is how we should think about crypto, that is, isn't money, doesn't need to be money. It, it's like bills of exchange. It's network-based verification, peer-to-peer transactions without, without third-party verification. When it hit me the other day that we actually have this precedent for crypto, I got quite excited and thought, "I wish I had written that in The Ascent of Money."

   9. LFLex Fridman1:07:46

      Can you sort of from a first principles, like almost like a physics perspective or maybe a human perspective, uh, describe where does the value of money come from? Like where is it actually? Where is it? So it's a sheet of paper or it's coins, but it feels like in a platonic sense, there's some kinda thing that's actually storing the value, as us, a bunch of ants are dancing around and so on.

   10. NFNiall Ferguson1:08:15

       Right. I come from a family of physicists.

   11. LFLex Fridman1:08:17

       (laughs)

   12. NFNiall Ferguson1:08:17

       I'm the black sheep of the family. My mother's a physicist, my sister is. And, uh, so when you ask me to explain something in, in physics terms, I, I get a kind of, little part of me dies 'cause I know I'll-

   13. LFLex Fridman1:08:28

       (laughs)

   14. NFNiall Ferguson1:08:28

       ... fail.

   15. LFLex Fridman1:08:29

       (laughs)

   16. NFNiall Ferguson1:08:30

       But in, in truth, it doesn't really matter what we decide money is going to be. Any, anything can record, uh, crystallize the, the relationship between the, the creditor and the debtor. It can be a piece of paper, it can be a piece of metal. It, it can be nothing, can just be a digital entry. It's trust that we're really talking about here. We are not just trusting one another, we may not, but we are trusting the money. So whatever we use to represent the creditor-debtor relationship, whether it's a bank note or a coin or whatever, it does depend on us both trusting it. And that doesn't always pertain. What we see in episodes of inflation, especially episodes of hyperinflation, is a crisis of trust, a crisis of confidence in the means of payment, and this is very traumatic for the societies to which it happens. By and large, human beings, particularly once you have a rule of law, uh, system of the sort that evolved in the West and then became generalized, are predisposed to trust one another, and the default setting is to trust money even when it depreciates at, at quite a steady rate as the US dollar has done, uh, pretty much uninterruptedly since the 1960s. It takes quite a big disruption for money to lose that trust. But I think essentially what money should be thought of as is a series of tokens that can take any form we like and can be purely digital which represent our transactions as, as creditors and debtors, and the whole thing depends on our collective trust to work. I m- I had to explain this to Stephen Colbert once on The Colbert Show, the old show that was actually funny, and-

   17. LFLex Fridman1:10:34

       (laughs) Oh.

   18. NFNiall Ferguson1:10:34

       ... it was a great moment-

   19. LFLex Fridman1:10:36

       (laughs) Strong words.

   20. NFNiall Ferguson1:10:36

       ... when he said, um, "So, so, so Neil, could I be money?" And I said, "Yes, you know, we, we could, we could settle a, a debt with a human being." That was quite common in much of history, but, but it's not the most convenient form of money. Money has to be convenient. That's why when they worked out how to make payments with cell phones, the Chinese simply went straight there from bank accounts. They skipped out credit cards. You won't see credit cards in China except in the hands of naive tourists.

6. 1:11:10 – 1:16:35

   Hyperinflation

   1. NFNiall Ferguson1:11:10

   2. LFLex Fridman1:11:10

      How much can this trust bear in terms of, uh, us humans with our human nature testing it? It seem, th- I guess the surprising thing is the thing works. A bunch of self-interested ants running around, uh, trading in trust, and it seems to work except for a bunch of moments in human history when there's hyperinflation like you mentioned. And it's just, uh, it's just kind of amazing. It's, it's kind of amazing that us humans, if I were to be optimistic and sort of hopeful about human nature, it gives me a sense that people want to lean on each other. They want to trust.

   3. NFNiall Ferguson1:11:51

      That certainly, I would say probably now, a widely shared view amongst evolutionary psychologists, network scientists. It's one of, uh, Nicholas Christakis' argument in a recent book. And I think economic history broadly bears this out, but you have to be cautious. The cases where the system works are familiar to us because those are the, those are the, the states and the eras that produce a lot of written records. But when the system of trust collapses and the monetary system collapses with it, there's generally quite a paucity of, of records. I found that when I was writing Doom. And so we slightly are biased in favor of the periods when trust, uh, prevailed and the system functioned. It's very easy to point to a great many episodes of very, very intense monetary chaos even in the relatively recent past. In the wake of the First World War-... multiple currencies, not just the German currency, multiple currencies were completely destroyed. The Russian currency, the Polish currency. There were currency disasters all over Central and Eastern Europe in the early 1920s and that was partly because over the course of the 19th century, a system had evolved in which trust was based on gold and rules that were supposedly applied by central banks. That system, which produced relative price stability over the, the 19th century, fell apart as a result of the First World War. And as, and as soon as it was gone, as soon as there was no longer a clear link between those, uh, bank notes and coins and gold, the whole thing went completely haywire. A- and I think we should remember the, the extent of the monetary chaos from certainly 1918 all the way through to the late 1940s. I mean, the German currency was destroyed not once but twice in that period, and that was one of the most advanced economies in the world. Uh, in the United States, there were periods of intensely deep deflation. Prices fell by a third in the Great Depression, and then very serious price volatility in the immediate post-WWII period. So, it's a bit of an illusion, maybe it's a- an illusion for people who've spent most of their lives in the last 20 years. We've had a period of exceptional price stability since this century began in which a regime of central bank independence and inflation targeting appeared to generate steady below 2% inflation in much of the developed world. It was a bit too low for the central bankers' liking, and that became a problem in the financial crisis, but we've avoided major price, uh, instability for the better part of 20 years. In most of the world, there haven't really been that many very high inflation episodes and hardly any hyperinflationary episodes. Venezuela's one of the very few, Zimbabwe is another. But if you take a 100-year view or a 200-year view, or if you wanna take a 500-year view, you realize that quite often the system doesn't work. If you go back to the 17th century, there were multiple competing systems of coinage, there had been a great inflation that had begun the previous century, uh, the price of revolution caused mainly by the arrival of New World silver. I think financial history is a bit messier than one might think and the more one studies it, the more one realizes the- the need for the evolution. The reason bills of exchange came along was because the coinage systems had stopped working. The reason that bank notes started to become used more generally, first in the American colonies in the 17th century, then more widely in the 18th century, was just that they were more convenient than any other way of, of paying for things. We had to invent the bond market in the 18th century to cope with the problem of public debt, which up until that point had been a recurrent source of instability, and then we invented equity finance because bonds were not enough. So, I would prefer to think of, of the financial history as a series of crises really that are resolved by innovations. And in the most recent episode, very exciting episode of financial history, something called Bitcoin initiated a new financial or monetary revolution in response, I think, to the growing crisis of the fiat money system.

7. 1:16:35 – 1:33:17

   Bitcoin

   1. NFNiall Ferguson1:16:35

   2. LFLex Fridman1:16:36

      Can you speak to that? So, what do you think about Bitcoin? What do you think it is a response to? What are the growing problems of the fiat system? What is this moment in human history that is full of challenges that Bitcoin and cryptocurrency is trying to overcome?

   3. NFNiall Ferguson1:16:55

      I don't think Bitcoin was devised by Satoshi, whoever he was, for fear of a breakdown of the fiat currencies. If it was, it was a very far-sighted enterprise because certainly in 2008 when the first Bitcoin paper appeared, it wasn't very likely that a wave of inflation was coming. If anything, there was more reason to fear deflation at that point. I think it would be more accurate to say that with the advent of the internet, there was a need for a means of payment native to the internet. Typing your credit card number into random websites, not the way to pay for things on the internet. And I'd rather think of Bitcoin as the first iteration, the first attempt to solve the problem of how do we pay for things in what we must learn to call the metaverse, but let's just call it the internet for old time's sake. And ever since that initial, uh, innovation, the realization that you could use computing power and cryptography to create peer-to-peer payments without third-party verification, a revolution has been gathering momentum that poses a very profound threat to the existing legacy system of banks and, and fiat currencies. Most money in the world today is made by banks. Not central banks, banks. That's what most money is. It's entries in bank accounts. And what Bitcoin represents is an alternative mode of payment that really ought to render banks obsolete. I think this financial revolution has got past the point at which it can be killed. It was vulnerable in the early years, but it now has sufficient adoption and has generated sufficient additional layers, when Ethereum was in many ways the more important innovation because you can build a whole system of, of payments and ultimately smart contracts on top of Ether. I think we've now reached the point that it's pretty hard to imagine it all being killed.... and it's just survived an amazing thing, which was the Chinese shutting down mining and shutting down everything. And still, here we are, uh, in fact, cryptos thriving. What we don't know is how much damage ill-judged regulatory interventions are going to do to this financial revolution. Left to its own devices, I think decentralized finance provides the native m- monetary and financial system for the internet. And the more time we spend in the Metaverse, the more use we will make of it. The next things that will happen, I think, will be that, uh, tokens in game spaces like Roblox will become fungible. As my nine-year-old spends a lot more time playing on computer games than I ever did, I can see that entertainment is becoming a game-driven phenomenon. And in the game space, you need skins for your avatar. The economics of the internet, it's evolving very fast and in parallel, you can see this payments revolution happening. I think that all, that all goes naturally very well and generates an enormous amount of wealth in the process. The, the problem is, there are people in Washington with an overwhelming urge to intervene and, and disrupt this evolutionary, uh, process. Partly, I think out of a muddled sense that there must be a lot of nefarious things going on. If we don't step in, many more will go on. This, I think, greatly exaggerates how much criminal activity is in fact going on in this space. But there's also the vested interests at work. It was odd to me, maybe not odd, perhaps it wasn't surprising, that the Bank for International Settlements earlier this year published a report, uh, one chapter of which said this must all go, must all stop. It's all gotta be shut down, and it's got to be replaced by central bank digital currency. And Martin Wolf in the Financial Times read this and said, "I agree with this." And when somebody realized that the, the banks are clever, they had, they'd achieved the intellectual counterattack, uh, with, uh, almost no fingerprints on the weapon. I think central bank digital currency is a terrible idea. I can't imagine why we would want to copy a Chinese model that essentially takes all transactions and puts them directly under the surveillance of a central government institution. But that suddenly is a serious counterproposal. So on the one side we have a relatively decentralized, technologically innovative internet-native system of payments that has the possibility to evolve to produce a full set of, of smart contracts, reducing enormously the transaction costs that we currently encounter in the financial world because it gets rid of all those middlemen who take their cut every time you take out a mortgage or whatever it is. That's one alternative. And the other side, we have a highly centralized system in which transactions will, by default, be under the surveillance of the central bank. Seems like an easy choice to me but, hey, I have this thing about personal liberty. So that's where we are. I don't think that the regulators can, can kill, uh, Web3.0. I think we're supposed to call it Web3.0 'cause crypto is now an obsolescent term. They can't kill it, but they can definitely make it difficult and throw a lot of sand into the machine. And I think worst of all, they can spoil the evolutionary story by, by creating a central bank digital currency that I don't think we really need, or we certainly don't need it in the Chinese form.

   4. LFLex Fridman1:22:48

      So do you think Bitcoin has a strong chance to take over the world? So become the primary... You mentioned the three things that make money, money. Become the primary methodology by which we store wealth, we exchange?

   5. NFNiall Ferguson1:23:06

      No. No, I think what Bitcoin is, this was a phrase that I, I got from my friend Matt McLennan at First Eagle, an option on digital gold. So it's the gold of the system, but currently, it behaves like an option. That's why it's quite volatile, because we don't really know if this brave new world of crypto is gonna work. But if it does work, then Bitcoin is the gold because of the finite supply. What role we need gold to play in the Metaverse isn't quite clear.

   6. LFLex Fridman1:23:38

      (laughs) I love that you're using the term Metaverse. This is great. (laughs)

   7. NFNiall Ferguson1:23:41

      Well, I, I, I just like the Metaversity as a kind of-

   8. LFLex Fridman1:23:44

      Yeah. (laughs)

   9. NFNiall Ferguson1:23:45

      ... uh, as the antithesis of what we're trying to do in, in Austin. But-

   10. LFLex Fridman1:23:48

       (laughs) I love it.

   11. NFNiall Ferguson1:23:50

       But can you imagine I'm using it sarcastically? I come from Glasgow where all novel words have to be used sarcastically, so the Metaverse, sarcastic.

   12. LFLex Fridman1:23:57

       But see, the, the beauty about humor and sarcasm is that the joke becomes reality. I mean, it's like using the word Big Bang to describe the origins of the universe. It becomes like... (laughs) It will-

   13. NFNiall Ferguson1:24:10

       After a while, it's in the textbooks-

   14. LFLex Fridman1:24:11

       Yeah.

   15. NFNiall Ferguson1:24:11

       ... and nobody's laughing. Yeah.

   16. LFLex Fridman1:24:13

       Yeah.

   17. NFNiall Ferguson1:24:13

       Well, that's exactly right. So-

   18. LFLex Fridman1:24:14

       Humor is sticky.

   19. NFNiall Ferguson1:24:16

       Yeah. Um, I'm on the side of humor, but it is, it is a dangerous activity these days. Anyway, I think Bitcoin is, is the option of digital gold. The, the role it plays is probably not so much store of value. Right now, it's just nicely not very correlated asset in your portfolio. When I updated The Ascent of Money, which was in 2018, ten years after it came out, I wrote a new chapter in which I said, "Bitcoin, which had just sold off after its 2017 bubble, will rise again through adoption." Because if every millionaire in the world has 0.2% of his or her wealth in Bitcoin, the price should be $15,000. And if it's 1%, it's $75,000.And it might not even stay at 1% because, I mean, look at its recent performance. If you, if your exposure to stock, global stocks had been hedged with a significant, uh, crypto holding, you would have aced the last few months. Uh, so I think the non-correlation pr- property is very, very important in driving adoption. And the volatility also drives adoption if you're a sophisticated investor. Uh, so I think the adoption drives, uh, uh, Bitcoin up because it's the option of digital gold, but it's also just this nicely not very correlated asset that you wanna hold in, in a world where... What the hell? I mean, the bank, Central Bank is gonna tighten. We've come through this massively disruptive episode of the pandemic. Public debt soared. Money printing soared. Uh, you could hang around with your bonds and wait for the euthanasia of the rentier. You can hang on to your tech stocks and just hope there isn't a massive correction, or dot, dot, dot. Well, and, and it, it seems like a fairly obvious strategy to make sure that you have at least some crypto for the coming year, given what we likely have to face. I think what's really interesting is that on top of Ethereum, a more elaborate financial system is being built. Stable coins are the interesting puzzle-

   20. LFLex Fridman1:26:31

       Hmm.

   21. NFNiall Ferguson1:26:31

       ... for me 'cause we need off-ramps. Ultimately, you and I have to pay taxes in US dollars and there's no getting away from that. The IRS is gonna let us hold crypto as long as we pay our taxes and the only question in my mind is, what's the optimal off-ramp to make those taxes, make those tax payments? Probably it shouldn't be a currency invented by Facebook. Never struck me as (laughs) the best solution to this problem.

   22. LFLex Fridman1:27:04

       Mm-hmm.

   23. NFNiall Ferguson1:27:05

       Maybe it's some kind of Fed coin. Uh-

   24. LFLex Fridman1:27:09

       (laughs) Yeah.

   25. NFNiall Ferguson1:27:10

       Or maybe one of the, the existing algorithmic stable coins does the job, but we clearly need some stable off-ramp.

   26. LFLex Fridman1:27:16

       So you don't think it's possible for the IRS within the next decade to be accepting Bitcoin as tax payments?

   27. NFNiall Ferguson1:27:22

       I doubt that.

   28. LFLex Fridman1:27:24

       (laughs)

   29. NFNiall Ferguson1:27:24

       Having dealt with the IRS now since... When did I first come here? 2002.

   30. LFLex Fridman1:27:29

       (laughs)
8. 1:33:17 – 1:42:04

   Ethereum and smart contracts

   1. LFLex Fridman1:33:17

      Uh, you mentioned smart contracts. What are your thoughts about, in the context of the history of money, about Ethereum, about smart contracts, about kind of, uh, more systematic at, at scale formalization of agreements between humans?

   2. NFNiall Ferguson1:33:35

      I think it must be the case that a lot of the complexity in a mortgage is redundant, that when we are confronted with pages and pages and pages and pages of small print, uh, we're seeing some manifestation of, of the late stage regulatory state. The transaction itself is quite simple and most of the verbiage is just ass-covering by regulators. So I think the smart contract, although I'm sure lawyers will email me and tell me I'm wrong, can deal with a lot of the plain vanilla and maybe not so plain transactions that we want to do and eliminate yet more intermediaries. That's my, my kind of working assumption. And given that a lot of, of financial transactions have the potential at least to be, to be simplified, automated, turned into smart contracts, that, that's probably where the future goes. I can't see an obvious reason why my range of different financial needs, let's think about insurance, for example-

   3. LFLex Fridman1:34:55

      Mm-hmm.

   4. NFNiall Ferguson1:34:56

      ... will continue to be met with instruments that in some ways are 100 years old. So I think we're still at an early stage of a financial revolution that will greatly streamline how we take care of all those financial needs that we have, uh, mortgages and insurance leap, leap to mind. You know, most households are, are penalized for being financially poorly educated and confronted with oligopolistic financial services providers. So you kinda leave college already in debt, so you start, uh, in debt servitude, and then you gotta somehow lever up to buy a home if you can 'cause everybody's kinda telling you you should do that. So, so you and your spouse, you are getting even more leveraged and you're, you're long one asset class called real estate, which is super illiquid.

   5. LFLex Fridman1:35:59

      (laughs)

   6. NFNiall Ferguson1:35:59

      I mean, already I'm, I'm crying inside at the thought of describing so many households' financial predicament in that way, and I'm not done with them yet because, oh, by the way, there's all this insurance you have to take out, and here are the providers that are willing to insure you, and here are the premiums you're gonna be paying, which are kinda presented to you, that's your, that's your car insurance, that's your home insurance, and if you're here, it's the earthquake insurance and pretty soon you're just bleeding money in a bun- bunch of monthly payments to the mortgage lender, to the insurer, to all the other people that lent you money. And let's look at your balance sheet. It sucks. You know, there's this great big chunk of real estate and what else have you really got on there? And the other side is a bunch of debt which is probably paying too high interest. The typical household in the median kind of range is, is at the mercy of o- oligopolistic financial services providers. Go down further in the social scale and people are outside the financial system altogether, and those poor folks have to rely on bank notes and informal lending with huge punitive rates. We have to do better, this has to be...... this has to be improved upon. And I think what's exciting about our time is that technology now exists that didn't exist when I wrote The Ascent of Money, to solve these problems. When I wrote The Ascent of Money, which was in 2008, you couldn't really solve the problem I've just described. Certainly, you couldn't solve it with something like microfinance. That was obviously not viable, that interest rates were high, that transaction costs were crazy. But now we have solutions, and the solutions are extremely exciting. So fintech is this great force for good that brings people into the financial system and reduces transaction costs.

Episode duration: 2:41:13