Vīta Brevis, Wit Artefāctōrum Ætērna Podcast

Ash Stuart
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Exploring innovation, progress and achievement: a first-principles approach to everything that matters; combining history, epistemology, economics, anthropology, geopolitics, finance, philology, etymology and more... for, life is short, knowledge forever. ashstuart.substack.com

  1. 16h ago

    The Story of Money: Scrutinizing the Innards of Insurance

    Way back in Episode 006 while exploring the concept of risk I said that much of the banking industry was founded upon the need to and with the goal of managing risk. Let’s now look deeper into one of the most widespread and relatable of such instruments. But first we go to FictionTown. Steve, Bryan, Brenda and Irene are sat in the frontyard of one of their houses and having a sombre chat. News is that one of the houses in their community burned down. Obviously our friends are terrified at the possibility of this happening to their house. Steve starts, astutely as usual: this should not happen! Bryan’s like, Steve, you can’t control certain things. Brenda chips in, well, if we can’t control it, we should manage the damage, like save up to rebuild or something. Irene interjects, hmm, it’d be too hard for each of us to save up that much, wait, what if we all saved up in one collective pot, how many houses are there in our community? Steve says it’s about 50 but cannot see how that matters. But Bryan’s like, wait, Irene, that way you mean it can be used if any one house burns down? But how much do we each put? Brenda makes a different point, wait, it’s not just present quantity, how often does a burndown fire happen - the last one was 5 years ago. Irene gets it all - right, we should check the pattern at the Mayor’s office records, but, assuming on average there’s one such fire in 5 years, and we are 50 houses, we each pay a two-hundred-and-fiftieth (1/250) of the pot each year, which becomes even easier to foot if paid in monthly than in a lumpsum! Pot Luck That’s it, that’s insurance in a nutshell, or in a nice collective pot! Obviously, the mathematics of it in the real world is a lot more complicated, and the whole thing is managed by distinct commercial outlets - the insurance companies, who inevitably charge a cut for their services, but this encapsulates the concept with the basic elements in place. Let’s see what’s actually happening here. As we discussed in the risk episode, everything in life is contingent - we can never tell what’s going to happen next. But based on past performance (which by the way is no guarantee of the future), the best we can do is calculate future probability. So if in FictionTown, the last burndown was 5 years ago, the one before 11 years ago and the one before 15 years ago, we can cautiously take 5 years as the average frequency. Generally, the larger the scope of our past dataset, the easier it is to identify patterns. And we saw how there is the ‘pooling’ of risk among all 50 houses, which as we noticed, and as we might intuitively know, softens the blow on any individual. We must also be aware that such a scenario as depicted implies an insurance based solution manifests ‘after the fact’ - it cannot prevent the fire in the first place, but as we’ll see, even there, there’s nuance. Can you Count on it? The key goal of statistics and probability, the cornerstone sciences of risk management is to put a number on the innumerable, express the unquantifiable in exact money terms. Ultimately, how do you measure risk, really? Why is my insurance premium $100 and not $50? While I’ll get to these more complex topics when the time’s right, what we take away at the moment is the simple idea of turning scary unpredictable losses into a small predictable cost. Again, this is not perfect, and based on changing circumstances, the insurance premiums we have to pay might keep changing constantly, and with advances in data collection and similar technologies, this could become even more fluid. But we all know we are required, often by law, to foot insurance bills: car insurance, health insurance, travel insurance, whatever it may be. It may be frustrating to see money you could’ve used elsewhere go into some external source which, unless a stated calamity materializes, you never get back. (consider this weird paradox: almost anything you buy, you actually want to use it. But with insurance, you actively prefer not to?) But what you’re paying for here is the peace of mind that should the worst (the insurance company defines ‘worst’ btw!) happen, at least you are ‘covered’ (again, mainly in terms of financial payout, you cannot undo the accident or another incident.) (Also, just to note, a state-run free-at-the-point-of-use health service doesn’t mean you’re not paying for it, just that it’s taken off your taxes with much lower visibility if any of how much is your actual health premium!) Now let’s go back to FictionTown one last time. What if, with such a scheme set up, Steve goes, “yeah nah, we have a collective pot now, and they’ll pay out from that pot should something happen”, and ends up setting up a barbecue indoors, next to his book collection, or more likely knowing Steve, in his attached barn by the hay?! I’ll get to moral hazard another time, but the insurance industry, especially under the pressure of regulation to drive down costs, is incentivized to encourage and reshape entire industries around risk reduction: sprinklers, seatbelts, health screenings, all these you could say come about as a consequence. While insurance companies are there to help manage risk, just as you and me, they’d rather avoid the calamity from materializing than pay out post facto. There is a saying, your greatest well-wisher, wishing you a long and healthy life, is not your spouse, not your doctor, not your children, but your life-insurance provider! Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  2. Oct 23

    The Story of Money: The Dynamics of a Bank Run

    You may have lived through a bank run, if you’re lucky, you may have not! Distant as it may seem on normal days, you never know. Let’s take a first look at the phenomenon today. This one’s juicy enough to merit a bit of fiction first. Steve, Bryan, Brenda and Irene have reservations for a grand dinner party the coming weekend at a rather posh restaurant in town - a very rare occasion. While awaiting the weekend, Bryan is like, hmm, this one’s gonna be big, the estimated bill for the dinner is around 90-100 bucks per person, but wait I don’t have that kinda money. So he asks Steve, who happens to have a 100 bucks, but Steve’s like, wait this is for the dinner party, but heck, I’ll borrow it back to pay on the night, so hands over the 100 without questions. Somewhat similarly, and independently, Brenda is having similar thoughts, so when she runs into Bryan, she asks to borrow a hundred, and, that’s right, Bryan now thinks he can borrow it back to pay his share of the bill on the night. Next up Irene... you see where this is going... yes, she borrows the hundred from Brenda. None of them knows what’s happened all along. Come dinner night and moment of truth with bill on table; 399 bucks! Steve, Bryan and Brenda each turn to the next person and go: can I have back the 100 I lent you, I’d saved that up for this dinner, and that’s all I have. Borrow Peter Lend Paul You can see what’s going on here. Having each borrowed a hundred bucks -- the same hundred bucks unbeknownst to them, assured they can get it back in time for the bill, there is only one hundred bucks going around. Back in Episode 023 we saw how money supply works, and more importantly, we followed that up with Episode 027 where I introduced fractional reserve banking (with the promise that I’d get to this topic soon.) In essence, banks engage in a roughly similar sort of activity as depicted above: each time a user deposits their money, the bank lends out a good portion of that money (typically as a loan or other long-term instrument charging a hefty price while offering the depositor a paltry interest!) And quite simply, if all the depositors turn up at the bank one day demanding their money back, the bank simply doesn’t have enough cash to honor them all. And that is a classic bank run. A Debt Spiral A key part of the problem is this - because the banks own use of the deposits are for longer-term instruments, such as a 30-year mortgage, they cannot be redeemed immediately (but this is attractive because of the higher yields the banks can expect.) But the depositors naturally expect to be able to withdraw their cash at any time. In technical terms, banks promise liquidity - your cash can flow back freely to you on demand, but having made long-term investments with your money elsewhere, banks are stuck with illiquid instruments. This works fine most of the time but not when everyone wants their money back at the same time. What causes a bank run? Usually there is some triggering event - some piece of really bad news, such as a disclosure or even just a rumor of losses at the bank, a reputationally damaging incident such as a credit downgrade, economic shocks, scandals, and even contagion from other bank runs and failures - yes, bank runs can spread from bank to bank. And this is a downward spiral. Once the panic starts, people run to the bank to get their own money out, but the more people do that the more people join in: who wouldn’t want to get their money out before the bank runs out of money? And for the bank, the more such demands, the more the strain to honor them - typically addressed by selling their existing assets in fire sales, which means at much lower prices than on a normal day, which means the bank’s balance sheet is weaker, which means the panic only heats up even more. Ultimately, in many cases, the dam breaks and government regulators might have to step in, either close the bank or sell it off to a much bigger and stronger bank which can take the hit, and which given its own reputation, restore public confidence and stability. Debt by a Thousand Cuts It’s not hard to see that bank runs can be very damaging not just to individual depositors but to the economy as a whole, the sudden loss of liquidity could lead to a credit crunch (now who has warm memories of that term?!) So why the hell do we even have such a ‘fractional’ system? Why not keep all the cash sitting right there? I’ve addressed this question in Episode 027, adding that this is not a bug it’s a feature: governments not just tolerate but expect banks to behave this way. There are however a few ways to mitigate the damage - techniques that have emerged over time, but they each deserve their own treatment so won’t muddy the waters here. But let’s pause to ponder for a moment. Banks one may say are one of the vital pillars of the modern economy, it’s the movement of money they facilitate, albeit while charging a hefty pocket-lining price, that stands at the root of our industrial and economic expansion, of much of what we’ve covered in our story of money. You walk past a large bank on the high street of your city, you see that glass and granite of a bank and you think it’ll always be there. But tomorrow, it could all vanish into thin air! A mighty bank just gone! We perhaps think of our money as well as something that’ll always be there, just walk in to the bank and cash out. Until... Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  3. Oct 16

    The Story of Money: The Incantation of Inflation

    We have previously looked at money creation - how currency actually comes into being, Episode 027, and money supply, the amount of this currency available for people to use to measure and transact all the goods and services they wish to in an economy. Let’s today get closer to the heart of a matter that we likely think of a lot more. On the face of it, inflation does not need explained. Anyone who’s gone to the grocery store has experienced it - you see that carton of milk with a price tag of 5 bucks, but wait a minute! Only yesterday it was 4 bucks!! So yes, that’s all it is. On the face of it. There is indeed more to explore about the phenomenon though, so stick with me, even though I can’t give you the secret to how to get that milk price to go back to 4 bucks. The Upward Currents of Currency In fact if you’ve been following this series, we have skirted around this idea quite a few times, when we discussed price, the Spanish silver tragedy in Episode 022, and perhaps most vividly, in supply and demand. Even the very last episode, on coin debasement, was very much inflation in action. As we saw when discussing those topics, there are a great many factors that bear upon the price of an item, and therefore the presence of inflation - a rise in the price over time: a rise in demand, a greater amount of money supply, and other factors that would devalue the currency, some of which deserve their own episodes, which I hope is of, at any rate, interest! The coin episode offered an old-school way of the devaluation of money, but in the modern world, scenarios such as the ones just hinted at, all fundamentally decrease the worth of that cash in hand, hence the need for more of it to purchase the same item, compared to yesterday. (Ok, ok, inflation doesn’t happen every single day, but my yesterday-today depiction was just representative.) But here’s thing, while we may wince at the idea of a rise in the prices of goods, governments actually actively want inflation! Inflation Nation We’ve looked at inflation from a buyer’s angle, to understand all this deeper, let’s look at it from other angles. Imagine you owe someone a 500 dollars. Between yesterday and today, continuing our grocery example, that same amount today buys less milk, or any other amount whose price has risen. Which means, if you’re paying back that money today or tomorrow, you’re in effect paying back less than when you borrowed it earlier on. Thanks to inflation, you’ve enjoyed the effects of debt erosion! (Now apply this to that mortgage going 30 years.) Imagine you are an employer with salaries to pay. The costs of production have gone up, or some other variable has worsened the situation, and you want to manage this by cutting pay. With inflation, say of 2%, freezing pay simply means the employer executes an effective pay cut of 2%, essentially by stealth -- much easier than announcing pay cuts right? Now who in the land is one of the biggest debtors and employers? It’s the state. Furthermore, the state is the entity that handles the currency - it can print more of it and deploy other levers in its toolkit to manipulate it. This is why government officials put on some trim suits and grim ties and go on TV to announce that their policy is working - for the stated period, they have achieved their targeted inflation! Using bigger numbers to measure the growth of the economy (the GDP, I’ll come to it too), makes for better headlines - nominal growth looks more impressive than real growth, and isn’t that politically convenient? The Devil You Know Cynical as that may sound, it may not be that bad. Firstly, let me caveat that many of these goals and policies are debated with varying opinions held, some of it on the basis of political ideology - I’m not endorsing one view or another. But yes, the counterpoint to this is that this is a net positive for the economy as a whole, it gives the government meaningful room to manage the money supply, so it doesn’t go too far off in either direction, and a bunch of other statistical and economic factors too advanced for this piece, which we’ll come to in due course. Thus the relatively small amount of 2% has emerged, as an international consensus in the 1990s, as an ideal target to maintain. Similarly, there is the argument that that 2% inflation rather than wage cuts is overall a smoother way out and makes it easier for the labor market to reallocate workers and absorb shocks. But returning to our own experience, while keeping the wider economy and policy still in mind, the biggest threat to the economy, and one that impacts our action is not such inflation as described above, but rather deflation. And that’s a topic for another day. Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  4. Oct 9

    The Story of Money: The Conundrum of Coin Debasement

    We traced in Episode 031 the emergence of gold and silver as ‘pure’ and ‘noble’ metals perfectly suited to serve our economic needs in the form of money, and then in Episode 032 their comparative importance and finally in Episode 033 how money took shape - in the form of coins. Remember the final words in that piece? “What could go wrong?” And oh boy wrong it did go so many times, and sometimes so spectacularly, that you’d think it was farce, vaudeville and tragedy rolled into one! In this piece, I’ll briefly touch upon the broad forces and phenomena at play in this context, but we will definitely come back with specific stories from specific events in history. With the advent of coinage, the issuance of a standard specie - ie, with a certain fixed size and weight, by the king or state meant that the unit of measure of value was now fixed and established as uniform. The implicit understanding was that if the coins were melted down and sold in the market, it would be worth the same as if the coins were spent, they would both fetch, say, 10 sacks of grain. In other words, the face value of the coin is the same as its value by weight. And then the fun begins! A Clippery Slope Let’s say I’m looking at a shiny new silver coin and it says “One Denarius” on it, so I can be sure of buying that much by face value. Now what if I chip or shave off a small portion of the edge of the coin - which is not that hard given silver is not that hard, what if I do this for a 100 such coins, even a 1000. Now I have all these clippings I can melt and voila, I have new money! As the Dire Straits didn’t sing: money for nothing and chips for free! Apart from this method, which is called clipping, there were other ones, but the idea was the same, leech off a small, seemingly imperceptible quantity of the metal from each coin while also trying to pass off the counterfeited coin as if it were the real thing. Incidentally, coin-clipping as a problem is attributed to have been solved by our good friend the Master of the Mint at Britain’s Royal Mint we met back in episode 032 - yes, Isaac Newton! The legacy still stands even though we don’t engage in clipping - ridges, reeds or grooves you see around the side of a coin, the process being called reeding or milling. And needless to say kings and states came down heavily on individuals engaging in such debasing of coins. But was it only the ordinary people who did such stuff? An Alloyed Bad Oh no! Coin debasement gets even spicier when the king himself got down to it. Not by clipping mind you, but let’s look into how. Issuing coinage has a cost, obviously the metal being used, plus the process of minting the coins, the labor thereof etc. So I’m sitting on my throne, I have these ‘One Denarius’ coins of silver serving the economy, but hold on, I have a brilliant idea (or a cunning plan if you watch the comedy Black Adder, very apt for the current context!) For the next batch I’m going to print, why don’t I use a tiny bit of copper, like about 5% of the weight that goes into the minting process. I mean, nobody will know right? My subjects aren’t that smart, even if a few are, it’ll still look the same to most of them? What could go wrong? Face of Base And to that refrain, we can add another one - and where will it all end? Because, spoiler alert, it always ended in tragedy. In a system where the face value of a coin is understood by everyone to be the same as the intrinsic value of the weight of the coin, it’s not hard to see how detrimental this is - and this was very tempting for kings and governments, because when done in seemingly small measures of adulteration, they could hope to get away with it. But if you’ve done it once why not do it again, with a bit more of the cheaper metal? Eventually people will find out, the coins will mean much less, people will trust them much less, but the king saved some of the actual precious metal he could by then have used elsewhere. Like, for example, there was also the time-lag factor, between a new batch of debased coins issued -- say there was a war and the king wanted more money, as there always was and kings always did: by the time the debased money entered the wider economy, and the detrimental effects rippled through, the king had gotten away with that metal he saved and used elsewhere. And despite my example of the Roman denarius, this happened across cultures and territories. Gresham’s law, which we explored in Episode 32, that bad money drives out good money, inevitably kicked in: if you had some good pristine older coins and some dodgy looking newer ones, which one would you spend and which ones melt or hoard? So yes, debasement of coins meant the debasement of money, disruption of trade, erosion of trust in the state, but somehow it was as ubiquitous as money itself. Today, we don’t use money in the same way, our coins by definition do not match the intrinsic value of the metal used. But there is one other specter of the debasement of money, whether material or otherwise, that still haunts us today. And that we shall explore next! Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  5. Oct 2

    The Story of Money: The Origins of the Coin

    Over the last couple of episodes we’ve explored the use of gold and silver as money and the tussle between the two. Let’s now get to the question of ‘form factor’: To appreciate the value of coins, something we’re so used to and thus take for granted, we have to position ourselves to the earlier reality. We have a broad idea that from the earliest time that communities traded widely, they simply exchanged goods with each other - barter. I’ve discussed aspects of this in some of the earliest episodes. From there on, as we traced in Episode 031, with gold and silver emerging as useful means to represent value by weight of either metal, the practice of carrying out trade using ingots or bullions - pieces of the metal, arose. Think of it as chocolate or soap bars - in the former case, it may even have functioned as money on the playground back when you were a kid in school! Except that these were made of metal, cast into similar moulds as these more familiar objects are. (Just ask Charlie Bucket or Willy Wonka!) But this presented a few problems. Firstly, these metal bars were bulky. And then they were typically worth way more than could be used for normal goods on a general basis. (Let’s call it the rich man’s cash?) Also, given the potential for adulteration of these metal bars with inferior metals, each load of metal had to be weighed every time to assess their purity. All Loads Lead to Lydia Enter Lydia! A wealthy and prosperous kingdom in Western Anatolia, around the years 600 before our era. Located at the crossroads of a growing Greece to the west, Egypt to the south, and the Persians to the east (and even some Central Asian groups in the north), Lydia was very well placed as a trade corridor leading to the said prosperity. It was here that a certain king Alyattes is attributed to have taken a more systematic approach to the whole affair: mint a circular piece with specific images on both sides, sort of like simple medals. These early coins were made of electrum, an alloy of gold and silver, abundantly available in the rivers of the region. The Point of Crisis But the relative quantities of gold and silver in these electrum coins varied, sort of recreating a similar problem as we saw in the previous episode but in alloy form! Practically, it was hard to assess the exact value of any given coin. The next breakthrough is attributed to his successor, king Croesus, yes he who still lives on in our idiom “as rich as Croesus”! His primary innovation was to switch to issuing coins in standardized pure gold or pure silver, around the year 550 BCE. In fact, he is said to be the inventor of the world’s first bimetallic system. To Coin a New Phase So yes, Croesus’s innovation we may say helped him become, well, as rich as Croesus! But let’s explore how revolutionary it was at the time. The idea of coins, and their use, quickly spread across the wider region, with polities such as the Greek states and soon the Persians adopting them rapidly, marking a new phase in the history of money. Coins were significantly more useful than the older ways - unlike the previous, somewhat grassroots and voluntary methods, coins were issued by the state, you may say money was nationalized. Why did this matter? For one, it meant, there was a standard, and the standard was backed by the authority of the state. This meant it solved the problem of independent verification, which was as we saw a huge barrier to trade. As we can imagine -- and even though some of the early coins were still too valuable to fetch a loaf of bread, they were lighter, more portable and eventually more granular in allowing for the measure of value of a greater variety of goods. In the tailoring analogy I’ve taken a few times previously in this series, imagine that tailors used to measure cloth simply by their fingers and hands - Croesus gave them a proper, standard measuring tape to use instead! Thus trade velocity increased significantly perhaps with many more people, at least other kings, also becoming as rich as Croesus. As for the original rich kid, well Lydia was conquered by Cyrus king of the Persians within his lifetime, with history leaving no clues as to his ultimate fate, and consigning a once prosperous and expanding kingdom right at the center of the old world to but a footnote in the history books. I mean, how many of us have heard of Lydia? Still, even in obscurity, Lydia’s invention conquered the world. Coins survived the advent of paper money, and, in our swipe-and-go plastic payments age, we still don’t toss a credit card in the air to decide heads or tails - we may still prefer to reach out to our pockets for a coin! So the Lydians gave us, as we’ve seen, this pure, pristine and standard way of measuring money, made of shiny gold or silver. What could go wrong eh? Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  6. Sep 25

    The Story of Money: Gold? Or Silver?

    We established in the previous episode that two metals emerged across history and across cultures as the most suitable units of measuring value, ie, money. As promised there, let’s now look at the tussle between the two. Quite simply, silver is much cheaper than gold - given the dynamics of their availability for us to extract, and thus the relative scarcity of each. Even though we don’t these days trade in gold and silver, this is something we broadly recognize. Because of this, gold has generally enjoyed greater prestige, being used much more in jewelry and as a display of one’s wealth and status. Correspondingly, silver has had more value as a practical day-to-day transaction choice. (You may have been born with a silver spoon in your mouth but you soon grew up to flaunt your gold!) But yes, how much was the relative value of gold and silver? This of course varied over time, there being often other factors at play, but primarily it went back to the relative availability. But as, within a given society, the relative availability could vary, there was this constant game of trying to take advantage of the variation. The Good, The Bad, The Shifty To understand this, let me first mention what’s known in the field as Gresham’s law, which quite simply states that “bad money drives out good money”. Let’s say you have 10 coins of either metal, which can buy you certain amount of goods in the market. Now if you melt those coins, the bullion (or ingots or whatever way you’ve shaped them) has the same value as the face value of the coins. That’s good money. On the other hand, if the melted metal is valued less than the face value imprinted on the coins, then you have bad money. It’s not hard to see how tempting it can be for governments to issue ‘bad money’, it means it would cost them less to mint those coins - this topic, debasement is juicy on its own, so I’ll reserve it for an episode in the near future. Under the same logic, governments would never want to denominate coins at face value lower than commodity value. Because what would you do if the face value of those 10 coins were lower than their price in weight? You’d melt them, you’d hoard them, these coins would disappear from circulation. Now let’s take a real-world historical example of one case of how this panned out specifically in the battle between the two metals - there are several such cases, but we have to pick one. Elements of Surprise In 1717, the ‘Master of the Mint’ in Royal Mint, Britain’s official coin-issuer, made a fateful move. He set the price of roughly one part of gold to 15 parts of silver. (I’m quoting rough figures here to keep the math simple.) However, in Continental Europe, it cost 14.5 parts of silver to buy one part of gold. Again, let’s see how this works out. Essentially what this meant was gold was artificially overvalued by the Mint relative to silver, whereas on the Continent, silver fetched more gold. So what would I do, I’d scoop up all the silver I could get hold of, make a trip across the English Channel, and, given silver buys more there and gold is cheaper, buy up all the gold I could for my silver and bring that gold back to Britain. What would I do once I’m back home? (After having a cup a tea, of course!) I’d buy up all the silver I can for that gold, because, that gold buys more silver in jolly old Blighty! And then... time for another trip to the Continent (Only delayed if the weather report reads “Fog in the Channel, Continent cut off”) The consequence of this was that soon all the silver disappeared from Britain, and a lot of gold flowed in, inadvertently pushing Britain, with eventually wider consequences beyond the island, onto a de facto gold standard! We would wonder who the hell was this guy who couldn’t even calculate the relative worths of gold and silver? Well, it was none other than Sir Isaac Newton! Yes, Newton! I mean, in the midst of writing his great work that essentially defined modern physics, we can say he took a break to invent a new branch of mathematics, Calculus, because the existing system didn’t allow him adequate expressiveness and precision! Unbeknownst to most of us, Newton in fact had his finger in many different pies, and in the latter years of his life he took on this role at the Mint as mentioned. To be fair to the great master, he did point out the problem, but the government did not bother to fix it, presumably underestimating the power of Gresham’s law. Furthermore, for Newton’s own legacy, the yet other element of irony is that, and again this may surprise many, he spent many years of his life trying to crack alchemy -- which was typically the attempt to turn lead to gold, he was essentially obsessed with alchemy. While the promise of alchemy was elusive to him as to anyone else, did he end up in real life with some sort of mathematical alchemy ‘turning silver to gold’? So yes, economics, as an intersection of mathematics and human psychology has its ways! The man who described the laws of physics couldn’t defy the physics of money, Newton defined gravity but could not defeat Gresham! Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * Documentary - Newton’s Dark Secrets - Nova This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  7. Sep 18

    The Story of Money: Why Gold?

    It’s perhaps one of the most obvious and well-known things in human life - that gold and silver are or at least were used as money. But let’s step back and see how and why this happened. I have reiterated a few times in this series that money has no intrinsic value, it’s just a measure of value. And we generally know that across history and cultures, other objects other than metal and paper have been used as money at one time or another. However, there’s something special about the use of gold and silver as money. The Good Gold Days Back in TecC 14 I discussed the origins of humans figuring out the non-obvious and high-temperature process of extracting metal from ores and even combining them, with the rest of that decimile exploring the social and historical impacts specifically of bronze (copper + tin) until TecC 20 and then again in TecC 22 with iron followed by another similar exploration of its effects - we call those periods the Bronze Age and Iron Age respectively, the key point being that these metals and alloys have come to define entire technological-historical epochs. But we don’t talk about a ‘Gold Age’ or a ‘Silver Age’ - not literally, largely only figuratively. Gold and silver have been known to mankind from much earlier in human timespan than tin and iron and other metals - there have been great civilizations that extensively used gold or silver that never got to bronze or iron - the Aztecs for example. Quite simply gold and silver offer many of the same advantages being also metals, as I’ve discussed at length in the stated articles. But they offer more. Gold and silver are ‘Noble’ metals - they are resistant to corrosion and are thus found in pure state in nature as opposed to as ores - in combined form requiring the extensive metallurgy suggested. That said, they are very rare and its not easy to find gold. And that is the key. Slow and Steady We have seen, for example when discussing money supply, that there can be problems if there is too much or too little money in circulation in the economy. The relative difficulty of mining gold and silver thus introduce that much required scarcity factor. Furthermore it can also add to stability, since, with the exception mainly of extensive explorations such as in the mid 1500s by Europeans beyond the Atlantic, the supply of gold and silver would largely remain a constant and change only gradually. So you’ve got two metals - easily shapeable into different shapes, resistant to corrosion and hence to destruction or decay, durable, scarce and stable, and finally with the cherry-on-top quality of being shiny and attractive. What’s not to like eh? A Silver Bullet of Solid Gold So even if a society started off with cowrie shells or pebblestones, there was a good chance that many of them ended up with gold or silver as their eventual choice of money. In fact, this is an important point - we have seen that other technologies that we now take widely for granted given their ubiquitous presence in our lives, the wheel, zero, paper all more or less emerged in only one culture in each case. But the use of gold and silver as money emerged independently across different unconnected cultures and across time. So while the stronger metals such as bronze and especially iron found their way into weapons and machines, gold and silver, apart from extensive use in jewelry, found a unique position in allowing for the measure of value, as money. And given they could emerge independently across different cultures, it’s not hard to see how they became acceptable as a means of cross-border and long-distance trade, even between societies that otherwise might not have trusted each other. They thus became an integral part of our history and society. Our languages are plentiful with figurative uses of ‘gold’ and ‘silver’, one may have a silver tongue, one may be born with a silver spoon, but there’s always a silver lining; we have fool’s gold, you may or may not be sitting on a pot of gold, but you have a heart of gold! (Of course you do, you’re reading my work!) (And if we dig through the history of language, we have a great many words in our languages related to ‘gold’ deriving from the same Proto-Indo-European word ‘ǵʰelh₃-’ meaning “gleam, yellow, even green!”: Polish ‘złoty’, Sanskrit ‘hari’ “greenish-yellow”, Slavic ‘zelen-’ “green”, Greek ‘khloro-’ hence our ‘chloro-’, and also the name ‘Khloe’, and, among others, ‘gold’ and ‘yellow’!) And finally, given how attractive it can be, there have been salutary warnings in history and lore about excessive addiction to gold and silver - we all know how king Midas ended up! Still, and despite my general insistence that money has no intrinsic value, gold and silver have something going for it that defies it? They have a sort of inscrutable ‘value’ in a unique way we can’t fully put our finger on? And then, although I started off this piece by asking ‘Why Gold?’, we’ve been talking about gold and silver. But then, the question arises: gold? or silver? And that we shall explore next! Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * The Story of Bronze: TecC 14 - Blending Forces, Breeding Innovation * The Story of Iron: TecC 22 - Renewing Resolve, Stealing the March This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

  8. Sep 11

    The Story of Money: Meeting Maslow

    So far we have been talking mainly about the basics of economics (and finance). Let’s today, as it were, take things up a notch. A brief detour into our fictional world: remember back in Episode 006 the one about risk, where Steve had a failed harvest the previous season and was staring down the abyss of starvation. When Bryan, Brenda and Irene are sat with Steve discussing the predicament, imagine Bryan was like, hey Steve, there is this very prestigious horseracing tournament in town in two weeks’ time and I’m told the Premium tickets offer spectacular views of the events, plus that’ll put us very close to the Duke himself. It’ll be a fun week of partying. How about you and I both buy tickets and go check it out?! From Thoughts to Sentiments I’d safely bet that the ridiculousness of such a proposition by Bryan would be obvious to most of us. It was American psychologist Abraham Maslow who built a neat framework around human needs, which we will explore today. Now, Maslow as hinted worked in the field of psychology, so why bring him up here? I suppose we can see that the question of needs gives his work relevance from an economics perspective as well. And as we saw about the Father of Economics Adam Smith’s own preferences and perspective (Episode 020), and as I hope I’ve demonstrated now and then, the ultimate goal of economics can be described as wanting to improve the human condition within our environment. From Needs to Wants to Worth Put simply, in his ‘hierarchy of needs’ later depicted as Maslow’s Pyramid, he proposed that human motivation can be driven by five distinct sets of needs. These sets can be named physiological, safety, love & belonging, esteem and finally self-actualization, depicted in that pyramid from bottom to top in that order. The core point here is that if we are at the bottom of the pyramid, preoccupied with physiological needs such as food and shelter, we have or can afford very little attention for the higher needs. It’s only once we have fulfilled that set of needs can we adequately focus on the next set higher up the hierarchy and so on. Thus our hierarchy of needs progresses from the most basic to what may be termed ‘growth’ needs. Therefore one cannot afford to focus on the ‘esteem’ level with elements in it like confidence, respectability, status, or the ‘self-actualization’ one at the top with questions of morality, creativity, spontaneity and such if they’re still scrambling to put dinner on the table for the day. From Sentiments to Concepts This concept is in fact applied in a few different areas of modern life. We’ve all seen billboards of that smiling blissfully happy couple in an ad for a car or, hmm, a kitchen tap/faucet, or a bar of chocolate. They’re in a sense fooling you into thinking you’re buying a ticket to the next stage of Maslow’s hierarchy. In organizations, apart from a well-stocked vending machine and varieties of tea and coffee, these days there are pool tables, discounted gym memberships, what not. (”We can’t pay you more, but here’s a ping pong table, please feel actualized”) So yes, fields such as marketing & advertising, and HR and management have applied such ideas, by some measures at least, quite effectively (or we may take a cynical view, quite cunningly!) But I’d reiterate that Maslow’s pyramid has greater relevance than has generally been appreciated within the area of economics, especially when viewed broadly from the stated goal of human well-being. Let’s go back to the fictional story we started with. In the event, in that episode, thanks to Brenda and Irene’s suggestions, Bryan offers Steve 10 sacks of grain from his own grain from his bumper harvest, against collateral, should the harvest fail again -- as fully set out there, as part of risk management, a key component of economics. Similarly, a great many other concepts we have explored or will do, such as but not limited to debt, opportunity cost, delayed gratification, scarcity, investment, can all be very useful when combined with the Maslow perspective of viewing the human condition. From Concepts to Deeds? Let’s one last time take the example of someone unsure of the next meal, this time not in the cozy confines of remote fiction, but in the visceral reality of today here and now, of someone who’s lived such a life of subsistence all one’s life, even if most of us who can afford to read this might never have had to confront such a situation. Some of the concepts we have covered, with the underlying premise being that it’s useful to improve one’s own lot, such as delayed gratification, investment and so on might not even be accessible to such a person, because they are essentially at a much lower level in the Maslow hierarchy. So how is one to overcome the trap of such a hand-to-mouth existence in the first place to be able to ascend the pyramid? We have the luxury of learning and applying these useful economic concepts in a way they don’t? Practically what needs to be done by way of external facilitation, either by society or government? Perhaps this responsibility falls on those of us much higher up the Maslow pyramid? Are we sensitive enough to the plight of those lower than us in this hierarchy? It’s for each of us to ask these questions and answer them ourselves. For my part I hope I’ve given some useful economic and intellectual tools to use in the improvement of the human condition, whether our own or that of others. Article written by Ash Stuart Images, video, voice narration and some footnotes generated by AI Nothing in this presentation constitutes as advice - financial, investment or other Further Reading & Reference * The Theory of Moral Sentiments, Adam Smith This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit ashstuart.substack.com

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Exploring innovation, progress and achievement: a first-principles approach to everything that matters; combining history, epistemology, economics, anthropology, geopolitics, finance, philology, etymology and more... for, life is short, knowledge forever. ashstuart.substack.com

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