oftwominds-Charles Hugh Smith

This Polycrisis Is Unique

2026-03-13T13:39:00.000-07:00

When understood as a wave, the current Everything Bubble is not sustainable.

The problem with predictions based on the past is the analogies we discern are interpretations which means if we like one interpretation more than the alternatives, we stretch the present crisis and past crises to fit our preferred interpretation.

Two round pegs pounded into square holes? No problem.

Past eras are never perfect analogies because Things Change (March 3, 2026) If we're not trying to force an analogy that fits our pre-selected preferred interpretation, then we have to be open to the possibility that the present crisis has no historical analog of predictive value.

Consider the remarkable confluence of cycles and waves in the present era. Richard Bonugli and I discussed this confluence in our podcast Current Waves and Cycles: Energy, Commodities, Inflation (38 min). Such a confluence generates a polycrisis, a series of overlapping, inter-connected, mutually reinforcing crises that are immune to simplistic solutions.

Even if you're skeptical of cycles (for the reason stated above, that timelines seem shoehorned into a model that doesn't actually fit), it's noteworthy that so many cycles have reached crisis points in this historical moment.

1. The Fourth Turning cycle of 80 years / four generations. (1781, 1861, 1841, 2021)

2. the 18-year stock market cycle. (1973, 1991, 2008-09, 2026-27)

3. Peter Turchin's 50-year cycle (which occur in 50-year increments in long-wave cycles).

There are other cycles that might in play: sunspots, etc. These three are representative, not comprehensive.

These cycles identify the present as a period of unavoidable, transformative crisis / resolution / dissolution. This confluence alerts us to the possibility that analogs from the past will mislead rather than enlighten.

If you're skeptical of cycles, then the difference between cycles and waves is worth studying. Author David Hackett Fischer (The Great Wave: Price Revolutions and the Rhythm of History) described the difference between cycles and waves:

"Cyclical rhythms are fixed and regular. Their periods are highly predictable. Great waves are more variable and less predictable. They differ in duration, magnitude, velocity, and momentum. One great price wave lasted less than ninety years; another continued more than 180 years. The irregularities in individual price movements make them no more (or less) predictable than individual waves in the sea.

Even so, all great waves had important qualities in common. They all shared the same wave-structure. They tended to have the same sequence of development, the same pattern of price relatives, similar movements of wages, rent, interest rates; and the same dangerous volatility in later stages. All major price revolutions in modern history began in periods of prosperity. Each ended in shattering world crises and was followed by periods of recovery and comparative equilibrium."

Examples of waves range from rogue waves in the sea to bond yields / interest rates which arise and decline over periods of time that vary too much to qualify as cycles but match the dynamics of waves described by Fischer. After declining for roughly 40 years, bond yields have recently turned up in what looks like a change in long-term trend.

In other words, the business cycle, the Kondratieff credit cycle, the Debt Super-Cycle, etc. are defined not by the calendar but by their internal dynamics and measurable qualities. Credit/debt, for example, builds up in a wave of speculative excess that then crashes.

As Fischer observed, waves of human history share characteristics with ocean waves, which can accrete energy and become giant rogue waves that cannot be predicted even as they can be foreseen as recurring phenomena.

Both waves and cycles tend to follow the dynamics of S-curves in which a trend takes off in a boost phase, matures into a peak and then decays or reverses.

Perhaps the closest analogous period was the 1970s, an era characterized by external energy shocks that raised the cost of energy to a higher plateau, unleashing inflationary pressures throughout the economy, and stagnant productivity. These two dynamics generate stagflation, which when exacerbated by an institutional tropism to "run the economy hot," embeds self-reinforcing inflationary expectations that push enterprises and households into risk-off frugality or insolvency.

The net result of these dynamics was a massive erosion of the purchasing power of wages and currency. As this chart shows, everyone who held on to their stock portfolio from 1966, when the Dow Jones Industrial Average (DJIA) topped 1,000 for the first time, until 1982 when it finally rose above 1,000 and continued higher, might have cheered the restoration of their stock portfolio's value, but adjusted for inflation, their wealth had shrunk by 2/3rds as every dollar of their portfolio had fallen to 34 cents by 1982.

When understood as a wave, the current Everything Bubble is not sustainable. Energy, commodities, currencies, inflation, credit, interest rates, risk, "growth" and every other aspect of the socio-economic system will be in flux, and cycles and waves offer us a useful context / orientation as things become, um, dynamic.

The confluence of cycles, waves and conditions of the present may well be unique, and historical analogies may be misleading while instilling us with false confidence in our projections. Every analogy from the decline of the Western Roman Empire to the 1640s to the 1970s to the 2008-09 Global Financial Crisis may illuminate human psychology, but offer little in the way of predictive value in the decade ahead.

This bubble is hyper-normalized, a gigantic wave that's cresting and about to crash.

A few fortunate surfers will get the ride of a lifetime, the rest of us will experience wipeout. How bad it gets will depend partly on luck and partly on how well we've prepared ourselves for events we don't control. As this unprecedented wave breaks, the only thing we can control is our response.

New podcast: Current Waves and Cycles: Energy, Commodities, Inflation (38 min)

My new book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)

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Paging Nostradamus: You Have a Margin Call

2026-03-11T11:34:00.000-07:00
If conditions change beneath the surface, the folks behind the curtain will be powerless to do anything but make it worse.

This just in: predicting is hard, especially about the future. One solution is ambiguity: couch predictions in poetic allusions that are open to interpretation.

What's hard is making an unambiguous prediction that turn out to be correct. Recency bias often trips us up, as making predictions based on projecting the recent past seems to work well until trends and dynamics change. But due to recency bias, we tend to ignore these signals and focus on whatever supports our belief that the future will be a continuation of the recent past.

If we live long enough to experience several epochal transitions, we start noticing longer-term patterns. One such pattern that attracts little attention is that recessions tend not to replicate the previous recession; they tend to follow the recession before.

So the recession we're now entering won't track the 2008-09 recession, it will likely track either The 1991 recession--shallow and brief--or the previous "real recessions" of 1980-83 or 1973-75.

The recession of 2008-09 was characterized by these dynamics:

1. The price of oil spiked, but fell rapidly back to its previous range.

2. Low inflation generated by the massive deflationary impact of China's expansion of low-cost manufacturing and credit expansion enabled the Federal Reserve to flood the financial system with trillions of dollars, pinning interest rates to zero (ZIRP--zero interest rate policy).

3. Low inflation enabled authorities to "run the economy hot" with cheap, abundant credit that inflated credit-asset bubbles in real estate, stocks and other assets, generating a "wealth effect" in the top 10% who own the majority of the assets.

4. The Fed's balance sheet and federal debt were both modest when measured by GDP, and so these could be expanded with little downside, as these acted as buffers.

The 1991 recession was trigged by a spike in oil prices and risk-off reaction to the first Gulf War (Desert Storm). Once oil prices fell, the impact on interest rates, asset valuations, unemployment, etc. were, by historical standards, mild.

The 1973-75 and 1980-83 recessions were different--stagflationary confluences of embedded inflation generated by price shocks and "running the economy hot." Over time, interest rates (bond yields) tend to track the cost of oil, as the entire economy rests on a foundation of energy.

Adjusted for inflation, oil leaped to a new level in the "oil shock" of 1973-74, triggering a reset of the economy already reeling from higher inflation, foreign competition and sagging productivity.

As the supergiant oil fields discovered in the 1960s started producing at scale in the 1980s, the inflation-adjusted price of oil fell, and remained at historically modest levels interrupted by occasional short-lived spikes (Desert Storm, invasion of Ukraine, etc.).

In the 1970s, energy plateaued at a higher cost level. This--along with other factors--contributed to embedding higher costs, i.e. inflation, that were exacerbated by "running the economy hot," i.e. assuming inflation would magically decline due to "growth."

Instead, inflation became self-reinforcing, threatening to cripple the economy. The only real solution was pushing interest rates high enough to suppress credit expansion, which in an economy dependent on ever-expanding credit, pushed the economy into a deep recession.

Assets fell, valuations stagnated, unemployment soared, credit tightened, and the "easy money" fixes of the past were no longer the solution, they were the problem.

Here we see the yield on 10-year Treasury bonds, a proxy of interest rates:

Here is the Dow Jones Industrial Average (DJIA), a proxy of the stock market, adjusted for inflation: by the time the Dow regained the magic 1,000 level in 1982, it had lost 2/3rds of its real (inflation-adjusted) value from its 1966 1,000 peak.

We have succumbed to the illusory belief that "the powers behind the curtain" can--and will--always save us from a market crash and "real recession." What history teaches us is this can only happen in a very specific set of conditions which no longer apply: if oil costs plateau at a higher level, inflation becomes self-reinforcing, credit expansion leads to extremes of risk and productivity remains stagnant, then those behind the curtain will only make the situation worse by lowering interest rates and "running it hot."

At that point, everyone predicting a continuation of the past 18 years will be reaping their reward for being wrong: a margin call in a bidless market. Predicting is hard, but it's good to keep an open mind and avoid recency bias. If conditions change beneath the surface, the folks behind the curtain will be powerless to do anything but make it worse.

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Iran, En-Lai, Napoleon, Mike Tyson and Model Collapse

2026-03-09T13:44:00.000-07:00
Every model that is incapable of recognizing its own failure has already crossed the event horizon into model collapse.

Let's start by stipulating I am addressing commentary on the war, not the war. As I noted in my post The War (March 1, 2026), war takes lives; it is not a chess game or an abstraction.

Commentary, as I noted in Perverse Incentives Have Created a Runaway Media Monster, is all about making money via clicks / "engagement." Exaggerating claims of expertise / certainty and touting predictions all activate "engagement," even when the claims are false and the predictions are nothing more than click-bait.

Today's topic--model collapse--is difficult. it doesn't lend itself to 10-second sound bites or tweets. But three quotes offer insightful entry points.

The first is by Chou En-Lai, the People's Republic of China's first foreign minister and Premier: "It's too soon to tell."

The second is by Napoleon: "Do you know what amazes me more than anything else? The impotence of force to organize anything."

The third is by boxer Mike Tyson: "Everybody has plans until they get hit for the first time," which has been recast as a more visceral "Everyone has a plan until they get punched in the face" (or mouth).

I discussed the first two in Channeling Napoleon and Chou En-Lai (January 5, 2026).

The context here is the non-linear nature of warfare. Our models for planning and understanding war are inherently linear because there is no way to project what emergent properties the war will generate, or anticipate all the second-order effects (consequences generate their own consequences) unleashed by these dynamics.

What emergent properties describe is the way that complex interactions generate dynamics that have their own separate properties that are different from the initial conditions. We start with systems we think we understand--military forces, logistics, political structures, etc. To manage these complex systems, we distill them into models that enable us to control the systems.

But once these complex systems interact, the interactions generate knock-on effects which manifest properties that operate outside the models. The leadership attempts to make sense of fast-moving events within the frame of reference established by the model, unaware that the model is incapable of making sense of emergent dynamics operating outside the model's limits.

Put another way, these non-linear dynamics disrupt their model's OODA (observe, orient, decide, act) loop, Colonel John Boyd's decision-making process. The coherence of the model's causal (i.e. predictive) capacity is lost, and every step of the OODA loop become incoherent: observations miss what's critical, the orientation / frame of reference no longer maps reality, and so the decisions and actions are disastrously misguided.

The keys here are 1) the leadership's confidence in the model's value and 2) the fatal time lag between the disorientation generated by the model's failure and the recognition that the model has failed. By this stage, there is no longer enough time to construct a more coherent model that more accurately maps events in real time, and so the model--and the systems it controls--collapse.

In a peculiar irony, AI programs illuminate this human behavior. AI tools are programmed to process their data sets and probabilistic algorithms on the assumption that all necessary knowledge and information is available to generate a high-probability solution.

The AI tool doesn't "know" when its model has failed, and so it hallucinates "solutions" that are catastrophically out of touch with reality as if these hallucinations are facts. This is what happens when models break down in warfare and other fast-moving events in which complex interactions generate emergent dynamics operating outside the model's orientation / "understanding:"

The humans operating within the failed model are hallucinating "solutions" while fully believing they are dealing with facts and responding appropriately. The result is model collapse: the model has become incoherent and is generating hallucinations that are taken as "solutions" by those who are incapable of recognizing the limits and failure of their model.

Which brings us back to the three quotes.

"It's too soon to tell." Every prediction of outcomes is nothing more than a wild guess because non-linear emergent dynamics are inherently unpredictable. The second-order effects may play out for years or decades, so "It's too soon to tell."

"Do you know what amazes me more than anything else? The impotence of force to organize anything." Implicit claims of expertise in military strategy, tactics, weaponry, etc. are proliferating at the same rate as war-related AI slop. All this click-bait churn distracts us from the limits of force and the overlooked aspects of power, which Napoleon summarized: "There are only two powers in the world: the spirit and the sword. In the long run, the sword will always be conquered by the spirit."

"Everybody has plans until they get hit for the first time." John Lennon's "Life is what happens to you while you're busy making other plans" comes to mind, but "Everyone has a plan until they get punched in the face" describes the disorienting results of sudden impact, which Mike Tyson memorably described as "Like a rat, they stop in fear and freeze."

The point here is there isn't any way to plan for getting punched in the face, but the illusion that we can do so is dangerously mesmerizing. So we conjure contingency plans, run war games, etc., all intended to avoid the disorientation of unanticipated shocks that can break not just our plans but our spirit and the model we use to make sense of the world.

Seen through the lens of these quotes and the dynamics of model collapse, most commentary on the war boils down to click-bait, entertainment posing as insight or AI-like hallucination. Armchair quarterbacks always execute plans perfectly because they're not on the field with their face mask in the turf. The abstractions of the geopolitical chess board look plausible because the "great game" is itself a model.

In summary: every model that is incapable of recognizing its own failure has already crossed the event horizon into model collapse, the reality-distortion field in which frames of reference, decisions and actions that are coherent and rational within the model are actually hallucinations that map the model, not the real world.

Put another way: everyone's confident in their projections and conclusions until they get punched in the face by real-world nonlinear dynamics and their model collapses.

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Perverse Incentives Have Created a Runaway Media Monster

2026-03-06T11:50:00.000-08:00
A Monster Id of self-reinforcing perverse incentives is gathering strength with every click, every data point collected and every unseen algorithmic adjustment of the addictive dosage.

Much of what we rightly decry as dysfunctional is the result of perverse incentives built into systems not from malice but from the self-reinforcing nature of self-interest: whatever mechanisms serve self-interest are reinforced by those benefiting the most from their institutionalization as "the way the world works."

What started out as of self-evident utility--for example, fee for service healthcare--slowly transmogrified from a common-sense model of modest costs into a monstrous industry with an insatiable appetite for revenues, profits and the political influence needed to further its permanent expansion.

Though the system goes by the same name--fee for service--it bears no resemblance to its initial incarnation. The mechanisms of self-enrichment now dominate the entire system via the perverse incentives that have been codified by regulations and institutionalized in vast corporate cartels.

This same self-reinforcing progression from a modest model with promise to a corporate-dominated monstrosity that enriches the few at the expense of the many has now reached its perverse-incentives perfection in the media, from mainstream to social media.

The Web as a means of distributing content to every user started with decentralized, self-organizing mechanisms such as bulletin boards and web-hosting of websites and blogs. The machinery of generating revenue was limited to display adverts. Search was organic, meaning search engines were designed to crawl the Web and return the most relevant external links as search results.

The advent of online auctions for key words and search placement (Overture et al.) transformed search from an organic service funded by display adverts to a vast revenue generation machine powered by auctioning search placement to the highest bidders.

With the introduction of centralized social media platforms, the Web's center of gravity shifted from self-organizing message boards, commercial sites and wildly diverse blogs unaffected by centralized surveillance, monitoring and censorship via ill-defined community standards to a model of users generating content for free while the revenues generated by collecting and selling users' data flow to the corporate owners of the platform.

An insignificant percentage of this vast flow of revenues is distributed to a tiny sliver of users who manage to attract millions of views / listens, i.e. engagement. For example, content creators who pile up one million views earn a magnificent $10 for their ceaseless efforts in promoting the content enriching the corporate owners of the social media platforms.

Where advertising networks once paid a meaningful share of display advert revenues to the sites that hosted the ads, once Big Tech gained centralized, network-effects dominance, these revenues dwindled to insignificance for all but the handful of sites with massive audiences. Most of the advert revenue is collected by the search and social media platforms which now dominate user content creation and engagement.

This arrangement is fueled by radically perverse incentives for all participants. The content creators are incentivized to post the most "engaging" content, which due to human nature tends to be sensationalized, exaggerated, emotion-triggering content that is indistinguishable from propaganda, misinformation and slop.

AI has incentivized the reach by content creators for higher revenues via posting ever greater volumes of videos, audio and text content. As it becomes harder to distinguish authentic content from AI slop, the platforms' overall content is inevitably degraded / debauched.

The platforms have every incentive to increase the addictive powers of their algorithms and the content generated by users, as the greater the user engagement, the more data they can collect and sell--and use to tailor what's delivered to individual users to maximize their profits.

Faced with this endless spew of intentionally addictive, sensationalized Ultra-Processed content, mainstream media outlets have increased the density of their display adverts to the point that it's no longer worth the effort required to scroll through ads to find the content, which has also been sensationalized to compete with the content posted on social media by users desperate to expand their own audience by any means available-- including slop of every description.

These perverse incentives have created a media monster, seeking revenues and profits not by creating content of self-evident value (what was labeled DBI in the traditional media--dull but important) but by following social media down the wormhole of sensationalized click-bait, "lifestyle" fluff and "sponsored content," i.e. promotional content commercial interests pay to place in high-visibility niches folded into other content.

The traditional media prided itself on maintaining implicit standards of integrity and objectivity in reporting. These standards have largely been abandoned or debauched in favor of raw partisanship or click-bait sensationalism. As circulation and advert revenues decline, traditional media has responded by segmenting content subscriptions to milk more income out of subscribers: want to read the sports section? That's an extra subscription now.

In effect, a Monster Id of self-reinforcing perverse incentives is gathering strength with every click, every data point collected and every unseen algorithmic adjustment of the addictive dosage. As longtime correspondent Peter K. noted, sensationalism, certainty and grandiose claims of hidden / profound insight all scale, as these activate our hard-wired attention receptors.

Not only are these exaggerations of marginal value; they actively misdirect and scatter our attention, fragmenting our capacity to make sound assessments and focus on matters of actual importance in planning and organizing our own lives.

Honest expressions of uncertainty and careful reporting of complex issues don't scale.

Fostering addictions to endless scrolls of slop to maximize profits is--like a "health" system dominated by SickCare / Ultra-Processed Food cartels--the worst of all possible worlds, a world devoid of any redeeming value.

I have been a content creator / writer since 1988, and I've experienced every step of this devolution, from the good old days of free-lancing for mainstream media newspapers and journals with the entire Gatekeeper machinery of editors, pitches, invoices, etc., to the Wild-West early Web of blogs and independent ad-funded journalism, to the domination of search and social media platforms and the present near-total reliance of creators on subscribers and the sales of content directly to the public.

I haven't changed my content, even though I recognize my niche doesn't scale, and will never scale. I'm adapting to changes in distribution, but I'm sticking with standards that enable integrity and pride in my work. If this dooms me (and other creators like me) to permanent marginalization, so be it, because playing to "win" as measured by money in a realm ruled by perverse incentives is in effect selling your soul.

Any mention that souls can be nurtured by integrity or squandered for lucre dooms one to a lean-to hovel in Digital Siberia, for anything other than focusing on maximizing profits by any means available is now considered an incomprehensible form of insanity.

Of related interest:

The War

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Things Change

2026-03-03T11:31:00.000-08:00
In periods of uncommon volatility, crises and transitions manifest in unexpected ways.

Things change, sometimes tumultuously. The unevenness of change has generated a number of memorable descriptions, from the pivotal role crises play in ushering in dramatic changes ("There are decades where nothing happens; and there are weeks where decades happen" (V. Lenin) to the asymmetric distribution of epochal changes ("The future is already here--it's just not evenly distributed" (William Gibson) to philosophic commentaries on the permanence of impermanence, change is the one constant, the world is in perpetual flux: ("No man ever steps in the same river twice, for it's not the same river and he's not the same man" (Heraclitus).

In the modern era, we are accustomed to technological changes, and laud the overthrow of previous ways of living as "creative destruction," though the changes might be more destruction than creative.

Though these are unwelcome, we understand changes wrought by natural events (earthquakes, pandemics, etc.) and war.

Some of the least understood manifestations of change are social changes, which are complex in having numerous inter-connected sources which operate in different spheres and on different time lines.

For example, wartime demands for additional labor as males entered military service en masse in World War II brought females into the labor force in unprecedented numbers and roles, an economic change that added new dynamics to longstanding expansions of women's rights to own property as individuals, vote, etc.

There are no perfect models of social change, but the most insightful and universal in my view is the have-nots begin agitating for a rebalancing of asymmetric arrangements favoring the Haves. The Haves naturally view their perquisites and privileges as natural birthrights that cannot be challenged because this is the way the world works: our perquisites and privileges are as natural and permanent as gravity.

The marginalized Have-Nots, possessing the benefits of a clear view from the cheap seats, see the perquisites and privileges as intrinsically unfair arbitrary constructs which not only could be modified, but should be modified to widen the opportunities of all those marginalized in a repressive status quo that favors the Haves.

I explore these dynamics in my new book Investing In Revolution.

These pressures to loosen repression of opportunity for the disenfranchised/ marginalized are influenced, positively and negatively, by technological, economic and political forces. New technologies can disrupt the status quo, opening fissures for upward social mobility, or they can enhance the power of the Haves, who naturally reckon all changes should enhance their wealth and power, and are horrified if they loosen their dominance.

Over time, these pressures build, and a crisis has the potential to trigger an avalanche of changes that were as inevitable and unpredictable as change itself. There are many asymmetries between groups of Haves and Have-Nots, and what makes this an especially precarious moment in history is some of the Have-Nots expected to join the Haves as their birthright / the natural order of things, and their marginalization will not be accepted passively.

At the same time, technological changes have breached many of the status quo's barriers, unleashing highly disruptive torrents in communication, the balance of capital and labor, employment, and social norms / expectations. The Have-Nots are keenly aware that their diminished opportunities may suffer further degradation, while the Haves tend to see these torrents as fueling the expansion of their capital / economic dominance.

That they might be the biggest losers in the tumult being unleashed as their asymmetric dominance increases the potential for a structural rebalancing not in their favor--this is not a common concern.

In periods of uncommon volatility, crises and transitions manifest in unexpected ways. What was deemed impossible or outlandish a few years before becomes normalized as the Vital Few--the Pareto Distribution's 4%--influence the 64%, and things change more rapidly than anyone thought possible.

Steering for calmer waters becomes more problematic. Sails tend to shred, masts tend to snap, and rudders tend to break.

My new book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)

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The War

2026-03-01T11:56:04.192-08:00
That I don't have an analysis or insight to offer doesn't mean I don't care. It simply means there are limits on what we know, and what we do know suggests circumspection.

War seems to demand some response--opinion, analysis, insight--lest it seem that we're uncaring or detached from events so consequential. But if there is anything we can say with any certainty about war, it's that nobody outside the inner circle knows anything, and the inner circle's knowledge is partial, contingent, and prone to the interpretive distortions of group-think.

The other thing we can say with certainty is the primary task of those in charge of the war is perception management, to shape-shift the fog of war into narratives supported by images and statistics that lend an air of factual certainty to something that was as carefully curated as an advert campaign designed to persuade us to buy into whatever story of the war suits those in charge.

Since nobody has a truly comprehensive grasp of what's going on--and what passes for comprehension has been filtered, either purposefully for perception management, or by the biases born of previous experience--any opinion, analysis, or insight is a claim for some measure of certainty that dismisses the inherent contingencies of fast-moving events that depend to some irreducible degree on where one is standing.

War fighting, perception management, analysis and policy-making are professions that are fraught with biases, group-think, blind spots and all the unknowns, from the known-unknowns to the unknown-unknowns, and everything in between. One of the few certainties is that no one involved is anxious to publicly admit they made a mistake.

Another thing we can surmise with reasonable certainty is that few of those in charge of war have any high-quality understanding of the enemy. In a recent weekend post that referenced the Vietnam War, I discussed the consequences of the American leadership's profound ignorance of Vietnam's complex history, politics or culture, and their catastrophic belief that surveillance photos and statistical analyses were substitutes for actual knowledge.

Consider the experience of Admiral Isoroku Yamamoto of the Imperial Japanese Navy prior to World War II. He attended Harvard for two years, and served as a naval attache in Washington, D.C. for years. He traveled extensively in the U.S., taking special interest in the oil fields of Texas and the industrial infrastructure of Detroit.

This on-the-ground experience informed his hesitancy to engage in a long war of attrition with the U.S. and his view that a surprise attack that crippled American power in the Pacific was the best chance of securing a negotiated peace. But this proved to be a false reading of the American character, as the one thing a surprise attack took off the table was a negotiated peace.

It's remarkably easy to drift into an abstract, view-from-orbit take on war. First-hand accounts of war tend to bring us back to Earth. One of our elderly Japanese friends was drafted as a teen to work in an underground munitions factory late in World War II. High-born to a wealthy family, she was given a Naval rank and uniform at 16 years of age, supervising the old men and boys assembling artillery shells in tunnels bored deep into the mountain to escape American bombs.

I have a copy of my uncle's list of his 33 B-24 and B-17 missions over Germany and German-occupied territory in the 8th Air Force in World War II, all in 1944 and early 1945. Given the fierce flak and German fighters, serving on a bomber crew was to some degree often akin to a suicide mission, as losses were so high that by one estimate only 24% of crew members came through their 30 missions (later boosted to 35) alive and uninjured. Depending on the phase of the air campaign, estimates of casualties approach 50%. The 8th Air Force had more KIA (killed in action) casualties--26,000--than the entire U.S. Marine Corps, which endured horrendous casualties in its numerous island-hopping campaigns in the Pacific.

A friend of mine served as a Loach helicopter pilot in the peak years of the Vietnam War. The Loach (Hughes OH-6 Cayuse) was a Light Observation Helicopter crewed by a pilot and gunner. The missions demanded flying at low altitude and therefore being exposed to ground fire, including shoulder-launched weaponry. Once again, these were to some degree often akin to a suicide mission.

The casualty rate was so high that my friend said the old hands didn't even bother learning the names of the new pilots. My friend was shot down twice and had numerous near-misses with death.

We don't do 50% casualty rates any more, as war--along with everything else--has gone high-tech. This greases the slide to war as an abstraction to be discussed as bloodlessly as a chess game or the price of oil.

I don't have an analysis or insight to offer because I know nothing of any credible value. I suppose if one had access to the combined intel of Russia, China, the U.S., Israel, Turkey, Saudi Arabia and other regional interests, one might fashion a fairly coherent view of things on the ground. But even this would be contingent on events of the following day, and on the workings of people who are out of sight or lost in the inevitable summarizing of complex events.

The irony here is I don't have an analysis or insight to offer because I know too much--not about this particular war, but about war in general. I understand the casino's tables are taking bets on the price of oil, and other tables are taking bets on other eventualities, but given that people are risking their lives to do their duty, I'm not interested in the casino. It reminds me of the Star Trek episode The Gamesters of Triskelion where disembodied pulsing brains bet quatloos on life and death combat.

That I don't have an analysis or insight to offer doesn't mean I don't care. It simply means there are limits on what we know, and what we do know suggests circumspection.

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The Decay of our Quality of Life No Longer Aligns with the Narrative

2026-02-26T08:47:00.000-08:00
It's not just how much money you have, it's whether you still have access to everything of immeasurable value that's destroyed in being monetized.

I've set aside our standard of living in favor of our quality of life because standard of living is so easily gamed with financial statistics. You know the drill: as life becomes increasingly unaffordable and precarious, we're inundated with statistics purporting to back up the claim that life is getting better, every day, in every way, because Progress is, well, progressing, and AI is soon going to make everything better in ways we can't even imagine.

This narrative is straight out a pulp science-fiction story circa 1956: there will soon be orbiting data centers, a base on the moon, it will be fantastic Progress, with a capital P.

That the quality of our lives is in freefall here on Earth and orbiting data centers and a base on the moon will do nothing to change that trajectory is both obvious and taboo, taboo because it undermines the happy-story narrative that technological Progress of any kind will generate wonderful things for everyone if we just let it run wild.

Meanwhile, a truly astounding number of Americans want to move from the US to somewhere with a higher quality of life: more affordable, safer, less precarious, less manic, less divisive. Americans Are Leaving the U.S. in Record Numbers More citizens are replanting overseas, drawn by a quality of life made easily affordable by the US's enviable salaries. (WSJ.com)

Yes, a lot of this is unrealistic fantasy, but there is also a realistic appraisal here, too. There are plenty of stories of expats dreaming of a perfect life abroad who sour on the reality, and plenty of expats who have no desire to return to the US.

What's becoming undeniable is the decay of our quality of life, a decay that doesn't lend itself to easy measures like GDP. Who cares about GDP if the quality of one's daily life is deteriorating? If life is increasingly unaffordable, does GDP rising 3% offset that? The answer is no.

The real-world experiences that make up the quality of life no longer align with the sci-fi narrative that as long as there is some new technology afoot then life will inevitably get easier and better. In the real world, a realistic appraisal of decaying quality of life leads people to vote with their feet, to move domestically or internationally.

There are two ironies here. One is the relative strength of the "doomed to collapse to zero" US dollar in lower-cost nations, and the other is the disruption unleashed by the arrival of relatively wealthy Americans snapping up real estate and driving up prices--negatively impacting the quality of life of locals.

These factors also play out domestically, as Americans made rich by owning real estate in left / right coast metropolitan areas are overwhelming desirable small cities and towns in less populous states, pushing home prices out of reach of locals.

What our elites, public and private-sector, cannot admit because it reflects on the failure of their leadership, is life is getting harder in America except for the wealthy. This is why overseas millionaires are moving to the US: taxes are lower and everything is affordable here if you're rich.

Meanwhile, back in the real world: A $44,000 Bill Shows the Dysfunction in California's Home-Insurance Market (WSJ.com)

While the top 10% benefiting from credit-asset bubbles are incentivized to promote the sci-fi narrative, everyone else is resorting to gambling as their last best hope of "making it" in America. America's elites can't tell the truth--that essential sectors such as healthcare are broken--because they have no solutions, as real solutions would drain the punchbowl of entrenched, politically powerful interests.

Quality of life isn't a statistic, it's an experience. It's not just how much money you have, it's whether you still have access to everything of immeasurable value that's destroyed in being monetized.

The decay in our quality of life no longer aligns with the narrative, and so the gulf between the happy-story statistics / pulp-science-fiction narrative and the real world widens. In response, people are either gambling or voting with their feet.

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How We Got Here: Moral Flexibility Leads to Moral Decay

2026-02-25T09:10:00.314-08:00
Moral flexibility accumulates. Over time, it leaves you compromised.

This is a guest essay by correspondent 0bserver. This series focuses on the realities of self-employment. In my view, everyone is self-employed to some degree now, whether they're aware of it or not.

At some point, I learned to draw a line. I do not do business with people who publicly signal virtue while treating their employees poorly. I do not care what their politics are. I do not care what causes they promote. If the public posture and the private behavior do not match, I am not interested.

That decision costs money. I accept that.

I have already been down the other path.

What I eventually realized is that this is not about strategy, branding, or long-term thinking. It is about an internal moral line. A point where you stop asking whether something is legal, profitable, or defensible, and ask whether you should be involved at all.

Once that line is crossed, everything else becomes negotiable. Saying yes becomes easier. Saying no starts to feel naive. The damage does not happen all at once. It happens incrementally, as each compromise makes the next one feel smaller. That is the line I am not willing to cross.

For a long time, I worked inside systems where absorbing other people's bad behavior was treated as normal. Complaints became leverage. Entitlement was reframed as customer service. You were expected to endure it quietly and keep things moving.

It leaves a residue.

You feel it before you can fully articulate it, a physical sense that something is off. Over time, you learn to override that signal. You tell yourself it is temporary. That it is necessary. That this is simply how business works.

It is not.

This is how moral flexibility becomes routine.

When you are responsible for your own business, the excuses disappear. If a customer has a legitimate issue, it is your responsibility to make it right. That is not weakness. That is ownership. But when someone continues to complain after a good-faith attempt at repair, clarity matters. The relationship ends, not out of anger, but out of orientation.

Boundaries are not punishment. They are information. I do not do business with people I do not respect. Craft matters as well. If the work itself lacks integrity, that matters.

What matters most is how people use power. Insecurity in employees is human. Abuse from owners is not. When someone humiliates staff, yells, or treats people as disposable, it is not a management style. It is a signal. Whatever someone is willing to do to those beneath them, they will eventually do to those beside them.

You inherit the moral residue of the people you choose to work with. The right way, for me, is simple: providing a service to qualified customers.

If I have to explain what the product is or why it matters, we are misaligned. If the interest is vague, performative, or rooted in signaling rather than use, we are misaligned.

I am not here to convince people. I am here to serve people who already know what they want and value it.

That disqualifies many potential customers. That is intentional.

At a certain scale, people stop being real. Names blur. Context drops out. Consequences diffuse. When that happens, behavior becomes easier to justify because no one feels present anymore.

Shrinking the circle fixes this.

When you deal with a small number of real people, people you recognize and whose reputations actually travel, abstraction disappears. Actions carry weight. There is no place to hide behind process or posture. The lights are on.

This does not mean avoiding growth. It means avoiding the kind of growth that requires moral distance. I will scale within the boundary, not beyond it.

People will say this approach is limiting. That it slows growth. That it leaves money on the table.

That is true.

I traded comfort for this deliberately. If I am going to struggle on my own, I want to know I did it the right way. If I wanted the opposite, I could take a job and make more money.

I chose discomfort because it was the only way to remain antifragile and survive market shifts.

Integrity is not something I perform. It is practical.

Integrity means I can look in the mirror without lying to myself.

Moral flexibility accumulates. Over time, it leaves you compromised.

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Money Is Funny That Way: The Case for USD Supremacy

2026-02-23T09:06:00.000-08:00
The point here is not to make a prediction; the point is to keep an open mind about the social-construct / utility-value of currency.

The consensus holds that the US dollar is doomed, irrevocably sliding to zero. The US will continue issuing new dollars to maintain the pretense of stability until this money-printing triggers hyper-inflation, which will wipe out the USD's remaining shreds of value.

This consensus is largely based on the history of the Weimar Republic and other examples of money-printing (the only expedient solution) leading to the destruction of the currency. This could be the path the USD takes.

But money is funny that way. It is a social construct and so the range of possibilities is wider than we might imagine. As a thought experiment, let's construct a case for USD supremacy rather than collapse.

Let's start with two imaginary forms of money: the first is an internationally recognized currency backed by a pool of industrial commodities: metals such as silver and copper, fuels such as oil, etc. This currency's value isn't scarcity per se; its value is based on the utility-value of the commodities that back it.

Since it is aligned with a physical pool of resources, new currency can only be issued if the pool expands. It can't be borrowed into existence by central or private banks.

The second currency has an expiration date, and must be spent before it becomes worthless. This form of currency is often called a scrip. These two currencies reflect money's dual nature as a store of value and a means of exchange.

We will naturally save the first currency in our rainy-day or retirement fund, as its value is based on real-world stores of utility-value that aren't going away. We will spend the scrip-money as soon as possible, converting it into goods and services.

Switching gears, consider all the kinds of money one collects as one travels around the world. We end up with small bills and coins from various countries we visited. Every bill and coin is "money" in one place but of no value elsewhere until it is converted into the local currency.

This is also true of precious metals: trading a piece of silver for a bowl of noodles requires the seller of the noodles who accepts the silver to convert it into local currency or some other store of value, a process with inherent transaction / arbitrage costs.

And should the noodle seller have to pay taxes and fees, the government won't accept the piece of silver; the payment to the state must be made in the state's own currency.

This is an important feature of money that's generally misunderstood. Fiat currency isn't "backed by nothing;" its value is one's permission to participate in the economy of the state that issues the currency.

If this permission to participate seems of low value, consider a work / residency permit: without a work / residency permit, one can only participate in an economy on the margins. Full participation in an economy has far less friction / risk and lower costs than marginal participation.

Switching gears again, let's ask: what currency would you take that's likely to be accepted everywhere, from backwater souks to a developed-world metropolis.

The currency most likely to be accepted is a crisp $100 USD bill in protective plastic. This is not the result of the USD having any greater inherent value than any other form of paper money; it's a manifestation of the network effect: whatever is already ubiquitous / widely used has greater utility-value than alternatives with low rates of recognition, exchange and participation.

No one form of money offers all of these features without friction, tradeoffs and costs. This suggests the search for one ideal form of money is intrinsically futile. It also suggests that whatever forms of money offer 1) participation in the largest economic sphere, 2) the largest network effect / ubiquity / recognition and 3) a store of value with easy price-discovery will have greater utility and less friction than any other single alternative.

All of these factor into demand for the currency. There is 1) built-in demand for stores of value, 2) built-in demand to circulate scrip-money that is losing its value to time decay, and 3) built-in demand for currencies that offer participation in the widest possible sphere of opportunity and ubiquity / network effect.

Money issued by states has another funny attribute: the supply can be limited or expanded. Should the supply expand at a rate lower than the expansion of demand, as with any other commodity, the price / purchasing power of the commodity will rise.

The demand for currency is harder to measure than the supply, as the demand is the sum total of millions of participants seeking savings, low-friction transactions, network effects, arbitrage gains, etc., while supply can be measured (imperfectly) with far greater ease.

The case for USD supremacy rests on its imperfect but still advantageous combination of sources of utility-value, each of which is unique: the ease of price discovery, the low-friction transactional ease of use, the network effect ubiquity and participation in the widest possible sphere of opportunity.

Each of these attributes isn't just a reflection of a central bank's policy du jour; it's a reflection of the entirety of the issuing state's governance, institutions, economy, social trust, network effects and cultural values.

If demand expands faster than supply, the value of the money measured in various ways (purchasing power, trustworthiness, predictability, etc.) rises accordingly. "Money" in all its forms is a commodity, and follows the same supply/demand pricing as any other commodity.

The case for USD supremacy boils down to this: if risks start rising globally, demand may expand faster than supply, and continue increasing as rising demand and the network effect combine to push the value even higher in a self-reinforcing feedback.

Money is funny that way. We think we understand everything about it, and so even as we predict a currency should keel over, it wins the marathon.

The point here is not to make a prediction; the point is to keep an open mind about the social-construct / utility-value of currency.

Of related interest:

Could a Rip-Your-Face-Off Rally in the Dollar Trigger a Global Financial Crisis? (October 21, 2025)

Money and Work Unchained (book)

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What Defines a "Good Economy"? Social Mobility and Not Losing Ground

2026-02-20T10:41:00.000-08:00
What defines a "Good Economy"? Real advances in ownership of capital and the real-world resources an hour of labor can buy are within reach of the majority.

What defines a "good economy"? To answer this, we start with a second question: a "good economy" for whom? Economists turn to financial statistics to answer both queries, and this brings us face to face with the core difficulty with statistics: "money" is an overlay on the real world, and doesn't necessarily map the real world.

Economists measure "the economy" as a whole with GDP (gross domestic product), inflation, trade deficits or surpluses, money supply, the total credit/debt outstanding, productivity, and so on, but who's getting the real-world consequences--who's gaining ground and who's losing ground--is harder to determine.

Wealth as measured in money can be rising but this doesn't guarantee we're getting a higher quality of life. Much of real-world life can't be distilled down to dollars and cents, and so we ignore what's difficult to measure in favor of what's easy to measure: financial data.

I have long held that the only truly accurate measure of gaining or losing ground is how many real-world resources can be bought with one hour of labor. In other words, how many hours do we need to work to pay for shelter, healthcare insurance, childcare, college, food, utilities, transportation, etc.?

If we have to work more hours to buy the same resources that previously required fewer hours of work to buy, we're losing ground, regardless of statistics such as GDP, productivity, inflation, etc. If one hour of labor buys more real-world resources, products and services, we're gaining ground.

Put another way, the only meaningful measure of whether an economy is good or bad is social mobility, which has two components:

1. Whether we're gaining ground as defined above--what each hour of our labor can buy in real-world resources, and

2. Whether we're accumulating productive capital--assets that generate income and increase productivity--or not.

This is where the abstract world of economists touting higher GDP, net worth and income fails in a systemically consequential fashion: GDP can be rising, one's house can be gaining in value so our "wealth" is rising and our income can be rising, but if our labor buys less of the real world and we're just keeping our head above water paying for essentials, then all those "positive statistics" mean nothing.

Social mobility describes the relative ease or difficulty of advancing not just one's income but one's ownership of productive capital. If only a handful of the bottom 80% can manage to claw their way into the top 20% as measured by ownership of productive assets, social mobility is broken.

If the core qualities of middle-class life are out of reach or demand extraordinary sacrifices and luck, social mobility is broken. These include a secure career / employment, healthcare, a home, and sufficient surpluses to accumulate productive assets, as opposed to gambling.

Economists have mastered Ultra-Processed Life, which is the substitution of artifice for authenticity. So we're supposed to accept that the auto that cost $24,000 a few years ago that now costs $40,000 is "equivalent" because it has more digital systems and air bags overlooks the reality that we have no choice but to buy what is being produced today: if we need a car, we now pay $40,000, and if this takes far more hours of work to buy, we've lost ground, regardless of "hedonics."

Italian economist Vilfredo Pareto found that the top 20% of households own about 80% of the land / productive wealth, and this ratio doesn't vary much. What varies is the dynamism of the flow of people into and out of the top 20%, i.e. social mobility both up and down.

When ownership of assets that produce income becomes concentrated above this 80/20 distribution, the social order / economy become unstable as social mobility decays and those in the top tier lock in their advantages.

In the US, the top 10% now own roughly 3/4ths of all financial wealth. The "middle class" (those between the bottom 50% and the top 10%) own about 1/4th, and the bottom 50% own a signal-noise sliver: 2.5%. This distribution is more concentrated than 80/20.

Here's another depiction of the same reality: a grossly imbalanced economy that favors the few.

The income generated by capital is concentrated in the few at the top, a power-law distribution:

The cost of buying/owning a home is higher than previous eras, requiring far more hours of work to pay the mortgage, property taxes, home insurance, maintenance and other costs.

Housing affordability is at historic lows, meaning home ownership is out of reach of those who once could have bought a home without extraordinary sacrifices or family wealth.

A college education did not require student loans a few decades ago. Now it requires debt-serfdom or wealthy parents: the number of hours needed to "buy" a university education has skyrocketed.

As debt becomes the norm to afford a middle-class quality of life, an increasing share of wages is devoted to debt service/interest. Recall that every student loan and mortgage is a debt to the borrower but an income-producing asset to the owner of the loan.

The income spent paying interest is income that cannot be set aside to accumulate productive capital.

An economy where people are increasingly relying on gambling as their last-ditch means to secure a future that is less precarious than the present is not a "good economy" except for the top 10%. And to the degree their wealth is also a gamble placed in a central-bank casino, the precarity of all this wealth is masked by the artificial "goodness" of statistics that reflect artifices rather than the real world.

What defines a "Good Economy"? Real advances in ownership of capital and the real-world resources an hour of labor can buy are within reach of the majority. In an era of rising precarity and receding social mobility, many will settle for Not Losing Ground.

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Small Business in the TINA Economy: Competing for the Scraps

2026-02-17T08:12:00.000-08:00
While the top 10% who manage the TINA Economy are fixated on their ballooning stock market wealth, the bottom 90% are melting away. Some day that might actually have consequences.

Let's start with a thought experiment focusing on soaring household expenses. Consider healthcare insurance, which has risen not just in the monthly premiums paid by employers and employees, but in higher fees out of pocket and co-pays. The value of the healthcare insurance has declined as households opt for high-deductible plans and insurers deny claims to reduce their expenses.

Let's say that a household paying their own insurance seeks to lower their costs by finding a local provider rather than one of the giant corporate insurers which effectively form a cartel. They soon discover that there aren't any local providers of healthcare insurance. There may be direct primary care alliances that offer some services, but virtually all healthcare insurance in the US is controlled by a handful of corporations, a cartel with superficial competition.

This is also the case for home and auto insurance, utilities, education expenses and interest on debt all of which are rising rapidly for many households. In every case, the competition between the handful of giant corporations that dominate each sector is superficial, as this is the point of cartels and quasi-monopolies: eliminate competition to keep revenues and profits high.

A slew of essential services such as Internet and mobile phone subscriptions are also controlled by a handful of providers. Introductory offers that expire in a few months provide a fig-leaf of competition, but the actual cost differences are negligible: maybe enough to buy one sandwich a month, not enough to restore a stretched household budget.

Other services such as auto repair and veterinary services are soaring in cost as the same cartels squeezing households are squeezing small businesses. In some cases, private equity has been buying up local services, assembling hidden cartels behind a screen of illusory local ownership.

Then there's the software subscriptions employees are expected to maintain, costly credentials they must pay for to keep their jobs, and a host of similar expenses which are controlled by other quasi-monopolies and cartels.

Note that these are all big-ticket expenses: healthcare, home and auto insurance, auto repairs / maintenance, utilities, etc. cost thousands of dollars annually. If the cost of a new TV declines $100, that "falling inflation" is a drop in the bucket of the big-ticket expenses that are consuming thousands of extra dollars a year.

As household budgets are squeezed by soaring costs for which there is no alternative--the TINA Economy--the sum left for discretionary spending is reduced. Non-competitive cartels and quasi-monopolies controls virtually all the big-ticket TINA expenses that are soaring by leaps and bounds, leaving the rapidly shrinking pool of discretionary household budgets to the local, small-business sector which is the only sector that is still marginally competitive.

So while corporations and cartels such as higher education and credentialing feast on TINA--there is no alternative in a monopoly-cartel controlled economy--small businesses must compete for the scraps left (discretionary spending) after the cartels have consumed the majority of household budgets, fattening the profits / revenues that fuel their political and market power.

This is why corporate profits are soaring while small businesses are in decline: since there's only superficial competition for big-ticket expenses, households have no alternative to paying higher costs. What money is left is all that can be spent supporting local enterprises, which face the double-whammy of higher operating costs imposed by the same cartels squeezing households and the diminishing pool of discretionary income left to households.

The Economic Divide Between Big and Small Companies Is Growing: Economic fortunes of low- and high-income Americans are diverging--same pattern happening with companies. (WSJ.com)

--The growing divide between the fortunes of small and large businesses mirrors the divide that has emerged over the past year between low-income Americans and their high-income counterparts.

--Large, publicly traded companies in the S&P 500 saw net income increase by 12.9% in the third quarter, contrasting with faltering small-business profits.

--Small businesses are facing economic headwinds, including high inflation and cautious consumers, leading to job cuts; 120,000 jobs were shed in November.

Small business, whose ownership and interests are diffuse, have been reduced to tax donkeys struggling to pay soaring rent, wages, utilities and overhead costs without the market muscle of monopolies / cartels to force consumers to pay higher prices for degraded goods and services.

While large corporations are adding employees, small businesses are shedding employees to survive.

Corporate profits reflect this structural asymmetry: the large corporations that have eliminated competition are expanding their revenues and profits, leaving less for the only sector that still faces competition, small businesses:

We're constantly assured an economy where the gains follow an extraordinarily asymmetric power-law distribution is a wondrous engine of sustainable growth that benefits everyone, but the facts don't support this fairy-tale PR promoted by the winners to placate those losing ground.

This distribution of the gains to the few and the costs to the many is not inevitable, it was the direct result of policy choices made by our political class in response to the money and lobbying funded by the few to increase their share of the economy's gains by any means available.

The avalanche analogy is apt: the snowpack looks stable because the melting is hidden from view. But when a critical point that cannot be predicted is reached, the mountainside gives way. While the top 10% who manage the TINA Economy are fixated on their ballooning stock market wealth, the bottom 90% of households and small enterprises are melting away. Some day that might actually have consequences.

This is where the TINA economy is heading: there is no alternative to system breakdown.

The Middle Class Vanishing Act Nobody Saw Coming Until It Was Too Late (medium.com)

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What Few Understand About Money

2026-02-12T11:16:00.000-08:00
This leaves out the purpose of money, which is facilitating social organization.

I've thought a lot about "money" and wrote two books that explore what few understand about money: that it's fundamentally a social construct with a social purpose and structure. The books are Money and Work Unchained and A Radically Beneficial World.

The conventional understanding of money is that it's a financial unit with economic functions--store of value, means of exchange and unit of accounting-- defined by its intrinsic nature as a material that's valuable or convenient.

So gold is "real money" because it's physically permanent, convenient in size and scarce, and fiat currency--paper money and its digital versions--are intrinsically worthless as paper is fragile and digital currency is conjured out of thin air.

This leaves out the purpose of money, which is facilitating social organization. Money's social function and structure is the water we swim in, unseen because we take it for granted.

Many have embraced the view that all our problems would be solved if we returned to the gold standard or adopted Bitcoin. The simplicity of this is appealing, but when examined under the lens of social purpose and function, the simple solutions turn out to have limits: being a store of value isn't enough, as the wealthy hoard stores of value and remove them from circulation. Hoarded stores of value don't enable social mobility, they limit it.

When the social waters we swim in become turbulent, money reveals its fluid, adaptive nature. In a severe famine, for example, the most valuable store of value and most sought-after means of exchange are non-perishable food items and train tickets that take the holder far away from the famine. Gold will have potential value on the periphery, but the most valuable "money" are flimsy train tickets and things we can consume to stave off starvation.

Let's shed light on the social nature of money with a thought experiment.

Let's say there is a geographically defined region with scattered gold deposits. that can be panned in streams or collected with simple hand tools. Gold is the store of value and means of exchange, but its exchange value fluctuates depending on the scarcity of what people want to buy: eggs, shelter, tools, etc.

Two townships arise in this region. The first is conventional: mining gold is a "winner takes all" activity: as long as a miner has a legitimate claim, whatever gold is found is theirs to keep. So when a lucky miner stumbles on a big rock that turns out to be almost solid gold, he quietly uses this windfall to buy up the town's mining claims, land and businesses as a silent partner. Once he controls the town, he raises prices to milk the residents, exploiting his gold hoard in an extractive fiefdom.

The fact that gold is money worked well for the wealthy owner hoarding the gold but not for everyone else. Social mobility--a key social purpose of money--is limited in this neofeudal economy.

The other township establishes by vote of the residents a much different social construct for the gold. Rather than "winner takes all," every miner agrees to put 20% of whatever gold they collect into a common fund that has two purposes: to provide a small stake for those miners who have worked diligently but come up empty due to bad luck or illness, and a town "rainy day fund" for periods where the work stops due to severe weather or other events.

Those tasked with collecting and protecting the town's gold fund are duly elected and scrutinized to insure their conduct is above-board and they're doing their job correctly.

This system works well until an extended period of declining yields of gold begins pressuring the service population--the laundries, restaurants, etc. that the town needs to survive. Those managing the gold fund explain the situation and obtain permission from the miners to extend the modest hard-luck stipend to service workers should they otherwise be forced to abandon the town, leaving the residents without key services.

Even when yields stabilize, it's now obvious that the easy gold has been recovered, and yields will continue declining. The town residents face abandoning the town or starting some other industries to compensate for the decline in gold mining.

The leadership comes up with an idea: why not issue paper currency for use in the town, based on the gold still held in reserve, and save whatever new gold is added to the town's fund for trading for essentials from elsewhere? The paper currency will be "backed by gold": as the town's gold won't be spent, this paper money will have something valuable behind it. The paper money is a representation of value rather than a valuable object in itself.

After some skepticism, the miners agree because the other option--abandoning the town--is even less appealing. After all, the decline in gold yields isn't limited to the township; it's happening everywhere. Pulling up stakes and trying to find an as-yet unexploited area is a gamble with poor odds.

After some hesitation, the paper money is distributed to residents as their stipend and used to pay for services and materials. Those accepting the paper find they can buy goods from other merchants with the paper money, and so trust in the new money is established.

Miners who abandoned their claims are paid to dig deeper mines with the paper money, and a small lumber harvesting operation is also funded by the paper money. Merchants still need gold to buy products from afar, but the paper money encourages residents to start producing more food locally. Though gold production is way down, the paper money has funded the labor needed to continue producing enough gold for outside trade.

The town actually expands as new residents take advantage of the opportunities--social mobility is broadening--and while the leaders maintain the town's stash of gold, the paper money that's needed to grease commerce and pay wages now far exceeds the value of the gold in the town vault.

In effect, the town is issuing a fiat currency, a paper money with no intrinsic value, based on the trust that there is gold backing it up.

But this paper money isn't actually valueless. It's backed by the social structure and purpose of the town's economy--the residents' trust in the institutions, their fellow residents, and in the valuable work being enabled by the paper currency.

As long as the worker issued $1 in paper money can buy $1 of goods with that piece of paper, and the merchant who accepts the $1 can buy labor, goods and services with it, the system functions smoothly.

The key to the system's trust is the leadership's discipline in only gradually expanding the issuance of the paper currency in line with the expansion of the workforce and town's economy. For if the currency doesn't expand enough, the town's economy is starved of both means of exchange and "small money" store of value.

If the leaders issue too much paper money, this excess eventually reduces the value of the paper money and residents will lose trust in the system. The ideal they must seek is scarcity of paper money, but not so severe that it begins limiting hiring and commerce. They must resist the natural demands for more money entering circulation, as the entire structure is trustworthy precisely because there is resistance to issuing any more than the absolute minimum needed to keep the wheels of commerce turning.

But consider what happened: a gold standard--gold was the only money--was dooming the township as the supply of new gold was no longer enough to turn the wheels of commerce. The social purpose of money--maintaining a viable economy, social mobility and a vibrant social order--demanded the introduction of fiat currency, which could be prudently expanded as needed.

The town thrived by doing what many consider is the opposite of financial wisdom: they abandoned a gold standard in favor of fiat currency as the only means of not just surviving, but of thriving by enabling an expansion of work and initiative.

(if this seems farfetched, study the history of paper money in dynastic China.)

This is why I have suggested a labor-backed currency: rather than return to a system in which the wealthy hoard the majority of gold or Bitcoin, or give the power to issue currency to central banks and private banks who enrich those already at the top of the wealth-power pyramid, money is only issued when useful work has been performed. This money is created at the bottom of the pyramid to pay those doing useful work, which is the ultimate foundation of a productive social order and economy.

Money is a social construct with an implicit structure and purpose which we swim in but don't even see. Money is fluid and must adapt to fulfill social purposes. If it fails to do so, it's not just money that fails, the entire society fails.

My new book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)

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