How did a software dropout go on to become a successful entrepreneur…and eventually earn a PhD in economics?
In this episode, Addison Quale leads CEO Keith Weiner back through his journey from software geek to economist. They discuss how Ayn Rand’s writings set the stage for understanding monetary economics, why the retirement savings advice given to Gen X will not deliver results, and the proposed solution to a failing monetary system.
- Paul Krugman
- Professor Antal Fekete
- Ayn Rand
- Capitalism: The Unknown Ideal
- John Maynard Keynes
- Marginal Productivity of Debt
- Atlas Shrugged
Addison Quale: Hi, this is Addison Quale and today’s episode is The Accidental Economist. I’m here with Keith Weiner, CEO of Monetary Metals. Keith, your journey to becoming an economist wasn’t a direct one. How did you end up in the field of economics?
Keith Weiner: You know, I went to school for computer science. I was your classic computer nerd, actually dropped out, and I never thought that I would go back to school for anything, let alone a so-called “soft” field like economics.
I dropped out because I wanted to build a software company like so many of my heroes before me. So I built a company called Diamondware, founded in 1994. I sold that in 2008 to Nortel Networks. They were at one point the largest company on the Toronto Stock Exchange. The transaction closed August 19th, 2008. On a historical footnote, we were the last acquisition that Nortel ever closed. There were several other acquisitions in the process that I knew of because I knew the CEOs that did not close. And then obviously, as we all know, the wheels began to come off in fall 2008.
So I started at first to just watch the news. I had come into all this money. I sold the company for quite a lot. You started, started to watch the news and then read the more serious, Wall Street Journal, Financial Times type publications and then a lot of books from a lot of the usual suspects just to figure out how to protect myself.
And the more that I read, the more I thought, Nobody is actually trying to get to the root of this thing. Everybody is kind of starting in the middle and spinning around. Well, you see, we have too much money. Whatever. Eventually I came across the writings of the professor that I eventually went to study under which was an old Hungarian professor named Antal Fekete. I saw that he was teaching a course in Hungary, I got on a plane on pretty short notice, went over and came a student and eventually earned a non-accredited, but the work was real anyway, a PhD in monetary economics.
Addison: So yeah, it’s interesting. Your path in economics wasn’t…you didn’t go through a college route. You really were going down your own path on software. And then it just became something of great interest to you that you had a great desire to discover the truth about.
Keith: Well, I think, you know, like everything else, at least for me. But I assume most people are like this. It’s really hard to study something to get passionate about and get deep into it if you don’t see the importance of it. So you know, when I was the age of a university student, I was just obsessed with computers and what you could get a computer to do. And that was still relatively early days. Most of the really cool things that computers were later to do were still ahead of us. I was obsessed with, you could get computers to do graphics, and get computers to do audio and animation, and do you know intelligent things and all that kind of stuff.
And, if you had suggested the idea of economics to me back, you know….so…I graduated from high school in 1985, dropped out of school, ultimately in 1990. You know, if you were talking to me about economics at that time, I would have gotten certain things, I suppose, but I wouldn’t have really seen…it just seemed like a bunch of fluff. Which, of course, is partly testimony to where I was in my life, what I was focused on, but also testimony to what mostly constitutes the filter of economics even today, which is a whole lot of fluff and rubbish anyway.
Addison: Right. So were you able to discern some truth in economics, or be able to ascertain through the fluff and get it to something more concrete and provable?
Keith: I became a student of Ayn Rand of the Philosophy of Objectivism in 1986. And so through that, you know, she speaks very well of Mises. So I became somewhat aware of the Austrian School and certainly the idea of liberty. So if somebody said to me in 1989 you know, we’re going to raise all the wages by, just passing a minimum wage law. I would have said, it doesn’t work that way. I would have said I probably would have said the same argument that I say now. Which is if you try to force somebody to pay more than what something is worth, they’re not gonna pay more of them, they just will lay the worker off. There won’t be a job at all. I probably could have seen that at that time. It’s hard to hard to put yourself in the frame of mind of, you know, what were you thinking 30 years ago?
So I understood things like that, but I didn’t really care about economics as a science. I’m not sure I would have thought I would have agreed that it was a science or could be a science at that time, you know? So I saw nuggets of truth, the propaganda of what I now call them the court economists. These are the people that…they’re not really doing economics. Although they might have degrees in economics. Now they basically exist to either advise the central planners on how to central plan better, purportedly better or they exist purely as propaganda voices to sell the awful things that our government’s doing and try to sell it as if it is good.
I certainly would have been skeptical of a Paul Krugman. Or, you know, Samuelson, whoever the big you know, status propagandist would have been in any given era. But, you know, just not that interested in it.
Addison: Do you think the being able to learn about Ayn Rand has been helpful in understanding monetary economics?
Keith: Yes, because, you know, I think everybody, hopefully, or seeing everybody has at least some awareness. She wrote this book called Atlas Shrugged, which is still, I believe, on the best seller lists. After what has it been 60, 63 years? It was published in 1957 and that, you know, this was, a novel about kind of a dystopian future of America, where the government just becomes more and more greedy and aggressive and is persecuting businesses of every kind. Businesses are failing and you know, the once vital entrepreneurs all disappearing one by one. It’s kind of a mystery story, romance story and a bit of an economics lesson. I think everybody is aware of that.
Library of Congress in 1990 did a survey asking what was the most influential book in your life. Atlas Shrugged was number two. And so I would assume most people would be aware of that. So Ayn Rand was believed to be a libertarian-ish thinker, although she disavowed the libertarians of her day and Murray Rothbart, but the part that interests me more, I mean so she wrote a book called Capitalism: The Unknown Ideal, in which there appears an essay by a young Alan Greenspan. Decades before he became a Fed chairman and in fact, probably decades before, even left the private sector, to go to the Fed at all.
And he wrote a whole article about gold on how governments don’t like gold because gold, allows people too, you know, avoid the worst ravages of the government’s dishonest money. And then, of course, he becomes Fed chairman. Promptly forgets everything that he was able to articulate so clearly, in that in that piece decades earlier. Either forgot or decided that he didn’t like his former view because it was inconvenient because he became a court economist himself.
There is a not so well understood part of Objectivism, which is the study of human cognition, called epistemology. The takeaway from that, I think, really is a certain discipline of thought. You must define concepts in clear, very clear, way. And you must define them by essentials. And if you fail in that then everything turns to mush.
So people who read my writing know, I don’t call the dollar money. In fact, I’ll even risk a certain amount of awkwardness in my writing in order to avoid calling the dollar money. And the reason is, money is number one, the most marketable commodity, and the dollar is not a commodity, it’s a credit. Number two, money is the extinguisher of debt. And the dollar cannot extinguish a debt. The dollar is an IOU.
If you pay a debt using an IOU, you shift the debt. You do not make the debt go out of existence. You get yourself out of the debt loop, but the debt continues, between other parties. And so if you take that kind of discipline of thought seriously, it forces you to go deeper and have a deeper understanding of things. And from that it becomes possible to have kind of a new view and a proper monetary science, which I think is largely lacking in the world today.
Addison: I think that’s really insightful. Your precision with your words and your concepts in terms of the monetary economics world, allow you to look at things differently than many of those that have come before you.
Take us from Diamondware…you finished selling Diamondware, you then go down this rabbit hole of learning about economics. You study with Fekete, you learn about gold. And what’s that lead you to then? I mean, it’s one thing to get into economics and gold. It’s another to then go ahead and start your own company. Can you talk about that a bit?
Keith: Well, everybody has a different motivation and point of view, I guess. Their own personal values, personality and all that. And I guess there are a lot of people who study a field as not a means to an end. It is the end. And these people that become academics, become professors, become perhaps scientists. And that isn’t me. I now have a non credited PhD, but a PhD nevertheless. I don’t consider myself to be an academic. I’ve written papers, presented at academic conferences and universities, I’ll probably do a lot more of that in my life later. But I don’t consider myself to be an academic. I was not. First, I’m an entrepreneur. I think trying to mentally, everybody sees problems in the world around them unless they’re completely blind. There are some people who wake up in the morning and have some alcohol and go to a job they hate and drink some more, and then they come home and drink themselves to oblivion.
But unless that’s your little existence, everybody sees problems in the world. Most people, what do they do when they see a problem? They just kind of whine a little bit to their friends and family. Then they turn the TV on and, you know, forget about it. Some people think when they see a problem that they want to lobby the government to fix the problem for them or fix the problem for society.
And the entrepreneur is that crazy guy who says I see a way to make money by solving this problem. You know that the key thing I saw my study of economics was that our monetary system is failing. And I don’t mean well, sooner or later, they’re gonna print their way to infinity and prices are gonna skyrocket. And it’s gonna be a reset on all the people with the gold. They’re gonna become billionaires and take over all the Ferraris and all the penthouse suites and skyscrapers. By failing, I mean, and you can see it right now in several obvious statistics, and then a few other less obvious statistics. One obvious statistic. The interest rate has collapsed. When I started my career about 1990, standard advice of any financial advisor would have been put up that 10% of your salary. And if you keep doing that religiously, starting at the age of 20 or 21, by the time you get 65 you have something like a million dollars. I think it was the number in those days. Then you live on that million dollars in retirement.
Of that million dollars, like 80 or 85% of that was not what you set aside from your salary. It was the compounding of the interest. And today, you know, basically post 2008, we just take for granted there isn’t any interest to be had.
If you were more sophisticated, buy a Treasury bond. You could get some. But even the 10 year Treasury bond was paying just 1.8% in January. That’s now paying 0.7%. So interest rates have totally collapsed. And then the rest of the world is even worse. In Europe, it’s negative. In the UK it’s either zero or negative. Japan is zero or negative. Switzerland is quite negative. So the interest has totally collapsed.
Nobody asked the question, number one, what is the cause of this collapse? And then number two, what are the effects? If we have a science here, we should be asking things that cause and effect. So that’s the first thing that’s readily available. Readily visible. You don’t need a PhD in economics. You don’t need people to tell you interest rates have collapsed.
Number two is that the debt has gone absolutely super-critical. Like a nuclear reactor right before it blows up, you know, goes supercritical, things get much hotter, all the gauges in the control room are just going haywire at that point. We now have, what is it? 27 trillion in debt? But we’re adding debt at such a rate at this point that we’ve gone from in the B ush days, people were saying, Oh, my God, Look at the deficit. And it was 400 billion. And then by the end of Bush, and certainly in the Obama, it was basically a trillion. And now, COVID, we’re looking at, I think, $6 trillion deficits.
So, you know, everyone shrugs and says, Yeah, that’s fine, That’s normal, Whatever, What’s new? But wait a minute, Really? It isn’t fine. There’s a problem with that. Um, so those were two obvious things.
There’s a third one that I like to talk about a lot is marginal productivity of debt. So this is the answer to the Wall Street Journal view, the mainstream on the conservative side view. “We just have to grow our way out of the debt.” Well, the problem is that growth is fueled by debt. You borrow to grow. And so then that that should lead one to ask a question. “Okay, well, if we borrow a new dollar of new debt, how much new GDP does that add?” And so that’s marginal productivity of debt. How much GDP is added for a dollar borrowed. Or, changing GDP divided by changing debt. It’s something anybody could calculate. Slightly technical, but basically anybody could do it. Nobody does. Nobody in the mainstream does. If you google it, you’ll see my articles & my charts. The trend of marginal productivity of debt has been falling, since at least 1950 which is the oldest data that I can get.
So we have a 70 year falling trend, which means we’re getting less and less juice for each fresh new dollar of squeeze. And that’s the problem. I don’t think you need to be an economist to say, wait a minute, it’s falling. What happens when it gets to zero? Does anybody ask questions like that?
So I wrote an article called The Heat Death of the Economic Universe in making an analogy of physics about that. But it s so these are some of the things that I think you know, people should be looking at, and I’m thinking about.
Addison: I’ve been a fan of economics for a long time, and I gotta tell you, I didn’t notice the interest rate was falling pathologically. Everybody notices the debt is skyrocketing. But then again, there is that Wall Street Journal view where it’s like we just grow our way out, or things seemed to be fine. But it is pretty fascinating that you picked up on those things that they are. I don’t think they’re totally that obvious. People miss them. They’re obvious they’re out there. But people don’t totally realize that there are these serious problems. How does Monetary Metals address these problems?
Keith: When I saw the problem, I said, Okay, well, you don’t have an extinguisher of debt in the system and that means the debt….It’s not that the debt happens to be rising exponentially, and if only we elected better leaders….it’s that the debt is necessarily growing out of control. And that’s – as we would say in the software world – that’s a feature, not a bug.
In other words, the system was designed to do that, and it couldn’t do anything other than do what it does. Which means that the system is headed towards a giant train wreck, unless you can somehow change course.
So there’s a quote from Keynes that I think about a lot, certainly thought about a great deal when I was conceiving of Monetary Metals on the call. Everybody in the gold community is familiar with the beginning of the quote when he says, “There’s no surer way to overthrow the capitalist order than by debauching the money.” Everyone it sees he’s talking about printing more money and prices go up and everybody was robbed of their savings by inflation. I don’t think that’s what he’s talking about it all. Nor do I think inflation, so called, is really that big a deal. I mean, if that’s what it is, it’s tax and it’s a tax that’s running at 2% a year. We have a lot of taxes in our world, and most of them are much bigger than 2% a year. So if that’s just a tax, then why don’t we focus on the bigger taxes like income tax and Social Security tax, which are a hell of a lot bigger than that.
But anyway, the quote goes on and toward the end, it becomes a little more obscure and a lot less people are still reading that far into it, and he says, “But engaging all of the hidden forces of economics” and today we would say incentives…”engaging all the incentives in favor of destruction and not one person in a million can diagnose what is happening.”
And there, now there’s your proof positive. He wasn’t talking about rising consumer prices. When consumer prices truly are skyrocketing, everybody is aware of it. I’m just old enough to remember…I was 12 years old in 1979 when, literally every week we go to the grocery store. Every price of every item that we bought was up, noticeably up, even to a 12 year old, from last week.
Imagine going to a grocery store. How many different things you put in your cart for a family of four. If I have 100 different items, right, every item of everything, is a higher price than last week, noticeably higher. Even a 12 year old notices. Every night on the nightly news they talked about today is gonna be another scorcher, hazy hot and humid. Right after that, they’d talk about the misery index, which is the combination, or what they were calling a combination, of unemployment and inflation.
Everybody was talking about inflation every day. So to say that not 1 in a million could recognize it. It had changed. Its really that line did not stupid, but I don’t think it’s the case or that’s not what he was talking about it all.
So what do we have today? We have a world where interest rates are falling to zero. Which, by the way, was his prescription deliberately purposefully, because what he called the euthanasia of the rentier, which is basically killing the saver. By depriving him of any yield on his capital. And he says, not one of them unto diagnosis, because he realized that the flip side of pushing the interest rate to zero is pushing the asset prices to infinity. In other words, an endless bull market.
Why can nobody diagnose what’s going on? Because it’s a bull market. Everybody loves a bull market. So I think he was absolutely genius. Unfortunately, he used his genius for pure evil, and that’s the world that we’re in today. As the price is going to infinity as a consequence of interest rates going to zero. But the poor savers get euthanized because there’s no return to be had on capital anymore.
All you can do is bet on price of whatever your favorite asset is, you can bet that it’s gonna go up. Everybody has a favorite theory on just which asset that’s supposed to go up under what circumstances. All the usual suspects are now talking about the possibility that Biden may actually be the next president, saying, Well, that’s more inflation. And so, buy gold now, it’s going to go up. Nobody’s seeing the deeper the deeper issue of destruction of everything. And nobody’s seeing it.
Addison: Right and yields plummeting to zero. It’s sort of like the frog being slowly boiled. People aren’t raising alarms about it as much. Is that something that Monetary Medals is going to be able to make a difference?
Keith: So….kind of a complicated, multi part answer. The first is that you can do a lot to manipulate the interest rates in paper, you can even make interested go negative, which is an unnatural thing. Almost like, what if gravity pushed you off the earth rather than pulled you down to the ground? There’s nothing in our brains, nothing in our biology, nothing in our educational background that would prepare us if gravity were repulsive. Basically, you would need a rope to tether you to the ground. Otherwise, you’d fly off to outer space. So that system with our world, you’re not prepared to live like that, right?
So paper you can. It’s been proven right. I mean, in Europe, in Switzerland, Japan interest is negative. It’s now proven that central banks can manipulate things that grossly that badly, that interest is negative.
But not in gold. And the reason is, paper is irredeemable. If you want to hold money…I mean you could buy real estate, you could buy an antique Ferrari, you could buy old Scotch in a cask, you could buy a painting by Pablo Picasso….but if you wanna hold money, or what seems to be money, whatever we call money without thinking about meaning of the word too precisely, then there is no way to opt out.
To hold what is called “money”, is to be a creditor. And your only choice is who you are a creditor to. So if you hold a dollar bill, first of all, I want to point out that word “bill” is an archaic word that means credit. The dollar bill doesn’t say “bill” on it. That word does not appear in print anywhere on a dollar bill. It says, “Federal Reserve Note” Note is also a word meaning credit.
So, if you hold a dollar bill, you are creditor to the Fed. And the Fed uses that credit to extend it on to the government and the big banks. So you’re a creditor to the government and to the banks by holding a dollar bill. There’s no way to opt out if I just want money. You give the public that dollar bill in the bank, and now you’re a creditor to the bank. You could buy a Treasury bond…now you’re a creditor directly to the Treasury rather than indirectly, to the Fed. But you basically have a choice of being a creditor to a bank, the government directly, or the Fed, which is the government indirectly. And that’s it. You can’t opt out. And that’s important because that means there is no real choice between lending and not lending. And, for instance, if the interest rate would fall, you have no way of expressing, you know, through a trade, “I don’t like this.” Okay? You don’t like it. That’s nice, but there’s no teeth. You’re just like, it is what it is, tough, just deal with it.
In gold, to own a gold coin, to take it home and put it under the mattress, is to refuse to be a creditor. You call your credit due and walk away, to take your marbles home out of the sandbox, and let the other kids play. But you said, I don’t like the terms in the sandbox, I don’t like that bully kid who’s beating everybody up, stealing your marbles. I’m gonna take my marbles and go home.
And so, in gold, if somebody chooses to bring their gold to the market and lend it, that’s a choice that’s reflective of the fact that he could…he always has the option to keep his gold coin at home. Or you could bring it only if he likes the terms on offer, which includes obviously the risk and the interest rate.
And so the interest rate in gold cannot be manipulated in the same way as in paper, because the person always has the right to walk away. So the first point is the interest rate. Gold is a fundamentally more honest assessment of the market than what occurs in paper today, and I think that’s a really important feature.
Number two. If you owe an ounce of gold and you hand somebody a gold eagle coin, you have extinguished the debt. Not only do you get yourself out of the debt loop, the debt goes out of existence. If you hand that person the equivalent of Federal Reserve notes $1900 roughly at this moment, at least, you get yourself out of the debt loop. But the debt is still there, and now The Fed owes this party. Then they deposit $1900 in the bank. Now the bank owes them and the Fed owes the bank and then the bank buys aTreasury bond.
That’s what banks do, and now the Treasury owes the bank and the bank owes the party. And so it It’s a circular, you know, scheme. There’s no way out. So what Monetary Metals is trying to do is to redevelop a market for gold credit and gold bonds. If the theory is right…so we can ask people, if you have a choice between giving up, let’s call it $200,000 today, to, a borrower. And you had a choice. A borrower, same credit risk, the same everything.
In one case a borrower is going to return to you $200,000 in 10 years, during which time they’ll pay you interest. In the other case, the borrower is going to return to you 100 ounces of gold. And during the time they’re gonna pay you interest. Which would you choose? It’s a rhetorical question. I mean, most people choose gold because the gold has a known value to it. It’s a tangible thing. Where’s the dollar?
Nobody has any idea what a dollar is gonna be worth in 10 years. So, by recreating this market, it makes it possible for debts to be extinguished, which is really the feature that leads the world out of this mess. And is fundamental effective to investors.
Addison: I’ve got to say, I think that’s a very audacious, bold mission, that you’re on at Monetary Metals, attempting to restore a sound monetary system by bringing gold back into it.
Keith, going back to Ayn Rand and Atlas Shrugged. Clearly, their world wasn’t so different from ours. Things were falling apart…their monetary system was coll apsing and their economy was collapsing. Is there. Just curious, as we come to a close here for this episode, is there a character that you particularly identify with in that novel of Atlas Shrugged?
Keith: I kind of like all three of the heroes, the protagonists. Dagny Taggart, the industrial executive. Although you don’t get to see very much of him, but ragged Organize Guild, the pirate who’s righting the wrongs and taking it to the looters. And John Galt, the philosopher and physicist who starts out by inventing this motor that could revolutionize the world. And then when he realized what the real problem is, he takes action to try to change the world. And ultimately, that’s what I’m trying to do. So I don’t necessarily say, Well, I’m John Galt. I think that’s….I’m Keith Weiner, I’m not John Galt, but I look to that. Not as a model. I mean, it’s a fiction, you know, book. And there’s almost so much analogy to the real world. But I guess I got a certain inspiration from looking at what he did. And saying, yeah, I could change the world. Here’s what I can do. And that’s what I’m doing. I’m putting my….I’m dedicating this whole phase of my life to trying to effect the political change because I think it’s that important. You know, that’s what John Galt did.
Addison: Well, I think that’s very admirable. Thank you for joining us, Keith.