Money and Debt and Digital Contracts by Brewster Kahle (Devcon5)

I was very impressed with Prague last year and I was very impressed because there was a lot of thinking going on about what should we do what's the point here and how could this thing go wrong and how could we learn from the dot-com guys that seem to have screwed things up but the Internet guys are those those guys in the financial crisis how did they screw things up what can we learn from to grow from and I'm taking that as the starting point for this talk to try to suggest something you might want to think about and look at anew I'm going to talk about money debt and smart contracts but the Internet Archive you think well gosh what if this Internet Archive it's a nonprofit in San Francisco we're kind of Wikipedia SHhhh but a lot smaller and the idea is to bring universal access to all knowledge so that's probably you know if you know of me at all I started and run this organization and you should please come and visit us in San Francisco we have open lunches all sorts of fun fun things but that's if you don't know but the Internet Archive you may know of the wayback machine which has old web pages and to try to preserve the memory that has come before on the internet I may be here because I hang out with smart guys and sort of internet pioneer sort in terms of the internet Hall of Fame and that's probably why I got and or maybe it's the decentralized web can we make the the world wide web work so without having a reliance on any particular piece of hardware or being up or down can we make a peer-to-peer back-end for the web so really help trying to support the promotion of locking the web open but I'm expert in all of those things so I'm going to talk to you about something I'm not an expert in and actually I know who I'm talking to the experts in this but I'm hoping I'm going to give you a new perspective in the area of of debt and my story starts by my having won the internet lottery I sold companies I became artificially wealthy and I was trying to figure out what the heck is money and so I started reading books and my favorite book from that era was called frozen desire so this guy James Buck and he goes over the history of money and he goes and says what what is money it's frozen desire and it talks all about money money money and how it works and how the how you finance debt wars and on and on it's very interesting book what it occurred to me it's like no no maybe it's not really money that's the important part maybe it's dead maybe it's dead and it turns out that money and debt mostly create each other and I'm gonna I'm gonna stay on this for a moment because I think it's gonna be important in our crypto world almost always even in the crypto and the crypto communities they talk about money and like gold and things like that where it doesn't go into there isn't debt but if you take like currency in the American currency or any of the world currencies about 5% is money and the rest is money and debt create each other the way that you get more money is you create debt obligations if you go and say well I'm against being in debt really what you're saying is I want somebody else to be in debt because I have money if I have money somebody else has debt they create each other they exist in a one-to-one relationship almost except for about 5% that is I find very interesting so whenever I hear of these bankers or you know these these economists going on and on about we want to increase liquidity out there what they really they want to increase the money supply just try out a thought experiment whenever they say money just insert the word debt and you will also understand what they're saying and actually much more precisely when they say they want to increase the money supply they want to increase the amount of debt supply they want to go and liquidity more money out there they want more debt so what debt is is and it's always debt with interest it's a slope and money goes from debtors to creditors it's a slope you can change what the slope is and you can map and you can change how much there is and when they're trying to increase the money supply they're trying to increase the amount of debt so that just increases the amount that's going from debtors to creditors and then there's interest rates where you can go and tilt it on the slide more but it's all going one way I'm not saying that debt is bad it just is the debt exists and it has existed for as long as there has been writing which I'll get to in a minute so if you're trying to look for lines of control and trying to predict how the future will behold I always try to figure out what's the root causes out there I would suggest don't follow the money as they said in that all the President's Men a famous movie about the Watergate investigation follow the debt follow debt who is obligated to whom that's going to be the more important part of how all of this works and this that I would suggest be the most indicative of what's going to happen in in the future at that point a book came out called debt the first 5,000 years by David Graeber this is the most important book I've read in the last 20 years it blew my mind it basically chopped pillars out from underneath my whole belief system this guy basically wrote it's across the five thousand years history across the whole world it's a kind of an amazing book and tried to detail the history of debt and how did it work in different cultures and it works very differently in different cultures and there's a lot more possibilities out there a brilliant man a wonderful read highly highly recommended but it basically goes on this structure of sort of how how does debt evolved and how does obligation let me define debt precisely debt is quantified obligation so there's obligations we all have to our friends our mothers ah but quantified obligations is debt and another characteristic of almost all debt is it's transferable so it's transferable actually by the creditor the creditor can give it to somebody else so you might be in debt to somebody and then they suddenly put it to somebody else and now you're in debt to somebody else so it really peculiar device but I highly recommend this book in terms of how does value exchange move among people and you guys are all in this field so recommended so basically I said all right if that's what's crushing our people we now had the it was 2008 there's a housing crisis the people at the Internet Archive were having real trouble because of rent I've tried to figure out why was rent so high it turns out it was debt service on the apartment buildings if you could make debt-free apartment buildings you could have rent that's one third of market-based rent said great why don't we go and try to make debt-free housing happen by going having a structure I need to be able to create a bank so I created a bank created a credit union called the internet credit union and we ran it for a while and boy that regulators really really didn't like it boy it says just go start a bank yeah there's a they basically didn't want us around so they crushed us out of existence and unfortunately Tradehill which is a Bitcoin company because we were the only credit union that would go and deal with them when we went when they crushed outside of existence they they went out of existence too so I learned a lot about how the banking system work and it is really that bad right if you think it's bad you're right in terms of how electronic funds transfers work ACH transfers its insecure it's fraud written it's it's a real problem so we tried to do a bank when that didn't work we were very early in Bitcoin at the Internet Archive we basically paid our employees and Bitcoin this I think is a picture of the first Bitcoin ATM it's an open cash box with a with with a wallet so you basically can just go and change your money back and forth to the Bitcoin um okay a lot of the Bitcoin people didn't like it because it trusted people but anyway it worked and so that was our part of our exploration with with Bitcoin and then this book this is where David Graeber got his ideas on the early part and the era I think is where the things are gonna get interesting for you the title of this is and forgive them their debts it's a line from The Lord's Prayer and forgive them their debts and and they will forgiveness against you and they meant it literally that basically this is a history book of what happened during the Sumerians Babylonians Acadians basically the Bronze Age Near East how their financial system worked they were the first to invent debt with interest with debt with interest what happens is you slide things from debtors to creditors their debtors become everybody on they lose their farms they become in debt they leave the land umm they end up with their wives and children as debt servants and basically society breaks down it basically if you allow this to go too far it breaks down and it breaks down quickly so what they invented was a debt forgiveness system every 25 to 50 years they would basically go and declare debts gone they wiped the slate clean that's a literal term they were on slate the Sumerians wiped the slate clean and you were out of debt it usually came at the beginning of a monarch a new monarch would come in and say you're all out of debt you don't you owed the government any money you get your farms back so people could move on their back onto their farms there are the children and the wives are all released from their servitude their debt servitude and they would do this every 25 to 50 years if they did not do this then the society would go exponentially more and more unequal until people revolted and they're a civil war every Civil War for three thousand years was a debt war according to this scholar interesting I'd never heard this so um the Hebrews and developed a system called Jubilee Jubilee is every fifty years there would be debt forgiveness and you would go and let people have their lands back you would go and take things away from the oligarchs and give them back to the peasants can you imagine that now but if you don't do this bad things happen so let me know you say gosh I haven't heard that before maybe you have but it was new to me there were some things that were very interesting to me in in grinding this idea home and I'm gonna then come back around to how it works in etherium the Liberty Bell was a famous thing in the Liberty Bell of the United States founding of the country it says proclaim Liberty out throughout the land and the inhabitants thereof the rest of that line is actually Leviticus 25:10 and it says and it shall be a jubilee on to you each of you will return to your family property and your own clan so what Liberty meant in the early part of the United States was freedom from debt was freedom from these obligations that they were escaping in other lands okay another one the Rosetta Stone we know the Rosetta Stone is how we broke hieroglyphics we understand hieroglyphics do you know what it said you know what the proclamation was it was a government Proclamation okay you guessed it it was debt forgiveness it's basically structured debt forgiveness that was what was worth carving in stone and distributing it out through the empire during the Ptolemaic period so we see it starting to be again and again Jesus is it in his first sermon in Nazareth okay this is I'm not a bible thumper guy here I just a historian but Jesus in his first sermon coming back to Nazareth he declared a Jew year he declared there's this guy who basically said all you oligarchs have to give all your money all basically back to the people you've shafted out of all of that over the last 50 years and it's not just me interpreting this it's actually this is from the Vatican little footnote this is what it is Jesus said and that's enough to get you killed so if you go forward a bit more to the Spartans the Spartans had real troubles with with it wealth inequality and there were two Spartan Kings that promised reform they were killed or exiled so they basically said yes we're going to basically do debt forgiveness land redistribution that will work if you don't do this things collapse Sparta collapsed and the United States is in this process of kind of basically at war with itself with massive wealth inequality yet we have not really broached the subject of debt forgiveness so debt with interest the lesson out of this up is if you do not have a reset mechanism it leads to societal collapse and civil war every time it's a way of interpreting the Maoist revolution the Bolshevik Revolution you know take away any of the ideological terms just think of it as just how do you go and equalize after you've ended up with massively unequal wealth inequality so what why am I talking about this here well crypto you guys are designing a new system it's a beautiful system it's based on math it's not based on regulation it's got all sorts of interesting properties I love it been involved in it terrific well crypto be different well whenever I read this wonderful book digital cache by Finn Bolton that's wonderful book about the history and the dreams of crypto currencies and it never talks about debt in fact I've talked to several people here and they say well it can't happen with Bitcoin and it can't happen with the earth theorem I suggest it can and it will because if it evolves into this such that 95% of the money out there in the world is matched with five percent is sort of the Bitcoin equivalent so I think they're at least a major possibility that there's going to be lending and there's there's going to be derivatives and the like that are going to hang on to this and one of the things that reason why we're going to get that is because of smart contracts smart contracts allow you to quantify and enforce certain obligations so actually I would suggest the etherium community you guys we guys are building the actual mechanisms that we're going to be able to do this type of thing but the weird thing about it is there's almost no reset button right we think of regulation is bad right government is you know they screw things up well they have been a bit of a reset button boy have they screwed things up and often they're working for the wrong people for all the wrong reasons you know there's issues there but if we make a system that is debt with interest that has no reset then at least historically we can run into some severe severe problems so that's the basic point of this of this talk is to say that the evolution of money began debt money and debt beget each other that debt with interest goes exponential if there's no reset mechanism then there's societal collapse and civil war basically you have very few winners and lots and lots and lots of losers and that's not a very stable environment I wonder and I just posed to you that as we're designing a next generation Internet money how money and value is exchanged with smart contracts that the debt system is something we can't just go and say oh well we'll just won't do it because it will probably be built in some way how do we go and build our systems that will serve a large number of people over time I look at the microfinance system where it was like ain't it great let's go and put a lot of poor people in debt so they did and they that's gone really wrong in a lot of circumstances and there's in cases of India going and giving peasants the right to not pay back their debts in microfinance because they were committing suicide its to higher rate so even these systems that seem great at the time they're awesome they have some downsides to them right I speak to you as an Internet pioneer it didn't all turn out quite the way we thought it would and so let's go and see if we can learn from those things but also what are the precursors to the systems that you're you're building what should this mean for aetherium I don't know the answer to that really I don't um what I wanted to do this and I really appreciate your your time is for you to think it through a little bit spend a shower on it spend a commute right I've just sort of okay what does this mean in terms of debt and how can it go out of control how is the system that I'm doing kind of walking in a set of losers that maybe exponentially increasing when I hear somebody really enthusiastically saying I'm going to go and make better for billions of people just go and look at it again and go and say well is that true how did it play out before when certain other people have said the same things it's not to say we shouldn't do it it's just our tyent chance now it's early enough people like you guys that are building these systems we can do something about it let's not come to regret what we're building now thank you very much I have 26 seconds for a question yes pardon what's the precursor for debt forgiveness now desperation usually it only comes about when people are really desperate we had a chance in the United States when the debt the housing debt happened and we could have gone and forgiven the housing debt and kept people in their homes we didn't we bailed out the banks we didn't bail out the home owned owners and now a lot of those homes are now owned by Berkshire Hathaway and they're rented back to those people so it's a level of desperation it's going on right now a student debt in the United States yes so I I will read the books but I was wondering if you could give us a little summary though of from the perspective of the people that are holding all of the debt and it's getting forgiven this is a terrible thing and you were saying well Spartan Kings two of them were killed and so forth yes so what sort of how does a society get to a point where it does this non civil war peaceful forgiveness of debt what are the conditions that make that happen in the United States in the early 20th century well in this 20th century we had the Bolshevik Revolution the hour of revolution in the United States we had the New Deal the New Deal the oligarchs hated the New Deal the New Deal of FDR there was a 95% incremental tax rate my grandfather complained that if he made another dollar 95 cents if it went to the government he hated it he did just fine don't cry for my grandfather and so this is what the United States did is they basically taxed their way into restoring a middle class we had a Gilded Age and we crushed it the United States I grew up with sorry had a middle class the United States I live in now it's disappearing it is horrible and it in erodes so if you can do it without a civil war you can just do it by having somebody powerful enough that one is wants to preserve society and keep people from all moving away from their lands which is sort of what's going on now in the isolation thank you