William goetzmann William goetzmann
Podcast 324

324: Exploring the Past, Present and Future of Finance with Financial Archeologist, Professor William Goetzmann

My guest today is Professor William Goetzmann. He’s the Professor of Finance and Management Studies at Yale’s School of Management, the faculty director of the International Center for Finance, and the director of the SOM Executive MBA in Asset Management.

He’s also a Research Associate of the National Bureau of Economic Research and has served as the president of the Western Finance Association and the European Finance Association. He’s an expert on financial markets and securities, investment strategies, investor behavior, and financial history, and the author of several books.

In his most recent book, Money Changes Everything: How Finance Made Civilization Possible, he explores the role money has played over the course of human history–and how it will shape the future.

In our conversation, we’ll explore the history of finance and where we’re at today. We dig into the actual function of finance and how today’s economy compares to others from the past. You’ll also hear why Will believes Ethereum could be more than just a typical blockchain technology and so much more.


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  • Step 1.) Subscribe to the podcast and leave an honest rating & review over on iTunes.
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In this podcast interview, you’ll learn:
  • Why Will thinks money is like a time machine between the present and the future.
  • What so many people get wrong about the function of money or finance.
  • Why people keep comparing our current economy to previous recessions and how today’s economy is different.
  • Will’s advice for how to manage your emotions when reviewing your portfolio in a down economy.
  • Why cryptocurrency isn’t necessarily a currency or a replacement for fiat currency per se–and why Will is excited about the potential of Ethereum in particular.
Inspiring Quote
  • "Holding for the longer term, if you can manage it, because of liquidity concerns even when the markets are in extraordinary turmoil, the longer term outlook is pretty positive." - @WGoetzmann
  • "When people say, ‘Oh, the United States can never really organize itself to have electric car networks across the country,’ I think that's almost a comic assertion when you compare it to how the Egyptians and the ancient Cambodians and the Romans and so forth manage their environment and achieve this giant step forward in the capacity of creating urban life." - @WGoetzmann
Interview Resources
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Read the Transcript

Casey Weade: Will, welcome to the podcast.

William Goetzman: Yeah. Thanks, Casey. Glad to be here.

Casey Weade: Well, Will, I've never had a financial archeologist on the show, and that's what we have here today. We're going to be taking a deep dive into the history of finance and making applications to where we find ourselves today. But I want to take a walk kind of through your history because you have a really interesting history that is as an archeologist, a historian, a TV producer, an art museum director. How did all of this lead you to quantitative finance?

William Goetzman: Well, yes, I do have a checkered background. I had lots of passions throughout my early life, and some of them had to do with archeology and art. And I was lucky enough to bring those along with me as I developed interest in a career in studying finance. So, I didn't throw them over the side. I sort of explored how finance intersects with other things like art and like history. So, that experience still stood me in good stead, even though I'm a finance professor and not an excavator in the ancient Near East anymore.

Casey Weade: That's right. But you did spend time as actually an archeologist in your younger years, right? Digging up bones and exploring Mesopotamia and areas such as that?

William Goetzman: Absolutely. I mean, what better thing to do when you're young to go out and dig up ancient cities and explore South Texas? I had a great time. It was really driven by an excitement about what we can learn from the past and trying to understand the lives of people thousands of years ago. You know, plenty of adventure to build on.

Casey Weade: Yes, absolutely. Have you found your field of financial archeology as interesting as some of the other archeological explorations you've done?

William Goetzman: Oh, yeah, absolutely. You know, one of the things that I've done throughout my career in finance is collect prices for things that well, stock prices, for example, that people didn't really know existed and to dig back into where did stocks come from, where did corporations come from. And, you know, there's still hidden archival material that you can go to and answer some of those questions. So, it's been really exciting to discover that. And then, of course, for me, when I dig stuff up, it's often numbers. So, I can study the long-term behavior of stock markets and the payoff to investing various kinds of asset classes that, well, let's face it, that all of us at the age I'm at are interested in.

Casey Weade: Well, let's start at the most basic, and this takes us to your book, Money Changes Everything: How Finance Made Civilization Possible, which we're giving away today. The most basic question has to be, and I think this is one that most of us get wrong, what is money?

William Goetzman: Well, money is both tangible like a coin or a piece of paper, and also intangible, like something that could be a promise that you've given to somebody to pay them in the future. Some exchange of a value, some representation of value. And civilizations existed long before we had coins or what we would call money but they still kept records and kept a set of promises that were exchanges of value. But the earliest civilizations for example that had writing systems, their money was mostly a transfer of accounts as opposed to metal coins that emerged actually much later than the first cities and societies.

Casey Weade: And what do we get wrong about the function of money or the function of finance, for that matter?

William Goetzman: Well, I remember a time in my life where I didn't really understand what finance was because we experience it in so many different contexts where sometimes it makes us anxious. Sometimes we ask ourselves, "Well, what is this?" And it has such a powerful effect on our lives and retirement and savings and so forth. But at its very fundamental, finance is about the transfer of value through time. So, a loan, for example, is a classic financial instrument, a contract. You give some money to somebody today and they promise to pay you in the future. So, that's like a time machine, really. The money in the future is moved to the present through that promise. And so, the person gets the money today. They can buy a house even if they didn't have the cash on hand to do so. The other side of that bargain is the person that lends the money passes that value that they have today into the future when they think they're going to need it more. So, for example, in retirement, we save money up but we invest that money so that it will grow and be there when we need it.

Casey Weade: I like that definition, as a time machine. I don't think we often necessarily think of it that way but that really makes a lot of sense. I've never heard it put quite in that context. And when I look at your book and one of the things that you've said just in the book and just in general, I mean, it's in the title of the book, How Finance Made Civilization Possible, it sounds almost too simplistic to say finance made civilization possible. It sounds very Malcolm Gladwell-esque.

William Goetzman: Well, thank you. Well, the title really is all about asking why we care about finance at all. Why is it important? You know, could it be just some kind of peculiar thing that's not part of the real economy? That would be a critique of finance, that it's an abstraction and not an actual part of the economy. But I think about finance as kind of the infrastructure for solving these problems of time and value. And when you build a big building, you know, a complex structure, it takes infrastructure, it takes plumbing, it takes engineering in order to make something really large possible. You know, skyscrapers need to have elevators. We need to pump the water all the way up 100 floors. When civilization and by that, I mean intense urban societies where you had a lot of people living in one place, those were societies where people couldn't go out and catch their own food. We had to have ways of feeding people, of maintaining their health, of defending their cities, and that meant you had to have ways of transferring value both across space and across time. Some of the most interesting ancient cities, let's take ancient Athens, for example. You know, when Plato and Socrates were living in Athens, Athens couldn't even grow its own food in Greece. It had to send ships out to the Black Sea and to Egypt to collect grain.

So, where does finance come in? You had to have some way of financing that trade. You had to get money to buy the grain. You had to have coins in order to pay the sailors. And so, the financial system around ancient Athens really evolved as a way to support a city that was really important, high density, but didn't have the capacity for growing the crops that were needed to feed the people.

Casey Weade: You know, when we look back throughout history and I look at a lot of the headlines and the articles that come out and individuals that are trying to, it seems in many cases they're trying to grab as many eyes as they possibly can but they're looking at the history largely in the way of the financial markets. This is what's happened in the past, and this is where we find ourselves today. And this is going to happen again because this is what happened in the past. Now, from a civilization standpoint, when you look at the rise and fall of nations throughout history, where do you find a point in history that most resembles where the U.S. finds itself today?

William Goetzman: Well, that's a really interesting, slightly loaded question and it's something that I think about a lot in my current research, which is how do we use history to inform ourselves about our current situation? I would say whenever the stock market crashes, I will get a call from somebody saying, "How big is this crash compared to the crash of 1987 or 1929?" History becomes this yardstick to measure how big a deal the current situation is in the economy. But also, as you just asked, is there a lesson in some of those big events in the past that might help us predict what will happen going forward? Well, the answer is yes and no. Sometimes the lessons are spookily similar, and sometimes they just don't follow the pattern. I'll give you a kind of a, well, it's an important example. You know, 1929 was a huge crash in the stock market. And then it was followed by a depression that lasted a long time. And so, people think about that crash of '29 as if not causing the Great Depression, at least preceding it. So, when there's a big crash, the first thing that people have in their minds is, "Uh-oh, is this the beginning of a terrible recession?" Now, in 1987, the United States had a crash where the market went down like 21% in a space of a, well, one day, actually. And the first thing came to mind at that time was, "Uh-oh, 1929, are we going to follow that pattern?"

Well, strangely enough, by the end of the year, in 1987, the market had bounced back in a way that it didn't bounce back in 1929. And so, it was a head fake by the gods of randomness, I guess. So, we have so few examples of these giant events. We would like to learn from them but sometimes the future doesn't follow that pattern from the past.

Casey Weade: So, this time really is different.

William Goetzman: It could be different. You know, right now, if you look on something like Google Trends, you'll see in the last few months, a lot of people have been looking up the word "stagflation." Why? Because that was a period in 1970s and early 80s in the United States. There was a period of inflation that was also associated with low growth, hence the word stagnation and inflation put together. That is something that we're all thinking about because it's our recent history and we're worried about. Could we go back into a period where we have low growth and high spiraling prices? Well, if you look in prior periods where people have also looked up stagflation like the early 2000s, it didn't come to pass. The stagflation didn't come to pass but it doesn't mean that we should ignore history because we don't have very many giant shocks and inflation events and so forth to learn from. We can't ignore them but we don't want to get fixated on them and we don't want to put too much expectation into the history repeating itself.

Casey Weade: And this is where I'm guiding you. Just the other day I was listening to talk radio and they're talking about this is the Great Depression all over again and they're isolating just a couple of unique events, attributes of where we find ourselves today and isolating that at some fixed point in the past. And to me, I'm wondering as an individual that's listening to these headlines that, well, this is going to be the Great Depression, because of these two things or these three things, I just myself don't feel that we could ever take any point in time and make that a predictor of where we find ourselves today because there are just entirely too many variables that have been introduced since really any point throughout history.

William Goetzman: Well, I agree with that 100%. One of the things that I did in my research is I said, "Let me go back and find every single case where the stock market has dropped by 50% in one year." So, that's a crash, however you want to look at it, you know, adjusting for inflation and so forth. So, what happens after a big crash? And what I found is that there were a lot of those in world financial history. I'm talking about looking across all the different countries, looking back 100, 120 years now. So, you collect all that data and you say, "Well, I think I know what happens. I mean, I know about '29. I know about some other crashes." In fact, after a big event like that, the market is just as likely to double in value in the year following it as it is to lose again 50%. In other words, it's a coin flip whether it's going to go back up versus keep on going down. And if you look over the next five years, it's very likely to increase in value. So, that to me suggests that holding for the longer term, if you can manage it, because of liquidity concerns even when the markets are in extraordinary turmoil, the longer term outlook is pretty positive. So, the risk on the one hand is the fear of losing everything but the risk on the other hand is missing out on the long-term growth in stock market assets.

Casey Weade: Yeah. I've listened to a couple of individuals here recently, Neil Howe, as well as Ray Dalio. Two individuals that are leveraging history to share with us a very bleak future that we face as a country, as a civilization. Would you be willing to speak to some of that research or those thoughts?

William Goetzman: Well, we always need some pessimists to keep us in line but my interest over my career has been focused on the return to investing in the stock market. And there are a couple of very simple lessons and they're really lessons for people who may not be experts. And I count myself as one of those experts in forecasting. The equity market has been a way for people to share in the long-term growth of the economy. So, the public stock markets, the way I look at them are these really special things that allow a person that's not an entrepreneur to actually share in the profits that entrepreneurs generate by creating corporations. And so, we're all in some sense in this together if we all own the equities of the U.S. economy. So, there aren't too many other ways that you can share in the collective growth of the U.S. and also of the global economy other than through these equity markets. But there are times when they get bumpy and suddenly you find yourself, instead of floating on a placid lake, rolling down the Colorado River in an inflatable boat hoping you can hold on. But the long-term growth that you get out of investing collectively in the economy through stocks reflects the compensation for those risks that you're taking.

So, that's something that most economists are comfortable with kind of characterizing which is the tradeoff between risk and return for investing in equities. But sometimes you get some very pessimistic outlooks about long-term growth and you just hope that the growth that we've experienced over the last and I'm talking about centuries is going to continue to pay off for those investors that can share in it.

Casey Weade: So, I take it you're not one of the pessimists. You're one of the optimists. If that is the case, I mean, are there any things that you're doing personally for your own financial situation or from an investment standpoint? When you take a look back throughout history, take a look at where we're at today, have you made any shifts over the last 1, 2, 3 years?

William Goetzman: Well, one thing is I don't look at my portfolio very often when the market goes down.

Casey Weade: And is that a shift for you?

William Goetzman: You know, it's very tempting to watch your portfolio and the market is going up and up and up. It's just human nature. But I think that you will feel better if you don't look at your portfolio when it's going down. And you know, it's silly to say that you might feel better but investing it's a human activity and it's full of emotion. And so, one thing about behavioral economics is it's taught us that you can make mistakes if you follow your emotions on things. So, step one, before I make any changes in my portfolio is to try and get a handle on where my emotions are about responses to the market and fears about what could happen and so on. And I think that stood me in good stead. I have kind of a personal view from my research that stocks over the long term do pretty well. But I'll tell you a story about that, that when I say over the long term, I'm talking about centuries and centuries. I have some coauthors that I work within the City of Toulouse, which is a beautiful little French city in Southwestern France. And we together have dug into the archives of that city and focused on one or two companies that were actually created in 1372 and 1374. So, that's like as old as some cathedrals, right? These companies were created as mill companies. In other words, they would take the grain that's produced in that area and mill it into flour.

So, very basic kinds of economic necessity, almost an infrastructure, if you will. Long story short, we found in these archives the prices and the dividends for these companies going all the way back practically to their beginning. And then the question we asked is a very simple one, what was the risk and what was the return? These companies lasted, one of them lasted up until 1946. So, we've got like 500 years' worth of analysis of these things. So, the rate of return was about 5% inflation-adjusted return. So, when you look at what people forecast for the stock market return today, yeah, 5% with inflation tacked on top of that is about what people tend to expect in recent days. And it's funny that those companies paid off that rate of return over their history. And of course, they did have some volatility and ups and downs and periods of famine and war and so forth. It might have been frightening to be a shareholder in these companies once called the Bazaco Company, which is a term for the place in the river that the mill was using. It's using hydroelectric power, I should say, hydropower, to turn the turbines. So, when I think about risk in return investing in stocks, I think, well, we found the earliest stock that was ever created, earliest corporation that sold public securities and allowed people to share in the profits. It lasted a long time. It generated 5%. That's sort of a good model for me to get comfortable about equity investing.

Casey Weade: Well, my sense is that it's easy to take either side of the aisle when you're zoomed in. When you're only looking at a small timeframe and time, you can take either side pretty quickly. And especially right now, if you just look at the last 12 months and you just pull up Google Finance and look at the S&P 500, it's very easy to be a pessimist. Now, if you zoom out as you have and I think this is the big takeaway and this is my big takeaway from this zoom out and look at it from a historical perspective, look at it over decades and decades or even centuries as you have, it's very difficult to be a pessimist around investing when you take that type of stance.

William Goetzman: I agree with that. Now, you also asked me about some real experts in the world of investing like Ray Dalio and his firm really is based on the idea that with serious research and analysis, you can do some forecasting about what kinds of economic bets might pay off. And that's certainly possible. And I would say their firms, let's say global macro hedge funds, which is what his firm is often referred to as, certain firms have been really successful over their lifespans at making informed and profitable bets on the twists and turns of the global economy. So, I also believe in skill in investment management but the people I think that are able to profit from forecasting shorter-term trends are people that have built organizations that can absorb all sorts of data, analyze it with business acumen but also intense quantitative techniques that the modern world allows us to apply to these problems and take positions in markets in a way that ordinary investors like myself really have no advantage whatsoever in doing. So, I don't want to be the patsy walking into a poker game where there are people that have been making money out of playing poker for decades. And that's what you risk doing if you're speculating with your money on shorter-term trends in the stock market or for that matter, the currency markets or crypto or all sorts of possible asset classes that are available today.

Casey Weade: But you don't want to sit down with a bunch of people at a poker table that either are incredibly more skilled than yourself or have never played before, right? You have that dichotomy. And when you look at this today, you talked about the benefits of the average Joe being able to invest and purchase in publicly traded companies and how beneficial that is for the average individual. I feel like there's also a downside to that. I feel like there's also a con to that. It's not all pros that we all have access to the markets and have the ability to trade today because we're not all carrying the same level of expertise. So, I think you see this with the meme stocks today, the Bed, Bath and Beyond, the game stocks, AMCs, you have more technical trading, tactical trading, you have more day trading today. And some have said that you can no longer trade like Warren Buffett. You're no longer trading on the fundamentals. You can't buy a company simply because it's a fundamentally sound company that's going to be around for a long time because the game has changed. Do you believe we can still invest? This is the question. Do you believe we can still invest as Warren Buffett has always professed by companies?

William Goetzman: Well, yes, of course, we can still invest by focusing on value. However, when you do so, don't expect that you're buying some stock at a discount or don't expect that you're buying something that other people don't realize also has value. So, a solid equity portfolio of stocks that have great long-term prospects, that's a good thing to do. Of course, diversification is important as well. It's just that when I do something like that, I don't expect to beat the market. I don't expect to get anything more out of it than what the consensus value is that's being set by expert trading in the market.

Casey Weade: Now, I want to shift to some more technological advances, more from a technology standpoint, how you view things today. And if you look at the problems that we're attempting to solve today throughout history, what are some of these problems we're attempting to solve today that have already been solved in the past?

William Goetzman: Well, there are lots of problems but let's start with the environment. I think global warming is something that's on a lot of people's minds, both in the world of finance and, of course, outside the world of finance. You know, I think that it's going to require an elevated level of infrastructure of some sort, either an infrastructure for different kinds of energy production, different kinds of transportation, or ways of mitigating carbon in the atmosphere that probably involve high tech. There are civilizations in the past that have been extraordinarily ingenious at managing their physical environment through large-scale infrastructure operations. You know some of those. Well, the Romans, for example, built these roads that stretched across Europe and Asia Minor in a way that nobody had ever built roads before to move people and armies back and forth. The ancient civilization of Cambodia, the people think about this famous place called Angkor Wat, which is a vast temple in what is now practically a jungle. But in 500 A.D., in 600 A.D., in 700 A.D., the people that built that figured out how to create what essentially was a mega city interspersed with ponds and in hydrology that actually allowed that vast building to, in a sense, float in order to manage its stability.

So, when you visit places like that, you realize people thousands of years ago had the engineering skill but also the capacity to marshal the efforts of people that were necessary to build those vast structures, pyramids of Egypt, things like that. I mean, when people say, "Oh, the United States can never really organize itself to have electric car networks across the country," I think that's almost a comic assertion when you compare it to how the Egyptians and the ancient Cambodians and the Romans and so forth manage their environment and achieve this sort of giant step forward in the capacity of creating urban life.

Casey Weade: Well, that's a beautiful thing about history, right? As you look back throughout history, you get those stories of humans overcoming and using their ingenuity and capabilities to continually overcome obstacles. And again, that has to lead you to a pretty optimistic position for where we find ourselves as an economy, as a society, as a world in whole. And I really love that. So, I love a good optimist. I like that optimistic story. And I think there are just so many throughout history that you can find one after another. When you look at where we're at today from a technological standpoint, are there any financial technologies that you're keeping the closest eye on that you feel will have a monumental impact in our continued growth as a society?

William Goetzman: Yeah. A couple of things to mention in that vein. If you want to get a big job done, a big thing built, a transformative infrastructure, you have to suddenly focus a lot of resources, financial resources. It takes money to hire people to build things, for example. And that's where the world of stocks and bonds comes in. The capacity to issue bonds, let's call them green bonds to transform the sewer systems of the world. So, financial technology is just part and parcel of the practical technologies for solving problems. I'm very excited about the financial technology of Ethereum. It's a blockchain technology. It's one of a number of blockchains.

Casey Weade: I'm surprised you didn't say blockchain as a whole. You went straight to Ethereum.

William Goetzman: Yeah, because what I found exciting about Ethereum is the flexibility for contracting and the ability to use that tool to build new kinds of companies, decentralized autonomous organizations, for example, that people are now experimenting with. I'm not sure where it will go but the flexibility of that contracting medium and the creativity that people are bringing to it extends so far beyond, let's say, cryptocurrency that I'm just eager to see what the next ideas will be, what the next kind of organizations might emerge from using blockchain but Ethereum comes to mind as something that was designed as more than crypto, something that is its own medium for creating economic structures.

Casey Weade: Well, before we get any deeper into that particular topic, which I was really excited to touch on with you, you're really good at distilling complex subjects and taking them down to an easy-to-understand format. Could you explain in simple terms, what is cryptocurrency? What is blockchain?

William Goetzman: Sure. Blockchain, in its simplest form, is a set of electronic records that are permanent and unchangeable. And so, if you're contracting with somebody or if somebody made you a promise and they don't fulfill it, you want to be able to go back and say, "Wait a minute, you promised me this or for cryptocurrency, you paid me so many bitcoins," and you don't want to have any capacity for somebody to argue or present alternative evidence to contradict your understanding of the transfer of value or the or the creation of a promise. And so, that's all the blockchain is. It's a set of permanent records that build in a chain one on top of the other happening through time. And there's a process by which they are validated as unique records so that you've probably heard about crypto miners. That's a validation process. But it's nothing much more than the system that has existed for thousands of years. You know, let's say in 15th century France when somebody wanted to sell somebody else a farm, they would go to a notary. That person's job was to write down what the terms of the transaction are and to keep that as a permanent record. That's the blockchain.

And interestingly enough, those notarial records from the Middle Ages on forward, they're just a string of events in a notebook that don't have any organization other than they happened in a sequence just like the blockchain. You go all the way back to Mesopotamia and the first cultures that were writing, they were writing on clay, and then the clay would dry and you can't erase. You know, you can't erase something that you put into a ceramic document. And so, again, this notion that you need a way to permanently affix a record of a transaction or a promise, that's all blockchain is. But people get excited about it because it's no longer got much of a physical presence, although try to tell that to the people that are pumping energy into the crypto miners. You know, the physical presence actually is now, you know, there are big buildings that are devoted to this and computers and so forth. There's a long history of this and it's something that people are now really able to take increasing advantage of to do all sorts of creative deals but also make creative things.

Casey Weade: Well, I think it's in that word, cryptocurrency, keyword: currency. You just spoke about Ethereum in a context that maybe some haven't thought of before. Everyone or quite often individuals are thinking of cryptocurrency as a currency. When you talk about Ethereum, you talk about it as an infrastructure technology versus a currency. So, is cryptocurrency a currency?

William Goetzman: You know, it's funny. Whenever there's a news article about cryptocurrency, there's a picture of a coin as if the journalists need to show you a picture to make you think about it as a real physical thing. So, the graphic design that's gone into imagining a hypothetical Bitcoin is just fascinating. But, you know, Bitcoin and other cryptos, with a few exceptions, are not yet feasible as an alternative currency in the way that we would imagine the US dollar or the euro or the yen might be. One of the important things that something that's vital to the economy is to have some reasonably reliable store of value where it doesn't fluctuate like crazy. It doesn't fluctuate like the stock market. It's something that over the short term, you can trust that you put your money in a lockbox, it'll be pretty much the same thing as when you need to take it out and buy something. So, the volatility of something like Bitcoin or for that matter, Ethereum as a so-called currency, is that it moves up and down so much that you feel like the value of your crypto wallet can go up like 20 times and then drop down ten times. So, that's not what money really... It's not serving a basic function of money, per se. It's something else. You know, there have been attempts to create stablecoins and to try and solve that problem but those attempts run into all the same kinds of issues that banking...

They confront people creating standard financial institutions like banks run into which is you can try and promise people that you'll deliver them a dollar in the future if they deposit a dollar today in your bank. But if you take all their dollars and go out and speculate on all sorts of things, well, there's a chance that your speculations won't pay off and when somebody wants to collect their dollar, they're not going to get it. You know, that's what banking regulation is all about ever since the early part of the 20th century is trying to control the capacity of banks to take too great a risk so that people will be able to save their money for when they need the liquidity.

Casey Weade: When we look at something like USDC, it's not really a new currency. I mean, most of it is still based on the US dollar. Something like Bitcoin though, there you have something that is really attempting to be a currency, right, versus Ethereum that is more of a technology platform. When you look at Bitcoin in a historical perspective, you look over the last hundreds and hundreds of years, do most currencies or does every new currency introduction deal with the kind of volatility that we're seeing today? And if so, when does that smooth out?

William Goetzman: You know, it's hard to separate currency from the definition of a nation-state. I'll give you an example. The first paper money that was created was created in China in about 1100 A.D., so about 1,000 years ago. And it was first invented by merchants as a way that they didn't have to pass the heavy coinage around when people were buying stuff. But that led to a crash. One of the merchants at least figured out that they didn't have to have all the money in the bank in the till when somebody wanted to cash out. So, the Chinese government stepped in and then nationalized this idea of a currency. And China's paper money lasted for, well, I don't know, for about 300 years until the country itself, the rulers themselves figured out that the printing press allowed them to inflate. But countries these days have figured out that, in some sense, it's useful to have a monopoly on the national currency. The dollar is, of course, a great example because it's more than just a national currency. Right now, it's an international currency. But having the ability to increase the money supply or decrease the money supply in order to manage the economy is something that rulers and countries have figured out over the last few hundred years is an important part of, let's say, stabilizing things or allowing them to finance things.

And the worry, of course, that nations have is that somehow if we allow the flowering of many different cryptocurrencies and the use of an alternative medium of exchange for purchasing cars and so forth, that nations will lose an important tool for managing risk and so forth. So, that's the tension I think that has emerged in the last ten years as cryptocurrency has become increasingly popular. Will it erode the power of the state to deal with problems that it has to deal with?

Casey Weade: And I assume that's why in one of the podcasts I listen to that you spoke directly about cryptocurrency in, you said it will never replace traditional currencies. I was surprised to hear a historian use the word "never" given that things always tend to change throughout history. But is that really at the core of your reasoning why cryptocurrencies will never replace traditional currencies?

William Goetzman: Well, I think even in the short term, I think governments will resist the use of alternative currencies. And I think they've allowed them to emerge. That's fine. But alternative payment systems are going to be something that most governments I think there's at least one Central American government that's embraced crypto but most governments are going to find to be, at the very least, a nuisance and at the worst, a challenge to their sovereignty and ability to serve their citizens.

Casey Weade: Well, you said something in the interview that I had never heard said before about cryptocurrencies and really just the uses of money throughout history. And that was the future being that we're kind of revisiting the past where you would typically have multiple currencies for different types of uses. Can you speak to that briefly?

William Goetzman: Yeah. There have been times when, in certain civilizations, both ancient and relatively modern, for example, in antiquity, grain in Mesopotamia was something that could be used as a system of payment. Well, it's a natural thing. I mean, if a farmer needs to borrow some seeds to plant, then they're going to pay you back after the harvest in seeds. There's no reason for them to go out and buy silver and hand it back to you. Although even back let's say over 4,000 years ago when people were recording value, they often recorded value in units of silver, in weight of silver. So, even 4,000 years ago, metal held a special role in the definition of money. But I'll take another historical example. When Shanghai and Hong Kong became really important ports in the late 19th century and early 20th century for China, when China began to open itself up to global trade, the merchants and the bankers in those cities were quite facile at being able to use Chinese money, Spanish money. You'd see stocks quoted in four or five different currencies at a given time. Why is that? Because those cities really didn't have the capacity to say everybody that trades here is going to trade in one currency. They had to be able to go with the flow. In other words, if the U.S. traders wanted to pay them in silver dollars, that's what they had to take. So, they managed that process of being able to convert one thing to the other.

Casey Weade: In other words, if I'm running my business on LINQ or if I'm running it on DOT, or if I'm running it on Bitcoin or Ethereum, whatever my medium of exchange is that maybe I'm running my business in, if I'm going to transact with another business, then why wouldn't I transact in the same currency that I'm already running my infrastructure on?

William Goetzman: Yeah.

Casey Weade: Right? I think that is something that people should really pay attention to because I think that really is something that will lead to a lot of understanding around cryptocurrency, but really the next evolution and what we see in that realm. And now I would be remiss as we come to a close if I didn't ask a question of someone who's an art historian and a financial archeologist a little bit about NFTs. There was just an article recently, you were actually cited in this article, had a picture of the Mona Lisa. There's talk about the art market kind of shifting quite dramatically where historically the art market has been, as you know, an area for the elite of society to invest. Not a place for the average Joe such as the stock market, right? We have seen this evolution in the stock market where your average Joe can jump in and buy a piece of GM but we haven't quite seen that in the art market. Do you believe that NFTs will be a valid place for us to develop pieces of art and a valid place for us to have stores of value that we need to participate in?

William Goetzman: Well, first of all, NFTs are already a very accessible medium for creating works of art and for storing works of art. So, it's been great to see this development of a technology that graphic artists and, well, all sorts. When you take a look at the NFTs that exist, it's just opened up a new world for artists to create. With that, it's also opened up a world for art to be traded. So, NFT marketplaces have emerged and with some extraordinary events. I mean, suddenly NFTs have sold for millions of dollars. And I say suddenly, you know, we go back to 2017 and that wasn't happening. So, it's a very new and very speculative market. When people began to hear about these big deals, big transactions, a lot of people began to mint NFTs. A lot of people began to speculate NFTs. The thought that you could suddenly become a multimillionaire because you bought a few crypto punks very early on got everybody including people in the elevated world of Sotheby's and Christie's got them all excited. And so, if you thought to yourself, "Well, why not spend a few hundred dollars and maybe this stuff will take off?" well, I think it became a classic bubble. And for an economist, what better chance to study something exactly like the tulip bubble that happened in 1630s in real-time with all sorts of great data?

So, I've been working with colleagues just trying to understand what's going on, trying to see if we can measure how high prices were and how much they may have fallen, and what's the liquidity and where's the value? It's something I'm right in the middle of trying to understand as an economist. It's hard to make a prediction because we've only had a few years' worth but the technology is there. And I think even, you know, if NFTs evolve in fits and starts with speculators coming in and out, I'm sure really interesting stuff will come of it because it's not just to make pictures. It's some chance to make movies, but it's also a chance to share in the claims on different kinds of things. So, anyway, I'm a speculator. I'm a spectator in a speculative market but at least I'm an economist that's interested in bubbles and crashes so there's something for me to do.

Casey Weade: Oh, yeah. I am absolutely a spectator, not a speculator. It's not a market that I'm ready to dip my toes into. But, boy, I cannot wait to see how it evolves. I can't wait to see how your research evolves and I look forward to reading that in the future. Will, thanks for coming on the show. Before you go, I want to make sure we tee up your book to our audience. If you'd like to get a copy of Will's book, Money Changes Everything: How Finance Made Civilization Possible, we're going to be giving it away for free as long as they last here. All you have to do is this. Write an honest rating and review for the podcast on iTunes and then shoot us an email, [email protected], with your iTunes username and we'll send you the book for free. It's really that easy. Will, thanks so much. I look forward to our next discussion around NFTs.

William Goetzman: Super. Casey, it was a lot of fun, so thank you for the invitation.

Casey Weade: Thank you.