Podcast episode

Invisible Hand, social media, money & crypto w/ John August – thoughts on recent episodes – EP194

In this episode of the Economics Explored podcast, host Gene Tunny chats with John August, Treasurer of the Pirate Party of Australia and host of the Roving Spotlight show on Radio Skid Row in Sydney. Together, they discuss previous episodes on topics such as the invisible hand, Goldbacks, and cryptocurrencies. Listeners are encouraged to share their thoughts on these topics.

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You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

What’s covered in EP194

  • [00:02:44] The invisible hand. 
  • [00:04:27] Hidden assumptions in economics. 
  • [00:08:15] Problem with gambling addiction. 
  • [00:14:39] Soviet Union. 
  • [00:26:03] Military expenditure and Soviet collapse. 
  • [00:30:16] Social media and liberty. 
  • [00:33:37] Censorship in social media. 
  • [00:39:01] History of currency. [00:40:47] 
  • [00:44:25] Central Bank Digital Currency. 
  • [00:50:34] Crypto as a solution. 
  • [00:55:46] CBDC concerns and conspiracy theories.

Links relevant to the conversation

John’s website where you can find his writings and a link to his radio show:

Gene’s previous conversations with John:

Recent episodes mentioned in the conversation:

Invisible Hand, social media, money & crypto w/ John August – thoughts on recent episodes – EP194

N.B. This is a lightly edited version of a transcript originally created using the AI application It was then looked over by a human, Tim Hughes from Adept Economics, to check for mondegreens, things that otters might have misheard. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you could join me for this episode, please check out the show notes for relevant information.

Now on to the show.

Hello, thanks for tuning into the show. In this episode, I chat with previous guest and regular listener John August about some recent episodes. John is the treasurer of the Pirate Party of Australia. And he hosts the roving spotlight show on Radio Skid Row in Sydney. When he was in Brisbane, recently, John dropped into my office and he gave me some thoughtful and provocative feedback on some recent episodes. First, we discuss my conversation on the invisible hand with Dan Sanchez from the Foundation for Economic Education. John and I went on to chat about goldbacks and cryptocurrencies. They were the topics of some other recent episodes. I’ll put links to all those recent episodes in the show notes. If you have any thoughts on what John and I have to say in this episode, or previous episodes, then please get in touch via Okay, let’s get into the show. I hope you enjoy my conversation with John August.

Gene Tunny 01:44

John August, good to be chatting with you.

John August  01:48

Yes, well, you do say at the end of the show, you know, we’d like to know what you’re thinking and boy have I listened to a lot of shows. And boy, have I done a lot of thinking about your show. So so I’m here to sort of follow through on that invitation, I guess you might say,

Gene Tunny  02:01

very good, John. So yes. Good to be chatting with you again. So we’ve previously chatted about things like advertising and, and some other issues. I was on your show talking about economics and philosophy of economics. If I remember, correctly,

John August  02:15

well, I think I was inviting you to talk about three famous economist three issues, three things important. So I think there was a sort of nine things to talk about. And okay, oops, oops, I can’t remember the

Gene Tunny  02:28

Okay, I’ll put a link to it. I remember that was good fun. But you’ve you’ve had some thoughts on some recent episodes, as you said, and I mean, one of the ones was the one I did with Dan Sanchez, from Foundation for Economic Education on the invisible hand. So I’m interested in what do you think about that conversation? What are your reactions to that one?

John August  02:51

Well, in a narrow sort of way, I guess I do celebrate elements of the, you know, the invisible hand. But you know, the overall position, I guess he had just too a naive, a sunny view of things, and I’m going to maybe say, you know, things that I strongly disagree with him. But I hope at the end of the day, maybe I could buy him a beer or something like that. I don’t want it to be that negative. But yes, there’s a lot of things I disagreed with, with him on now, one of the things that he was saying is, look, you know, there are atheists out there that disagree with the whole idea of the invisible hand, just because the guy made one reference to God saying that. Now look, I can’t speak for other atheists. And maybe he has experienced some atheists who have actually said that. But I would never say that a religious view has got no validity to it. Now, I would say to the extent that it does have validity, it’s because people lived certain things. They thought about the world around us, around them, and they tried to put into writing and try to think it through. In other words, it may have some merit, but it’s not revealed truth from God, but it can still have merit. What I’m trying to say is, as an atheist, I think deeply about religion and the ideas and how they propagate. So so that’s a bit of a diversion. But what I’m trying to say is, I would never dismiss something, merely because someone mentions God once, twice or three times in developing their argument. So I would never challenge the idea of the invisible hand on that basis. But as far as the story of the pencil goes, Look, it is remarkable that there’s so much coordination to make the pencil. Okay, that’s impressive. But there’s also a decent number of hidden assumptions built in. Now one is that we’re assuming everyone in that chain are paid reasonably. We’re also assuming that there’s no particular externalities like people are mining whatever minerals they need to make the to make the pencils or they’re cutting down trees or whatever. And we won’t need to assume that. We’re also assuming that people are buying those pencils for legitimate needs. Now, let’s say someone’s buying pencils, because they’re addicted to chewing the ends of it, not because they actually want to design a building with those pencils that people will benefit from. And notice I’m, I’m sneaking in, to some degree, what I think you call in economics, a normative judgement. But keep in mind, if you say, here is this system, it is good. You’re making a normative judgement. So I think I can push back and challenge the normative judgments and say, if people are buying these pencils, because they’re addicted to chewing the ends of the pencils, and they’re addicted to that, like they’re addicted to heroin, well, is it really such a good thing that these pencils are being made. So there’s one equilibrium where things are made that people legitimately need. And, you know, the market coordinates itself in very impressive ways to do that. And I won’t deny that. That’s the good side of the invisible hand. But I think there’s other equilibrium that can also arise in the market, the equilibrium between people’s ability to be manipulated, and the market having the energy to manipulate them, because there’s money to be made from that. Now, we’ve discussed advertising before. But let’s say there’s so many things where there’s a legitimate side, and as you slide down the slope, it gets worse and worse. Now, let’s say someone makes a bet on a footy game of $10. Okay, that bet is recreation. Now, but then at the other end of the scale, you have people who queue up at the clubs at 9am, waiting to go in and play the pokies. Right. And clearly, that’s gone to the end of being addiction. So an in between, I mean, this is one of the things that Dan is also thinking, look, I guess, on one sense, I do celebrate the idea of the sovereign individual, but the psychologist is sort of unpacking the way our brains work, and realising that it’s not such a simple story. Now, we may well struggle to lose weight. And then when the cake is sitting in front of us, you know, we’ll sort of indulge and there’s in a sense there’s two people inside of us that want different things that are struggling for control. And, you know, this naive idea of here is this sovereign individual that wants X Y, Z, they know what they want. And it’s the government that is getting in the way. Now, look, I do not believe in paternalistic intervention, I suppose. But equally, the story Dan Sanchez is telling us just doesn’t seem to be engaging what I think is a much more complicated reality. I mean, let’s talk about or maybe I’ve told this story before, someone’s a heroin addict, did they go out in the market, seek amongst the options and decide and end up becoming a heroin addict because they engage with those options? You know, other stories coming out of AFL? You know, yes, notice I’ve said a certain amount of gambling is a recreation. At the other end, you can say you’re just pandering to someone’s addiction. And there’s this movement within AFL, which is saying, follow the game, not the odds. Because while people do not mind, you know, the single bet on the game sort of thing, which is adding to your experience, when the odds are flashing onto the screen, every advert while the game is playing. A lot of people I think, are getting legitimately concerned about that. And as I say, I’ve got nothing against gambling, per se, but when there’s this big feedback loop, which is I guess ceding to its excesses, then you have a problem there. So that’s one problem that I have with that sort of idea. So notice, I am acknowledging the magic of the pencil. At the same time, I’m also saying there are all these other equilibrium that can happen. And we’ve had the discussion about advertising before. And this is I guess, part of that thing, so. Okay, so we’ve talked about gambling, people queuing up at 9am. Okay, the fact that we struggle to lose weight, and that’s telling us things, okay, then yeah, I mean, it’s the perspective from the affluent society by John Galbraith. He sort of says that in the ideal, we are a sovereign people who have our, to have our wants, we go out into the market, and we satisfy those wants. But he’s saying advertising is a lot more pernicious than that advertising actually shapes our wants, rather than being something a means by which we’re informed of the options to satisfy our wants. So I guess this is a subtle philosophical point. But I would still say, advertising can inform us of our options, or basically our options for satisfying our wants, or it can actively shape our wants. And I think there’s a bit of a conceptual muddle there. So I suppose Dan Sanchez’s view is like, you go out into the world, and the world is this passive thing. And you just, you just pick and choose as a sovereign individual who knows what you want, is totally clear unstressed, no psychological hammocks. But in fact, when you go out in the world, it’s an active thing. It’s reaching out to you. Right. So I think that a lot of his story is problematic there. But at the same time, I do endorse the idea of distributed innovation, people thinking, and, you know, elements of that story. So, so what am I trying to say, look, I acknowledge part of that story of the pencil and that integration. But it’s just that I think people are going too far with it. And taking it’s past its load limit. So in a sense, this is a bit of a bigger dip point of disagreement between myself and Dan Sanchez, and perhaps others, you do say, look, there is this bad stuff going on in the economy, and maybe we need to manage it or have antitrust regulation, and so on. But it’s a matter of how we relate to it. I think, I think people on the other side of the fence, say, it’s over there, we quarantine it conceptually. And then we get on with the interesting stuff, which is thinking about the magic of the pencil, while I sort of say Hang on, it’s all very strongly integrated together. And you can’t really separate them out so clearly or neatly.

Gene Tunny  11:31

So what do you mean by on the other side of the fence? So you see yourself as philosophically different from Dan? Because you, I mean, I’ll have to go back and, you know, really pay close attention to what Dan was saying, because I will, my view was he was making a really good argument that let’s not dismiss what this idea of the market as some sort of fairy tale, because that’s what it all some sort of mystical thing. That’s, that’s what he was reacting to. He was reacting to some commentary that he’d seen where people were saying, Well, you believe in this Invisible Hand thing, and it’s something mystical or religious concept. It’s not something that is, is guiding our, it’s not something legitimate, but he’s saying, well, actually, this is this is what’s supporting the bulk of our society, really, I mean, this is what leads to a higher living standard, higher living standard than, say, in the Soviet Union, which tried a different system. And it proved not to work. So I think he’s making a legitimate point. I would I probably differ from Dan in some of the judgments as you know, what regulations needed. But broadly, I agree with him. I would say that, yeah, I take your points about what economists would call market failures they’re clearly market failures of some kind of different kinds that there could be scope for government intervention to address those. And yeah, people aren’t always rational, they’re not this idea of consumer sovereignty is that’s questionable. And that’s why we have behavioural economics now. So I would say that, largely, Dan is, is on the right track. And I mean, you you yourself, acknowledge the pencil story, there’s some there’s some legitimacy in it. And I guess what you’re saying, or my interpretation is that you think that in telling that story, you you’re not giving enough acknowledgement of these other these deviations from

John August  13:25

I guess so look, I suppose who knows, maybe I need to talk to Dan face to face to sort of get to the bottom of it. But yeah my recollection of that episode was not only was he defending the story of the pencil from unfair criticism, and I think there’s a narrow sense in which I do feel that anybody who dismisses something just because someone mentions God, two or three times, that is wrong. That’s that that’s not right. So in a sense, let’s just say, I will defend Dan against the atheists who make that claim. But then Dan goes a lot further than that. And that was sort of my recollection of the episode that, so notice, I’m saying, Look, I will defend Dan against fellow atheists who, who do behave in the way that he identifies but yeah, there’s a lot more to the story than that. But I suppose there’s some other things that I can talk about that come out of Dan’s story. Now, one of them was social media, but the other one was actually the Soviet Union. Yes. And I suppose you’ve actually mentioned that. And this whole thing of the Soviet Union does actually go into the US and Ukraine. I don’t know whether we want to park that for a later discussion. But let me get started on some stories about the Soviet Union. So my heritage is Lithuania, Lithuanian. And I did actually go to Lithuania, some time after the revolution, and they had sort of, basically they’ve gotten gotten rid of communism on the one hand, and the interesting thing is, the first government that took over Lithuania was not communist, and then they had a successive election and they actually put the old communist back in. Now depends on what you mean by Communism. Now my uncle who was seriously anti Russia and anti communist, he said, Well, if they’re willing to subject themselves to a democratic election and leave based on that, then he says, Well, they’re not really communist. Now this is madder than that. What you mean by communist? Do you mean state control? And obviously, I think the sentiment was those notional communists were Lithuanians first and communist second. And yeah, that was the sort of the way they related to the story there. But there’s this view that like the Soviet Union had shoddy workmanship, but I spoke to people. And there was this idea of, I guess, in the West, you’d call it branding. But people said, if you get a washing machine, or a refrigerator from a factory of known repute, it will just go on and on and on and keep working. Because as far as design goes in the Soviet Union, okay, quality of workmanship, may have been an issue. And it may have varied a bit with the factory. But the engineers were not constrained by what we in the West might call, you know, trade offs to make profit, or, you know, planned obsolescence or those sorts of things. Their design principle was, we make this to work, we make it to last. And if you actually got a factory that did a decent job with putting the bits together, it really did work and last, and what some other stories as you wander around, you see little country towns that have, you know, two storey brick buildings. And if you wander around Australia, you’d say you, you only get two storey buildings when there’s a sufficient density in the township. So on the abstract, you could say that’s wasteful, you know, you don’t need a two storey building in this small township. But you also have the benefits of uniformity, right, a scale, if you know what I mean. Like it’s basically they have one unit that runs around making two storey buildings and makes them wherever and so you have the benefits of scale. So for me, it’s not quite that bad. But let me also tell you a story. Now, this is I’m not sure that people on your show have exactly made this critique, but I know there are commentators who talk about Soviet Union was a place where culture went to die. And now there was a woman I know from Lithuania, who came to Australia to start a family, and she was very musically inclined. And her she actually took her family back to Lithuania, because under the Soviet system, and they actually kept this after the revolution, if your child is musically talented, they can go off to a particular school where their talent is developed, at no particular cost to the parent. Now, we can do that in Australia, but there’s private tuition going to the Conservatorium, this sort of thing. So someone actually went back to Lithuania because of that. So there’s some good things going on there. But let me say, you know, I went to those museums, where the former Soviet Union with the three stamps of the judge, you know, before they execute someone for being a political dissident or whatever. So there was that, you know, evil stuff going on there. And I suppose this is going away from Dan Sanchez, to some of your other commentators that basically I’m very strongly pro Ukraine, partially because of that, that heritage from Lithuania and, and, you know, sure, there are some people on the internet who say that they’re American and very strongly pro Ukraine and I have to take their I take them at face value, but you know, I look at it I’ve seen my my relative with her family from Lithuania. And it’s like, the US theme feels like they’re playing geopolitical chess. But for Poland, the Baltic states, you know, Lithuania, Finland, whatever the Soviet Union is, Russia, I should say is over there and they’re a geographical proximate threat. So they’re actually shall we say, Lithuanian seem more Lithuanian government even seems more pro Ukraine than the US government not to criticise, there are some very strongly pro Ukrainian individual Americans out there who are identifying themselves on the internet. But you know, there’s, there’s an interesting subtlety there. I do actually say that there are some pro Ukraine forces that are stronger even than the US not to deny the US has given us a bucketload of positive aid there. But I suppose with Dan Sanchez, you were having that discussion. You know, what is the story about the Soviet Union there? There are a few little little strange things with the Soviet Union, like compared to China, they’ve got more social capital, you stumble while you’re on the stairs, getting on the train people will be concerned and try to help you up or whatever. But the other story is, remember, once upon a time, when everyone was getting their car stereos pinched out of their cars and and people were putting in the boot and had these special connectors and this sort of thing. And then you went to the stage of having you know, encoding so if I remove it from the power you had to get the code put back into there. Yeah, the thing is you talk to people in Lithuania. And I remember my, my cousin there, you know, people were saying to Oh, why are you putting the stereo in the boot and you don’t have these like, like security keys? And she says, I know, in Lithuania, if you know if there’s money in it, and there’s some technician who can sort of blag the codes, well, you know, it’s not very secure. Now, in Australia, let’s assume that you are some sort of automatic technician that does have access to the codes. And you abuse that I’m not sure it may, maybe you’ll never end up being taken seriously by any automotive firm again, maybe you’ll end up in prison. It’s a very different deal in Australia, if you were to betray that sort of trust. Yeah. But you can see that the degree to which you submit to those sorts of regulations, you know, there were obviously some, I won’t say that. I mean, obviously, yes. Lithuanians will be concerned about you in the street if you stumbled and you know, had that sort of thing. But there was also that sort of aura of criminality, I suppose there as well. And I hope, hopefully, Lithuania is not going to take a swipe at me for saying that. But there’s, I guess, some complexities of the story about the Soviet Union. And I suppose I can but say even though I’m a lefty, I’m certainly not in favour of the Soviet Union or Russia in the way that it was. I mean, going back far enough, I’m aware of that history, you know, way back when, if you’re a dissident in Russia, you would be executed, then the next step is you’d be shipped off to a gulag in Siberia, you might not survive the trip. And then at the end of it, they they locked you up in a lunatic asylum because only the insane would not believe that the Soviet Union could not effective, then right at the end of the thing, if you’re inconvenient, but they didn’t particularly want to lock you up, they’d ship you off to an anonymous township in Siberia would sort of be like the Tower of London, you live a reasonably comfortable but irrelevant existence. So. So anyway, there’s my sort of, I guess, glib summary of the Soviet Union, acknowledging all of the sins along the way.

Gene Tunny  22:07

Yeah. Okay. So I just want to ask one more question about Soviet Union. So look, I acknowledge there were some, there were some positives, and I mean, some I think they had some of the greatest conductors. And certainly there’s some great music that came out of the Soviet Union Shostakovich, for example, or they had great dissident writers too. So that so I mean, that’s, that’s not a positive for the Soviet Union. That’s a that’s a positive for the people, and Solzhenitsyn, who wrote the Gulag Archipelago about the sins of the Soviet Union. But certainly, yeah, this system did encourage the Arts and Sport. They had great sporting achievements. Some of them were assisted by, by doping, of course,

John August  22:51

Well, though, one thing, there were the Olympics in Montreal, and afterwards, they were trawling the river and they found all these syringes there. Anyway, that’s one story about the Soviet Union. Yeah. Was that the 23rd? Olympics? Well, anyway, it was in Montreal.

Gene Tunny  23:11

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  23:16

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Gene Tunny  23:45

Now back to the show. Well, what led to the collapse of the Soviet Union, in your view? I mean, partly it was because of the oppression and partly it was because of the inability to deliver the consumer goods that the people needed and wanted. I mean, would you agree with that?

John August  24:02

Partially Yes. Well, I would say broadly speaking, it was corruption. And I guess endemic corruption was what what I would say was the downfall of the Soviet Union. I know that I think it may have been Dan Sanchez, but I know that one of your guests was talking about the price mechanism and the great things about the price mechanism. And goodness me I don’t want to go down. Well, I guess my my endorsement of the price mechanism is somewhat guarded. But yeah, I guess I would focus on corruption and lack of democracy and lack of transparency as being the things that undermine the Soviet Union, rather than a lack of price mechanism. But I suppose it’s, that’s a matter of judgement. I acknowledge.

Gene Tunny  24:51

Well, maybe I’ll do a another episode where I look at the economy of the Soviet Union because I acknowledge that it’s, yeah, it’d be good to get the nuance in there and just understand exactly what was going on and to what extent these stories about the bread lines, people queuing for bread, the shortages to what extent they were true. I mean, it looks like they were in many circumstances…

John August  25:13

Well, going off on quite a tangent. But there’s, you know, Hugh White, who’s the Australian academic. And I know, he’s someone who says that he did actually see the downfall of the Soviet Union before it happened, because he looked at it, did his economic calculation, thought, hang on, this is not sustainable. And maybe it’s worth checking out his analysis. But the very interesting contrast is, he’s an academic and like whether the Soviet Union collapses or not, he’s still got a job, right? Yes. But the very interesting thing is that there were all these people from the CIA, who were saying the Soviet Union is a threat, and will continue to be a threat. And this, this Australian academic with a degree of objectivity could actually see clearly that the collapse of the Soviet Union was coming. So I think that’s a very interesting contrast.

Gene Tunny  25:59

I’ll have to have a look at his stuff, whether was he making the argument that it was because of the economy that was just unsustainable, was it because of the big increase in military expenditure that they had to undertake to match what the US was doing? I mean, this is the this is the story. The the the Americans tell, isn’t it that I mean, Reagan defeated the Soviet Union, because he just massively ramped up US defences

John August  26:22

Well there was also, there was also SDI, which I think was, you know, basically, you know, lasers in space lasers on Earth, whatever, which was ultimately ineffective. But you could say that it was a propaganda ploy that prompted the the Soviet Union spend all this money on stuff that they didn’t need to do so. And that that was one of the things that broke the Soviet Union. Well, let’s just say all these things are possible. Notice I mostly tell the story about Hugh White because it’s a cute story. I don’t carry around all of his conceptual detail, although I’m sure he’d made quite a considered judgement at the time,

Gene Tunny  26:58

I’ll look into it. I’ll look into it. Okay.

John August  27:01

So I suppose the last thing Dan Sanchez was also talking about was social media and the government getting its mitts in and causing problems. And let’s just say, Look, if you are into social media, if you were into the internet, and you understand the development of the Internet, now, look, I actually, as a pirate, I’m certainly concerned about government surveillance, I’m concerned about the protection of whistleblowers, more obviously concerned about companies sort of harvesting data and that sort of thing. You know, that rubric of thing. I mean, I am concerned about government and I’m concerned about business. But let’s focus on social media. The the history is, even of people who are very much, shall we say, anarchist inclined in the way that they relate to social media, the big problem has always been that a positive forum gets taken over by trolls, and you know, people who want to abuse the situation, it basically gets taken over by bad actors, if you’re not careful. And you need moderation to control that. And that is something that elements of the internet, you know, anarchist inclined elements on the internet, have struggled with to get on top of yet. And in a sense, if you set up a chat group, a forum, you know, you’re gonna have to be careful about trolls, to some degree, you’re going to be careful about obnoxious people, or you’re going to have to be careful about, you know, people trying to take over your website and promote gambling or something on it, you know, all those threats. But the idea that the government might come in, and censor you, you know, I just think that that just seems to me to be so naive compared to the lived experience, if you’re actually on the internet, trying to manage these things. Now, one of the things that has actually happened on the internet, it’s a concept they call it, this is the environment here is an amicable dinner party. Right? And this is the thing I do not want to send to someone based on what ideas they’re putting forward. But it may be appropriate to, to call someone out if they’re being obnoxious. And, you know, I thought I, you know, Facebook is a bit controlling and whatnot. Let’s go to some of the alternatives. And rather than the alternatives being a hotbed for interesting political debate and divergent opinions, they tend to get taken over by conspiracy theorists. And that’s my own lived experience on the internet. And it just seems polls apart from Dan Sanchez’s view and look, notice, I’ve told you a few things. You know, I’m not really impressed with government censorship. I’m not really impressed with lack of transparency, protection for whistleblowers, all those sorts of things. Those are a part of the things that I bring to the table. And I suspect we’ll get into it later on. But while I’m not totally against government involvement in society in the economy, by golly, there can be some obnoxious bureaucracy developing very easily. Yeah. And we’ll perhaps get to that.

Gene Tunny  30:04

Yeah. Can I ask you about social media, John? Because I’m actually surprised that your point of view on this, I want to make sure I understand it fully. Because isn’t the biggest threat to our liberty, really the government or government overreach or, you know, factions taking over the government and wanting to impose a totalitarian state? Isn’t that the biggest threat to liberty? Not some trolls online? I mean, you can ignore the trolls, can’t you? And isn’t it better to have a robust debate to have that exchange to? This is why Voltaire didn’t what’s the line from Voltaire about how I disagree with what you say, but I’ll defend, to

John August  30:47

defend to my death your right to say yes, yeah, the person Voltaire was talking about. He was probably saying something Voltaire disagreed with, but he was probably doing it in the context of an an amicable discussion over dinner. Okay, right. And remember, I’ve just I’ve just said, I guess I’m repeating myself. I’m not against people who disagree with me, I am against people who are assholes. And there’s a fundamental difference there. And my concern is not over ideas. Or to some degree, there’s an idea, like someone over there thinks blah, okay, they can think that I don’t care. Are they in my face yelling at me telling you this stuff? Okay, then I have an issue. But I don’t have an issue with someone over there thinking x y Z. So as far as like threat to Liberty now look, maybe you’ve got a point in terms of threats to liberty. Okay. Let’s see now that forget the social scientists who were sort of talking about the state having the monopoly on on violent coercive force, violence, being able to jail people, and so on. So one of the things is you got to understand there are corporate platforms, who are making choices, and some people call that censorship, I tend to think censorship is only something that government does, because the government is backed up by its legal monopoly on force. Right? So So when corporations make a corporate choice, to allow something on their platform, or not allow something on their platform, that’s more of a commercial choice than censorship. But when you have, let’s say, Facebook, or whatever, and there’s only one place you can go to to express yourself, then they’re starting to give state like power, because there’s only one place you can go to. So that’s where things start to get a bit murky. But, you know, let’s say that if there’s multiple platforms, and this platform decides, well, we’re not going to allow blah, for commercial reasons. And there’s other platforms you can go to, then I guess, you know, that’s the old thing of, you know, the, the world of possibilities. And that’s not really a problem. But it’s sort of like what’s, what’s the sentiment, you know, this is a, this is a private entity, but it’s becoming like a public utility. And even though it’s privately run the fact that it’s like a public utility, that makes it more complicated. So let me try to engage with what you’re saying in a more complicated way. If you’re talking about freedom, and the fact that government is the one with the legal, the legal monopoly on force, and that is something we should be concerned about. Okay, I agree with you. If you are saying here is this thing called social media, we want social media to be a social good, that does good things in our world, and is pleasant to use. Maybe that’s a different issue to whether we are free or not. But it is still a legitimate concern, that here is something going on in the world that basically shouldn’t have barbs or we shouldn’t be, we should be able to pick the roses without getting our thumbs sort of on the thorns or whatever. You know, it’s, it’s, as I say, it’s not an issue about freedom. But it’s an issue of is this thing actually worth doing? Is this effective? And I still think that then maybe if Dan Sanchez just wants to bang on about freedom, and ah the states got its legal monopoly on force, blah, blah, blah, okay, if that’s his argument, well, there’s a degree where I’ll back off and say alright if that’s what you want to say, but if he’s want to say, look, here’s this wonderful thing called the Internet, and the major threat to it being effective is the state and I’m sort of saying, no, that’s not the major threat to social media being effective. There’s other things going on that you’re totally blind to. So am I making sense there if you want to narrow your argument to freedom government with coercive monopoly on coercive force? Okay, but that what I guess I’m trying to say is, you’re confusing two different arguments there. And who knows, maybe Dan started out talking about personal freedom and then somehow sort of oozed into is social media effective or pleasant to use and he’s confusing those two concepts. Am I making sense there?

Gene Tunny  35:02

I think you are. Look, I mean, my view would be that we want to be careful how much we censor social media. And if there’s demand for that platform you’re talking about, then you would expect someone would try to set that up. And therefore you would sign up for some sort of moderation. So I don’t mind if people sign up for that, if they go into that. And there’s, you know, when you’re going when you join a platform, you’re conscious that yeah, there will be some moderation because people who are coming to this platform, they want to go to that dinner party you’re talking about. So I guess LinkedIn’s sort of like that, where people are talking about their professional accomplishments, and they’re sharing things on that, that seems to be well more behaved. And they they are expressing some opinions, it seems to be a lot better behaved than say, Facebook or Twitter. I mean, Twitter is bad, because it’s anonymous, isn’t it? So that’s one of the problems there. Yeah, yes. Yeah. Yeah. I mean, my view would be to look, I see the problem with trolling. I think the best thing is to ignore it. And you know, you can block trolls, can’t you?

John August  36:10

Well, look, there are ways of engaging with this. But I’m just saying I guess it’s making the whole thing a bit bit more difficult to use. And let’s just say it’s betraying the promise of social media I suppose would be my sentiment. And yes, whatever problems there are, there are workarounds. But the fact that you need to apply workarounds, I think is perhaps telling.

Gene Tunny  36:32

Right. So, John, we’ve had a good chat about your thoughts on the invisible hand episode with Dan Sanchez. And I’ll have to let Dan know, and I might see if he has any reactions in, in reply

John August  36:45

Yes maybe it would be a bit simpler if we basically just had a face to face discussion some time. Because as I say, I’m yes, I strongly disagree. But I hope at the end of the day, maybe I can buy the guy a beer you know, I hit that.

Gene Tunny  36:56

Yeah, I think he might be in Atlanta, but we could certainly have a, we can certainly have a catch up on Zoom. Or if he’s coming over here to Australia. Or if you’re in Atlanta, you could get in touch with him. Okay, so we chatted about the invisible hand. You also had some thoughts on the goldbacks episode that I did with the gentleman who was who’s setting up the he’s got his goldbacks in the state in, in Utah, which is quite fascinating. Yeah, Jeremy Corden. That was, that was a conversation I really enjoyed. And I learned a lot. So what were your reactions to that conversation? John?

John August  37:32

Let’s just say as a as a pirate, and I say people can do whatever they damn well, like, you know, that within reason, I suppose obviously, the within reason is the big rider. But if people want to have these goldbacks, well, good luck to them, they can do that. And I suppose that it’s more people who were in terms of challenging the current norm. I think that was more something to do with crypto, but let me try to focus on on the goldbacks. I sort of scratched my head over whether this really is that useful? Or whether the mainstream monetary system is that corrupt that we need to bail and go down a different path. So in that sense, I wonder about the motivation. But at another level, I say people can do that whatever they damn well, like, and I don’t think anyone who’s buying goldbacks or trading goldbacks is hurting anyone. So good luck to them. They can they can do that. Now, if people want to have goldbacks, like for, like the imminent political crisis, when money becomes worthless then all the institutions of the US unravel, and they’re sort of survivalists, and that sort of thing. And that’s the way they relate to things. Well, I guess that’s your choice, you can do that. But one of the things where I do actually defend what was the gentleman’s name, Jeremy Corden, Jeremy Corden now one of the things where I defend Jeremy Corden and this goes back into the history of currency and the history currency more relates to modern monetary theory but nevertheless, I’ll talk about it now is that once upon a time you had coins, okay, and and the thing is, before you had coins, you actually had lumps of gold or lumps of silver or lumps of whatever. And when you use them to buy stuff, you’d actually have some scales and every time you bought something’s people would weigh out the gold or the whatever. And what you then had was the king would run a stamping unit and probably stamp their their impression onto the coin. And and what you did then, basically by counting out a given number of coins, you have confidence that that was a given weight of gold. So those coins you’re gonna understand it wasn’t theat currency it was obviously the the underlying value of the metal was what made this coin valuable, but the fact it was stamped made it more convenient than the metal itself. So that was the benefit you had. But let’s look at this stamping unit the Emperor running it. Now keep in mind, we didn’t have advanced economies with like, you know the amount of money you need for anything, because like, let’s just say even if people have got the proverbial licence to print money, even if they’re forging currency on their colour printer, the colour printer costs some dollars, the paper costs, the ink costs some dollars, the the electricity costs some dollars. So even if you’re forging currency, yeah, it still costs you some stuff. And going back to the Emperor with his stamping rig, you know, someone is sitting there, measuring out the gold, putting it there applying the stamp, and I guess they probably whacked it with a mallet or something to form it into a coin. That’s a labour intensive activity. Right. So that is a reasonable thing. So the thing is that this gentleman was charging for his goldbacks. And I think that was legitimate. The other thing is that the another metaphor here is, this goes back to the time of coal, okay, you someone will buy 10 tonnes of coal, and then sell it off in bags of coal. And basically, they’d buy those 10 tonnes of coal at a very cheap rate by volume. And because they were segmenting it out into smaller amounts, you know, you’d pay basically more per lump of more per pound of coal, I guess it would have been then. And the service was taking a large amount and turning into small units. Now, let’s say you go down to the service station and buy some petrol. Now I’m sure the person who runs a servo buys that petrol at a very cheaper amount than you would put in into your car, but you are buying the, the petrol one tankful at a time, that’s convenient, that is the service that the service station is providing you, they’re taking something of a large volume, and segmenting it into smaller amounts, smaller quantities that you as consumer can then officially use, and they are charging for that. And okay, they’re going off on quite a tangent, you know, farms will actually have a very big container of petrol. And you know, they’ll have a truck that visits you know, once every, I know, weeks or months, and that will fill up the container. And that’s because for someone who is on a farm, it’s a lot of effort to drive down to the servo to top up, yeah, right. So they have to go through that. But you and I can buy our petrol one tank at a time. And the servo person running the servo is charging, and I think they’re charging legitimately, it’s a reasonable thing to do for them to charge for that. And so running all these things back, it’s a legitimate thing for this gentleman to charge for the goldback in the same way as all these things. The only issue is, is he making a monopoly profit, who is competing with him? Is that a legitimate amount of money he’s charging. And, you know, if he actually wanted to be transparent about these books, we could all sort of look at that if he wanted to be that public about and then go Oh, yeah, okay. That’s a fair return. Okay. Fair enough. If he wanted to be that transparent, the thing that would keep him totally honest, would obviously be other people competing, then again, look, notice I said, Oh, it doesn’t hurt people, people can do what they damn well, like, blah, blah, blah. But I would still say this guy has been innovative. He’s putting himself out there. He’s trying something out. I guess there’s a legitimate moral return for taking that sort of risk and just having a go. Yeah. And that’s the thing, some things, you know, you wonder, is this a monopoly profit? Or is it a legitimate return on your creativity? Bit of a rubbery distinction between those things, but I don’t know how much he’s morally entitled to charge. He’s certainly morally entitled to charge something there.

Gene Tunny  43:35

Well, I mean, that whole question of what’s he morally entitled to charge? I mean, who’s to say, I mean, this is, that would be a value judgement, wouldn’t it? So? Yeah, I mean, I asked the question, I asked him a question. Because when he will, how much of the value of the goldback is due to the gold? And it was a half? Was it a bit a bit under half? Or maybe half? Oh, okay. And I wasn’t, I should have thought more of the time. Okay. So he’s this, he’s got this new process, and he’s got some equipment, and he does need to earn a profit. Of course, I don’t have a problem with him earning a profit. And I guess this is a sort of thing where yeah competition that potentially this is something where there could be competition from other providers of goldbacks a similar type of currency.

John August  44:23

And you wonder if he’s got a patent on the technology. And yeah, my whole concern about IP, that is a pirate thing that for another time,

Gene Tunny  44:33

what about your thoughts on crypto? You had some thoughts on the crypto episodes that I’ve had recently had? Well, in the last several months or so?

John August  44:41

Yeah, yeah. Well, I suppose one of the things is that I guess I do have some understanding of the mathematics of it but I know you had one gentleman there who was trying to say, look, Bitcoin is good and Ether is about some sort of oligopoly controlling the flow of money. Yeah, and I will would differ with that based on what I understand. Now. Let’s also say there’s something called the central bank digital currency. And let me tell you some banks are actually doing trials in association with the Reserve Bank doing a central bank digital currency. And let me tell you, there are some people out there that are freaking out about this. They’re, they’re really going down the conspiracy, the conspiracy theory, rabbit hole. And I can but say, I tend to think it’s too contentious, you want to increase seriously increase the level of trust in government and the financial affairs, because a lot of people are going neurotic about this stuff. But the thing about Central Bank digital currency, and I think your guests identified this too. Central Bank digital currency is not crypto, metaphorically, it is a spreadsheet somewhere in the bowels of the Reserve Bank. And you’ve sort of put up your hand and someone changes the entry in in that spreadsheet in the Reserve Bank. Crypto is much more distributed. Like in order to run Bitcoin, you have computer many, I don’t know how long well have, let’s say, 1000s of computers around the world, but don’t quote me on that one. And the thing is, for something to be validated, more than 50% of those computers have to agree that x y Z is the case. Yeah, now that makes it very resilient against failure, very resilient against fraud, you know, various things like that. And yes, there has been fraud and dodgy stuff happening in crypto. But that’s been exchanges, not in, you know, the actual crypto itself. So your reserve bank, digital currency is a spreadsheet. Bitcoin is basically a consensus thing where you have to have more than 50% of those computers to say that certain thing is the case. And what that mean, that means it’s resilient, it means that it’s actually not subject to the whims of government policy not subject to the whims of the Reserve Bank, crypto is or bitcoin is, and it will continue to roll along, according to its algorithm that was predetermined however long ago. So so that’s a story with crypto. That’s one that’s a story with Bitcoin, I should say. And at the other end of the scale, you’ve got your central bank digital currency, which is just in so notice this thing, it’s a single point of failure. If someone hacks into the reserve bank, it can be compromised. You cannot meaningfully hack Bitcoin, the only way you can turn bitcoin is to control more than 50% of the computers around the world are doing Bitcoin. Right? Right. So and then the thing that’s in the middle is Ether. And my understanding is ether is still run by a pool of like, you know, let’s say 1000 1000 computers. And what you can say is that, okay, it’s in between the two, it’s not a total dispersion like Bitcoin. But equally, the idea that ether could somehow be swung by vested interests is hard to believe, right? Let’s, let’s say for the sake of argument, 500 people, and Ether is mostly running by its predetermined algorithm. You know, it’s hard to believe certainly, you had a guest who was critical of Ether as a quid, I sort of say it’s in between the point is, now the other thing that’s also an issue is, is our mainstream financial system that corrupt or that bad? Now, your guests were basically they were expressing their concerns. But I tend to think, look, you can say that this financial system, our democracy is messed up, and you can bail or you can say, Well, why is democracy not working to the point where we might have these dodgy policy outcomes and spend some time thinking about that? You know, it’s I have this feeling that they’re, that they’re, they’re bailing without due consideration, I suppose, right? In a sense, if people are free to do that. Now, the other thing they talk about, they do talk about the threat of banks suddenly denying us access to our funds. And people have some concern about that. So far, banks haven’t done that. I’m not saying this is a bad thing. But there are narky things like garnishee orders, like if you have a debt, yeah, you can actually make an arrangement. And the banks will sort of basically grab some, grab some of your money as it could flow through your account, and you have no control over that. That happens, but maybe that’s a legitimate thing for the government to enforce. But the point is, the stories of the banks being in some way arbitrarily abusing their power. I don’t think that really happens. I think the concern is overstated, but it’s a matter of judgement. If you really are that upset with the banks and you want to go your own way. Well, fair enough.

Gene Tunny  49:48

John, just on that, I mean, there have been some cases where the banks have denied access to funds to people, where the US Treasury has issued one of those what does it call the, there was that Russian businessman or was he? was he killed? Yeah.

John August  50:05

So it’s the whole thing of Ukraine being pulled out of the SWIFT network. There’s a few dodgy things like that. But, but yeah, okay. You’re, you’re telling me something new? I must say,

Gene Tunny  50:14

No. I mean, so one of the one of the reasons people would, they’re concerned, and maybe this is something that’s a bit of an edge case, or it’s an extreme sort of scenario. But there are situations where government can tell banks deny people access to the funds. And you might argue, Well, okay, well, that’s a good thing, because these people are siding with a dictator, or they’re associated with a rogue regime. So fair enough that

John August  50:42

well, if that is a concern for you, then maybe crypto is a way of dealing with that. Now, let me say that there is there’s there’s one legitimate use case I can think of for crypto, that let’s say you’re a Filipino worker working in Saudi Arabia, or United Arab Emirates, or something like that, you want to get your money back home? My understanding is if you can play the game with crypto, you can actually do it with a much lower overhead than a means of international money transfer. Yeah, I mean, there’s cute stories about in Africa, I think telephone credits on mobile phones become used as currency. Now, again, that’s a centralised currency, like the spreadsheet at the Reserve Bank, but it’s still an interest in digital currency that sort of used instead of money. So there’s a use case there. Now the other thing I would say is that maybe crypto is keeping Visa card and so on honest. Now one of the things about if you’re I want to I’m not sure on the exact details, but if you are I wanted to transact in crypto would probably have to pay the miners like $100 to process our transaction. But that’s a fixed amount. These sorts of charges you a percentage, while you would imagine the amount of computational power to process my purchase of $1, or $1,000 is the same. While with crypto, it’s a fixed charge. Also, the banks run some pretty strange trade offs involving fraud because the calculations are there’s a nonzero quantity of fraud, which is acceptable, because otherwise you just make life too difficult and things don’t happen. So there’s some complicated trade offs that banks are making. And what I’m saying is maybe crypto is keeping the banks honest, is keeping Visa honest. But what I will also say the thing weird thing about crypto is once upon a time, you had all the evangelists, the people who really believed in an alternative currency that wasn’t controlled by the banks, or the government, and they really believe that whether they were right or wrong, they really believed it. But now I think you’ve got a lot of snake oil merchants, you know, people who just want to make dollars. And the scene has become dominated by the get rich quick people, rather than the genuine evangelists. And for me, that sort of changed the whole feeling of it. Yeah, you know, if it never left the, you know, you’ve got to be a nerd to really get into crypto. On the one hand, it’s limiting the market, but it would also have been kept its purity, you know, so yeah, there’s some stories there. Okay, so that’s a bit of a ramble. But I hope I’ve sort of said said some useful things about crypto.

Gene Tunny  53:16

It’s made me think, John, I like it. I’ll just ask one more question, because we’ll have to wrap up soon, unfortunately. But I know we could keep on talking. The thing I was thinking of was the Magnitsky Act. I don’t know if you’ve heard of that, which was there was a bill passed by US Congress and reading from Wikipedia signed into law by Obama in December 2012, intending to punish Russian officials responsible for the death of Russian tax lawyer, Sergei Magnitsky in a Moscow prison in 2009, and also to grant permanent normal trade relations status to Russia. Hang on. And then there’s another act of 2016 it authorises the US government to sanction those foreign officials worldwide, that a human rights offenders freeze their assets and ban them from entering entering the US. Now, I don’t have a problem with any of that, because some of these people probably deserve it. Yeah. But there is this concern that the banking system could be subject to political influence.

John August  54:11

Well, the thing is, at some level, how corrupt is democracy? Do we have faith in democracy? Do we have faith in the means by which the US government makes those decisions? Now this is going off on a whole ruddy other rabbit hole, but the US government has form in terms of meddling in global affairs. You know, there’s Diego Garcia. Goodness me, I think there was, you know, in El Salvador, that’s right. 1986 there were US trained trained soldiers that killed some priests and nuns, a whole family. The list will go on in terms of like the US doing dodgy shit around the planet. And it’s sort of like you know, they give a lot of foreign aid but equally they like, they like they run a protection racket. You got to pay your protection money along the way to participate in the rules of US rules based order and they, you know, they ignore the International Criminal Court and yada, yada yadi. So, look, the US does have a dodgy record. But notice I’ve shifted the ground a bit I’ve sort of said, look, what is the legitimacy of the US in broader terms, and it’s got its things to criticise, maybe those decisions you are making are valid decisions for the US government to make. And yeah, this is I guess, I’m not really answering any question. It’s getting a bit messy and awkward but yeah, if you think that participating in this global framework, and giving the US that sort of discretion is too much, then maybe crypto is the way to go.

Gene Tunny  55:43

Or any government. I mean, I don’t mean to pick on the US. It’s just that it’s the you know, the dominant country. And that’s, that’s very topical. Finally, because this will have to be the last question. What about the concerns people have about CBDC?, you mentioned, I’m trying to understand what your response is. You said, well, there are some people who may be there. You know, there are conspiracy theories about what it is. But you also said that this is CBDC, but you then also said that, are you concerned about political stability? Are you concerned that this is something that will make people more distrustful of government?

John August  56:21

Yes, I guess so, let’s say, look, this may not be what government is up to but there are people who are out there who are saying the banks and the governments are trying to wean us off cash, yes. So we do not use cash. And whatever, whatever these people are thinking they’re thinking government does not have good reasons for having that agenda. They wanting to wean us off cash, so they have more control of us. Right now, there’s a certain conspiracy theory, rabbit hole here, but a reasonable number of people. I don’t know what the proportion is, you’d have to talk to people who know more than me, but some proportion of people are very concerned about the government trying to stop people from using cash. And they see that as part of an agenda. And obviously, you can have your international connections. I do want to do not want to go there. But you know, there’s this whole constellation of conspiratorial concerns, and the government going down the route of central bank digital currency is feeding these people’s concerns. And whether you say that’s right or wrong, people are going to get very neurotic and conspiratorial about this.

Gene Tunny  57:28

Okay, yeah. All right. John August. Any any final thoughts before we wrap up, but it’s been great hearing your reactions to recent episodes, and it makes me think a lot more about these issues. So I appreciate it.

John August  57:43

Okay. Well, I’ve got many more things to say. But that’s probably the appropriate for the present, I think. Yes.

Gene Tunny  57:49

We’ll catch up again soon. John, for sure.

John August  57:55

Sounds good.

Gene Tunny 57:59

Okay, thank you. Thank you.

Righto thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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Podcast episode

The Invisible Hand: economic, religious, or mystical concept? w/ Dan Sanchez, FEE – EP185

The Foundation for Economic Education’s Dan Sanchez argues that the invisible hand is a legitimate economic concept and not a religious or mystical one, as some critics of economics claim. Dan and show host Gene Tunny discuss the efficient organization of economic activities by the market mechanism in a decentralized way, without the need for a central planner. The conversation turns to TikTok and economic engagement with China. 

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

What’s covered in EP185

  • Introduction to this episode [0:06]
  • Dan’s article on the “invisible hand” [2:06]
  • The production of a pencil is like an orchestra without a conductor [5:25]
  • Is the invisible hand the hand of God? [8:34]
  • What is the problem with central planning? [12:27]
  • Central planners don’t like the idea of economic laws because they circumscribe their utopian dreams [15:45]
  • Dan’s views on big tech [19:23]
  • Is there a case for regulation or a ban on TikTok? [23:32]

Links relevant to the conversation

Dan’s bio:

Dan’s Twitter handle: @DanSanchezV

Dan’s article on “How Atheist Anti-Capitalists miss the point”:

Von Mises book on the economic calculation problem

Article about problems with Soviet shoe production:

Bio of 19th century British free trade advocate Richard Cobden who Dan mentions:

The Invisible Hand: economic, religious, or mystical concept? w/ Dan Sanchez, FEE – EP185

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. In this episode, I chat with Dan Sanchez about the invisible hand, the efficient organisation of economic activities by the market mechanism in a decentralised way, without the need for a central planner, the great Scottish Enlightenment economist and philosopher Adam Smith observed, every individual neither intends to promote the public interest, nor knows how much he is promoting it intends only his own security and by directing that industry in such a manner, as its produce may be of the greatest value, the intense only his own gain. And he is in this as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Is the invisible hand a legitimate economic concept or is it instead of religious or mystical concept as some critics of economics argue? My guest this episode, Dan Sanchez argues vigorously against those critics. Dan is the director of content at the Foundation for Economic Education. The foundation is one of the world’s leading pro free market think tanks, and it’s been operating since 1946. Okay, let’s get into the episode. I hope you enjoy my conversation with Dan. Dan Sanchez, from the Foundation for Economic Education. Welcome to the programme.

Dan Sanchez  02:06

Thanks, Gene. It’s great to be here.

Gene Tunny  02:07

Excellent. Dan, I was keen to get you on the show to chat about an article that you wrote for fi recently in the world in the last few months. So how atheist anti capitalists missed the point why they’re wrong, to sneer at the invisible hand and, and our pencil. To start off with Dan, could you just explain what you were reacting to? So what was the sneering that was being done at the invisible hand? And, and eyepencil, please,

Dan Sanchez  02:40

yeah, well, I tried to make it evergreen, partially because this is a criticism that is levelled at eyepencil and about free market economics in general, a lot. And another thing is that I just didn’t think that the I don’t even remember the author of the book that was in the latest smear, and the latest attack on Leonard Reid’s eyepencil was then I just wanted to sort of make a blanket case against that kind of line of attack. And what the line of attack is, is that is that free market economists believe in the invisible hand, that there’s a line and a pencil that says, Since only God can make a tree, I insist that only God can make me. And therefore free market economics is invalid, because ultimately, it is based on faith instead of reason. And that it relies on some kind of a supernatural divine intervention for the free market to work. So it was that line of attack that I wrote my article to counter attack.

Gene Tunny  03:55

Rod, okay, I didn’t realise there was that line in eyepencil, I’ll have to go back and have a look at it to see the context. eyepencil is a great article that explains how no one no one person knows exactly how to make a pencil. There’s all of these, you know, hundreds of or however many people 1000s of people involved in the supply chain and the production from the growing of the timber, and the mining of the graphite, and the assembly of all the components into into a pencil. And that’s all coordinated by the market system. I mean, what Adam Smith and you know, the, the invisible hand, this is this metaphor from Adam Smith. That’s about how he sees as there’s, it’s almost as if there’s an invisible hand at work in how the market coordinates people and we owe our DNA to the self interest of the butcher and the baker. So yeah, that’s what that’s broadly speaking, correct. isn’t enough characterise that, right?

Dan Sanchez  04:57

Yes, that’s exactly right, Leonard. Reid is actually the founder of the organisation that I work for the Foundation for Economic Education. And he wrote this classic essay I pencil. And really what it is, is it’s a, written from the perspective of a pencil, like the pencil is the narrator. And the pencil is giving his family tree, his ancestry. And the point that he has to make is that, as simple as he is, like a pencil is not a super high tech product. But as simple as it is, its production is vastly complex, really, involving millions and perhaps 10s, and millions and hundreds and millions of people in its production, because you might think that the components are relatively simple, because there’s wood, and then there’s the lead and the eraser, but each one of those components had to be manufactured. And oftentimes, those the capital goods that were used to manufacture that they have to be manufactured, and it just keeps radiating out and out. And when you really trace what it all that goes into the production of a pencil, it is an orchestration of millions of people. But it’s an orchestra without a conductor. And that’s the, that’s the marvel that eyepencil really reveals is that there’s no mastermind, there’s no central planner, a lot of people would like to be central planners, they’d like to centrally plan pencils, and they’d like to centrally plan everything, but it is way too complex for them to be able to do that. And yet it happens every day without a central planner, because of the market price system. And, and that market price system is very orderly. But it’s not order that comes from the mind of any single participant of it, that that it’s an order that emerges out of the interactions of all these people pursuing their own little corners of order. And so there’s a transcendent order that emerges out of that. And so Adam Smith and Leonard Reid characterise that as, as sort of like an invisible hand, because all these wonderful things are coming out of the market, like a pencil, that wasn’t the intention of any single participant of it, a lot of people involved in producing things that go into producing a pencil, don’t even realise that they’re contributing to a pencil. So like someone who is, you know, manufacturing an axle that goes onto a truck, that ships the wood that ends up in the pencil. That person never thinks about his work as contributing to pencils. It’s not his intention, it’s not his order. But the market price system coordinates that all so that he actually does very effectively contributes to a pencil. And so like Adam Smith said, that it’s as if an invisible hand is ordering people’s actions to yield results. That was not any intention of their own. That you could see that that Leonard Reid and Smith and and also Frederick Basia that you could see like the hand of God in that, and that’s where the critics pounce because the critics say, Aha, you’re talking about God so therefore, everything that you’re saying is invalid. But in my article I explain how, how that actually is not a valid criticism.

Gene Tunny  08:57

Broad Okay, so we’re Smith and last year and read with a religious Did they say they compared the market mechanism to the to the hand of God is that what is that correct?

Dan Sanchez  09:09

Yes, they were all they were all Christian. And Leonard Read had that line that I mentioned, Frederick Basquiat in one of his essays warned against, quote, rejecting the order, God has given it, referring to the market and cautioning against social schemers who, who want to reject that order. And so a lot of free market thinkers see that there is something divine in it, that the order of the the world including the social order, is because of God it was created by God. But the thing is, is that even people who maybe are atheists and who who disagree with with Basquiat and read, they have no cause for disagreement with their conclusions, because as I explained in the article, the way that they reach their conclusions, was not through recourse to any kind of divine intervention. And it was not like God exists, therefore, the free market or anything like that, they reach their conclusions through economic reasoning, and through observations about human nature. So when, when Adam Smith explained the invisible hand and the workings of the market, he talked about the division of labour and exchange and prices and incentives and, and the logic of the market, resulting in that. Similarly, when Leonard Reid talks about eyepencil, and the wonders of the market, again, it’s all about about human action and exchange and the prices that result from it and the coordination that results from that same thing with with Bostian. And they think of that order as having been created by God, but, but they don’t say that, like, it relies on continuous divine intervention all the time. And they don’t rest their conclusions on, you know, holy scripture or anything like that. And so, in my article, I compare it to Sir Isaac Newton, Isaac Newton was also Christian, and was also religious, and also saw something divine in the physical order that he was describing. And that, I think there’s a double standard here, because these, these critics, they, they wouldn’t then say that, you know, Isaac, Newton’s physics were invalid because of, of his, you know, religious perspective. Because his optics and His laws of motion and everything that they were derived from using reason and using experiments and using observation, and they don’t have that criticism for him, because they don’t have an axe to grind against physics, they have an axe to grind against capitalism. And so they’re going to level this unfair attack, in this case and not in the other.

Gene Tunny  12:27

Yeah. Yeah. I was just thinking, Dan, I mean, I first came across eyepencil, I think it must have been in one of Milton Friedman’s books, because Friedman might open one of the chapters in Free to Choose talking about it, I can’t remember exactly. And Friedman love that example. I mean, the way Friedman always explained it in terms of the market, it provides us clear signal is that price signal that, and that’s all you need to observe in the market. And if if there’s a shortage of say, timber than the price of timber is going to increase, and that’s going to send a signal to the loggers to, to harvest more, more timber. So, yeah, he talks about that efficient signal. And, you know, 30 or 40 years ago, there were, it was much clearer that that was a better approach than central planning, because we had real life, socialist economies, the centrally planned economies still, that were failing to produce the goods and services, the consumer goods that that people wanted. And I might try and dig up some of those examples of those, you know, just the inefficiency of production, the failures to when you got central planning, and you don’t have the market to tell the factories, what needs to be produced, you have all sorts of bottlenecks and problems in production. So yeah, but we seem to lack that now those it’s not as clear anymore, because we’re not in that. There’s not there aren’t in real life. I mean, maybe there are some in Cuba and North Korea, but we don’t see we don’t hear a lot about them. But we’re very conscious of what was happening in the in Eastern Europe and Soviet Union back in the day. I don’t know if you have any reflections on that at all.

Dan Sanchez  14:12

Yeah, and even in those cases, the Socialist quasi socialist economies aren’t really fully socialist because they have recourse to market prices that are generated from capitalist economies. So the problem about socialism that you can see in eyepencil, in Leonard Reid’s discussion of central planning and my pencil but also in Ludwig von Mises is explanation of the calculation problem is that without market prices, production is just arbitrary that that there’s there’s no way of balancing one production course of action against another course of action because you just don’t have prices and you don’t have the the gun either profit and loss to know whether, you know whether one line of production is any better than another. And so it’s just arbitrary. But but at least if, if you have a socialist economy and the capitalist economy exists elsewhere, at least you can use those prices as a as a rough metric to have some kind of rationality in your production. But in a completely socialist world, it would be utter chaos, like there wouldn’t even be that so it would be even worse.

Gene Tunny  15:34

Yeah, you know, it’s good. You reminded me of that. Sorry, Ludwig von Mises the calculation problem, I’ll have to refresh. My understanding of that. It’s a very good point that that he makes there. Okay, there’s one thing I wanted to dive into with your article you write that those who try to dismiss eyepencil do not want to admit that they or their favourite social schemers cannot outsmart or outdo the transcendent order of the market, those who sneer at the invisible hand won a free hand to remould society as they please. Okay, I largely agree with you what I just want to ask you about your thoughts on, there’s a lot of concerns. Now. I mean, there’s concerns about inequality, and housing, I mean, we’ve got their housing prices are out of control, a lot of young people are concerned about whether they’ll be able to afford a house, there are a lot of particularly the millennials and the Gen z’s. They’ve got a more favourable view of socialism than then older generations. And I’m always conscious, I don’t want to have a not that I’m a boomer. But I don’t want to have that burger mentality. Like there are a lot of people who are so try to see where people are coming from. There are a lot of people who think that the market, this is a problem with the market. This is why we’ve got all of these issues. How do you respond to that? Do you think it is such a transcendent order? If we do have this perceived issue of inequality and lack of housing affordability? How do you respond to the people who are critical of of capitalism, or neoliberalism or whatever you want to call it for delivering these outcomes.

Dan Sanchez  17:24

So a lot of the times what central planners or would be central planners, what they want to do is they want to basically pander and demagogue to people to pretend that they would be able to outdo the market, and provide them with more goods and services than then the market would provide. And so they don’t like the idea of economic law, because it puts a crimp in their plans, because it it shows that there are just some things that can’t be done, just like in the realm of physics that, you know, there’s a law of gravity, a president can’t walk off the presidential palace and expect to be able to fly. Similarly, a president can’t impose price controls, and expect there to not be shortages. It’s like these these economic laws, circumscribe the utopian dreams of these demagogues and the central planners, you know, that relates to housing as well. So for example, rent control, central planners don’t want to believe in economic law, because economic law means that they can’t impose rent control, without creating housing shortages for the very people they pretend to want to be able to provide for. So that’s why they are really averse to any kind of notion of a transcendent order any kind of order that that is beyond what a central planner can can encompass, or some kind of an ingenious social reformer can’t outdo, but they do get away with it to a large degree, they are able to put one over on the people to make them think that they can outdo the market. And so they do manage to do a lot of interventions. But then those interventions create a lot of these shortages. They blame that on the market, and then that buttresses their case for even more intervention if people don’t actually understand economics. And so So yeah, it’s true that there are housing shortages, there’s lack of options for living, housing is unaffordable, but it doesn’t make any sense to lay the blame on the free market. Because when you when you trace what is causing these problems, especially in in certain areas in particular is that you, you see policies like rent control, and you see policies like zoning restrictions and all these anti production policies that that put a strict limit on the production of new houses. And if you have fewer houses, then they’re going to be more expensive. Again, it’s an economic law of supply and demand.

Gene Tunny  20:22

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  20:57

Now back to the show. One of the other concerns I hear expressed from people who aren’t sympathetic to Foundation for Economic Education, is this point about monopoly. There’s a growing concern about monopoly in well, in tech, in particular, surveillance capitalism. How do you think about that? I mean, is that part of the transcendent order? Or is that is that something malignant? There needs to be policy action, perhaps antitrust action against? How do you think about that?

Dan Sanchez  21:29

Yeah, I think a lot of the problems that we’re seeing with big tech, again, can be traced to government intervention, we saw with Twitter files, how much the FBI has been in Twitter’s DNS. And I’m sure if we ever had the YouTube files or the Facebook files, that, you know, we’d see the same results. I think that it is really short sighted, especially for conservatives to want to use the power of government and antitrust policy, to give the government even more power over these big tech companies, and expect that to solve the problem when when, if anything, that’s just going to give the government more leverage to be even more censorious against critics of the government. And so it just seems really, really short sighted to me. And the answer is to free big tech in the tech industry and social media and media in general of government and influence. Because if there wasn’t so much intervention, a lot of these behaviours, they’re doing it because of government pressure. It’s not because of, like a market demand for it. And if that government pressure was was released, I think people like freewheeling conversation and don’t like censorship. And and I think market demand would leave these these big tech companies to either them or their competitors and their successors, to not be abusive in their practices. And a lot of times big tech companies, like incumbent, like already dominant big tech companies, they actually like regulation, because it places a heavier burden on upstarts than it does on them. Yeah, even if you want, you know, giants, like like Facebook and YouTube to go under, again, you know, because of abusive practices. Again, the answer is to get government out of it. So that there’s less regulation, and there’s more room for competition.

Gene Tunny  23:32

Yeah, fair points, has feed on any thinking on tick tock, because it’ll mean tic TOCs, a company that there’s a bit of concern about in terms of privacy and security issues has feed on and you thinking on that? Is that is that a special case where there might be case for regulation, or a ban of some kind?

Dan Sanchez  23:50

Tick tock? Like, really, I think the reason why there’s so much pressure on banning Tiktok. For one thing, again, it’s anti competitive. The biggest supporters of a ban on on Tik Tok are Facebook and YouTube, because basically, they want to crush the competition. But the actual bill that would ban Tiktok doesn’t only ban tick tock it gives the government sweeping powers over monitoring and censoring the internet in general. And really, I think it is a a Trojan horse, on one hand for these big tech companies to to eliminate competition and on the other hand for governments to have even more power regulating speech, because ultimately, the biggest threat to our own civil liberties is not China. It’s the American government. Thankfully, it’s the American government that that is having this constant siege on our liberties. And this is just this is just part of that really.

Gene Tunny  24:56

That’s an interesting perspective. I thought I’d ask you Here’s it’s I mean, one of the things I’ve been trying to figure out through my conversations with people is, is China and how big of a threat is China? And does that mean we need to decouple from them? No, that’s not what we’re talking about today. I’ve had conversations with different people. And I know that the it’s a huge concern that a lot of people are really concerned about national security. But yeah, I think that’s a that’s a good point you make about the legislation and the wider reach that it could have. So I might have a closer look at that. That’s been great. Dan, thanks so much for your time. Are there any other points about your article or what you’ve been thinking about lately, you’d like to get across before we wrap up?

Dan Sanchez  25:44

Yeah, I mean, something that about I pencil that is brought to mind by the whole question of decoupling from China is that, you know, what the eye pencil story is, is a story about this vast division of labour, that is at the root of our prosperity, that millions of people are coordinating through the market system. And because of that vast coordination, that vast division of labour, because of the efficiencies of that, that is why we have hot, such high living standards, that we can have this huge population, but living better than any time in human history. And China is a big part of that. Because China, and having integrated with the global economy, that contribution to the division of labour, That is a big reason why we are as prosperous as we are. It’s also a big reason why the relations with China aren’t even worse. Because when peoples are interconnected through trade and through exchange, then that does create an interdependence. But that’s actually a good thing. Because that is what prevents wars, like once people are completely separate, then the only way that they can benefit from each other is through violence is through war. It’s like, there’s a saying that if if goods don’t cross borders, armies will, and that kind of separation, if anything, it would lead China to become even more totalitarian. Because it would create such a like a crisis situation and in times of crises, like the tyrants get are able to gain even more power. And so one thing that, you know, Leonard Read and people like Richard Richard Cobden talk about is that the more that exchange and the diverse division of labour knits people together, the more peace and cooperation and harmony and prosperity it creates,

Gene Tunny  28:00

here so Richard Cobden, an English radical and liberal politician, manufacturer and campaigner for free trade and peace. Yep. Okay. So very good. I’ll put a link in the show notes. So I remember, I’ve read some of his stuff many years ago, but it was a good, good reminder. So very good. Dan, thanks so much for your time. This is this has been really great. And I loved your thoughtful piece on on Smith, and Bastiat and what the the atheist ad capitalists get wrong. So that was excellent. And yeah, again, thanks again and keep up the great work and yeah, hope to see more of your stuff in the future.

Dan Sanchez  28:40

Thank you, Gene. I really appreciate it. Very good.

Gene Tunny  28:49

Okay, I hope you found that informative and enjoyable. I was really impressed by Dan’s insights into the invisible hand and his passionate defence of the free market. I think the main takeaway of this episode is the efficiency of the market mechanism in organising the production of goods and services. The invisible hand is a beautiful thing. Dan describe the market is bringing about a transcendent order, because the results transcend the intentions and efforts of particular individuals in the economy. As Dan noted, Smith, Bastiat and read demonstrated that transcendent order using economic reasoning and empirical observations about human nature, that demonstration did not rely at all on religious premises. Whether those men saw in that transcendent order something literally divine has no bearing on the validity of their reasoned demonstration of that order. I fully agree with Dan on that point. Dan has certainly given me some ideas for future episodes. It’s probably worth talking about the economic calculation problem posed by von Mises in a future episode. Von Mises argued socialist economies would fail because of the huge computational problems they faced They will have to centrally plan and direct the flows of resources across various industries and the distribution of products to consumers. Something the market mechanism does in an efficient decentralised way. In a future episode, it would also be useful to explore some of the failures of central planning in the former Soviet Union. There are various stories about recurrent shortages of bread and toilet paper and about uncomfortable and unfashionable shoes no one would wear but it would be good to delve into some specific well evidenced examples. I’ll see what I can do. What do you think? What either of those future episodes interests you? Let me know. And please let me know what you think about what either Dan or I had to say this episode. You can email me via Thanks for listening. rato thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if you’re podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


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