Episode 207: What is Money? (plus Reading Habits w/ Dan Solin)

June 30, 2022 Guest User

In today's episode, we share some updates from our Financial Goals Survey, respond to a listener who says we are wrong about dividends, and talk about Scout Mindset by Julia Galef. We then respond to a listener question about whether our comments in Episode 205 on private equity extend to private real estate. In our main topic, we unravel what money is by looking back at its origin story and the two competing theories about what it is. We discuss the ideological underpinnings of money and how these ideologies can make choosing a definition of money highly political. We end the episode talking to Dan Solin about his reading habits. Dan Solin joined us almost four years ago for an episode on evidence-based investing. Tuning in, you’ll hear how Dan finds the books he reads, what his favourite types of books are, and whether he recommends books to people, plus he shares why he believes reading is so essential, and much more. Don’t miss out on another well-rounded and informative episode of the Rational Reminder Podcast.

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Key Points From This Episode:

An update on the progress of our Financial Goals Survey. [0:03:32]
Your monthly update on the reading challenge and how to get involved. [0:04:52]
An update from our limited crypto series and some of the feedback we’ve received. [0:08:00]
This week’s book review: The Scout Mindset. [0:16:29]
Simple set of tools to help you assess biases when receiving new information. [0:19:18]
Following up on private investments concerning real estate. [0:24:32]
Onto the main topic of the show with Dan Solin: money and what it is. [0:29:09]
Where the perception and definition of money originated from. [0:31:00]
Unpacking an alternative definition of money by Adam Smith. [0:37:32]
The quantity theory of money and its application in the economy. [0:40:14]
An interesting political aspect to forming John Locke’s theory of money. [0:46:49]
Outlining of the history of opposing views on the theory of money. [0:47:25]
A break down of the findings of an anthropological review investigating money. [0:49:47]
How money is neither commodity nor quantity but rather a measure of credit. [0:51:32]
The state theory of money and how it is different from other theories. [0:53:39]
What sets the price level of money based on credit theory. [0:55:06]
A discussion around money based on the several theories of what it is. [0:57:22]
Why fiat money is not a derogatory term for currencies. [0:59:30]
Some of the nuances regarding the definitions of money in a modern context. [1:00:07]
Dan shares his reading habits as an author. [1:01:05]
Whether Dan reads hard copies, audiobooks, or Kindle. [1:01:32]
The difference between reading and streaming in Dan’s opinion. [1:02:08]
Insight into some of Dan’s favourite types of book. [1:03:11]
How he finds new books to read and what inspires his reading interests. [1:05:40]
Ways in which Dan organizes what he reads and learns. [1:08:47]
Whether or not he recommends books to other people. [1:09:33]
Reasons why Dan believes it is important to read books similar to his latest book. [1:12:21]
Dan’s advice for people that want to read more. [1:14:10]

Read the Transcript:

Ben Felix: This is the Rational Reminder Podcast, a weekly reality check on sensible investing and financial decision making from two Canadians. We are hosted by me, Benjamin Felix and Cameron Passmore, portfolio managers at PWL Capital.

Cameron Passmore: And yes, Ben is getting over a bit of a cold if you're wondering what's wrong with his voice.

Ben Felix: Yep, it's true.

Cameron Passmore: Beautiful summer weekend and you were under the weather.

Ben Felix: I was.

Cameron Passmore: I quickly wanted to share, I listened to a podcast this morning and I told you about The Prof G Pod. And he was asked, he has episodes where people ask him questions and he was asked about the future of movie theaters and also the future of streaming services like Netflix. He argued that both are taking hits now due to the hurricane of TikTok is how he put it. I knew TikTok was big. I had no idea it was this big, and I'm just repeating numbers that he gave on the podcast. I've not checked them. So if people have better information, let me know.

But in the last 12 months he said there's been 21 trillion minutes spent on TikTok verse 9 trillion on Netflix. And he says, why is that? He says, the great thing about TikTok is that it takes no decisions, it just feeds. And he said, there's massive global creativity. He says, right now there are 800,000 people that work in streaming companies. TikTok has 1.6 billion users with 55% of them being creators. So that's 850 million creators, which is 1000 times more talent than the pool of all of Hollywood and Bollywood and London is what he said. So he says TikTok is doing to Netflix what Netflix did to theaters? Think about that massive shift.

Ben Felix: I don't like the decision fatigue of trying to watch Netflix spend. If I'm going to sit down and watch Netflix for an hour, I'll probably spend half of it trying to find something to watch.

Cameron Passmore: Is that not interesting, because they were thought to be very good at serving up what you would like.

Ben Felix: No, they're terrible. And they don't take away the stuff you've already seen. It drives me nuts. I've talked to my wife a few times recently about canceling Netflix, I don't like it.

Cameron Passmore: Well you're not alone. I think a lot of people aren't canceling it.

Ben Felix: I'm not on TikTok either though, maybe I'm missing out.

Cameron Passmore: I think a lot of people are getting fatigue with monthly services in general, by the time you get in Canada, Crave and Hulu and Disney and all these other channels going on.

Ben Felix: I don't have any of those, just Netflix, but we might switch to something else because it hasn't been great and not a lot of good content on there.

Cameron Passmore: Interesting. I got a new cable, same provider, but new cable service. Every year I call up and negotiate a better fee where possible. So they took a look at my account and said, "Oh you got old technology." I said, "Well, I don't want any contracts. I don't want to buy any equipment. I've already bought equipment." Oh no, no, no price is going to go down by I think it was 50 bucks a month and you get a new modem and you get a new TV box." So I had one those old, big boxes, maybe a foot and a half wide, a foot deep, those classic boxes. And anyways, a new box shows up. It's the size of maybe a little bit bigger than a deck of cards. And it's all WiFi based voice activated fantastic service. Fantastic and beautiful picture. And the internet speed is like twice the speed. So it's like win-win all the way around. It was awesome. So call your provider. I think it's called a helix box. So for what it's called.

Ben Felix: Cool.

Cameron Passmore: And I say 50 bucks. So you wanted to talk about the goal survey.

Ben Felix: Yeah. There are 274 responses now to the goal survey.

Cameron Passmore: Awesome.

Ben Felix: And every time we mention on the podcast, it kind of jumps by 30 or 40 responses within the following week. So I wanted to mention it again, this week we asked for any women who listen to please do the survey because we had a disproportionate number of males that had initially responded. And likewise, if any men have responded and they have a woman in their life that they could ask to fill a survey out or send it to them, that would be great. But we are getting close to the point where we feel like we have enough data to start processing, what processing is going to look like exactly. We're not quite sure whether we're just going to kind of do it ourselves and kind of find common themes. Or if we're going to engage with an academic that has expertise in this field.

So we need to figure that out, but we're not going to start even thinking about that until we have at least 300 responses. So we're at 274 now we're getting very close to 300 and yeah. So hopefully roughly a week after this episode, we'll kind of close it ... Not, we won't actually close it, but we'll stop asking, stop looking for new responses and we'll start processing the data that we have with hopefully at least 300 by that time.

Cameron Passmore: Fantastic. Time for our monthly update on the 22 and 22 reading challenge. So we're almost six months in, incredibly into the challenge. And for those who aren't aware, it's super easy to join, just go to the rational reminder website and at the top, there's a link to the 22 and 22 challenge, easy to sign up as an easy app based thing. Make sure you connect with Ben and I, the instructions are there for our codes.

Currently I have 266 friends right now, which is pretty cool. It's also really cool to skim through and see what people are reading, and get this over the past month among my friends, Amanda's in the lead with 16 books in the past month, Michael's at 16, Frank's at 12, I'm coming in fifth place at seven books in the past month. Also, if you haven't joined no stress about it, you can join. We're going to keep this going at least until the end of 2023. As of now, we have 533 people in the challenge who have read over 2100 books. Some of the top books in no order, Atomic Habits, Balanced by Andrew Hallam, Chatter which you talked about, Dopamine Nation, Eyelet Fish Box, Book get it done, Essentialism. So those are some of the popular ones.

For a full list of the top books, Angelica set up a link in the community page. So head over there to see all the books that are popular right now. And today we have as our monthly regular feature, our longtime friend, very good friend of both Ben and myself. Dan Solin is joining us. He was our guest back on episode 17, which is almost four years ago. So he's an author and his most recent book is ask which is about the power of asking questions to make you better able to relate to them.

So Dan was a great guest today to talk about his reading habit. In terms of upcoming guests, Rebecca Walker's coming up next week. She's the author of the book Women Talk Money, to accept that as Ludovic Phalippou, professor of economics at the Saïd Business School and who also specializes in private equity, fair assessment, Ben?

Ben Felix: Yep, definitely.

Cameron Passmore: And then two weeks after that is professor Ralph Koijen who's from the ... Professor of finance at the Chicago Booth School of Business. Why don't you talk about what he's going to focus on?

Ben Felix: You're having the notes ... I don't know yet either. When I got in touch with Ralph Koijen, I said that we probably wanted to mostly talk about demand system asset pricing, which is he's got a very big paper on that. That is generating a lot of interest. And that probably is mostly what we'll talk to him about, but you go to his research page and it's like the amount of published research that he has on a massive diversity of topics. It's honestly intimidating. So I'll know the answer soon because I'm going to have to prepare for the interview, but mostly in demand system, massive pricing, probably some other stuff too.

Cameron Passmore: Which is such an interesting topic. Then we talked about that with Bill Janeway. I believe we listened to that interview on the weekend, which was so interesting. Of course, Becherme talked about it and update on the crypto podcast.

Ben Felix: So a couple weeks ago we had Ishwar Persad, and the feedback that we got on that episode was great from a lot of different people. I wanted to point out .. I had wished that we'd said this when ... In either Ishwar or Igor's episode, but Ishwar was the discussant when Igor Makarov presented his paper on de-fi, his bookings paper on de-fi. So it's kind of interesting. Igor presents the paper and Ishwar is his discussant. So he's kind of there to ask challenging questions, just a neat connection.

Last week, we had Tobin Answel talking about the characteristics of crypto investors using like a bank crypto product. I mean, it was very interesting discussion, worth pointing out that it was not necessarily a representative sample of crypto investors because they weren't looking at people who were going through crypto exchanges, for example, but regardless it was interesting.

It showed that at the brokerage level, the stock brokerage level, people who were accessing crypto products were people who were typically also very speculative investors on other types of assets. And then this week, so tomorrow after this episode releases, we have an episode with Steven Diehl. He's a very outspoken critic on crypto and he's actually been in involved with a whole bunch of policy initiatives to try and build regulation in this space, and make regulators aware of what the potential underlying issues are for broader society with these technologies and the claims that they're making.

Cameron Passmore: Great, let's quickly go through some recent reviews. As you said, a couple weeks ago, these may get to a point where it just takes too much time to go through them, but we appreciate them all. So let's go quickly. You want to take the first one?

Ben Felix: Sure. So Katie said that our podcast is an example of excellence. She's also got a podcast, the Money with Katie Show, and she says she listens to a ton of other content. But Rational Reminder is one of the only places where she knows that whatever she learns is going to be thoroughly researched, pressure tested and thoughtfully considered. So those are very, very kind words from another podcaster.

Cameron Passmore: And then Frank from Alabama said, it's life changing. Thanks us very much and said, we've done the most for main street investors since Bogel. I'm not sure about that, but a very kind sentiment.

Ben Felix: Arevent, I hope I pronounced your name right, who's been an in our community, in the Rational Reminder community has been a listener for a very long time, says that it's a must listen as an investor or advisor.

Cameron Passmore: Brian from the States says excellent podcast, and it's one of its favorites and says, it's a show that delivers thoroughly research and substantive while also be engaging for non-experts. So very kind.

Ben Felix: Corba 70 said it's a great educational show, even though that we're wrong regarding dividends. Hold on, I wanted to talk with this. Hold on, what was the point they were making? Love the show and you've taught me a lot, but I feel the power of dividends is the fact that it attracts people to saving and investing if done right. To completely shrug them off using a formula without taking into account how many people are saving for their futures because of their attraction to dividends is showing, sometimes putting a calculator down and looking around will give you a rational reminder that numbers don't paint the full picture.

Now they enjoy the podcast, whatever, that's very nice, but we're wrong about dividends because of that. Now the counter argument that I would make to that is that the real rational reminder there is that yes, people do have a preference for dividends, an irrational preference for dividends and that's not even the right way to say it. They have reasons to invest in dividend paying stocks other than earning a return commensurate with the risk that they're taking. And we talked about this in the recent episode that we did on this, that drives down the expected return of dividend paying stocks.

So I don't disagree with that at all. Just like with ESG and other tastes and preferences that investors can have, if people have a preference to invest in dividend paying stocks for perfectly good reasons. Don't get me wrong here. If that is what gets you to invest and stick with a plan and do whatever, great, that is awesome. But you've got to understand that if that's true for enough investors, you are driving down the expected returns of dividend paying stocks. There's evidence that, that is exactly what is happening, particularly when rates are falling in particular.

So if market yields are declining, then the demand for dividend yield increases and that's when expected returns on dividend stocks get driven down the lowest. But anyway, I don't think we're wrong about dividends. I think Corba that you're right. So to be clear, I think this reviewer is perfectly correct, and it is true. I don't want to disagree with the fact that if people are being incentivized to invest by dividends, "Hey, that is awesome." But that's not related to risk and expected returns, and therefore we should expect lower returns from dividend paying stocks.

That's not even the argument that dividends are just neutral. That's the theoretical argument. The theoretical argument is they just don't matter. But if what Corba 70 is saying is true, then you actually expect lower returns from dividend paying stocks. Anyway, sorry, that was a total rant. But I remember seeing that review and thinking, "Oh man, I have to address this on the podcast." So there it is.

Cameron Passmore: That's why I picked this one for you to say, he or she finished by saying nice warm feeling for free money while saving. Anyways, let's move on. Core Buscher from Canada said that get this, Rational Reminder is a high brow podcast about financial economics and investing. We were called militant two weeks ago, now it's highbrow. Again, somewhat surprising, but again, nice, thanks to the review.

Ben Felix: Kay Blulot said that it's their favorite show of the week. They've helped them with so many things, saving money, investing what I save, understanding how markets work, choosing books to read, finding my master's thesis topic. That's kind of cool. I remember somebody on YouTube saying, remember when we talked about Jensen's inequality or Jensen's inequality, with a concave function. Somebody commented on YouTube that in a university class, the teacher brought up Jensen's inequality and they were like, "Hey, I know this from Ben." I thought that was kind of cool.

Cameron Passmore: Some really cool conversations I've had lately and I think I told you about some of these, but a lot of advisors are reaching out on LinkedIn to me, just giving a shout and thanks an advisor from a big bank, looking for a firm to move to that aligns more with his values, an advisor to dealer, looking for a firm that shares his investment beliefs, Joe down on the Netherlands reached out to thank us for the podcast and that we "save him from investing in expensive, active funds and also own country bonds." You and I have been invited to connect with an advisor who's at a big bank when we make the trip to Newfoundland and thanks us for benefiting him and his clients.

Ben Felix: I'd love to go back to Newfoundland. That's a great spot to visit.

Cameron Passmore: We had a great trip that time, beautiful weather too. Had a great chat with Connor last week, who was looking into a career in our field and had some questions. Brian, who we mentioned the reviews also connected on LinkedIn. You touched on a question later in today's episode that was submitted by Kyle, a listener in the US that works for a large bank, also from Jeff and advising Calgary, who said the podcast is helping him build his practice. It was great to hear from David who was a lawyer in the US who was looking for a fee only advisor, much like we talked to Robink a couple of weeks ago.

So as always connect with us on LinkedIn or Twitter, Rational Reminder on Instagram, CP 313, or hashtag Rational Reminder on Peloton. In the store I was talking to Angelica today and she wants to kick off July with a 10 day sale to celebrate Canada day and I guess independence day. So for every order, over $35, you will save 30% off the entire order. The discount is applied automatically at checkout. So don't worry about any codes or anything. Just visit the Rational Reminder webpage and click on the shop button at the top. As an example of stuff, that's in there, talking sense cards 30 bucks, hoodies are 45. We have mugs, t-shirts, every order will still get a free pair of RR socks and shipping in North America is free, and the sale will run from July 1st to July 10th at midnight. And of course, while supplies last, but I know there's a pretty good stash of supplies. Ben, anything else to add?

Ben Felix: No. All good, carry on. Let's go. Welcome to episode 207 of the rational reminder podcast.

Cameron Passmore: All right. Book review this week, it's called Scout Mindset: Why Some People See Things Clearly and Others Don't by Julia Galef. So a few weeks ago when John List was here, he talked about, and my favorite line from that interview was the world's ultimate renewable resource is critical thinking. And this is something that I think about and did think about even before that conversation. In this world we live in is so complicated and the world adapts and humans adapt. There's so much that we don't know and we don't understand in this world. However, as humans, we have enormous confidence in our opinions about so many things, and often that's not well founded. As you become exposed to something new about a subject, instead of being open to adjusting our position, we often only accept points that solidify our position. We've talked about this a lot.

I know this is nothing new to any of the listeners, but the author points out and I quote, "As people become better informed, they should start to converge on the truth wherever it happens to be. Instead, the opposite often happens. As people get better informed they diverge." And this is why I think it's really important that we be humble in our beliefs and we open to being wrong and to actively try to challenge your own beliefs. I've been thinking about this for a while. Then I came across this book, which kind of tapped into that interest. And that's why I read it.

I wish I could remember who told me about it. I've now put in a system to keep track of who makes book recommendations. So if you recommended it to me, I'm sorry, I don't recall who you were, but the book Scout Mindset is all about how to avoid common biases and make smarter decisions, which is what this podcast is all about. So the skill that we all need is to be able to see things as they are, not as you wish they were. This is what she calls a scout mindset.

Recognizing when you are wrong, be okay with being wrong and self-correct. So this is the opposite of what she calls the soldier mindset. So that's when you defend your beliefs to the bitter end and avoid admitting that you were wrong at all costs. So the author is a statistician by background, former present of the Center for Applied Rationality and also host the podcast Rationally Speaking. One thing I liked about the book is that it doesn't just hammer us for our bad behavior, but it's more about giving us concrete tools to improve our lives and improve our performance. These tools I thought were excellent in the book. And again, I think we all get the issues.

We all understand the biases that we have. It's hard to continue to challenge, because we're all very busy. We don't have a lot of time, but there is merit in trying to improve ourselves in this area. So let me jump to the tools. So there's five simple tests that you can use to see what kinds of bias might be at play when you're assessing new information from others. One of those called the double standard test. Are you judging one person by a different standard than you would use for another person? Thought that's really interesting to think about.

The outsider test, how would you evaluate this situation if it wasn't your situation. The conformity test, if other people no longer held this view, would you still hold it? Think about our investment philosophy for example, if you were alone, would you still hold it? The selective skeptic test? If this evidence supported the other side, how credible would you judge it to be? Another one, the status quo bias test. If your current situation was not the status quo, would you actively choose it? Thought that was really interesting.

So here's some other tools that are good takeaways for you. Hold your identity lightly. Therefore watch for signs that a belief is becoming an identity. So example she gave in the book is that if you have in your Instagram bio proud vegan on there, and all your friends are vegan and you go to vegan rallies, then your belief has probably become your identity, nothing wrong with that. It's just as she points out, be aware of that. Keep your mind flexible, have the confidence to be unconfident. When you notice yourself making a claim with certainty, watch for that. For example, no way ... Same goes I would say for absolute such as never or always, watch for those. If you can find an author, media outlet or other opinion source who holds different views from you, but who has a better than average shot at changing your mind, do you ever do that?

Ben Felix: Well, yeah, we've done that on this podcast too.

Cameron Passmore: But in your day to daily, do deliberately go out and try to find podcasts that disagree or I'm trying to do that more and more.

Ben Felix: Wow. I don't know. I usually find a topic and learn a lot about it, but I don't know. It's not ... I don't go looking for like active managers who can convince me that security selection makes sense on average. But lately I've been trying to learn about money and how it relates to the economy and stuff like that. We'll talk about it in a minute, there are massively diverging views on that. So I've been reading both sides of that for sure.

Cameron Passmore: The next time you notice someone else being "irrational or crazy or rude," get curious about why their behavior might make you feel that way. Look for opportunities to update your thinking at least a little bit. Next one here, find a caveat or exception to one of your beliefs or some empirical evidence that should make you slightly less confident in your position. Think back to a disagreement you had with someone in the past in which your perspective has since shifted and reach out to that person and let them know how you've updated.

Pick a belief you hold strongly and attempt an ideological debate with someone with the opposing belief. We certainly do enough of that here. Get comfortable with being wrong. Be curious about theories that contradict your theories, instead of trying to fit confusing observations into your preexisting theories, treat them as clues to a new theory. This one I thought was good. Bad arguments inoculate us against good arguments. When we do encounter a good argument that's new to us, we often mistake it for a bad argument we're already familiar with.

Be aware that our beliefs are interdependent. Changing one often requires changing others. This can cause us to resist updating. So the example she gave was the belief climate change isn't real might be supported by other beliefs you hold. So to update your climate change isn't real, you'll also have to update a few of your other beliefs such as climate change skeptic media outlets are more trustworthy than mainstream media or smart people don't buy the climate science consensus. So it's this cascading say, "Oh my God, if I changed my mind on this." It just goes on and on and on from there, which causes a lot of people to avoid updating their beliefs.

So in the end, after all these action items in Scout Mindset, a thinking is guided by the question, is this true? What this means to that Scouts think about errors differently than most people. They revise their opinions incrementally over time, which makes it easier to be open to evidence against their beliefs. They also view errors as opportunities to hone their skill at getting things right, which makes the experience of realizing I was wrong feel valuable rather than just painful. And last quote, I'll give you is if you're not changing your mind, you're doing something wrong. Really enjoy the book. And the fact that it's not just harping and all the bad things we do, but gives solid advice. I enjoyed it.

Ben Felix: Yeah. It sounds like a good one. I enjoyed the summary.

Cameron Passmore: Well, I think the summary covers off a lot of the books. That's what I picked out of it. And to go back to the question, I always ask the special guests we have on about reading. So I read as people know in a Kindle that just highlight the notes. That's the collated summary of many pages of notes from the book. All right, so you want to do follow up on private investments.

Ben Felix: Like you mentioned, Cameron, we had a listener ask us about private real estate and I paraphrase. There's a lot of paraphrasing. The question was rather long, but I boiled it down to, I agree with you on private equity, but what about private real estate? There's a paper from Antti Ilmanen and some coauthors demystifying illiquid assets expect returns for private real estate. So it's actually companion paper to the paper that we talked about with respect to private equity. There's another paper from Peter Mladina, Real Estate Betas and the Implications for Asset Allocation. Those two papers I think address this question really, really well.

Private real estate can be viewed as a leveraged combination of equities, fixed income, real estate specific factors, and possibly an illiquidity premium. In the Mladina paper, he finds that REITs have betas analogous to a balanced portfolio with approximately 60% allocated to small value stocks and the remainder allocated to long term high yield bonds. The compensated portion of public REIT returns is fully explained by systematic risk factors, common to both stocks and bonds. The residual risk is idiosyncratic and uncompensated real estate sector risk. They explain in that paper that private real estate indexes have returned smoothing from the appraisal process that results in artificially low observed correlations, and the interaction of multiple lag betas with their uncorrelated sequential quarterly returns produces an artificial diversification benefit. I mean, that's similar to private equity.

So it looks uncorrelated because of the way the data reported. But in reality, the economic risk exposure is no different. And this is the ... I think I'm on the Ilmanen paper now. I sounded like I was still on the Mladina one, but anyway. So they also find that current and lagged REIT betas, which can contain compensated factor risk and uncompensated sector risk explain the entire return premium of private real estate.

So that's a big one. Relative to REITs, private real estate doesn't give you anything special when you properly lag the REIT betas. And the lag is for the valuation lag in private real estate that you don't get ... Public just like equities, public real estate is always valued by the market, private real estate you've got to wait for a transaction to happen to have market values. The alpha for the Cambridge Real Estate Index is statistically insignificant indicating that the compensated factor returns embedded in the current and lagged REIT betas also explained the entire return premium for value added and opportunistic real estate. That was also pretty interesting.

In the Ilmanen paper, they explain that once private real estate returns are de smoothed, their correlation to equities is 0.66, which is only slightly lower than the 0.82 correlation of REITs to equities. The correlation between REITs and de smoothed private real estate is 0.77. That's probably still understated because the de-smoothed real estate doesn't reflect market to market fluctuations. Then from an asset allocation perspective from Ilmanen again, there's no evidence of liquidity premium in private real estate.

So I mean, you take all this together. It's pretty important implications. It's like, you're not getting any risk factor exposure that you couldn't get otherwise. That's so for REITs, you could get that factor exposure from stocks and bonds with the small cap value in a corporate bond portfolio. Then from REITs to private real estate, you're again not getting anything special other than maybe some leverage, because leverage is easier to access in real estate as many people are aware.

A comparable REIT benchmark adjusted for leverage and sector to match private real estate outperforms private real estate from April, 1980 through December, 2012. That's again in the Ilmanen paper. To kind of summarize the compensated portion of public REIT returns is explained by the factor mix. That's roughly a 60% small value, 40% long term high yield bond portfolio. The compensated portion of private real estate returns is fully explained by current lagged exposure to the same factor returns, and empirically private real estate underperforms REITs suggesting that there's not an illiquidity premium, and there may even be an illiquidity discount.

Cameron Passmore: There it goes again, illiquidity discount. How many times have you read that on Twitter this past couple weeks? So many people talking about this? Great review, so that was a listener question sent in. It was kind of cool. All right, to the main topic this week, you wanted to talk about money.

Ben Felix: I've made the comment a few times that tell me what money is, give me your definition of money. I think it's pretty hard. I don't know if I have a conclusion to this topic, but it's what I've been working on, and I didn't have time to work on anything else. We're going to talk about what I have so far, at least on one portion of what I've been working on, but there's no big conclusion or takeaway just so everyone's aware. That's not true, there probably are.

Cameron Passmore: But it's a fascinating topic.

Ben Felix: It is. Even though-

Cameron Passmore: It's part economic, part history, part politics-

Ben Felix: Philosophy.

Cameron Passmore: All wrapped up in this-

Ben Felix: Ideology

Cameron Passmore: Philosophy, it's true.

Ben Felix: Anyway, so I'm going to talk through what I've got. I think there probably are still some takeaways, at least in terms of how we think. We'll go ahead and see how we come out. And then maybe in the future, once I've thought more about the topic, we'll have something that has more of a punchy conclusion, but don't expect that for today.

Cameron Passmore: There's no click beating going on here.

Ben Felix: So most people and I say that from my experience talking to people. People who are maybe clients, or maybe people who I'm interacting with, just chatting about stuff, people on the internet. I'm generalizing here, but unless you're speaking with an economist and even then, I mean, I think back to some of the economists that we spoke with when it was like pandemic and there was all of the quantitative easing, and we were trying to get economists on to talk about that. Even some of them talked about money in the way that I'm about to explain it. So when I say most people, I think I really mean that is most people, unless they're formally trained in economics. Even then, I think that this still persists.

So it starts with ... This way of thinking about money. It starts with Adam Smith, that's not true. It formally starts with Adam Smith. I think that there were philosophers who were thinking about this for thousands of years before Adam Smith wrote Wealth of Nations. I mean, it was this debate of what money is goes back to Plato and Aristotle, that era, but Adam Smith, and I say philosophers on purpose because Adam Smith was the one who formalized economics as a field of study and Wealth of Nations was an important part of that.

So what Adam Smith said when he was formalizing economics as a field of study, is that the natural human propensity to barter and exchange one thing for another slowly, but inevitably leads to the division of labor based on specialized skills. Then with increasing specialization, people begin to have an excess of certain goods, for example, and this is from Wealth of Nations, the butcher has more meat in his shop than he can consume. And the brewer and the baker would each be willing to buy a part of it. But all they have to offer an exchange are the product of their trades. And the butcher already has all the bread and beer he has an immediate need for.

So I think most people have heard of this or thought about this concept of, well, yeah, people used to barter, but it doesn't work out that well because of that problem that I just described, it's called the problem of the double coincidence of wants. Finding somebody that has what you want and wants what you have and is willing to do an exchange. That's not so easy to do. And that's the only way you can get an exchange at market prices. Otherwise, you're going to have to take a deep discount. In other words, transaction costs are high, unless you can find the double coincidence of wants.

So people acting in their own self-interest in a free market, they seek to obtain along with a specific product and this is again, a quote from Wealth of Nations, along with a specific product of his own work, a certain quantity of some other commodity that he thought few people would be likely to refuse in exchange for the product of their work. So people are looking for commodities that they're pretty sure other people are going to be willing to exchange for stuff. And this is like an iterative market based process that over time determines what is optimally suited as money.

So the most saleable commodity kind of boils up to the top over time in a free market. And the market has then determined what money is. Now in many economies, metals were ultimately chosen as money because of their physical properties like gold. I think everyone's kind of aware. It's got lots of very unique physical properties that set it apart from other commodities and other metals as well. But metals in general have properties that make them distinct from pieces of water or clay or whatever, but there were economies or societies that use other stuff like cowry shells are a common example.

Anyway, so it wasn't always metal, but in larger and more industrialized for the time, at least economies, it was often metals. Now it was an inconvenience to weigh and assay metals in day to day commerce. If you're walking around, you've got your scale. And I don't know a magnifying glass or whatever to test the gold that somebody else that you're trying to do business with has, that's obviously inefficient. I just want to pause and make it clear here that this is a story we're telling about the origin of money.

And this story comes from Adam Smith's Wealth of Nations. So it's an inconvenience to weigh and assay metals in doing business day to day. So eventually the state, because they have the resources to do so, they create mints for the purpose of standardizing the metallic content of coinage. So the state owned or run mints are going to standardize how much gold is in coins or how much precious metal of whatever kind is in coins by weight and by purity. And then they're going to stamp it. So everybody knows this coin is worth whatever amount. So you don't have to use your magnifying glass in your scale anymore.

Now doing that, it creates obvious efficiencies because like I just said, everybody can agree on what the value of a coin is because everyone knows it's metallic content. But the problem is that states were often historically irresponsible, where they would debase the currency by decreasing its metallic content. And that's what caused, in this telling that's what causes inflation. So in this telling of the history of money, economic exchange was first accomplished through barter.

This is a summary now, but barter's inefficient because the double coincidence of wants problem. So through market forces and without any state intervention or legal intervention or anything like that, self interested people naturally arrived at certain commodities as the generally accepted medium of exchange. When that thing is arrived at it becomes even more desirable. Once the market is agreed on what money is, that money becomes even more, increases even more at that point. In many cases, these were metals that were ultimately decided as money, but then the state has to step in to ensure the purity and weight and all that stuff.

But you got to be very wary of the state because they'll often de-base currencies for the benefit of the elite at the expense of creditors, and you've heard that story before. The crazy thing is that this story is in many economic textbooks to this day, which is fascinating for a few reasons that we'll talk about in a second. So that's broadly speaking the commodity theory of money. I think I mentioned it briefly, but the context of Adam Smith's writing is important. In this text, he was establishing economics as a science that to be its own field of study, kind of had to operate according to laws, similar to physics. So what we just told is like, that's supply and demand, and Smith talked about divine providence. How divine providence like God had arranged matters in such a way that man's pursuit of self-interest would in a free market be guided.

Everyone's heard this as if by an invisible hand to promote the general welfare. So that's Adam Smith. And then in 1892, Carl Menger, who is an economist, he described money as the spontaneous outcome, the unpremeditated resultant of particular individual efforts of the members of a society who have little by little worked their way to a discrimination of the different degrees of saleableness in commodities. It's kind of a retelling of the same story, but Menger further formalized Smith's ideas.

I mean, it's kind of the same story. When the relatively most saleable commodities have become money, the event has in the first place, the effect of substantially increasing their originally high sale bonus. I mentioned that earlier, but that was not an Adam Smith thing, that was from Menger. That was a quote, Menger goes on to explain that precious metals became money because their sale bonus is far and away superior to that of all other commodities, and at the same time because they are found to be specially qualified for the concomitant and subsidiary functions of money.

Now, this is an important point here, Menger explicitly states that while political authorities are important in standardizing weights and ensuring the trustworthiness of coinage, this is a quote again, "Money has not been generated by law. In its origin, it is a social and not a state institution." The commodity theory of money is often referred to as mentalism because metals are so important to that theory.

To summarize it, it's a commodity exchange theory where money's historical origins and logical conditions of existence are explained as the outcome of economic exchange in the market that evolves naturally as a result of individual utility maximization. I think the ideological aspect is very important. Aside from any merits of the model of commodity theory as a model. It's ideological appeal is pretty clear when you think about it, from a libertarian point of view, the belief that money is best organized by markets not by the state.

And that currency should be linked to the value of a precious metal like gold due to its natural scarcity. And that shows up a lot through the history of theories of money. The ideological component of the market should be responsible for creating and managing money. Anyway so that story that we just talked through, I think like I mentioned, is very common. And I think to the point where everyone just assumes that's kind of how it is. That's how money works. And then of course, later on, so that was all kind of 1700s and then Menger in the late 1800s.

Fisher, 1911 gave us the quantity theory of money. And that's where we get at least where we more formally get MV the money supply multiplied by the velocity of money causes the price level, the price level multiplied by the volume of transactions, MV equals PY, it's the quantity theory of money and that's again, economists today still talk about that, but it has its foundations in money as a commodity, or at least as the quantity of money being the thing that determines the price level, and then Friedman and Schwartz in 1963, they brought back quantity theory as monetarism.

And that's kind of the most recent iteration of a commodity approach to thinking about money. And then again, a famous quote from Friedman that many people are probably familiar with, inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. In a monetarist world, and money is intrinsically worthless, but people are willing to hold some, despite a rate of return below bonds, because they needed to buy stuff. The central bank in monetarism controls and limits the supply of money, which sets the price level.

Now as a policy, monetarism was pretty short lived. And interestingly, after its attempted implementation, the money supply did expand rapidly, but inflation remained historically low for decades, which kind of shook the foundations of it as a theory. But again, back to the ideology as a free market policy, monetarism served as much a political purpose as an economic one. And there's some interesting papers on that. And it was useful to the free market resurgence in the 1960s. There are a few different sources that I found that suggest that just monetarism as a concept from Friedman was as much about the ideology and the purpose that it could serve from a political perspective as it was about an economic theory.

Now, today, and this is from John Cochran's forthcoming book, he says one should abandon monetarism because central banks do not control the quantity of money. Central banks set interest rate targets. They don't do anything to try and control the quantity of money because money demand has evaporated into a mush of liquid assets and fast transactions technologies. And because it doesn't work empirically.

So Cochran saying monetarism is probably no good as a model. And then there are of course, perspectives that push the commodity theory even further and argue that central banks distort the market and economic processes. And that states are tempted to defraud the public by inflating away their debt or printing money. And there's some pretty interesting history on where those views come from. And that's maybe something we can talk about in a different episode, but those essential bank conspiracy theories have a pretty fascinating and also kind of a scary history. And I say, it's particularly scary because they still persist. Like a lot of them come from some pretty antisemitic places.

Cameron Passmore: Really?

Ben Felix: Anyway. Yeah, you can save that for a future discussion though. Where did I find that in The Ascent of Money, in Neil Ferguson's book, he touches on that a little bit. That must have been it. Fascinating stuff. Adam Smith explicitly objected to the notion that money was a creation of government and Smith was really building on John Locke's view that government begins in the need to protect private property and operates best when it tries to limit itself to that function. That's another quote people may have heard before, Adam Smith argued that property, money and markets not only existed before political institutions, but were the very foundation of human society. And that government should limit itself to guaranteeing the soundness of the currency.

That becomes very important when we hear about the other opposing theory of money. The commodity story of money's nature and origins is built on the assumption. It's the free market assumption that self interested agents choose a commodity as money to reduce transaction costs with no intervention from the state and no regard for social relationships. So money's a commodity and it's an intermediate step. This is another fascinating piece that people talk about money is a medium of exchange. It's an intermediate step in facilitating the exchange of other commodities, and the government's involvement in it should be minimized as much as possible.

Ideologically, actually, a lot of this thinking comes from John Locke. John Locke was very motivated to have a state. John Locke was a philosopher that came before Adam Smith. John Locke wanted a state that was not controlled by any particular interest, but John Locke had a particular interest in not having London finance years controlling the state or having undue influence on the state.

For Locke, from an ideological perspective, the theory of metallic commodity money, which was a natural substance, obviously, as opposed to a social construct suited his ends very well. So again, we see the ideological motivation to promote that theory of money. And John Locke in early debates in the UK on what money is, because this is a thing, societies had to figure this out. They had to decide what currency was going to be made out of and who was going to be in charge of money and all that kind of stuff.

There are early debates between John Locke and Burban is the opposing side's name, where they're debating exactly this, is money a social construct or is it a commodity? And John Locke had the position of it's a commodity, it's metal. Money is metal but the ideological motivation for that is just very interesting to think about.

Cameron Passmore: This is long before the field of financial economics is really a thing.

Ben Felix: Well, as Adam Smith in 1776 Wealth of Nations, that is what gave a platform to economics as its own separate field of study. For sure. John Locke was before Adam Smith by almost 100 years, I think. And like I said before, these debates go back to Plato and Aristotle on what the nature of money is. But what I find so fascinating about the John Locke piece though, is that he had a very specific political orientation and that heavily informed his view on what money is and how it should be treated in an economy.

I don't have the transcripts or documentation of the debate, but for whatever reason, John Locke came out on top of that debate in the 1600s and that informed hundreds of years of monetary policy to follow. But whether that was the right approach, I mean, it's a very interesting question. So here's the last piece that I'll kind of finish with is that story, the Adam Smith story about money's creation of going from barter to some commodity that everyone favors his money, which is also the basis of John Locke's view, that the market has determined what money is and it's valuable in its own right based on market forces.

The problem with that story, and this is a quote from a 2011 book by David Graeber, who was ... He's passed away, unfortunately, but he's an anthropologist. So the problem with money's barter creation story is that there is no evidence that it ever happened and an enormous amount of evidence suggesting that it did not. Now this isn't new. So that's a 2011 book, but Adam Smith's examples. So Smith in Wealth of Nations gives historical examples of barter societies or barter economies in Wealth of Nations, very specific examples. But in papers in 1805 and 1832, and summarized and detailed further in a paper in 1913, they were debunked as complete falsifications.

In some cases, they were just made up, in some cases, important parts were left out. He uses a new fisherman in Newfoundland using cod to barter or something like that. But in that example, they had money and they were using credit and they were settling their debts at a later time. They weren't bartering with cod. They were imaginary examples. And another interesting point there is that in Rome. So people think back to Roman coinage, and it was metal and whatever, but in Rome, coins were marked with their value, but coins with the same value varied considerably in their weight and their metallic content. So it's again, evidence that they were tokens that represented something, but it was not the metallic content that gave them their-

Cameron Passmore: Exactly.

Ben Felix: Value. That's interesting. That of course evidence suggests that coins were just tokens that the issuer would accept in payment of a tax debt. But in that case, coins are credit instruments representing abstract value. There's a big anthropological review in Humphrey and Hue Johns, a 1992 compilation. They find no example of a barter economy, pure and simple has ever been described, let alone the emergence from it of money, all available ethnography suggests that there never has been such a thing. Pretty interesting.

Then in Greyber, the 2011 book that I mentioned, he does offer some evidence of barter, but he explains it. It's really interesting. Barter ordinarily takes place between strangers or even enemies. You think about it, most economic relations are fundamentally social. If I needed something from you, from someone that I know, and I brought you some commodity that I have and wanted to exchange it for some commodity that you had. You're not going to tell me to screw off because I don't have the commodity that you want. Because I know you, we're going to figure it out. We'll do something and it'll be a informal credit arrangement. And to formalize it, we would use some unit of account, but because we know each other and we trust each other, you're not going to tell me to screw off because I don't have the commodity and the right quantity that you want.

So you think about it like that, it's kind of obvious. Of course, barter wasn't the origin of money. Kind of like what I was just saying. If you think about the Adam Smith examples, and this is a quote from David Graeber again, you have to imagine a society where everybody was an inch away from everybody else's throat, but nonetheless hovering there poised to strike but never actually striking forever. You got to think about an example where nobody trusts each other, nobody likes each other. And everybody wants their exact market price for their goods all the time.

They're not willing to make a credit arrangement. The alternative theory broadly speaking, there are few different nuances and details, but is that money is credit, purely credit. There is no commodity basis for money. The quantity of money doesn't matter. The state can't debase the currency by changing the metallic content. Money is just an abstraction that quantifies a credit relationship. It's an accounting tool that measures debt rather than a commodity that's valuable in its own. Is a couple papers from someone named A. Mitchell-Innes in 1913 and 1914 that they're very good, but they got pushed to the side because at that time that was the golden age of the gold standard.

And so there were scholars, I mean, as far back as John Locke, like I mentioned in the 1600s, these debates were still happening, but in slightly more modernish times in the early 1900s, there were people writing, published papers in academic journals about money being credit. But because everybody was so deep in the gold standard at that time that they got kind of pushed to the side and only relatively recently has that work been rediscovered? So empirically, this is also interesting, units of account used to measure credit relationships, predate coinage by thousands of years.

Cameron Passmore: Wow.

Ben Felix: So you look back at the history of money, the very first recorded economic transactions weren't barter. They weren't being done by exchanging precious metals. They were being recorded on clay tablets as credit arrangements.

Cameron Passmore: Incredible.

Ben Felix: And that goes back thousands of years, which and year there wasn't coinage until thousands of years after that. I kind of mentioned that when money is a commodity, its primary function is a medium of exchange, and its other functions stem from that. But it's primary function as a medium of exchange. But in the credit theory, the primary concept of money is an abstract unit of account in which debts prices in general purchasing power are expressed. And that's a quote from Kings and very closely related to the credit theory, is the state theory of money, which suggests that money cannot be understood without the idea of a state or some authority.

And you think back to the free market idea of commodity theory where the market predates money and society and everything, in the state theory, money is not a medium that emerges from exchange. It's a means for accounting and for settling debts, and the most important debt that most people have are tax debts. So in the state theory, whatever the state is willing to accept for taxes becomes currency or becomes money. Now in that theory, in the state theory of money, money does not emerge from the market. The state requiring people to pay taxes in a specific unit of account or a specific money is what brings markets into existence.

And there is historical evidence of that happening where when markets would develop around I think where military were stationed, because rulers would give soldiers money and then demand some of it back as payment for taxes. And that would create a market where people were wanting to get their hands on money, and they would be willing to exchange it for goods because they needed it for paying their taxes. So that's what creates a demand for money and the credit theory.

What sets the price level of credit theory? That's a whole other thing. That's what John Cochran's most recent work on the fiscal theory of the price level is about, why are people willing to work for pieces of paper or electronic representations of pieces of paper, and how is that price level set? So that's something we can maybe talk about in the future episode as well, or I'd love to get John back on to talk about the fiscal theory of the price level. Anyway, I think that the theoretical stance that people choose to take on what money is, has pretty meaningful implications for how we think about money, but how we form inflation expectations and how we think about monetary policy.

That's a big one, in Canada right now we have a politician talking a lot about this kind of stuff, and we try to avoid politics in this podcast as much as possible. But I think this is important. So they're taking the perspective that money is a commodity and that it's effectively being abused by the central bank. But while it's based on a theory of money that I don't know if's the right one, of course a theory can only stand on its merits, not as an ideology. But the logical jump that is made from there is that, "Well, Hey, we should be allowing Canadians to use Bitcoin because it's more like a commodity money." But I would suggest that as a fundamental misunderstanding of what money is and where it comes from and how it works.

So I think from a policy perspective, both as people managing money in an economy, but also as citizens who vote for leadership, I think understanding foundationally, what money is pretty important. So it's not just what's inflation going to be, and is QE a good thing or a bad thing. I think when it becomes part of a political platform as citizens, having an understanding of how all this stuff works, becomes pretty important. But I think it's pretty poorly understood. I mean, I don't know, Cameron, I don't know if you learned much from going through that.

Cameron Passmore: Well, I learned a ton from this, but also from some of the books, I can't keep up to you on this, but it's an unbelievably complicated subject and it's hard to understand, but when you think of money as credit, then it starts to make sense and you understand the limitations of the commodity theory. So it's been interesting to go through the book around the great depression and the US going off the gold standard and start to piece all these things together and understand the implications of different policies and ideologies. I think this is a very important subject that I would agree with you that the vast majority of people don't understand and they throw out comments, even think back to my discussion around the book. You get these beliefs you just throw out there that aren't true. And in economics, so many people have an opinion that often isn't true, often isn't right.

Ben Felix: We hear about printing money and all that kind of stuff. Now, I mentioned John Carcanstaff. In that case, in the fiscal theory of the price level, the price level is set by ... It's like government debt must be equal to future surplus I think. The real value of government debt will always equal the present value of surpluses. So if there's excessive government debt, then the price level can still be materially affected. But the idea that monetary actions matter, I think that's where it gets a little bit problematic. And so in the most recent crisis that we had, there was a lot of fiscal action as well.

I think you could make an argument. At least if you take the fiscal theory of the price level perspective, you can make an argument that the inflation we're seeing is fiscal inflation. I think they're probably pretty good supply chain arguments for current inflation too. But anyway, so none of this is saying that everything's going to be fine and we're never going to have inflation. That's not the point. It's just that it's not ... The commodity theory perspective, I don't know if it's the most useful perspective.

Well, but you also maybe think of when people throw out comments about stuff, the idea of Fiat money. That's one that we hear about a lot, especially with crypto and the dialogue around crypto, where people are talking about Fiat money in a sort of derogatory sense, but Fiat money to use that term, is based on the assumption that money really was gold in the first place, but then the government decided to assign value to some piece of paper. But if you don't take the perspective that money was really gold or some other commodity in the first place, the argument for Fiat doesn't make any sense because it's not valuable by decree or it's not money by decree. It's valuable because it's required to pay taxes.

Cameron Passmore: Anyways, this is one big subject that I think I'm quite comfortable and being very humble about this whole thing, because there's so many pieces and parts and complexities that-

Ben Felix: Pieces and parts and complexities, but there's so much ideology built into all of it. It's not easy to find unbiased information on this topic because it's very politically charged from a lot of different angles. I've found ... I mean, we can ... There are a few really good books that I've found that I think are pretty unbiased. They seem to give both sides of the story and they've got deep historical accounts and all that kind of stuff. Anyway, we can link those in the show notes, but even just finding those sources was incredibly time consuming.

Cameron Passmore: Well, speaking of books, shall we go over to our conversation with Dan?

Ben Felix: Let's go.

Cameron Passmore: All right. Here's our conversation with our good friend, Dan Solin. Dan, it's great to have you back on the Rational Reminder podcast. So off the top, can you tell us about your reading habit?

Dan Solin: I don't know if I call it a habit, but I try to read every day is my goal. I usually read at night and it's always a fierce competition between streaming video and reading a book. And I consider it a victory if continuing to read a book wins out.

Ben Felix: I can relate to that.

Dan Solin: Can you?

Ben Felix: Yes. Do you read hard copy, audio or, or Kindle?

Dan Solin: I read hard copy. I thought I would convert to Kindle and I tried it, but there's just something about hard copy that really appeals to me. I like holding a book and because of the kinds of books I read, I like to be able to go back to them, use the index and all, I just maybe I'm old school that way, but I really like hard copy.

Cameron Passmore: Can you talk about that stress between reading and streaming? Are you looking more for entertainment or learning or what's that what's going on behind the scenes there?

Dan Solin: I was really thinking about why there is that tension between the two. It's kind of like, and you can both relate to this I think, it's kind of like exercising and not exercising. We know that exercise is a good choice and we should really do it. I think the three of us probably are pretty good at doing it. It's nevertheless, every day I try to exercise every day and every day it's a conscious choice. Can I overcome my kind of natural resistance to going to the gym and working out. Somehow that carries over to reading. It's like reading takes conscious energy, and takes an intellectual commitment. You have to get into the book. And whereas you can kind of be half brain dead and watch a series. That's the best I can do with that.

Cameron Passmore: So when you do muster up the energy to read, what's your favorite type of book?

Dan Solin: So I thought about this actually, until I knew that you were going to ask me that, I never thought about why I choose the books I choose. So the favorite genre for me is non-fiction, I can't remember the last fiction book I've read. So I tend to read non-fiction and then I break it down and I've thought about why do I pick the books I pick. I'm such a practical unimaginative person that I pick what's right in front of me. Will this book make me a better person? Can I grow in some way by reading this book? So that's one criteria I have. Another is it a subject that relates to me personally that I can really relate to? I read a book that was auto character for me called In Love by Amy Bloom. And it was about, I don't know if you're ... Are you familiar with that book?

Cameron Passmore: I'm not.

Dan Solin: Amy Bloom is a very famous writer and her husband sadly contracted or not contracted, but was diagnosed with Alzheimer's. And he was in his early 60s and he made a decision that he was not going to have a long, slow, painful death that would be difficult for everybody in his family and himself. The book is about their journey to this facility in Switzerland called Dignitas in Zurich, where he committed suicide, assisted suicide, which is not available in the US. And that was a really moving book, because as you get older, you do start to think about life a lot, but you also think about death, and you look around and the death part doesn't make a lot of rational sense the way we do it.

It's like they seem to torture you forever, keep you alive, reduce the quality of your life, and then you die anyway. I mean, that's kind of probably an unfair summary. So I read books like that because they inform me and they're interesting to me.

Ben Felix: Wow. Where do you get ideas for what to read from?

Dan Solin: So I think you know that many years ago, I invested in an audio company and my partner died a year and a half ago. I was a passive investor. His sons run the company, but now I'm a more active investor because they need me more. He really didn't need me to run the company. So I actually have no training in how to run a company. Some of the conversations I've had with you, Cameron have really triggered my reading because, and I'm sure you do too Ben, you both focus a lot on what are we doing here? How are we motivating our staff? What kind of culture do we want? All things that I have no experience with, but I found your experience to be really interesting. So one of the books that you recommended was the Infinite Game.

This was a game changer for me. I read that book and my eyes just got huge as I was ... I never thought that way. I was what he was talking about when he was talking about people who do it the wrong way, focused on short term profits, the Milton Friedman school, as he put it. The only function of a corporation is that generate profits for its shareholders. That's what I believed. And that actually, when I took corporate law and law school, that's was pretty much the bottom line of corporate law. That is what corporations are supposed to do legally.

So I read books like that. I'm looking at my list. I read another one called Sell More with Science, because I'm interested and I always need subjects for my blogs that I write. So I'm focused a lot on how to run our company better, and how to write more interesting blogs and anything that kind of relates to ... I don't like self-help because even though some of the books I write could be considered that, most of them are nonsense, but there are ... I do like books that are science based and evidence based, and that talk about neuroscience and psychology, which are, I'm fascinated with what do we control and what don't we control.

I find that a really fascinating subject. So I read a book that it was a little dense. What was the name of it? Successful Aging by a Harvard neuroscientist called Daniel Leviton. It was pretty technical. But what I liked about it was because he's a neuroscientist, he talked a lot about what does the neuroscience tell us about what happens to us as we age, and how much can we really control and how much is genetics part of our DNA we have no control over.

Cameron Passmore: So one of my favorite questions on this topic is how do you actually organize what you read and learn from the books you read? Do you have specific tactics or systems that you use?

Dan Solin: Yeah. It's very flattering that you would ask me that question because the premise is so fundamentally flawed. I don't have a system, I wish I did. I don't have a system for organizing what I've learned. What I find is that some books that like the Infinite Game, some books start in your short term memory, but they're so meaningful and impactful. They stay in your long term memory. I can pretty much quote to you from that book. I mean, major point. I haven't found a need to systematize what I've learned, like a diary, a journal or anything like that.

Ben Felix: Do you recommend books to other people?

Dan Solin: I truly try not to. The reason I try not to is, I mean, one is my normal reluctance not to kind of invade anybody else's space. If somebody said to me, which I can't remember anybody other than the two of you ever saying, have you read any good books lately? If they actually said that, I would certainly be free to talk about the books that I've read, but I have this feeling I'm interested to know if you agree that if you start recommending books, there are some assumptions in that process.

One is that the other person reads books, two is that by recommending books, you are not kind of saying, see how smart I am. I read all these books and you probably don't. So you're probably sending that kind of negative message, which I would never intend to send. So I guess for those reasons, somebody would've to be very specific with me. Like my team in our company. I send them books. When I read a book that I think we could run our company better if we did this, I definitely send them books. They read them. At least they say they're very appreciative of them. I hope that's true. Other than that, I don't.

Cameron Passmore: I would agree with you, but it's such a good question to ask people what they are reading. And I often attach that, for example, what are you reading now that will help your team operate better? I've asked that a number of times lately, and that's led to really interesting conversations about some books I hadn't thought about. So those are really good questions.

Dan Solin: Well, as I told you, I learned a lot from you. I mean, the books that you mention to me personally, or that I see in your posts or something, those books have an impact because I mean general feeling. I mean, I have a great admiration for both of you and how you run your advisory firm. So my general feeling is if you're reading it, and you liked it's probably worth reading. So that's pretty good. But I can't imagine I've seen my wife do this on social occasions. I've seen her say to another woman, what are you reading? I think women tend to take that question in a much more benign way, which is how it is intended. Maybe because I don't know if there's truth to this, that women tend to read more than men. I don't know if that's true. That's kind of a feeling I have, but any event that's where I'm at.

Cameron Passmore: So your most recent book Ask is about how to relate to anyone and the power of asking questions. So this is the kind of book that can improve someone's life. How important do you think it is for people to read books like that?

Dan Solin: I have an obvious bias here. I mean, I write books that I hope will impact people in a positive way, and I hope as many people as possible will read them. I think the problem as I alluded to with the self-help genre of books, is most of them are garbage based on nothing with quick fixes, that it can actually do a lot of harm to people by making the case that with very little effort, they can change their lives. It's kind of hard to separate evidence based books from non-evidence based books.

What I always say to people when they're asking me about a book is so look at the bibliography, read the studies. If the studies support it, then that's probably persuasive. I have found personally that I have benefited from reading books like Ask and I actually found that I benefited enormously from doing the research underlying Ask. I wasn't aware of a lot of those concepts and it's just been game changing for me personally. I never realized how kind of self absorbed I was and how I like most people kind of feigned an interest in other people while I was really pushing my own agenda and how hard it is just to focus on somebody else's agenda, and to have no agenda. That was a real epiphany for me. And that's helped me a lot.

Ben Felix: Well, your work on asking questions, I think as you know, has been huge for us and the way that we approach our business and our personal relationships. What advice do you have? We talked earlier about the pull between reading, the exercising and streaming video, the not exercising. What advice do you have for someone who wants to read more?

Dan Solin: I kind of thought about this. So let's go back to advice. Advice is one of these great traps of all time. I try not to give advice, but if somebody which has never happened, asked, said, I would love, tell me how you got into reading. I would say, you have to make it a habit like everything else in your life. Like brushing your teeth, we all have rituals that we engage in. I find when I do things at the same time of every day, then it's like it's six o'clock I'm going to read for an hour.

I mean, it just makes it easy for me. I think the other advice I would give, and as I said, I've never really given this advice, but the other advice I would give if I was asked was I think it's fine to read books that pull to you, that speak to you rather than books that you think you should read, because they're the right books to read. Or maybe you're not into history. So reading extensive history book would not be appealing. I don't think you should be discouraged by that. I mean, if you're into romance novels, I think you should read them. So I think being nonjudgmental about your own reading is generally a good idea.

Cameron Passmore: So interesting. Dan's been great to have you back. Thanks so much for joining us.

Dan Solin: Great pleasure to be with the two of you as always.

Cameron Passmore: Thanks everyone out there for listening this week.