Game Theory #6: The World's Bank

Today I want to examine why you Chinese students behave the way you do. Okay. So believe it or not, the way that you behave, the game that you are playing, it's strange. It's weird. So I'll point out three things that you do that don't really make any sense. The first thing that you do is you spend a lot of your time learning English.

In fact, you probably spend more time learning English than you do learning That's weird. And I've asked Chinese students before why they are so focused on learning English. And their answers usually are, I want to learn knowledge. I want to go abroad. I want to communicate. I want to use the internet. That's not really a good explanation. Okay. So, that's one thing that's weird. The second thing that's weird, you're obsessed with making money, especially US dollars.

Okay. And the third thing that's weird is that your goal in life is to immigrate to a Western country, specifically the United States, right? You all want to go to the United States for college, get a degree, and hopefully stay there, get a good job. But as we discussed before, that's strange because you are much higher status in China. You're much more likely to get a good job. You're much more likely to marry a beautiful woman than you are in the United States, where the game is rigged against you. Okay? So, this sort of behavior is weird.

If you think about it, what you should really be trying to do is master Chinese. Because once you master Chinese, and given your family background, given the fact that your family is often wealthy and well connected in China, you can climb up pretty high in China. Okay? So if you learn Chinese, you're far better able to communicate yourself. You're far more likely to gain respect and status in China. Okay? But instead you learn English. US dollars doesn't make any sense. What you really want is status, right? What you really want is to be well respected.

You want a prestigious job. You want to marry a beautiful woman. You want to have lots and lots of children. That's what you really want. But instead, you're really focused on obtaining US dollars. That's kind of strange. Now, the last thing we said was immigration. If you go to the United States, it's really a rigged game against you, right? The most that you can hope to obtain is maybe becoming an engineer or professor if you're really, really smart, but you're not going to achieve political power. You're not going to become a CEO of a major company.

All right? So, the situation as it is, it's really weird, where the best and brightest in China just want to be common people in the United States or Britain or Canada. So, it's a really weird game. And so the question I want to look at today is how was this game constructed? Why do we play this game? And the answer I will show you is because of the British. Okay. The British created this game that ultimately the Americans inherited and which the entire world plays today because America is the global superpower.

Okay. Does that make sense? All right. So, first I want to go into some history and explain to you how we got to where we are. So, this is the map of the Spanish Empire at the height of its power. As you can see, the Spanish Empire covers the entire globe. Okay, so this is a small nation in Spain and it was able to really cover the entire world. So how was this accomplished? Okay, so the first thing you need to understand is that for most of its history, Europe was a very poor place and in order for it to obtain wealth, it had to trade with the world.

Specifically, it wanted spices from what they call the East Indies, okay, Southeast Asia. At this time in history, the main power were the Muslims, who are here, okay? And if you want to trade with East Asia, you have to go through the Muslims. And at this point in history, Spain is Muslim. It's a place called Al-Andalus. But then the Christians were able to reconquer Spain. And so the Muslims decided, we'll just blockade you, or if you want to trade with us, we will charge you a lot of levies.

Okay? And so now the Spanish and the Portuguese are forced to look for new routes to these Indies where the spices are. Remember at this time in history spices are the most valuable commodity. They're actually worth more than gold. Okay, I'm talking cinnamon, nutmeg, peppercorn. Okay, these spices are extremely valuable commodities. In fact, if you were able to bring one ship of these spices back to Europe, well, you had intergenerational wealth. Okay, you became one of the wealthiest people in Europe. That's how valuable these spices were.

And so now the Spanish and the Portuguese have no choice but to discover new routes to these Indies. So they went this way. And this is hard because Africa is not really hospitable. There are a lot of viruses, diseases in Africa. So they started to explore all around the world and they went to North America and South America. And when they went to North and South America, they discovered that there were already peoples, the Aztecs, the Incas, living there and they had a lot of wealth because these were empires and they could easily conquer.

And so they set up these colonies all over South America and a lot of silver was now being transported back to Spain. And so overnight, Spain became extremely wealthy. But as we discussed last class, if you become too wealthy and too powerful, you change as a people. Before, you were energetic, you were open. You were cohesive. That's what made you an empire. But now with all this wealth, you become insular. You become arrogant and you become extremely closed-minded. Okay? You become lazy. And so the Spanish, they had all this wealth and they decided that they really don't want to work anymore.

Okay? So what happened? Well, what happened was that they started to subcontract their labor to other places. Okay. So now what's going to happen is you will have the rise of England, the French and the Dutch Republic mainly. Okay. To provide textiles, luxury goods to Spain, right? So how this was accomplished was, first, industry. So the Spanish, because they were so wealthy, didn't want to work and their people didn't have to work either. Okay? But they wanted to buy clothes, nice clothes. So what happened was they got other nations to be the factories, including Britain, the Dutch Republic and France.

Okay, that's the first thing. The second thing that happened was trade. Okay, so the Spanish did engage in trade, but now that they're so wealthy, they could just hire the Dutch to do it. Okay. Now, the Dutch were responsible for going to the East Indies and bringing back the spices because it's a very dangerous job, right? You could get sick, you could die along the way. You could also lose a lot of money. Okay? And the reason why the Dutch agreed to this is that the Dutch were basically a colony of the Spanish.

So, the Spanish had an empire and the Dutch were part of this empire. So they just made the Dutch go do it for them. Okay. But the third thing was piracy. Okay. So all this silver was being transported from the New World back to Spain. And what the English realized is, hey, we can engage in piracy and steal this silver for ourselves.

All right. So now the English became very wealthy because of piracy. Okay. And the most famous pirate of this time of course was Sir Francis Drake, and he worked directly under the monarch Elizabeth the First. Okay. So this was state-sponsored piracy that made Britain very wealthy. Okay. So now you have this divergence where, okay, you have the Spanish Empire and because of their wealth they became lazy, insular and arrogant, or the word we use is Okay, lazy is you just make others do it for you. Okay, insular just means that now, as we discussed last class, the Spanish aren't concerned about other nations.

They think they're invincible, so they engage in court politics. Okay, they're all infighting for the throne. The last thing is arrogant, hubris, which basically means that you believe you are invincible. You can do whatever you want and therefore you start all these wars against everyone everywhere. You overextend yourself and you don't really understand your limitations as an empire. So very quickly, even though Spain becomes very wealthy very fast, they also go bankrupt very fast because they're fighting too many wars, they're spending too much money that they don't have. Okay? And they're too corrupt.

Okay? Does that make sense? And because of this, what's happening is that the British, England, the Dutch and the French are slowly becoming a much more open and cohesive society, cohesion. Okay. And now that you have this differentiation, what's going to happen is that the religion is going to change. Okay? So, Spain remains Catholic and it's going to fight to control the Vatican. And this, okay, so that's what Spain does. Now Britain and the Dutch need to differentiate themselves from Spain and so they become Protestant, or we call it Calvinist.

Okay. So Catholic is really about obeying authority but the Protestant, the Calvinist religion, insists on hard work, on energy, on obtaining wealth. Okay. The problem though is that the Spanish are too powerful and the French, some of them are Calvinist but most are Catholic. Okay. So what's going to happen is that the English and the Dutch are going to decide to join forces. Okay. So I want to very quickly show you the difference between the Catholic religion and the Protestant religion. Okay. So these are the Spanish and as you can see there's a lot of trade going between the New World and Spain.

Why is this the case? Because Spain is extracting resources from the New World, primarily silver. Okay. The French are also engaged in trade as well. So what they really want is fur from North America. So fur is a luxury at that time. But as you can see from this map, the people that are really engaged in trade, engaged in piracy, in trade, in shipping are the British, okay, and the Dutch. And the reason why is that they're poor. Okay? And so through this hard work, they become very wealthy very quickly.

In fact, the Dutch become the wealthiest nation in the world per capita. You have this burgeoning of the middle class. And so what happens now is that the Spanish and the Dutch come into conflict because, remember, the Dutch are a colony of the Spanish and so the Spaniards want the Dutch to pay more taxes and the Dutch want to be more independent. So this starts a series of wars. Okay, in fact an entire series of wars starts throughout Europe called the 30 years Okay. So, ostensibly it's a religious conflict between the Protestants and the Catholics.

But there are other underlying factors as well. Okay. Another factor is the Spaniards want to exert control over the Dutch. Okay. And so there are lots of different reasons but the main thing you need to know is that millions and millions of people die. In fact, it is the deadliest war in Europe up until World War I. Okay? And so this creates anxiety in Europe because if there's all this war and you're gaining all this wealth, how do you keep this wealth secure, right?

You're a merchant, you became very wealthy through trade by going to the East Indies and getting spices and coming back to Europe and selling them. But if the Spanish or the French are going to send an army and steal everything, how do you keep your gold safe? Okay. So, what's going to happen is this. What's going to happen is that the British and the Dutch are going to decide to get married. Okay, this is what we call the Glorious Revolution. 1688 Glorious Revolution. So, let's talk about the Glorious Revolution.

So ostensibly the reason is religious because chi was Catholic and Britain is a Protestant country, but the real reason is the nobility want to exert authority over the country. Okay. So in this agreement what would happen is that Parliament becomes the sovereign state. Okay. It becomes the de facto power in England and the king, William of Orange, agrees to be the puppet or the figurehead, but the real power is in Parliament, and so this creates the idea of national sovereignty. Okay, what people don't appreciate is that the real reason why they want to do that is they want to protect capital, okay, or transnational.

So, the idea is that not only does William of Orange come over, but most of the Dutch wealth comes over, because remember at this time the Dutch have a huge problem. They're constantly being invaded by Spain. So, what you do is you take all the gold in the Dutch Republic and you transfer it over to England. Okay. And so in 1694 they create, the idea is this. The idea is that if you buy into the Bank of England, that gold is yours. Okay? But the Bank of England will always be guaranteed by Parliament.

All right. So this is a very important idea, guys. I need you to understand this for the rest of the semester. Okay. So before, if you're a king and you need to go fight a war, you borrow money from bankers and merchants, right? The problem though is that one, you could lose the war, in which case, oops. Second, you could die, in which case, oops. And the third problem is that you could just say, I'm king. I'm not going to give you back your money.

Okay. And so these merchants would have no choice but to try to create a revolution. Okay. But as a merchant, as a capitalist, you don't want to go through this process. And so the Bank of England is really important because now you are lending money not to the king but to the nation.

Okay. What this means is that the nation has to pay you back. So even though the king dies, the people are liable for the debt. Okay? Does that make sense? All right. So now if you're a merchant, you feel safe. I can now put my money in the Bank of England. It's my money. If I lend it to the nation, I'm always guaranteed that they'll pay me back.

And England is safe because unlike the Dutch Republic, England is an island and therefore it's protected by the Royal Navy. It's impossible for the French, the Habsburg Empire or the Spanish to invade England. They were never able to conquer England and so it makes England safe. Okay. All right. So now the question is, why would the Dutch put their money in England? Because remember at this time they just screw you over. Okay. So the way around this is you have some old techniques, you have intermarriage, and you have religion, or we call it secret societies, because remember both the Dutch Republic and England are Calvinists.

Okay. And the major society that facilitated trade of course was the Freemasons. But during this time these too were really between aristocrats and the Bank of England was trying to get as much money as possible. Right? So what they started to develop was a new concept. It's not a new concept but they really systematized it. It's called contract law.

All right. So there's a famous British philosopher named John Locke and he said, what is government for? Government provides the inalienable right to life, liberty and the pursuit of property. All right. What that means is a government ensures you three rights. We will protect your safety. We'll make sure you won't die. Okay. We will make sure you have the right to do whatever you want, liberty. And also we will protect your private Okay. The entire purpose of Parliament and the courts, okay, the judicial system, is to ensure that your private property is protected no matter where your private property came from.

Okay? It doesn't matter. They don't care what the origin of private property is. Okay? So, if you're French and you killed a million people to steal a million gold, they don't care. It's yours. It's Okay. And they believe that this private property comes from God.

All right. This is yours because God willed it to be yours and we, England, must protect it and they will do so through Parliament and through the court system. Okay? Does that make sense? So now if you're wealthy in Europe, you're now encouraged to go invest in England. Okay? And this creates a concept that today we call an offshore financial center, OFC. Okay? So think of Dubai or Hong Kong, where they don't care where the money comes from. Okay, their legal system, the financial system will help protect this money. Okay, also Switzerland.

Okay, so Switzerland is a classic example. But England created this and they based their entire nation around this idea. Okay. Now the first major test of the system was Napoleon, because Napoleon was about to conquer Europe and England couldn't have that, because if Napoleon conquered Europe then Napoleon could control all the wealth of Europe. He could make sure that no wealth is transferred over to England. He would basically blockade England. So what Britain did was they financed seven wars against Napoleon and they lost six of these wars and they won the last war, which quit the British Empire.

Okay. So now Britain is a global financial empire. Okay. So this is the East India Company. Okay. And the East India Company is based in Britain and, like the Bank of England, is private, and what it does is it primarily engages in trade with India as well as the East Indies. Okay. So what England will do is they will colonize India and steal all the wealth of India, primarily by de-industrializing India. So India had textile factories but England through a lot of policies just bankrupted the Indian textile industry and transferred it over to England.

Okay. So now what's going to happen is this. What's going to happen is that resources from England, sorry, resources from India, okay, agricultural products, resources, are going to transfer over to England. England is going to, with its factories, make goods for India. So basically the entire deal is we, Britain, give you, India, $10 and you give us $1,000. Okay. So basically we give you a dollar for the goods you give us and then you pay us $1,000 for the goods we give you. Okay. So very quickly this backup England but not only sorry this sorry this back to India.

Okay, but not only that but you also have China as well and the same idea was the opium went into China and then silver and money went back to England.

And then this money was allowed to go over to the United States. The United States industrialized very quickly because of this policy. Now the question is, how was England able to do this? How is England able to create a system in which India and China basically voluntarily gave up their wealth? And the answer is England simply game that incentivized the local elites to England. Okay. So this is what happened. So this is a map of the British Empire. Okay. So let's look at India and China.

The local elites had to help the British do this. Okay, the local elites had to help the British steal. The question then is, why would the local elites do that? Okay, and the reason why is, remember from last class, the local elites are in conflict with each other anyway. Okay? And what they're looking for is more power. And so what England said to local elites is, if you help us, we will help you steal the gold from this country. Okay? Do you understand?

If you were an elite and you lost a war or other people didn't like you, they could kill you. But now if you help the British, you can transfer your wealth and your children abroad. Okay? Does that make sense? So now what's going to happen is that the elite are going to be able to send their children and their wealth to the British Empire. Okay.

Okay. And there are certain mechanisms that allow them to accomplish this. The first mechanism is of course finance. Not only are you allowed to transfer your capital to the United Kingdom and its colonies, but they will disguise it for you. This is what we call money laundering. Okay? Money laundering.

So when you steal from your people, not only will Britain allow you to do this, but they will disguise it for you, okay? Through their offshore financial centers, including Hong Kong, Singapore, their lawyers will pretend that this money came not from drugs, not from gambling, not from prostitution, but from restaurants, from real estate. Who cares? Okay? But they'll clean it up for you. Okay? We call this money laundering. And then they will help you send it overseas where it becomes legitimate. Okay. So now you have real estate investments in Australia or Canada.

Okay. All right. So this is a global money laundering system that encourages the local elites to be corrupt. Okay. It protects them in the corruption and incentivizes them in the corruption. Okay? Does it make sense?

And as a result, you slowly come to believe that the British are superior to us. And therefore, I should try my best to be British. Okay? And also, what's really important is that the schooling system allows for Okay. So, if you are a really smart person in China, well, there's really little mobility for you in China. But if you go for the British system, you might win a scholarship to go study at Oxford or Cambridge. Okay? You even might become a Rhodes Scholar.

So, a Rhodes Scholar, it's basically a secret society. Okay, guys, but the idea is that all over the British Empire, the very best students will be selected to go to Oxford where they become best friends. Okay, and their mission will be to spread the power of the British Empire all around the world and it works really well. Okay, this is an indoctrination system for local elites and it works really well because remember if you're a really smart person, the British offer you more opportunities for mobility than your own country, because in your own country the system is very hierarchical.

It's static. There's really no mobility, right? But if you're really smart and you obey the British and you believe that British culture is the very best in the world, you might become a Rhodes Scholar and then you become part of the British Empire. Okay? And that's how the British were able to conquer the world. And the third thing, of course, is the navy. Basically, the navy ensured that Britain was the greatest military power in the world. If they didn't like you, they would come and destroy you. Okay? That's what happened to China during the Opium Wars.

There's nothing that could destroy the navy. And so these three things, okay, finance, the Bank of England, basically; schooling, or the idea of soft power, British culture, English; okay, and the third thing is the navy, created really the world's first great world empire. So as you can see, Britain spread all around the world, okay, and so even though the British Empire is no longer around, it's now the American empire higher even though the opium trade has stopped. What's important for us to understand is the game is still being played today.

So let me give you an example of this. This is the drug trade in the world. Okay. And as you can see the drug trade, okay, primarily cocaine. We're talking about cocaine. There are other types of drugs as well, but let's focus on cocaine. You can see it's global, just like a lot of cocaine is produced in Colombia and South America and then it just travels all around the world. It's a very sophisticated system of trade. Okay. But what you need to understand is none of this would be possible without the British financial and legal system.

Okay? Because why are people taking such a risk and selling drugs? Because it's so lucrative. It's so profitable. But you can only have this market if it's being protected by a legal and financial system. Okay? People only participate in this trade, it's dangerous, but they only participate in this trade if they can be guaranteed that they can make a lot of money and they can use this money and protect this money. Okay. So what protects this money of course is the centers. Okay. So the green areas in the world are where you can place your money.

They won't ask where the money came from. They don't care where the money came from and they will clean it up for you. Okay? Money laundering. They will use their sophisticated legal and financial systems to clean up your money and then they will help you invest it elsewhere. Okay? Does it make sense? So guess what? Look at this. Where are the major global financial offshore centers? Well, they're in the Caribbean. Okay? They're in Panama. They are in northern Europe. They are in the Middle East. They are in Southeast Asia.

Hong Kong, Singapore, Japan. Guess what, guys? This used to be the former British Empire. Okay. So the British Empire is still around today, but they transformed from one that is overt and that uses military power in order to control the world to one that is covert, that is secret, and that uses financial and legal means in order to control the world. Okay? And it's still the game that we play today. All right? Now there's a question that someone asked me. Okay, it's a very good question.

The question is this. If offshore financial centers like Hong Kong and Dubai are so profitable and it's such easy money, why doesn't everyone do it? It's a good question, okay? And the logic is very simple. We know that gambling, prostitution, human trafficking, slavery are all profitable. Why doesn't everyone do it? Because it's immoral.

As a society, you need morality to create energy, openness, and cohesion, right? People want to feel as though they're part of something good, that we're serving a higher cause. And if you're all about slavery or prostitution or gambling or money laundering, people won't feel good about themselves. In fact, the souls become corrupted. Okay, so the classic example is Hong Kong, right? Have you guys been to Hong Kong? One of the wealthiest cities in the world, right? Lots and lots of skyscrapers. But guess what? The people there are disgusting.

They're depraved. They're unethical. They're disgusting. There's actually no culture to the place. There's no morality to the place. It's actually disgusting. Okay? I don't want to live there. And if you live there, guess what? Your soul is going to become corrupted. So this is almost, you would say, a demonic system. This system is not only evil but it facilitates evil. It is the work of Satan. Okay. But unfortunately this is a system that we live in today. So even though everyone will say this isn't demonic, it really underpins the world today, because if you think about it, okay, all this corrupt money from China, India, Malaysia goes to these places.

But then this money goes where? It goes over to Australia to invest in real estate. Okay, do you guys know what the biggest industry in Australia is? It's banking. Okay, banking. Which means that Australia also engages in money laundering, but they clean it up. So people aren't aware of this. Do you understand? But the same happens in Canada as well. Canada, the United States as well. So this entire world is based on stealing from the third world and transferring this money to the first world. That's all it is. Okay? It's that But this has led to a huge problem.

The problem is what we call over But over-financialization, it's a very similar concept where there's too much money. So people become corrupt, lazy, arrogant, and insular. And that's what's happening in Canada, in the United States, in Britain, in Okay? And so really, an empire must collapse at some point. So the British, the Western world, they are a victim of their own success. Okay? So they stole all this money from the rest of the world. But this money has made their people lazy, corrupt, and arrogant. And that's why we're seeing so much conflict right now in the Western world, because this money has created a lot of inequality in the Western world, right, where maybe 1% have all the money and 99% have very little to get by on, but you also have a lot of corruption where the political system no longer serves the interest of the people.

It only serves the interests of the rich. Okay? And then you will also have immorality where nowadays people are only concerned about making money. They don't want to contribute to the community. Okay. So yes, we can say that the Western world is evil because they've stolen all this money. But really what's happened is that they've corrupted and destroyed themselves because this model has been too successful for them. Okay. And that's why we're seeing so much chaos in the world today. So, we are really at a game reset or a game's end and a new game is about to emerge because this game right now is not sustainable.

Okay. All right. Any questions? Yeah. So if the success of the Western world leads to the corruption and, you know, the fall of the Western world, can we generalize that, you know, after success people will fall? Then what's the meaning of success? Okay, that's a great question. Okay, so if you know that when you become successful you will not be happy, why do people go and succeed? And okay, this is a really hard question to answer. Okay, so let me explain different layers. Okay, the first layer is this.

People know that wealth doesn't lead to happiness, right? What leads to happiness is family, love, community, meaning, purpose, generosity. Okay, that's what leads to happiness. The happiest people in the world tend to be religious. They tend to have families and they tend to be very kindhearted. So why do we have rich people? Because the game is structured so that everyone is forced to play. Okay? Meaning that we only care about people like Elon Musk or Jeff Bezos or Mark Zuckerberg. We worship the rich. Okay. And we hate the poor.

So, if you're homeless, we think it's because you deserve it. Because you're lazy, because you refuse to work. Okay. So, the game is set up so that we're focused on making money. Then the question is, why do you have this stupid game? And the answer, unfortunately, is that what we figured out is that this game, in the short term, not the long term, okay? We're talking decades, not centuries. In the short term, it's what makes your people the most energetic, open, cohesive, and the most likely to win against other nation states.

Okay? Does that make sense? So, in the long term, you get destroyed. Your people are destroyed. You're corrupt. You're corrupted by this game. But in the short term, it allows you to defeat other players. Okay? That's how the British were able to create the empire, because they defeated the French, they defeated the Germans, they defeated the Russians. Okay? And that forces the other players to play this game as well, because in the short term this game gives you huge advantages. Okay. So think of it as a zero-sum game.

Think of an Olympic game where, okay, Evan's going and competing in the 100-meter sprint and we know you shouldn't do drugs because drugs will destroy your body, right? And you could have a heart attack when you're 40. But they're like, "No, no, no. I really want to win this game." So one guy uses a drug and he wins. And the other players know about this and now they're forced to also use the same tactic. Okay? Do you understand? So it's a really unfortunate system in that this system can only lead to the unhappiness and immorality of people.

But people are too concerned about short-term rewards. Okay? If you don't play this game, then you get eliminated. Okay? What I'll discuss in the next class, okay, is the American Empire and how the American Empire changed this game, right? So, what the American Empire will do is it will add US dollars to this game. And it's important because it makes the game universal as well as easier to play. Okay? And then we'll look at how the system, capitalism, conquered the world. Okay? So it's a great question, but the reality is that if you cheat, if you do bad things, in the short term, you will win out even though in the long term it will lead to severe consequences for you and your people.

Okay, does it make sense? Okay. I mean, and it's also the same thing as, you know, rich people, right? Rich people, to get rich, will sacrifice their children's happiness. They will sacrifice their own But they think that this will lead to happiness in the future. It won't, but they believe it. Okay. So that's the great tragedy of this game. Does that make sense?