Wow. Silver has gone up 5 bucks an ounce in the last month, it’s currently around 23.30 an ounce. That’s about a 27% rise! Gold is approaching $1350 an ounce. There is now more gold in the hands of private investors than in central banks. There are a lot of people putting their money into metals instead of currency. Maybe they’re wrong, or maybe they know something…
There are two ways to get more money. People can willingly give you money in exchange for a good or service you offer. That’s business, trade, etc. The other way you can get more money is if you take it from someone else. That is commonly called theft.
If you want to discuss the morality of making money, just look at how they get it. In my view, earning money through selling goods or services is morally neutral. Of course, there might be a moral component to those goods and services, but as far as the act of making money goes, I don’t see any moral component to it, good or bad. Contrast that with theft, which is always a bad thing.
What’s interesting is how people see the fabulously wealthy. Somehow, without even thinking about it, the moral indignation of theft creeps into the conversation even though the money was voluntarily given to those people. There is an assumption that hedge fund managers, Wal Mart, athletes, etc. have somehow done something wrong by making all that money. There’s probably an historical bias there. Over the centuries, when someone became very wealthy, it usually did involve stealing money from someone. Various barons, conquistadors, armies, kings, etc. have made a habit of it. Modern day thugs such as Hugo Chavez, Kim Jong Il, Hosni Mubarak, etc. use a similar approach. Contrast those guys with Warren Buffet, JK Rowling, Bill Gates, Steve Jobs, and the like. Notice anything? Right, the first set of guys (why is it always guys?) use the power of governments to extract wealth from their populations. They are thieves. They get rich at the expense of someone else. As they get richer, others get poorer. The second set of guys made their money by offering services or products and getting paid for them. Trick question, who became poorer so that Bill Gates could make all that money?
The answer is of course no one. Wealth creators get rich without making anyone poorer. Yes, people had to give some of their money to Bill, but they got something back for it, it was an exchange. As a matter of fact, people got much more out of Bill’s products than what it cost them to buy them. Through trade, both parties are made better off. That’s trade for you, and it’s the appeal offered by actual free trade and capitalism.
“But that billion dollars they made could pay for 20,000 teachers!” That’s a different issue. You don’t like what they do with their money. I’ll first point out that it is always easier to allocate other people’s money (see congress for a prime example). I’ll also point out that they are not you and do not share your priorities. The fact that they don’t share your priorities is probably why they made a billion dollars… When you worry and fret about what people do with the money they make, try to remember all of the people that they made better off through their activities. It is that which made them rich. People had to decide that what they were offering was worth more than their money. The billionaires have already done a lot for society simply by offering a demanded service or product and they got rich as a reward for it. No, they probably won’t pay for 20,000 teachers, but they will do something with that money. They will reward someone else for services and products and the cycle goes on and on. Earning money is a great thing for everyone.
In my last post, I gave a defense of capitalism against a common critique (it’s exploitive, it’s evil, etc.) but I didn’t really talk about what it is. Capitalism is what happens when people are free to make the most of what they have. People have skills, education, money, land, etc. and they want to use those things to better themselves. That’s capitalism. It is something that occurs naturally, it isn’t something you can legislate or put into action from on high. A government can do little but impede it. Capitalism is a “ground up” as opposed to a “top down” phenomena. Clearly, free trade is involved in this too, they are related, but not exactly the same thing.
Here’s the thing about capitalism, what it looks like will vary depending on what system it is in. What many people decry as capitalism is really the effect of being in a system where influence is being sold. There is a big difference between crony capitalism and free market capitalism. Here in the US, companies routinely get special breaks, incentives, and outright subsidies from the government. Strangely enough, people tend to get angry with the companies instead of the system that allows them, encourages them actually, to purchase that influence. Why get angry at the people asking when you cold get angry at the people selling the influence? Cronyism is a feature of a government with too much influence.
Capitalism happens regardless of what system is implemented in the government. The uglier the capitalism is, usually the stricter the government control of it is. The overall impact of capitalism will be better the more freedom there is. Black markets usually breed violence as they run up against government authority. With true free markets, violence just isn’t worth it. Free markets also allow people to improve themselves as they accumulate capital. That capital may be in the form of money and the things you can get with money, but often times it takes the form of improved skills. This is why easy entry into the job market is so crucial. Developing skills is the surest way to increase pay. If you have no skills, or very few, you are going to have to start at the low end of the pay scale. As you develop more skills, capitalism will allow you to parley them into better jobs. Having a large pool of skilled workers will allow countries’ overall wages to climb.
Capitalism is something that is done by individuals trying to make the most of what they have. INothing wrong with that. n my view, anything that tries to limit that is the true evil.
A friend just posted this to his facebook profile:
Groan, where do I start? How about the beginning… First off, capitalism does not require a “disposable population.” People do not have to toil in “sweatshops” or fields. They really don’t. We could have machines do everything they do. So, would those people suddenly be better off when relieved of their jobs?
The fact that they are able to be employed for less than a machine would cost is their primary attraction. If companies are not allowed to make things in China, Vietnam, India etc. then they will make them domestically on machines or they won’t be made at all. So who is made better off in that situation? There are fewer things made and fewer people employed. By allowing companies to offer jobs in those places, people are employed, and the product is made for whoever wants it. Yes, some people make more than others, some will become rich, but it’s not as though they don’t have to trade for that prosperity. Through cooperation, everyone is made better off. That’s capitalism. You say that one group shouldn’t benefit so much more? Well, maybe (I don’t think so myself) but the fact is that is the only way these things get done at all. Without the potential of making a ton, the venture doesn’t start. Of course, most of those things don’t work out, and the capitalist loses everything while the workers have been paid. Risk vs. reward, it’s the nature of the beast.
Wars are fought for resources, but who wages those? Governments do. Whenever there is violence, you will find politics just under the surface. Whether it is about diamonds, oil, land, or whatever, violence is used to further political ends, and that usually translates to power. Capitalism relies on free trade between free people. Wars are waged by central authorities looking out for their own interests. Remember, countries that trade heavily with each other rarely fight each other.
The environmental impact is a problematic issue. Seemingly every country that industrializes goes through a period of rampant pollution. England, the US, France, Russia, they all had awful environmental track records. Remember Love Canal? How about the Cuyahoga River catching on fire? As these places got richer and richer, there was a lower and lower tolerance for pollution. The same thing is happening in China, give them some time. Where this won’t happen is where the government owns the polluting industry and benefits from it. China is an odd exception, they have walked the line between private and public ownership and they have had mixed results. One thing that has become clear over the years is that it’s almost never too late to clean things up. It isn’t clear how to avoid these problems and allow the areas to develop economically. History has shown us that if people have their say, awful pollution is a temporary situation. Poverty and pollution always go together. Fix the first and it will fix the second automatically.
The bottom line is that capitalism is a wondrous thing when it is allowed to work. It breeds cooperation, higher living standards (including a distaste for pollution), and an endless variety of things that people can choose as a profession. Economic growth takes time. People, and countries, have to start at the beginning, but recent history has shown how, within a few generations, wonderful things can occur. The really important thing to remember is that capitalism is the only way to achieve this. The more you veer away from capitalism, the lower the standard of living and the less progress there is. If you want to better people’s lives, let capitalism take place. All it takes is freedom to let that happen.
Inflation is the general rise in prices. We get less stuff for the same amount of money. When you look at it in that way, inflation is obviously bad. Our money is worth less since we can’t buy as much with it. Any money we have, or will get in the future isn’t worth as much. This is what leads to the inevitable reminisces of “I could buy a zillion pounds of x for 10 cents!” when talking about our childhood.
All of us have lived with inflation over the years, mostly of the incremental variety although there was a time in the 70’s when it was a little more aggressive. This was accomplished by manipulations of the federal reserve. You see, causing inflation is pretty easy, all you have to do is create more money and things get more expensive. Why would they do that? A lot of it has to do with fear and political pressure.
It’s like this, as long as there is a moderate amount of inflation, all costs, including the cost of labor go up. People are fooled into thinking that they are actually making more money, that they can actually buy more, at least over the short term. Eventually, they catch on and demand more money, and then a little inflation kicks in and they are happy. There is an irrational fear of deflation, any movement downwards in the amount in the paycheck make people freak out.
That’s what deflation might bring, but what does it mean? When there is deflation, money increases in value. Things drop in price, so we can buy more with any given amount of money. The trick is that wages are just more things, and they will drop if there is general deflation. Never mind that everything else is dropping in price too. Somehow wages rising in order to keep up with inflation doesn’t cause any consternation at all whereas wages dropping to keep track with deflation will cause riots. Never mind that inflation kills value, never mind that inflation kills savings.
And that’s the real crux of the issue. Americans do not, in general save. If we were a nation of savers, we would welcome deflation with open arms. Deflation would make our savings worth that much more. Instead, we are a nation of debtors. As deflation sets in, debts are more difficult to pay back, all debts. That includes mortgages, credit cards, and T bills.
No, inflation suits us much better. The more inflation there is, the easier it is to pay off debts. Inflationary pressure is built into the very foundation of the banking and financial sector. It encourages people to incur debts, hell, it encourages governments to incur debt. It simultaneously makes it more difficult to save. In addition to have to get paid enough in order to forgo spending the money right away (i.e. interest) we also need to make enough to cover the devaluation of our savings (i.e. inflation).
Imagine a world in which currency continued to increase in value over time. We would be regaled with stories of how our grandparents were paid with $100 bills whereas we now count our micropennies with care. Imagine a world where depositing 10% of your paycheck in the bank would accrue value just sitting there, where the fifty dollars you made last year can now actually buy you more now than then. Imagine how important it would be to save instead of spend…
That’s fantasy of course, there are some real complications of a constantly deflating currency but I mention it just to point out how fully we have incorporated expectations of inflation. Our inclination is to spend and go in debt first. We have seen the results of too much debt when the economy doesn’t do so well. As someone that doesn’t hold any debt and has a small amount of money set aside, I wouldn’t mind some deflation at all. Instead, I am sure that the Fed will do anything it can to prevent it, and therefore overshoot and cause larger inflation that is necessary. Hold on to your hats folks, it could get a little wild…
CATO’s Christopher Preeble makes a lot of sense in his post about Gates’s proposels for trimming down the military.
“Gates claims that the U.S. military needs to grow because the world is becoming “more dangerous.” More dangerous than what? The notion that a few hundred al Qaeda ragamuffins and their Taliban allies poses a greater threat to Americans than a nuclear-armed Soviet Union is absurd on its face, and yet we spend more on our military today than at the height of the Cold War.”
The plan to cut down on waste by shutting down the Joint Forces Command in Hampton has gotten the predictable responses from the local politicians. The senators, house members, the governor, and the local politicos are unanimous in declaring that the closing of that command will be disastrous to the national security of the nation… oh, and it will adversely affect the local economy too. If military spending is going to be cut, things will have to go away. And guess what Virginia, states that have a heavy military presence are going to get things cut. Trying to make the case that everyone else in the country needs to support this base because Hampton will suffer is absurd. The fact that no one mentions the unfairness of this arrangement galls me. It’s one thing if the base actually does protect us in some way, but when the military itself considers it expendable, that should tell us something.
I suppose that this base actually did something at least. There are several senators and congressmen pursuing projects that the military has explicitly stated that they do not want and will not use. This doesn’t stop politicians from trying to waste our money for their voters. The building of an alternate engine for the joint strike fighter and the C-17 airplane are conspicuous in their egregious waste of money. These are projects that will not be used, but politicians are pushing them to create jobs in their districts. It’s akin to paying people to dig holes and then fill them in again.
I need to stop reading the news, all of this makes me sick.
I am buying silver bullion with my Amazon credit card rewards. Put another way, I am using the rewards I get for indebtedness to save long term.
Actually, this could make a lot of sense as long as bad inflation were a certainty. If you knew that the dollar would be devalued, it would make a lot of sense to wrack up debt in dollars to buy commodities (especially gold and silver) that will rise in value with a worthless dollar. It would be the best of both worlds, your debt would be reduced as inflation climbed, and your assets would climb as well. What could go wrong?
Well, the inflation might not happen, that’s what could happen. So for now I will still pay off the credit cards every month but use my rewards to sock money away…
Previously, I linked to the American Open Currency Standard and said that I would look into what they were about. As it turns out, they are an organization that is trying to get people to use “hard currency” in the form of silver coins (or their backed currency I think). They have a variety of coins that have passed muster and carry their official blessing. I assume that any silver coins would work in their system, not sure what the appeal of their currency in particular is. They have over 22,000 merchants lined up that will accept their silver for payment.
The Free Lakota Bank takes it one step further. They actually are trying to make a go of doing a banking system with hard currency. There are no dollars talked about there, it is all ounces of silver. You deposit ounces of silver, you are charged fees in ounces of silver, and interest is paid in ounces of silver. Here’s as close to a mission statement as I can find from them:
“At the Free Lakota Bank, we issue, circulate and accept for deposit only AOCS Approved Silver currencies and other .999 fine silver bullion. Silver is a store of value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Since we deal only in real money, we do not participate in any central bank looting schemes.
Money is made possible only by those who produce. Paper is not money, instead merely a promise to pay. We hope that some day the rest of the world will awaken from the American Dream: the dream that a person can sustain life by consuming more than producing. We call it the American Dream because you must be asleep to believe it. Well, that dream now has a silver lining; as people discover the dream is really a nightmare, the only solution is a return to value: value that comes from production and honest trade.”
They offer a transactional account and an investment account. There is a one ounce per month fee for the transactional account and there is a dividend for the investment account, paid in silver of course.
I like what these folks are trying to do, I am a believer in both hard money and backed currencies, but they are fighting an uphill battle. As of right now, silver and gold meet one of the requirements of something being money, and fail two rather critical ones. The metals are an excellent store of value. Their value in terms of dollars varies over time, but it never goes away. You can compare the metals to any currency and find that they always have value. You can’t say that about every currency though. Gold and silver have an issue with portability. That stuff weighs a lot. Right now, with silver at all time highs (forgetting the Hunt brothers nonsense) a 100 bucks would be more than I would want to carry around coming in at just under 4 ounces. You can get around this with metal backed currency, but then you run into some of the same problems you do with any currency. Specifically, it is very difficult to ascertain if the currency really is backed up by actual metal. Whoever printed it could, you know, just print it up. Kind of defeats the whole point of hard money.
The big problem facing all hard money proponents is the minor issue that most people and businesses will not accept it in exchange for goods and services. Seeing as that is the most basic definition of money, it’s kind of a show stopper. Until I can walk into a 7-11 and pay for stuff with silver (or copper), it isn’t actually money. With bad enough inflation people’s minds might change, but it would have to be pretty bad. I wonder if anyone has tried a tax dodge by using the actual face values of coins? 1 oz. American eagle gold coins have a face value of $50. That’s a laugh of course because the gold in the coin is worth over $1200 at this point. Here’s the potential scenario. What if you buy something big, like a house or a car with gold coins? The value of the thing would be covered by the value of the gold, but you could report a legitimate cash transaction at 1/24th the value! Hmmm, I wonder if that’s legal?
I received my Amero coins the other day and they are gorgeous. These are really little works of art, and they are more of a collector’s thing than a money thing. I will say this, there is something deeply satisfying in holding an ounce of metal in your hand. There is also something very nice about the fact that it has a value intrinsic to it, no matter what is printed on it or where it is from. Paper money seems pretty lame next to it and in the hand. I think the next coin I get will be a Canadian Maple Leaf. They aren’t collectable so I won’t mind carrying one around with me to show to people. Plus, I can get them with my Amazon rewards points:-)
I promise I’ll shut up about this soon, but I’ve got long term money on the brain right now. Silver and gold are going to play a role in my future, especially if the dollar keeps getting devalued…
My 401k has been rather disappointing the last couple of years, I’m sure I’m not alone in that either. I, like everyone else, had a massive drop in value in 2008, got about half of that back in 2009, and it has been piddling along ever since. A big problem for me is the lack of flexibility in my 401k accounts. One of the really cool things about my current 401k is that I am allowed to do my own stock decisions. The ones I had before only allowed me to pick from a handful of mutual funds, now I can pick from any of them or from any stock.
Yes, that has its dangers, but there is a lot of potential as well, especially with the current economic situation. I don’t think that any mutual fund or index fund is going to trend in a positive direction any time soon. Here’s my plan, I am going to concentrate in stable businesses that aren’t going anywhere, have low levels of debt, and most importantly, pay decent dividends. If stocks are going to be going down, I might as well have some that will allow me to add shares so I can benefit when things turn around. I’m still undecided on what to do with my Apple shares. I do think we’re going to continue to go up in value, but I’m always nervous about tech stocks. A large part of me says I should take my profits and pour them into a long term position, but we’ll see when I get my shares…
There are also a handful of speculative stocks that i would like to buy as well. These are are true penny stocks, most of them trading below a buck a share. Here’s the thing, if a share is only 50 cents, a move of 50 cents will net me 100% return, more than that would be wonderful as well… And since they are so cheap, I won’t be risking much money on them. There is an outside chance they could blow up for crazy money, but the key will be the small movements. Once again, low debt, good cash flow, and possible break outs are the keys with those guys. It’s worth a flier in a gloomy economic climate.
It’s also a good idea to keep a certain amount in cash. I am truly, really afraid of big time inflation coming our way, so I am going to avoid CDs for the time being. Instead, I am going to put my money in metals. Gold and silver are expensive right now, but they continue to rise in price. Plus, my worldview is such that even if the dollar does become stronger against the metals I think it would be a good idea to have a position in them.
We’ll see what the future brings economy-wise. I hope that things are not going to be as bad as I think they will be, but I will be prepared if they are. With any luck I’ll be in a stronger position this time next year, wish me luck! Here’s to a return of a healthy economy and a strong dollar!
I subscribe to a financial news service, one that is aligned along the ways I think about the economy and has more than a little Austrian econ flavor. Anyway, one of their commentors was discussing all of these countries with all of their financial issues. He pointed out that huge debts and deficits are common during times of war. Wars are expensive and there is a lot at stake. Sometimes, you have to deficit spend just to keep the barbarians from breaking down the gates.
Here’s the thing, the wave of budget problems, enormous deficits, and ballooning debts sweeping across countries had almost nothing to do with war. Countries seem to be running themselves into the ground by just doing business as usual. That should make everyone pause and question what the government should really be doing, and yet that doesn’t seem to be happening to any great extent.
Yes, the US is fighting a war, and it does have a big effect on our bottom line. But what about Ireland? Greece? California? What excuse do they have? What excuse do the people living there have? Will the US be able to cope with a war AND ballooning deficits and debt? We’ll see, but seeing how some of the European nations have fared doesn’t make me real optimistic…