In the year 2015 we are more productive than we have ever been. The speed with which our levels of productivity have increased over the last 100 years are phenomenal, and that increase in productivity has been particularly sped up specifically over the last 40 years.
The reason for this dramatic improvement in productivity can be attributed to two main factors; oil and the micro-chip. Our human ability to develop tools that utilise these two things has allowed for a massive cost reduction in the production of energy, industrial goods and food. These cost savings are huge. We spend about half the money we earn on food, clothing and shelter. In the early 1900’s we spent almost 90% of the money we earn on the same three things.
This raises 5 very worrying questions.
We should have 40% more disposable income these days but why don’t we? Why are we not better off than previous generations gone by? Why are we more in debt as a society than our parents and grandparents where when they were our age? What is it that is costing us so much more money? What is it that is eating up this additional 40% disposable income in comparison to the mere 10% our ancestors in the early 1900’s had?
The answer in a nutshell is ‘The Government’. This is the single most expensive purchase anyone makes in their lifetime. Depending on where you live in the world 35-60% of every pound, dollar, euro, yuan or yen will go directly to the Government. Some of it is taxed at source from your salary, the rest is levied on goods such as VAT, and after that there is stealth tax on things like petrol for your car.
Nobel Prize winning author Albert Camus said, “The evil in the world almost always comes of ignorance, and good intentions may do as much harm as malevolence if they lack understanding”. This quote for me summarises exactly what went wrong to so many once prosperous societies. Let’s take Glasgow in Scotland for example; once a global super power due to its good fortune of being 100 nautical miles closer to Virginia, America than any other deep water port in Britain where they would trade tobacco throughout the 18th century and cotton for the majority of the 19th century and 100 nautical miles closer meant shorter and cheaper journey times of up to a whole week in some cases. Couple that with the fact that it was located well clear of the constant battles that raged between England and France where a lot of merchant ships coming into British ports further south around the French Channel would be destroyed by the French Navy as a way of putting economic pressure on us in an effort to dampen our wartime spending power then Glasgow was indeed poised to generate cash from international trade, un-interrupted in very favourable conditions.
As i mentioned at the start of this article, in the 18th century something very interesting happened – the commercial use of fossil fuels began to be used as a source of energy and this helped trigger the Industrial Revolution. By the mid-19th century from very modest beginnings of lighting and heating peoples homes at night-time, oil was beginning to be used as a very versatile form of fuel that could power automobiles, ships and eventually planes thus producing far more energy per pound than its fossil fuel predecessor ‘coal’. Ships were now faster and the fact Glasgow was 100 nautical miles closer than the next deep water port no longer gave a competitive advantage to Scottish based merchants, couple that with oil supplies becoming more abundant as drilling technology improved and huge caches of oil were being discovered such as Spindletop, Texas Oil was getting cheaper. Glasgow’s competitive advantage truly was thinning out fast, but centuries of enormous prosperity had produced a place that attracted the worlds best minds, innovators and engineers (they had the efficiency of a healthy, self-regulating economic ec0-system to fall back on and ill come back to this in more detail later). Due to a full century of prosperity in international trade and shipping the best ship builders and engineers all resided in and around the Clyde Canal, therefore Glasgow at the turn of the 20th century as their merchant shipping dominance wained was able to successfully pivot and become a world centre of industry and heavy engineering producing one fifth of the world’s ships. As the 20th century got under way they were also a centre for locomotive (trains) manufacture boasting the largest concentration of locomotive building works in Europe. On top of this, many of the worlds greatest inventors either came from Glasgow or moved to live there. It really was the Silicon Valley of its day.
So what changed? How did Glasgow go from being the locomotive production capital of Europe to the murder Capital of Europe and the socialist stronghold that it has been since the early 20th century until today? On the 28th July 1914 a global war erupted that would involve more than 70 million military personnel. It would become one of the largest wars in history, it would involve a majority percentage of the civilian male population in Britain and other European countries being ‘drafted’ as military conscripts, over 15 million people would die… and the government would start printing money to cover the costs that we weren’t ready for that arose because of the War in contrast to Germany who’s government had approved rising military expenditure until 1917, their economy was militarised and England’s was not which launched us head long into a humongous financial crisis. So how did the government deal with this financial crisis?
Like most Governments (even modern day ones) they only had three main ways to generate significant amounts of money to spend: taxes, borrow it (from other countries or from the domestic public) and to print it! An increase in taxation only covered about 40% of the wartime expenditure. The Government passed a law freeing money from the gold standard, meaning the pound was no longer backed by gold and the Bank of England was able to increase the availability of by printing it. This led to rampant inflation (rising prices) and as the price of goods doubles, so must the price of other things such as rent. If the landlords cost of food shopping and other living costs go up then so must the price of the apartment he rents out. The problem here is, how does someone further down the chain who lives in that property and works in the store where the landlord buys his food who’s employer hasn’t doubled her salary and who’s husband is away fighting for King and Country pay the increase in rent. The answer is… she can’t. This led to evictions, and that in turn led to mass protests. In once prosperous Scotland, women andchildren could now be seen outside housing blocks holding signs that read, “While my father is a prisoner in Germany, the landlord is attacking our home”, while landlords forcefully tried to enter the tenements to evict them and throw their possessions into the street.
Due to fear of public backlash at a time when the Government desperately needed the public to support the war efforts, the Government appeases and backs the social majority. The women, children and landlords were all victims of poor state policy and decision-making. Does the state or its bureaucrats suffer because they made the wrong decision? Of course not. This was a direct result of the Governments decision to implement the Currency and Bank Note Act of 1914 which de-linked gold from money and allowed them to start printing money in mass quantity without needing the necessary amount of gold required to back it. So how did the Government handle this tenant / landlord crisis erupting in Scotland? They made another law that restricted rent prices to what they were before the war. So due to poor Government policy and decision-making, the landlords suffered. So now the landlord couldn’t afford to buy the food he needs to support his family, he gets together with a whole other bunch of people who feel let down by the government and the government must appease them, so they decide to increase welfare spending to support these citizens. In order to do this they had to print even more money and so we go back to the start and you can see how this vicious cycle spirals out of control. Every time money is printed the value of each individual note and coin goes down, and the price of the goods it used to able to buy must go up. In Germany where they were also printing money to pay for the war and continued to do so to pay back post-war debt, things got so bad that a wheelbarrow full of German Marks (Germanys currency at the time) was worth less than wood so people would burn the money to stay warm because their money had been completely devalued. In 1923 one American dollar was worth 4,210,500,000,000 German Marks compared to 4.2 German Marks when the War began.
So where am i going with all this I hear you thinking. Well, the point I am trying to make is that a simple mistake that goes on being made even if the decision that led to that mistake was of good intention can actually be a pathway to destruction. Glasgow until this day has not been able to recover because as the government tries to help, things get worse. The more welfare money they give out the more people seek welfare money from the Government, unemployment grows & prosperity withers.
Ronald Reagan said, “We should measure welfare’s success by how many people leave welfare, not by how many are added”. Sadly nobody listened to that sliver of advise and the amount of welfare we pay out globally is of course at an all time high. The government prints more money and the economy continues to worsen. Through continuous poor policy-making we see events like the Iraq war costing in excess if $3 trillion dollars, the sub prime housing loan crisis nearly obliterated the U.S economy and Europe along with it resulting in the huge spike in creation (electronic printing) of trillions of dollars since 2008. This all contributes to a constant devaluation of the currency we hold in our bank accounts because of decade after decade of poor decision-making.
The economist John Kay wrote about a concept called “order without design” and I agree with this concept. What it refers to is the fact that evolution (of any market on its own without intervention) has a much better sense of what is good for it and ‘us’ than perhaps we do ourselves. The reason for this is because it is hard to overstate the mistakes and damage created in the past by policy makers who thought they knew more than perhaps they really did. For example, banking profits are ‘privatised’ but the risk the banks take is ‘socialised’ meaning that if they make good decisions, they profit and benefit privately, but if they make poor decisions and fail, they will be bailed out by the government, courtesy of the tax-paying public. So the regulation that was intended to help repair the economy through government bailout and welfare programs actually ends up having a far more negative long-term effect in that it incentivises recklessness from banks and laziness from individuals. As the problem gets worse the Government tries to solve the problem with more regulation and more policy making, as the Government allocates more tax revenue towards paying welfare so does it enable that group to grow exponentially which in turn creates a more powerful downward economic draft and prosperity sinks lower.
So perhaps we would be better off with less involvement from the state and let each economies own built in regulator called ‘bankruptcy’ help guide people to make good economic decisions rather than bad ones, because the fact is… if the Government or some of the ‘special interest’ groups it subsidises were actual businesses, they would have been bankrupt a long time ago.
Let me leave you with this quote:
“Who controls the money controls the world” – Henry Kissinger
So perhaps it’s about time we had a return to a more democratic form of money through the use of a peer 2 peer digital money system that controlled itself through incorruptible mathematics and could not have its supply increased under any circumstance. Meaning no quantitive easing, no deficit, no outrageous instances of hyperinflation and the State took a large step back in its involvement in our day to day lives. Lets see what happens, I think if this happens prosperity is inevitable.