US stocks and gold were calm on Friday. Nothing much to report.
So, we’ll return to a subject we’ve been working on: the real difference between civilization and barbarism.
Why does this matter to you?
Because it is critical to understanding what money is… why the Fed will fail… why the dollar will disappear… and why you should own gold.
It’s something that has been a big focus at Bonner & Partners Family Office, the family wealth investment advisory service my eldest son, Will, and I started four years ago.
Our goal is to turn individual wealth into family wealth. And that means making sure it’s there for generations to come. Obviously, these questions are foremost in our minds.
Most investors have timeframes of years, maybe even decades, but not generations. The dollar might fare okay over the short run. But over the long run, its track record as a store of wealth has been abysmal.
And the Fed is only getting into its stride now!
Two Phases of Human History
It is becoming clearer and clearer to us. Perhaps we have been drinking too much. Or maybe we have had a stroke. But we see two major phases of human history.
The first: “nasty, brutish and short,” to borrow a phrase from English political philosopher Thomas Hobbes.
The second: a civilized world with frequent relapses into barbarity.
Look what happened many thousands of years before “civilization” first appeared in Egypt, Mesopotamia, India and China?
We don’t really know. We weren’t there. But let’s take a guess.
Everybody wants to get ahead – by getting more money, more power or more status than his neighbors. How do you do that today? You invent a killer app! Or you set up a hedge fund. Or you write a best-selling novel. You can compete by trying to achieve something important.
Or you can run for Congress.
But how could you get ahead in the days before moveable type, agriculture and Facebook?
What could you invent? Nothing. There was so little old technology in use that there was almost no room for new technology. No wheels. No power. No electronics or mechanics.
What about success in business or investment? Forget it. Capitalism hadn’t evolved yet.
What about art? Music? From what we’ve seen on the walls of caves, art was very… well… primitive. For most of his time on earth – about 200,000 years – man lived so near the edge of survival that there was little surplus available to support the arts or an elaborate culture. Until about 5,000 years ago, there were no musical instruments, no writing of any sort, no sophisticated tools.
How then did men compete? How did they show each other who was boss? Again, we don’t know. But it seems most likely that they competed at hunting… and fighting.
A primitive man could really only gain an advantage by killing something – just like other predators in the animal kingdom.
Rousseau’s idea of the noble savage was an illusion. Studies of pre-civilized tribes suggest that man gained the most status by killing another man.
Tribes living on the American plains continued this custom until only about 150 years ago, taking the scalps of their slain enemies as proof of their “achievement.”
Even in the time of the Roman Empire, the highest honor a Roman general could receive was for killing an opposing general in personal combat.
How to Get Rich
With some important exceptions, there was no way to get rich in the ancient world, except by taking someone else’s property.
This is what people did… or tried to do.
Until the advent of capitalism, it was the only way to get ahead. You took someone else’s land, his wives and his family – turning as many as possible into slaves. In North and South America, for example, until deep into the 19th century, native tribes typically killed their male enemies… and took their women and children into captivity.
In supposedly civilized communities, too, slavery was popular. Owning slaves was not only acceptable, it was a mark of superiority.
The more slaves you had, the higher your social rank. Slave-holding was so much a part of life that even Christ – who preached “love thy neighbor” – made no mention of it.
And the US Constitution – a blueprint for the most civilized political system yet designed – also tolerated slavery by omission.
Today, the pay-off from slavery and murder is less sure. We still put elk heads on our walls. We still award medals to particularly good soldiers. But we live in a society that is basically civilized.
And in civilized life, killing other people is generally frowned upon, if not censured, proscribed and punished. Slavery has been abolished in most of the world. We still have wage slaves… and tax slaves. But chattel slavery has largely disappeared.
Today, we channel our competitive urges into many different activities. Some people drive expensive cars. Some build mega-mansions. We have team sports, including American football, in which one team acts as though it were trying to kill the other.
But it is in business, careers and investment that people find competition most rewarding. Traders on Wall Street talk about “ripping the faces off” their rivals. Entrepreneurs read about military strategists Sun Tzu and Carl von Clausewitz for hints on how to win their next campaign.
And now, thanks to modern capitalism, you can get wealthy without taking anything away from others. Wealth is no longer a zero-sum game. The world’s wealth can be increased by hard work, saving, innovation and investment.
People who succeed at capitalism gain wealth. And, in America, status too. They make themselves rich… and they enrich their neighbors in the process.
It’s not a perfect system. But it works remarkably well… if left alone.
To be continued…
Why Fed Policy Has Been a Dud
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
It’s official: QE doesn’t work…
At least not in the way the Fed claims it does.
One thing Fed policy can do is dramatically increase commercial banks’ excess reserves.
But as you can see from the chart above, these excess reserves just sit gathering dust at the Fed (which pays commercial banks interest on them).
The Fed says this isn’t a problem because, by evaporating yields on Treasury bonds, it is able to corral investors into stocks.
This, claims the Fed, will produce something called the “wealth effect.” And anyone with a stock market portfolio, seeing paper gains, will feel richer and go out and spend.
But as Lacy Hunt – a former chief US economist for British bank HSBC and a former senior economist at the Dallas Fed – points out, this is at odds with reality:
The Fed’s ad hoc analysis on this subject has been wrong and is in conflict with econometric studies. The studies suggest that when wealth rises or falls, consumer spending does not generally respond, or if it does respond, it does so feebly. During the run-up of stock and home prices over the past three years, the year-over-year growth in consumer spending has actually slowed sharply from over 5% in early 2011 to just 2.9% in the four quarters ending Q2.
Stock prices: up. Real estate prices: up. Consumer spending: down.
Fed policy, in this regard at least, has been a dud.