The Tao of Dow

All weekend long, the world’s “leaders” are scrambling to find a “solution” to the US credit downgrade “problem.” Better they should play a nice game of dominoes or maybe Parcheesi. No amount of tinkering with this or fiddling with that will solve the most fundamental problem with the world’s economy. The tinkering and fiddling is the problem.

Think of the number of economic transactions that occur each day on this planet. That toothbrush you (hopefully) used this morning was made by thousands upon thousands of people. Your cell phone? Don’t even try to grasp the number of thoughts and actions that went into it. No single person knows now to make even the simplest wooden pencil, let alone a computer or a car.

So how do these things come to be? No single mind conceives of the totality of anything more complicated than a wooden stick, though single minds can and do create wonderful things. No one person holds the key to all that is contained in a loaf of bread or a tin can or a tennis ball. These things come about because individual actors take the knowledge already accumulated and integrated by others and they add to it incrementally.

At first, the process was slow. It may have taken 10,000 years for the bow and arrow to develop fully. No one person got it right–it took the painful, slow accumulation of knowledge to result in a tool that fed and protected millions. Later, as better materials were discovered and better techniques developed, they were applied not only to weapons, but shelter, clothing, and innumerable other technologies, all of which benefited the species. Money is just the medium through which we conduct all these transactions. Money itself was a natural development–no one needed to plan it. It just occurred, little by precious little.

So as our leaders stew and fret about whether to raise this interest rate or bail out that country, economic transactions go merrily along by the quadrillion every second. Unfortunately, there is a catch. Because most countries have forced their citizens to use a particular form of currency, all those individual choices about what to buy and what to sell when and for how much are bound to a corrupt and hopelessly inefficient system. Political leaders have hijacked the system for their own benefit and for the benefit of their crony capitalist friends.

Read that last sentence again. Political leaders have hijacked the system for their own benefit and for the benefit of their crony capitalist friends. Liberals, you have been had. The poor are going to get crushed because you supported all this, thinking you were doing them good. For every person you helped, ten will starve when the system crashes. Conservatives, the jig is up–we will not tolerate crony capitalism any more.

So far, they have not been able to bring the whole system down, but they are about to. Here’s how it will happen.

First, governments will continue to do the only thing they really know how to do–create more money out of thin air. This is a bit like trying to outrun your shadow, failing, and then taking a snort of cocaine so you can run faster.*

Second, more people like you and me will realize that this is all a sham. Investors and other businesspeople will stop trusting the forms of money that governments have dictated we use. They will come to the (correct) conclusion that it is worthless and start using other means of exchange.

Third, frustrated that people won’t do what they are told, governments will call free market advocates traitors and terrorists and institute more aggressive laws to force people to comply with legal tender laws, industry regulations, and price freezes. None of it will work.

Fourth, all at once, the system will collapse. It could happen overnight or it could happen over a few weeks. When it does happen, there will be no stopping it. Because global economies are so interdependent, no one will escape.

Fifth, we will either come to our senses and allow people to exchange what they want, when they want to through any means of exchange they wish to use or we will succumb to the siren song of a “strong leader” who promise to save us from the ravages of the free market.

If we choose the former, we will rebuild a world in which the individual reigns supreme. We will all be better off for it, rich and poor alike. If we choose the latter, we will enter an age of darkness the likes of which we have not seen in centuries. May we choose wisely.


*Please do not try this.

About Terry Noel

I am an Associate Professor of Management and Quantitative Methods at Illinois State University. My specialty is entrepreneurship.
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