What Investment Theme would seem Obvious to a 24th Century Historian?
When pondering over the past, it is tempting to regard social events and investment themes as – well – obvious. The famous ‘tulip bubble’ was obviously a temporary period of insanity. The debauched practices with the guillotine (of the French Revolution) were obviously hopelessly immoral. One would have steered clear of such folly, right?
Those of us enlightened with the principles of group behaviour attempt to avoid such temptations. Taking an anti-consensual view on social phenomena has always been (and will always be) a very difficult task. My hunch is that during the periods mentioned above, the herding impulse would have been heightened. I expect that (almost unbearable) contempt and ridicule would have been hurled at the contrarians of those days. As evidence for this, note that even the great Isaac Newton was suckered into buying near the high during the South Sea Bubble.
So, in good spirit, let’s attempt to use this arrogance to our advantage; which investment themes of our age would seem ‘obvious’ to the 24th Century Historian?
My guess – something about money:
My hunch is that future historians will laugh when considering the prejudices that surround our monetary system. When I look around, I almost think that we have a monetary religion of sorts. I urge you to really think about the prevalence and validity of the following statements:
- There should be one money per country.
- The notion of private, competing currencies is utterly absurd.
- Our ‘modern world’ necessitates a fiat currency structure.
- A private currency producer would be a scoundrel with the ‘license to print money’.
I could be wrong (about their popularity), but the above statements are both widespread in consensual minds and utter nonsense.
As evidence for the ferocity behind the above prejudices, consider the recent conviction of Bernard von Nothaus. His attempts at making a legitimate, honest and – quite frankly – ‘collector-like’ currency were stamped out with all the force that the government has to offer (in your name). The icing on the cake was the horrendous and self-righteous statement by US Attorney Anne Tompkins:
Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism. While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country.
An Emotional and Intellectual Rejection of the Inevitable?
So, apart from the entire structure of our monetary system, what else might make a 24th century historian chuckle?
One thing, could be the rising conviction that – essentially – the inevitable is not inevitable. I say that using the premise that credit-expansion based booms must eventually come to an end. I see a rising tide of people who are conviced otherwise. Ludwig von Mises described these peculiar thoughts in the book Human Action:
Many governments, universities, and institutes of economic research lavishly subsidize publications whose main purpose is to praise the blessings of unbridled credit expansion and to slander all opponents as ill intentioned advocates of the selfish interests of usurers.The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
I’m not saying that there isn’t going to be long-term inflation or whatever else. Rather, I’m saying that there exists an (implicit) rejection of the notion that the inevitable credit-collapse will occur. The essence of a credit-collapse is that it comes to be realised that capital is much more scarce than previously thought. The recent tide of (short-term) inflation trades have corroborated prejudices that ignore this crucial aspect (for example, some people conclude that you should own stocks as a hyperinflation hedge – which ignores the coming realization that ‘we don’t have as much as we thought’). The implication for investment themes is that it might pay to own concrete and inextinguishable forms of capital. Just as Jacob Michael did at the end of the hyperinflation of the Weimar Republic.
The herding impulse is a powerful thing that can drive a usually wise man towards absurd convictions. As a thought experiment, it helps to consider our time from an almost alien perspective. Personally, I think future historians will be greatly amused (and confused) by our peculiar prejudices when it comes to money. What do you think?
Recommended: Charting the Federal Reserve's Assets - 1915 to 2012