A Cluster of Errors
As published in the June 24th edition of the Osseo / Maple Grove Press:
Driving an automobile is an inherently dangerous activity. Any number of things can go wrong to cause a devastating accident. Yet every day, millions of people take their chances and travel by automobile. Despite people taking precautions and following the rules of the road, there is still a relatively constant occurrence of accidents on a daily basis.
And so it is with business. There are countless risks involved, but every day we go out and conduct our business. While much of the time we are successful, some endeavors are bound to fail as part of a normal, functioning economy.
Suppose all of a sudden, for no apparent reason, we started seeing an up-tick in the number of car accidents with no end in sight. Certainly this would be cause for a serious, in-depth, honest investigation.
This mirrors what we have been seeing with the economy. Suddenly, for no immediately-obvious reason, we are seeing foreclosures, bankruptcies, lay-offs, pay-cuts, and companies going out of business. Have we all forgotten how to construct houses, build cars, write software, and all the rest? Not likely.
What could explain the “cluster of errors”, as British economist Lionel Robbins called it? In our road scenario, we would not be surprised to find out that traffic signals had been malfunctioning and were switching from green to red too slowly and from red to green too quickly.
Like traffic lights on the roads, there are many signals in the economy, but the biggest and most important signal is the price of money–also known as interest rates. Most people do not realize in their day-to-day business that interest rates are a signal, nor do they even need to know. They simply know whether they can afford to take out a loan to start a business, build a house, or buy a car. They also know whether the rate of return on savings makes it sensible for them to save money.
In a functioning free-market economy, the interest rates are set naturally, like any other price, through the constant influences of supply and demand. The rate may still fluctuate from time to time (as the stop lights may be timed differently for rush hour), but there is always a balance (as the properly-functioning stop light never lets cross-traffic through at the same time).
But we do not operate under a free-market economy. No, we, through unconstitutional legal tender laws, are forced to conduct our business using Federal Reserve Notes issued by the unconstitutional Federal Reserve System. The Federal Reserve System artificially sets interest rates. By arrogantly attempting to do what only the complexities of a truly free market can accomplish, the activities of the Federal Reserve System distort the signals in the market, causing untold destruction.
We live in a world of finite time, energy, and resources. The currency a society uses needs to accurately represent the presently-available amounts of time, energy, and resources. We cannot change the laws of economics any more than we can change the law of gravity. To attempt to do so, as the Federal Reserve has been doing, inevitably leads to the massive amounts of destruction that we have been witnessing and that we will continue to endure until we abolish the Fed and return to sound money.