“Civilisation is a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow.” H. G. Wells
The question of what money is, is deceptively complex and leads us down a deep rabbit hole. However, the answer can inform our view of the world and is foundational in understanding how to trade the scarcest asset we own – time. We’ll have a look at how the endless printing of money by the central banks causes the devaluation of money, effectively forcing us into a modern form of slavery, where we must work ever harder in return for something that’s ever falling in value. The insidious part is this happens out of view and is even hidden from the data through the manipulation of the CPI calculation.
But let’s start with what money is. By the textbook definition, money is a ‘store of value and medium of exchange’.
It exists to solve a problem that has persisted for all of humanities existence. That is, how to store economic energy and move it through space and time. Put simply, we trade our time on earth for work and money is what we get in return. In a way, it both represents our productive capacity and our energy. The perfect form of money would ideally allow us to store that economic value and energy in perpetuity and move it around with us wherever we go.
However, in the modern era, the central banks are the masters of money. They can print money endlessly and throughout history, when there is too much money chasing too few goods in an economy, the result is the loss in purchasing power of the currency. This corruption of the monetary system causes wealth inequality, acting as a tax on the poor and a form of debt slavery. When excess money is created, it flows through the economy in the form of loans and the first recipient of the loans are always the wealthiest and most credit-worthy, such as the large corporations and investment banks and the wealthy elite. They use these to bid up assets like stocks and property, pumping up the prices and pushing them out of reach of the average person.
When the state is given the power to manipulate money, the temptation to go overboard has always proven to be too strong – ultimately resulting in the collapse of the monetary network. This has been tracked back to at least the 11th century in China, with the government-issued banknotes of the Song Dynasty. While the actual number of fiat currencies that have existed throughout history is widely debated, one study cites 775 have existed with a 100% failure rate either through government intervention, warfare or economic policy.
One of the more interesting examples occurred in the 16th century in West Africa where the manipulation of currency devastated their economy. This ultimately facilitated the trans-Atlantic African slave trade, with multi-generational repercussions that are still being felt to this day.
At the time small decorative glass beads known as aggry beads had been used for at least a century in Africa as money. The origins of the beads are unknown, but it is possible that the original beads came from the Phoenicians who used them on their trade routes throughout Eurasia and Africa.
Glass making technology was relatively primitive at the time in Africa, making these beads scarce relative to the goods and services in the region. This made them suitable as a form of currency and gave them a monetary property in Africa.
Around the 16th century, the Europeans discovered that these beads were being used as money. As glass making technology was comparatively advanced in Europe, they quickly realised how to exploit the situation. In perhaps one of the earliest documented forms of technological disruption they returned to Europe to manufacture counterfeit aggry beads in bulk. In some cases, they packed the ships full of beads and used them to acquire goods and services in Africa virtually for free. This began a multi-century confiscation of wealth, impoverished the Africans and eventually they began to sell themselves and each other into slavery. Over a 365-year period, 12.5m people had their lives stolen.
This example isn’t an isolated incident and there is an identical situation playing out in the global economy today. In America, 40% of all the US dollars ever created in the history of America were printed in the last 12months. The RBA has also turned on the taps with a $200b quantitative easing program and the fact that we aren’t seeing a major spike in value of any major currency just shows us that the ECB, BOJ, BOC, BOE and really any other major central bank are all printing at similar rates.
With the impairment of the monetary system, the smart money is moving to safe-haven assets such as real estate, stocks, and precious metals. BlackRock, the world’s largest asset manager, has moved into the residential property space and has reportedly been buying up houses all over America. Reportedly 15% of all houses in America were purchased by corporate investors in the first quarter of 2021.
There’s probably a lesson in that for average people like us.