Jon Hilsenrath is at it again, a
front page story in the WSJ on whether the word "patient" will remain
or be removed from the Fed's release today. I cannot comprehend just how
emasculated the free market has become.
Our energies as
investors are now singularly tied to a few words from a dozen
extraordinarily powerful people in Washington D.C. (powerful, because
they can create money from thin air and legally steal from some to give
to others) setting interest rates for a planet of billions of people,
and they have absolutely no idea of what they are doing. Yet, they set
the single most important price in the world on nothing more than a
whim. Their actions then distort the actions of the billions of hard
working people of this planet, and all this is because investors want to
seemingly believe that these few people know how to price money, the
basis for the allocation of savings and, therefore, the creation of all
goods and services.
As I was thinking about this my mind
wandered back to an article I first read close to 20 years ago as I
began this, I shall call it perilous, journey towards the discovery of
Austrian Economics. It was entitled
I, Pencil, and it was written in the late 1950s by Leonard Read, the founder of FEE.
It is just a few paragraphs long, and it is about just how miraculous is
the manufacture of a simple pencil. It has just a few ingredients, wood,
graphite, metal and rubber, but it so complex that not a single person
on the planet could make one alone.
He talks about the
wood, cut down from cedar trees in Oregon by loggers using tools. Tools
like chainsaws, rope and logging equipment, each manufactured by
thousands of others. The metal for the equipment was mined in far away
places, treated and processed in plants built by countless thousands.
The
logs are shipped to a plant on roads built by people who had no idea
that their efforts were critical to the manufacture of the pencil on
your desk. Read goes through a little exercise like this
for each of the basic parts of a pencil and demonstrates that the
manufacture of a pencil is really a miracle.
Most
importantly, he points out just how fluid is the entire process. No
mastermind is required to produce a pencil. No single mastermind could
comprehend it all. Millions of freely associating individuals around the
globe must voluntarily act to achieve the miracle of a manufactured
pencil. Socialism, however, marches on and today I sit here awaiting
the command from above on the word "patient" and what it will mean for
the price of money. They, the Federal Reserve, will get it wrong with
regard to interest rates because, just as in pencil manufacturing, no
mastermind can comprehend the workings of an entire market. The game
that we are forced to play as investors today is ridiculous.
If
people could comprehend the miracle of the pencil and its manufacture I
think that we could quickly kill the socialistic Federal Reserve and
all of the other central banks of the world.
If you have never read
I, Pencil, I encourage you to do so. It takes five minutes. There is also a five minute companion video that is excellent:
http://www.econlib.org/library/Essays/rdPncl1.html
https://www.youtube.com/watch?v=IYO3tOqDISE
Disclaimer: Nothing on this site should be construed as investment advice. It
is all merely the opinion of the author.
