Economics in One Lesson

submitted by jwithrow.economics

Journal of a Wayward Philosopher
Economics in One Lesson

June 29, 2015
Hot Springs, VA

The S&P closed out Friday at $2,101. Gold closed at $1,175 per ounce. Oil checked out at $60 per barrel. The 10-year Treasury rate closed at 2.48%, and bitcoin is trading around $246 per BTC.

Dear Journal,

We are back in the mountains of Virginia after our annual family gathering in Emerald Isle, NC. Last week, in addition to enjoying the beautiful Crystal Coast, I thought about the modern credit system that has been in place since 1971.

Speaking of last week’s journal entry, I felt a little clarification was in order after re-reading it myself. Lest the reader think otherwise, I am no Luddite and I have nothing against commercial development. I simply believe very strongly in the old capitalist principle that said commercial development should be fueled by actual capital that was formed from production and savings. Instead of capital, the modern credit system fuels commercial development with credit created ex nihilo. No one forewent present consumption to build said credit, and this dynamic creates distortions and malinvestment that accumulate over time.

The capitalist sees a private beach and wonders if commercial development would be a worthwhile endeavor. Does the market want three story luxury homes by the beach and cheap surf shops on the island? Will these projects be profitable? Will they attract additional capital to the area? To the capitalist, the focus is on individual human action. Private capital is then heavily deployed if commercial development is pursued. Continue reading “Economics in One Lesson”