We took the kids on a field trip to the historic Homestead resort over the weekend. Here’s the view as we approached the grounds:
The Homestead rests in Hot Springs, Virginia. It’s located way up in the Allegheny mountains. The resort’s doors first opened in 1766 – back before the founding of America.
For early Americans, this was the western frontier. What lie west of the ancient Appalachian mountain range was a mystery.
The Homestead’s primary draw at the time was the surrounding hot springs for which the town was named. People believed the natural springs had healing properties. And more than a few traveled to the Homestead for a chance to bathe in them.
Thomas Jefferson was one of them.
Jefferson traveled to the Homestead in 1818. He was 75 years old and suffering from rheumatism at the time.
It’s documented that Jefferson spent three weeks at the Homestead. And he took to the hot springs three times a day to gain reprieve from his illness.
I imagine he spent considerable time browsing the resort’s eclectic library as well. Here it is:
We spent some time walking these grand halls over the weekend… and I couldn’t help but feel a sense of timelessness.
I tend to view history as linear. In my view, each generation builds upon the work of the previous.
This dynamic is clearly visible in the realm of technology.
We’ve seen an explosion of technological innovations over the last 200 years. Each major innovation increased human productivity and reduced scarcity – creating an exponential curve in human progress.
But there’s a big hole in my linear view of history.
When it comes to money, we’ve gone backwards. We regressed. Because we ignored the lessons of our forebears.
Today we use fiat currency as our money. It’s money backed by nothing except the “full faith and credit” of the issuing government.
Here in the US, our fiat currency is the US dollar. And our government has created over eight trillion new dollars from nothing over the last four years.
Basic supply and demand economics tells us that this can only do one thing – reduce the purchasing power of every dollar in circulation.
And we see this very clearly today. Consumer prices for nearly everything have skyrocketed over the last few years.
This dynamic has hollowed out the American middle class. And it’s made life very difficult for those on the lower rung of the economic ladder. The people who were living paycheck to paycheck before their groceries doubled in price now have to make some tough decisions each month.
Then on the business side, the fiat money system makes it difficult for companies to make long-term plans.
That’s because every company has input costs that go into producing their goods and services. And those input costs are certain to increase when the government creates trillions of dollars from nothing.
At the same time, the cost increases will vary across industries. But there’s no way for any company to predict what those increases will look like. That makes it nearly impossible to create forward-looking business plans.
And here’s the thing – the American founders understood this dynamic very well. Here’s what George Washington wrote to J. Bowen in a letter dated January 9, 1787:
“Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”
Washington was commenting on the fact that the Continental Congress issued its own fiat currency (Continentals) during America’s Revolutionary War.
But that currency had no economic backing. Thus it became worthless within five years’ time.
This caused tremendous hardship to those who had accepted Continentals as payment for their services. The money they thought they had could no longer buy anything.
And here’s what Jefferson had to say on the matter in a letter to Edward Carrington in 1788:
“Paper is poverty… it is only the ghost of money, and not money itself.”
So those educated on matters of economics 235 years ago knew very well that fiat money is a bane on society. Yet that’s exactly what we’re using today.
When it comes to practical personal finance, our fiat monetary system is why it’s so critical that we each create a strategic investment plan.
The fact is, it’s nearly impossible to save money when the money constantly loses purchasing power. We have to generate an after-tax return equal to the inflation rate just to stay afloat. And if we want to get ahead, we have to do even better than that.
The good news is that it’s not terribly difficult to craft an investment plan that will beat inflation.
The bad news is that following traditional retirement planning advice won’t cut it. Because that advice is designed to enrich the financial industry… not you.
If you’re ready for a solution that anyone can implement, regardless of previous knowledge and experience, check out Finance for Freedom right here: http://financeforfreedomcourse.com/mastermind
-Joe Withrow