ECONOMIC COLLAPSE
for devaluation-averse investors around the world, plus it arguably factored in England running up so much debt in the first place. (But that’s another column.) For now, it should be said that whatever one’s views of government debt, it doesn’t automatically foretell economic and currency collapse. But what about Reinhart and Rogoff, some might ask? What about the 100% line? The answer is that it’s rather meaningless... Economies aren’t singular machines turned on and off by central planners, rather they’re just collections of individuals. The individuals who comprise any economy tend to be better off economically when the penalties (taxes) levied on their work are low, when market forces as opposed to bureaucrats regulate their activities, when they’re actively dividing up work with individuals around the world (free trade), and when the money they earn in return for their work is not being devalued. Capitalism works... Freedom works... Insert your wise platitude here . It cannot be stressed enough that investment is what powers economic growth – despite what consumption-focused economists tell you. And when investors put wealth to work, they are buying future currency income streams and future returns denominated in money .
Yet England’s economy soared in the 19th century. It was the country’s Golden Age. Good policy tends to have that kind of positive effect. England broadly pursued good ones. Rather than erect barriers to foreign goods and services, the political class shrunk them. Most notably, England abolished its Corn Laws in 1846 that had artificially propped up grain prices through barriers to foreign imports of the commodity. The economic impact of this wise policy decision was profound. Indeed, when countries are open to the world’s plenty, it’s a sign that their people are availing themselves of the genius of divided labor. Most point to lower prices to make a case for free trade, but its greatest attribute is that it frees its beneficiaries to do the work that is most commensurate with their productive talents. The latter can be translated with “if you get to do what you do best, I’ll get to do what I do best.” Open country borders to goods and services elevate the workers on the open side whose enhanced production commands more abundance from outside the country. Raises and increased productivity beget more of the same. After that, it cannot be stressed enough that investment is what powers economic growth – despite what consumption-focused economists tell you. And when investors put wealth to work, they are buying future currency income streams and future returns denominated in money . In England’s case, the pound was the world’s most trusted currency. The faith in the pound’s strength as a stable measure of value proved a magnet
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January 2021
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