TD₿: I, Pencil by Leonard E. Read
TL;DR Even in times of crisis, interfering with the free market typically worsens things rather than helps them.
Hey Bitcoiners,
Inflation has been the topic de jour for the entire world in 2022 and understandably so. From politicians to central bankers, to entrepreneurs, to everyday working people, inflation has impacted everyone in their own way…
- Politicians must address it to save votes and defend their historic spending since the pandemic began.
- Central bankers must attempt to regain their credibility by increasing interest rates and reducing their balance sheets as inflation has caught them by surprise despite maintaining price stability being one of their only jobs.
- Entrepreneurs must navigate the increased input costs and compressed profit margins that threaten their business’s survival.
- And everyday people must figure out how to afford basic necessities as the cost of living continues to soar.
As Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” This inflation really shouldn’t be that surprising to anyone who has been paying attention. We had central banks and governments working in concert as they printed trillions of dollars, while at the same time supply chains broke down due to a combination of factors including the pandemic, the Russian-Ukraine War, increased US-China trade tensions, etc.
Monetary inflation is possible because governments and central banks have the ability to centrally plan the most important market in the world, the market of capital. To put it simply, we had a massive increase in demand (money supply) while the supply of resources were severely constrained in the economy.
The problem is that these institutions can’t take the stimulus back, and there is nothing these institutions can do to fix real-world supply constraints driven by politics and natural disasters. But that doesn’t mean they won’t try to fix it. Institutions are now moving from centrally planning the market of capital to now trying to centrally plan the allocation of capital goods via price controls, which will only serve to make matters worse by interfering with the free market.
A great piece that explains the miracle of the free market and global supply chains, in general, is the classic essay “I, Pencil” written by Leonard E. Read. (12/01/1958)
President of the Foundation for Economic Education, Lawrence W. Reed expounded on the lessons that can be learned from this essay, “In our midst are people who think that if only they had government power on their side, they could pick tomorrow’s winners and losers in the marketplace, set prices or rents where they ought to be, decide which forms of energy should power our homes and cars, and choose which industries should survive and which should die. They should stop for a few moments and learn a little humility from a lowly writing implement.”
I couldn’t have said it better myself. Reject central planning, and embrace the wonders of the free market.
Tick tock next block,
Cory Klippsten
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