It has been said that the stock market is not an actuarial table. The same can be said of the bond market. Rather than an infallible guide to the future, the bond market embodies the best guesses, hopes, dreams, and fears of many investors. Hence, the bond market can be fallible and, in fact, has been so—in spectacular fashion—in the past.
In February of 1926, the US Senate Committee on Education and Labor and the US House Committee on Education were holding joint hearings investigating the desirability of a then-proposed US Department of Education. Princeton Seminary professor J. Gresham Machen was asked to give his thoughts regarding federal involvement in education. “Uniformity in education under central control, it seems to me, is the worst fate into which any country can fall,” he told the assembled congressmen.
Proponents of socially responsible investing, or SRI, promote it as a way to invest in stocks while having “positive social impact” at the same time. Beneath the surface, everyone knows that what SRI really promotes is old-fashioned socialist ideology employed in the name of investment. The stated objectives of SRI almost always sound like the anti-business slogans of the Green Party: “save the ecology,” “stop sweatshop labor,” “protect human rights.”
We are inundated by the forces of malevolence and deceit: terrorists, lying CEOs, stock hustlers, power-mad politicians, conniving regulators, conspiring pressure groups, and paid-off pundits. They seem to be everywhere. Revelations about Enron and its political connections remind us that even the business world is horribly tainted by graft, special favors, blackmail, quid pro quos, duplicity, and dissembling. The government is the worst offender, of course, but apart from God Himself, whom or what can you trust?
The monetary situation in Argentina is a glaring example of confiscatory deflation. In 1992, after yet another bout of hyperinflation, Argentina pegged its new currency, the peso, to the US dollar at the rate of 1-to-1. In order to maintain this fixed peso/dollar peg, the Argentine central bank pledged to freely exchange dollars for pesos on demand and to back its own liabilities, consisting of peso notes and commercial bank reserve deposits denominated in pesos, almost 100 percent by dollars.
Corruption breeds poverty. That is the conclusion of the latest World Development Report, in which the World Bank cites “evidence that higher levels of corruption are associated with lower per capita income” (World Bank, 2002). The story told is that bribes raise the costs of doing business, so more corrupt countries attract less foreign direct investment, which lowers growth rates and per capita incomes.
Economic life is an intricate global system of exchange, one that works without any central direction. It generates prosperity and its own form of order within the framework of liberty. This is what is sometimes termed the magic of the marketplace, and we should never under-estimate its power. We can see by looking south to Argentina how a failing economy, one thrown into shock by bad legislation and monetary policy, has destroyed the livelihoods of the entire population.
Emerson once observed that nature is a never-ending combination and repetition of a few laws that create countless variations in different times and places. He called it the “unity of cause, the variety of appearance.”
