Did you notice the government-released inflation statistics this past week? No surprise, they were exactly what we already knew. The REAL cost of inflation is being artificially blunted or muted by reporting it as 8.2%, but if you look at what I shared from the Bureau of Labor statistics you will notice the things that matter most, such as food to eat, fuel for your car, and utilities at home, have grown closer to 20-30% over the past few years!
From the September 2022 CPI report: “The energy index increased 19.8 percent for the 12 months ending September, a smaller increase than the 23.8-percent increase for the period ending August. The food index increased 11.2 percent over the last year.”
That is not sustainable for a healthy middle class that needs reasonable transportation, a place to live and sensible food prices.
Furthermore, a bloated government has been the primary cause of inflation—especially with its poor economic policies that artificially keep interest rates too low for too long and by borrowing/printing money for too many entitlement programs and policies. Forgiving student loans is a recent example of a dysfunctional policy that will create even more inflation with unethical economic gymnastics.
So, how can you beat inflation’s insidious devaluation of your money? As we pull back the curtains, we find federal spending out of control (national debt is now over $30 trillion dollars) and a world on the precipice of war and economic uncertainty. What can you do to grow your money faster than inflation or to be prepared for financial ambiguity created by poor economic policy? Perhaps it is time to review the wisdom of the past and to give perspective for the future. And the forefront of every citizen’s mind are questions: How do we participate in the surging real estate costs? When is it prudent to do so? How can we benefit from bulging energy or food prices? Let’s take a look.
1776 was a watershed year with the first free people establishing a country founded on the ancient principles of life, liberty, and happiness—or property. You notice I said property. It was also the year that Adam Smith wrote his transcendental book The Wealth of Nations. This book is where we heard the term “the invisible hand” which refers to the self-regulating nature of the marketplace in determining how resources are allocated based on individuals acting in their own self-interest. Isn’t that a novel thought? That we all make economic decisions in our own best interest!?
Traditionally we think of wealth in terms of money, toys, and assets like bitcoin, gold or silver. But Adam Smith suggested national wealth was found in the essentials of life such as food, clothing, transportation, farms, houses, schools, good roads, etc. If we want to increase the prosperity and standard of living for the individual, goods and services need to be abundant and inexpensive so all benefit. Financial flourishing is brought about by specializing production and by buying and selling in a free market based on supply and demand. Free markets have proven they will always produce and fill human needs faster and more economically than government programs. While government does play a role, it is limited. The role of government is to determine the rules of the game. This is done by establishing rules that prevent illegal force (buying protection money, or pay to play), monopoly (think of social media, drug companies, computer operating systems, etc.), and fraud or debauchery (gambling, prostitution, pornography, drugs, etc.). After establishing the rules, the government, as umpire, should apply the rules equitably, never choosing the winners and losers. I would suggest Adam Smith’s free markets freedom formula for success has lifted the greatest number of people out of poverty in recorded history!
John Locke in his “Second Treatise of Government” was the one to explain the connection between property and happiness—how they are both interrelated and one in the same. When we add our gifts and labor to anything we create value and property.
“Though the Earth, and all inferior Creatures be common to all Men, yet every Man has a Property in his own Person. This no Body has any Right to but himself. The Labour of his Body, and the Work of his Hands, we may say, are properly his. Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property. It being by him removed from the common state Nature placed it in, hath by this labour something annexed to it, that excludes the common right of other Men. For this Labour being the unquestionable Property of the Labourer, no man but he can have a right to what that is once joyned to, at least where there is enough, and as good left in common for others.”
In modern terms we call this “sweat equity.” We build equity in property by adding our gifts and labor to build a business or creations like a home, improvements to home, art, music, a poem, business, job, etc.
Locke then explains (and proves) why Socialism or Communism will never lead to prosperity or human flourishing.
“He that is nourished by the Acorns he pickt up under an Oak, or the Apples he gathered from the Trees in the Wood, has certainly appropriated them to himself. No Body can deny but the nourishment is his. I ask then, When did they begin to be his? When he digested? Or when he eat? Or when he boiled? Or when he brought them home? Or when he pickt them up? And ’tis plain, if the first gathering made them not his, nothing else could. That labour put a distinction between them and common. That added something to them more than Nature, the common Mother of all, had done; and so they became his private right. And will any one say he had no right to those Acorns or Apples he thus appropriated, because he had not the consent of all Mankind to make them his? Was it a Robbery thus to assume to himself what belonged to all in Common? If such a consent as that was necessary, Man had starved, notwithstanding the Plenty God had given him. We see in Commons, which remain so by Compact, that ’tis the taking any part of what is common, and removing it out of the state Nature leaves it in, which begins the Property; without which the Common is of no use. And the taking of this or that part, does not depend on the express consent of all the Commoners. Thus the Grass my Horse has bit; the Turfs my Servant has cut; and the Ore I have digg’d in any place where I have a right to them in common with others, become my Property, without the assignation or consent of any body. The labour that was mine, removing them out of that common state they were in, hath fixed my Property in them.”
Property, then, is taking something common in nature, removing it from that state, and adding beauty, value or new desired end for it.
Locke continues, “Thus this Law of reason makes the Deer, that Indian’s who hath killed it; ’tis allowed to be his goods who hath bestowed his labour upon it, though before, it was the common right of every one. And amongst those who are counted the Civiliz’d part of Mankind, who have made and multiplied positive Laws to determine Property, this original Law of Nature for the beginning of Property, in what was before common, still takes place; and by vertue thereof, what Fish any one catches in the Ocean, that great and still remaining Common of Mankind; or what Ambergriese any one takes up here, is by the Labour that removes it out of that common state Nature left it in, made his Property who takes that pains about it. And even amongst us the Hare that any one is Hunting, is thought his who pursues her during the Chase. For being a Beast that is still looked upon as common, and no Man’s private Possession; whoever has imploy’d so much labour about any of that kind, as to find and pursue her, has thereby removed her from the state of Nature, wherein she was common, and hath begun a Property.”
The seeds for our success lie in allowing people to use their gifts, talents, or virtues to benefit others. When we use our intellect and excellences to fill a need, we create value that others appreciate and desire to have. I learned from a wise mentor years ago that if you help others get what they want, you will always get what you want. In short, find a need and fill it.
Do not overlook the value of also owning a home, a rental property or other real estate that individuals need to conduct their businesses and lives while they pursue happiness. These assets are favored in the tax code and typically appreciate over time. That is called real property or real estate as with a home. As Mark Twain once remarked, “Buy land, they’re not making it anymore.”
Economic freedom is found and achieved by using your innate virtues to create value and build value with intellectual, real, and personal property. These are significant ways you will keep increasing your purchasing power. More to come next week.