Today’s Daily Reckoning is an ode to the achievements of ‘Man the Maker’. Not the maker of complex political systems. But the maker of civilisation by a thousand practical feats of engineering and technology. But first to those stock market highs and what they mean in terms of ‘real wealth‘.
To be candid, we reckon most Australians, like most Americans, are not going to be too worried about the stock market making higher highs. It’s making everyone wealthier, right? US household net worth rose by $1.7 trillion to over $66 trillion between the third and fourth quarters of 2012, according to the latest ‘Flow of Funds‘ report from the Federal Reserve.
The value of household real estate increased by $447 billion in the quarter, while stocks went up $150 billion. But the really important fact is that household net worth is now back to where it was in the fourth quarter of 2007, before the great deflation in financial assets, led by the housing bust, blasted a hole in American balance sheets. Deflation delenda est!
Has the Fed made people wealthier? Are gains on stocks and house prices real wealth? Does it matter? If people think it’s wealth, isn’t it wealth?
To this last barrage of questions, we’d answer, ‘No.’ And we will quote from the 1958 book Man the Maker by RJ Forbes to prove our point. Monetary theories that inflate asset values do not create wealth or advance the cause of civilisation. An increase in knowledge and the of embedding that knowledge in technology, the artefacts of civilisation, create wealth. Forbes writes:
‘The earliest traces of primitive man are largely made up of his tools, the remains of his campfire and hut, and whatever artefacts his hands may have fashioned. Man did not seek to understand nature merely to satisfy his curiosity. He had to survive in a strange, hostile world. He had to come to grips with nature, using as his main weapon his intellect that distinguished him from the animals. The primary thing he had to do was to find and collect food, and food was not always in plentiful supply. All his long life on earth man has had to use his intelligence, to observe nature around him, to remember the facts that he perceives, and to try to apply them in a way that will increase his security and comfort.
‘The story of man’s conquest of nature is the story of his discoveries and inventions rather than his political achievements. His understanding of nature and his philosophy of life have moulded his actions. As his knowledge of what we now call applied science increased, he strengthened his control over nature. In no field of human action can we speak more truly of evolution. In the world of the spirit, ideas and dogmas died and were reborn, but man’s conquest of nature was a constant ascent…
‘It is often difficult, however, to decide whether a new substance or a product is an invention or a discovery. As material civilisation becomes more complex, the percentage of inventions grows. There is a natural limit to the number of discoveries possible, but there seems to be no limit to man’s capacity of combining existing materials with known properties to form new products with different properties.
‘The facts of nature form the warp, man’s imagination and inventiveness the woof of the tapestry of our material civilisation. The pattern seems to become more intricate with the passage of time; necessity, invention’s mother, stimulates new demands and new inventions. This was particularly true when arts and crafts, once the part-time jobs of ancient farmers and hunters, became the full-time occupation of separate groups in more developed forms of civilisation. Inventions and discoveries increased rapidly with the rise of the artisan class and of scientists.’
Forbes goes on to a much more practical and thorough review of the history of human technology, invention, discovery, and innovation. If you want to know how stuff works, it’s a great read. But we suspect not everyone will see it that way.
The idea that man is engaged in a ‘conquest’ of nature isn’t politically correct these days. Surely Forbes doesn’t mean that humans can stop the oceans from rising, hold back hurricanes, or can and should eradicate whole species and ecosystems. He’s not talking about ‘conquest’ in terms of domination.
He’s talking about human beings using the only evolutionary adaptation that gives them an edge over other animals: the ability to think. Without that – and some other vital social skills – we’d still be social apes on the savannah having bad dreams about being eaten by lions.
Thinking isn’t enough, of course. You have to turn your thoughts into actions. You have to do something. You have to make something. All those tens of thousands of inventions and decisions make up what we call civilisation. That is real wealth, in the form of accumulated knowledge that keeps our heads dry and our bellies full and gives us time (and money) to make art, music, cure diseases, and take care of those who are unable to take care of themselves.
Why is it important to make this point? Hmm. We don’t know. Maybe it’s Friday and we’re just prattling on about a book we’ve enjoyed reading. But no…there probably IS an important point here, and we’ll express better the more we think about it.
For now, measuring wealth by rising stock prices is a very crude, modern, and useless way of measuring the progress of civilisation. The last useful contribution bankers made to the advance of civilisation was double entry accounting. And to be fair, that was by a Franciscan friar around 1494 who was an accountant! More on the story of civilisation and the dark alley of financialisation to come.
for The Daily Reckoning Australia
From the Archives…
Why China’s Economy is Flashing Red
1-03-13 – Greg Canavan
Heroes and History
28-02-13 – Bill Bonner
Bitcoin: Get Rich or Die Mining
27-02-13 – Joel Bowman
Why Italy’s Gold Hoard Tells You the Precious Metal is Ridiculously Cheap
26-02-13 – Greg Canavan
Stock Prices Are Not What You Think They Are
25-02-13 – Greg Canavan