Gold is real; central planning is fiction

John Maynard Keynes’ equation-rich General Theory of Employment, Interest and Money gave many aspiring central planners what looked like the mathematical tools to do so, and they rushed to build both statistical and mechanical extensions that would bring practical policy applications to economic theory. Unfortunately when logic is absent and the theoretical foundations are a mish-mash of tautologies and fallacies, no amount of adjusting parameters or clever computing can solve the underlying flaws. The unseen hand of the market cannot be tamed.

The Phillips Hydraulic Computer or Chile’s Project Cybersyn could be as powerful as Skynet and still be unable to plan the economy using the Phillips Curve or a GDP equation. As all programmers are taught in kindergarten: Garbage In, Garbage Out. Any mechanical model of a complex, organic, emergent system will be as useless as the Ptolemaic system was in understanding a heliocentric solar system. Central planning is science fiction, plain and simple. It is something out of an Isaac Asimov novel and even in the Foundation Series it failed as Hari Seldon’s science of psychohistory broke down by the second book. Those Nobel Prize winners who were inspired to economics by Asimov should really take a step back and consider that even in fiction central planning is unrealistic, and also definitely stop calling for an alien invasion as an economic panacea (we all know what the subtext of that argument really is).

In the real world most date the fall of socialism at 1989, with the fall of the Berlin Wall. However I would argue that the real fall, the intellectual moment when central planning was proven impossible, was in 1921 with the publication of Ludwig von Mises’ book Socialism: an Economic and Sociological Analysis. In this book Mises outlined the economic calculation problem, something graphically demonstrated by Lenin’s New Economic Policy (NEP), which admitted the failure of central planning by reintroducing property rights in entire sectors of the Russian economy, though most importantly in agriculture. Absent these property rights Russians were starving. It even reintroduced gold coins (the chervonets and later the gold ruble) because even in a communist country people can tell the difference between fiat money and real money.

Why the history lesson? Because despite all this real world experience, all the failed experiments and all the tragedies, economic central planning is not confined to science-fiction and history shelves. Hayek’s “Fatal Conceit” is alive and well in our Universities, schools and financial media. Our central banks continue to strive to “fine-tune” our economies though the lever of the money supply, even stooping to micro-manage particular sectors of our economy, funnelling liquidity to housing or the financial sector. Does it matter that their models failed to explain 1970s stagflation, the Forgotten Depression of 1920 or the 30 years of deflationary growth in the post Civil-War USA? Not really, no more than facts about the movements of the moon and planets mattered to the Inquisition when they accused Galileo of blasphemy for defending Copernican heliocentrism.

It is impossible to convince somebody of something that requires them to admit that their job is unnecessary, obsolete and impossible. Central bankers will never admit that they are a barbarous relic. They will continue to play with their models and videogames, thinking that the real world is like SimCity or Civilization – in other words, amenable to fine tuning – instead of being the fiendishly-complex beast that it actually is, the complexity and scale of which makes World of Warcraft look like Tetris. Am I exaggerating? Both the Fed’s monetary policy simulator and the European Central Bank’s educational game “Inflation Island” reveal more about our monetary central planner’s thoughts than their convoluted policy statements.

What is the alternative? I say to my fellow gamers, in the immortal words of Starcraft: we require more minerals! Real, commodity-based, tangible, hard assets are the only sound money that the market has historically accepted without being forced to. Our monetary system is no game, money performs too valuable a function to be left to a few “managers” because, as every gamer knows, WoW gold does not really belong to you, just like dollars and euros. If you want real money, not play money, you will have to choose real precious metals.