I suppose we’re all gamblers in some sense. Life is a gamble, as the saying goes. I don’t care much for gambling in a casino; I don’t have anything against it, I just don’t like to do it. I used to play pool for a beer, but I guess that’s betting on my own skill, which isn’t quite the same as playing a slot machine. (Shooting pool for a beer taught me humility, by the way, and made my friends happy too.)
I never intended to gamble on real estate, but I wound up doing it anyway. I won, too, but that was plain dumb luck. I happened to be in the right place at the right time. Buy low, sell high. A lot of folks lucked out the same way in those days.
I never intended to gamble in the stock market either, but I wound up doing that too. The company I worked for asked me to manage the profit-sharing trust for about ten years, and I somehow managed to pick the winning no-load mutual funds of that decade. I wouldn’t touch them today, of course, but the experience then was good.
I thought a lot about the stock market in those days, and I decided that it was essentially a casino, though lacking the honesty of a casino. A casino is a straightforward business with a carnival atmosphere designed to cheerfully separate people from their money; there is no subterfuge about it. The stock market is similar in atmosphere and purpose, but there are more and trickier bells and whistles to distract the customer from what’s actually happening.
When a slot machine pays off, its lights flash and it makes noise, alerting every person nearby, who is busy getting nothing for something, that it could happen to them too. That’s the idea. Likewise the broker reminds the investor of IBM and Microsoft and sends them a handsome prospectus on this or that up and coming company. Any prospectus is fun to read, especially if you like to write fiction, but in the end the investor has to decide whether to buy, or not. Inevitably, at that point, one looks at the price changes over time and gambles that the price will go up.
Is the company making money? Ho hum. Is the company making anything? Ho hum. Is the stock price going up? Oh Yes! Buy!
That’s gambling. The house, in this case the broker, always wins.
If an honest company has a real product to sell, and needs money to manufacture it, why don’t they borrow it from investors at interest instead of playing this stock market game? I ask that question of professional economists. I don’t know the answer myself, though I have suspicions.
Political governments, being human institutions, gamble too, and the stakes are higher than any imagination can grasp. The game is rigged, naturally, to favor the house and special players, and any house losses (e.g. war) are made up by stealing the money needed from the taxpayers. The privately owned Federal Reserve Banks issue the chips in this game, and then gather them back in with interest. The hapless taxpayer gets suckered by interest rate hype into betting a life-time of work for a little credit, and the house wins again. Will this fraud never end?
"Cascading defaults," as Mr. Fed euphemistically called massive bankruptcy, would bring the house down, and hurt all of the wrong people. Hyperinflation would leave the house standing, and hurt all of the wrong people too. These catastrophes aside, there are more subtle players in the game who might force the house to be more honest. Currency devaluation and T-bill dumping might work, but there is something else going on that gives me hope, even though I don’t understand it clearly myself.
Here’s the picture: XYZ company designs, builds, and sells hard drives. It also designs assembly-line robots. The robots are exported to the XYZ assembly plants. Parts come from all over the world, exported from various countries, imported to XYZ, where they are assembled by robots. The finished product is exported from XYZ and imported by various companies in various countries. The hard drives go into consumer devices that are then exported and imported all over the planet. There’s a whole lot of exporting and importing going on for just this one product. The best one could say is, Made On Earth.
What does a political jurisdiction’s Balance Of Payments mean in this scenario? That’s another question for the professional economists. I haven’t got a clue.
Political governments enter the picture as thieves on the trade routes, extorting their cut at the point of a gun, and forcing the item’s price up. Meanwhile their central bank is trying to manipulate the currency exchange rate to load the dice in their favor. Real business people must be getting tired of playing this game and always losing, and I predict that they will find a way to do world-wide manufacturing, distribution, and sales without state interference.
Maybe we’ll call the new game free trade. Not much of a gamble.