Why do so many Americans worry about their "investments"? They do this for two reasons. First, they want to preserve the wealth that they have earned and saved for future use. Second, they hope to increase that wealth beyond the amount that they can directly earn. Yet, many productive people would prefer not think about investments at all.
My father was responsible for the design and construction of petrochemical plants for Union Carbide International. He did not want to think about anything except the wonderful technology that he and his 200 engineers were as assembling in various parts of the world. Every moment he was awake, and clearly when he slept as well, his mind was preoccupied with the engineering drawings of those plants -- how to improve them and how to turn them into reality as quickly and effectively as possible. The only investment that he ever made, as far as I remember, was a share of one oil and gas well -- all of his petrochemical plants required oil and gas. His well turned out to be a dry hole.
My dad left all of the financial affairs of the family to my mother, including investments. She, however, was the very frugal wife of a man with a good income. It was clear to her that, through saving alone, all of the material wealth they needed for the future could be assured. So, she did not invest either.
After an initial period when they rented, they contracted to have houses built -- one each time the base location of his work changed. Their home was a completely debt-free expenditure. They never considered it an investment. If the family moved, the value of the home could be transferred into another home in the new location. They lived in a more prosperous era when a middle-class American family could save enough money to buy or build a good debt-free home in only a few years.
My mother saw no need for the risks inherent in investments. To be sure, her savings were invested by financial institutions and helped provide the capital that built, among other things, her husband's chemical plants, but the risks and rewards in those investments were assumed by experts. She just saved their money.
During her life, however, the money changed. When she was born, in 1912, the money was gold and silver. Later on, it was paper,but was backed by gold. Later still, however, it was backed by nothing -- except the power to tax the future earnings of her husband and other Americans.
The government printed more and more unbacked money, thereby confiscating her savings through the dishonest tax of inflation, so eventually she was forced to become an investor -- striving to learn enough about the equity markets to protect her savings from the government. Since she had lived in the time of honest money and had saved, she invested primarily for the first reason -- to protect her savings.
Those around her who were younger had an additional reason. As taxation, regulation, and litigation impoverished the country, they became unable to save sufficiently for their futures. It became impossible for most middle-class families to save enough even to buy a debt-free home. So, younger people saved for two reasons -- to protect their meager savings and to try to augment incomes, which were inadequate for their needs.
How severe was the inflation? Measured by the cost of goods and services where technological improvement has been minimal, I estimate that the purchasing power of a dollar has dropped by about 20-fold since I was born in 1942. Five cents in 1942 had the same value as one dollar in 2005. Those who saved but did not invest during that time lost nearly all of their savings -- stolen by their avaricious government. My parents died in 1966 and 1967, so they avoided much of this. During the years immediately before they died, they had started to "invest."
Investment is a special professional skill -- and it involves risks that are not appropriate for a productive family that is merely saving for the future. The printing of paper money, however, forces these families into the investment markets -- where many of them lose some or all of their savings.
My adult life has been lived almost entirely during the era of dishonest money, so I have had to under stand investments. The first requirement is to understand money. Money is supposed to be both a medium of exchange and a store of value. Inflation of the money supply prevents money from being a store of value. It becomes only a medium of exchange. Even in that capacity, however, it must be held by market participants -- some times for significant periods of time while technology is built or other long-term projects are completed. So, if inflation is too rapid, the medium of exchange function is impeded also. Moreover, the government still enriches itself at the expense of those who try to use money as a store of value. For these reasons, government tries to keep inflation within a range that does not interfere with the exchangers nor awaken the savers.
This article appeared in the May, 2005 issue of Dr. Robinson's newsletter, Access to Energy. This monthly letter is available for $35/12 issues from Access to Energy, P. O. Box 1250, Cave Junction, OR, 97523.
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