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The Sting (Editor's note: "The Sting" is the first chapter of a book by Mr. Pugsley entitled "The Alpha Strategy", written twenty-eight years ago. We intend to post a chapter each week. -JSB) Frankly, dear public, you are being robbed. This may be put crudely but at least it is clear. - Frederic Bastiat, Economic Sophisms
Maybe you had a run of bad luck. Perhaps, as your stockbroker tells you, second-stage rockets are going to boost the stock market into an even higher orbit. Perhaps President Clinton will get control of the business cycle and your job will be stable and secure. Perhaps you should just keep trying. Well, before you chalk your experience up to a run of bad luck and jump back into the pursuit of the American Dream, come along with me. You deserve a trip behind the scenes to see for your self what is really going on. All is not what it appears to be. The rich investment prizes dangling before you - enticing you to work hard and save and invest with our great financial institutions - are bait. Like the prizes displayed in the carnival booths, they attract the gullible so that they can be fleeced by the operators; behind the flashy facades of the world of money and business, there is some skullduggery going on. You are involved in an exceedingly sophisticated con game in which you are the unwitting and almost helpless victim. You are the target of the greatest sting in the history of mankind - a sting that makes all other con games in history look amateurish. The take is big - hundreds of billions of dollars every year - and most of it comes from hardworking, trusting, middle-class citizens just like you. To give you an idea of the magnitude of your loss, you are being steadily fleeced of over half of everything you earn and, in the long run, of the majority of everything you save. Every sting, to be effective, depends on two elements. First, it depends on the greed of the victim. Second, it must be clever enough to defy detection. You are going to be surprised at how the sting works. Moreover, you will be shocked to find out who it is that is ripping you off. The culprits are people you would least suspect - these clever manipulators have even convinced you to participate in your own demise. The danger to your wealth does not come from errors of judgment on your part (other than the error of believing what you're told); the danger comes from the fact that others truly believe that your wealth should belong to them. These individuals have developed such a sophisticated system of plunder that almost no one, from the small investor with a tiny savings account to a professional investment manager with millions under his control, truly understands how the sting is taking place. Their success in perpetuating this sting depends on first convincing you that two and two don't make four. That is, they must first mislead you about economics. You must be completely indoctrinated with false economic principles. Before you can understand the sting, you must first shed all the false ideas that our educational system and the news media have taught you about the way the economy works. Economics happens to be one of the simplest, easiest and most useful subjects a person can learn. Of course, that is not what we are told and certainly, the way the subject is distorted in most books and articles, one would think it is obscure, difficult and boring. Even if you haven't studied economics in school, you have been influenced by the mumbo-jumbo of economists, for their warped thinking is transcribed every day for you in your newspapers, magazines and news broadcasts. In order to help you understand how the sting works, I must first take you through a brief course in rational economics. You will be delighted to find out just how simple your economy really is. The Nature of Wealth Everyone knows what wealth is, right? As a matter of fact, most don't. Most people have only the haziest concept of the real nature of wealth and a hazy concept usually means a complete misunderstanding. Without a clear understanding of the nature of wealth, the odds for acquiring and keeping it are slim. Let us begin by establishing a clear, concise definition. Tangible wealth consists of all the real products produced by man from the raw materials of nature and by the use of which man derives survival, comfort and pleasure. Tangible wealth includes such things as shoes, Ping-Pong balls, movies, Coca-Cola, automobiles, cheese souffles, light bulbs, mousetraps, brassieres, newspapers, yachts and houses. There is also intangible wealth. It consists of knowledge and ideas, the things we must have in order to produce tangible wealth. Here, our concern is with tangible wealth - usable, consumable things - for it is in this area of economics that we are losing the most. Note that the above definition of tangible wealth excludes the item most people think of when they refer to wealth - paper money. Paper money, as it exists in the modern world at least, is not wealth. Originally, paper money was merely a warehouse receipt for commodity money - i.e., gold silver. Today's paper money cannot be redeemed at any fixed rate for anything. It is merely a claim on real wealth, redeemable at a floating rate determined by each individual who is willing to accept it. You can't eat paper money, wear it, ride in it, nor do anything else with it except exchange it for real wealth. Before you wave this apparently small but crucial distinction aside, hold your mind open. Later I will prove to you that including paper money in the concept of wealth is the mistake that has led the world into the incredible monetary nightmare that makes this book necessary. When I have finished, you will never again make the mistake of defining wealth in terms of paper money. The Source of Wealth Once we define wealth as those things that individuals produce form the raw materials of nature, it becomes obvious that the only source of wealth is individual effort. You cannot eat without first growing, cleaning and preparing the food. You cannot wear clothes that have not been made, nor get the cloth to make these without growing the cotton, spinning the thread and weaving the fabric. You cannot get a drink of water from the faucet unless someone has mined the ore, smelted the metal, forged the faucet, constructed the pipe and dug a well or made a dam to catch the water. For the most part, wealth is not there for the taking, it is created by human effort. If individual effort is the source of wealth, what is the source of effort? Why are people willing to work to produce things? For one reason: individuals work in order to gain the wealth work brings. The primary reason for work is reward. Imagine yourself cast ashore on a remote island, in the tradition of Daniel Defoe's Robinson Crusoe. You are hungry, so you search for food. You are thirsty, so you labor to construct a device for catching rainwater. You are cold, so you work to build a shelter from the rain and wind. All these things you are working for are forms of wealth. You would not labor except that you prefer to expend a little work in exchange for the pleasures that eating, drinking and shelter bring you. You work for personal gain. Nor will your effort stop when you have merely satisfied your basic hunger and thirst. You will soon want more than rainwater to drink and fruits and berries to eat. You'll be dreaming of a cold beer, a soft bed, a bowl of hot soup and some warm clothing. These things require more work and work you will. Soon, if you're clever, you'll have a vegetable garden, some animals to raise for milk and meat, a bed made of soft leaves, moccasins and cooking utensils - in short, you'll be on your way to the good life. Why am I certain this will happen? Because it is our biological nature to try to survive and to do so in as much comfort as possible. On the average, our individual desires for comfort and pleasure border on the infinite. We tire of walking, so we tame an animal to ride. We want more comfort, so we invent a carriage for the animal to pull. We want more speed, so we invent a horseless carriage. Still not satisfied, we invent self-starters, automatic transmissions, electric windows and stereophonic music systems. Each invention adds more pleasure and more comfort, yet it would seem that there is no point at which the individual is truly satisfied. There is always more comfort to be gained, more time to be saved and more new pleasure to achieve. Apparently, each of us is trapped in an endless quest for a higher standard of living, which is to say we have an insatiable appetite to increase the amount of wealth we consume. This idea bothers many and leads some to conclude that this desire for ever more tangible wealth is the darker side of human nature and that it is somehow the root of our social problems. These individuals admonish us to be satisfied with what we have or what our grandparents had. An interesting hypothesis but irrelevant to members of the human race. Our curiosity and our desire for comfort and survival are part of a biological heritage that stretches back millions of years. We are what we are and wishing us different is futile. We are stuck with always wanting more than we have. So how can we get more? We must produce more. More production seems to be a common goal of people throughout the world. Whether democratic, communist or fascist, each government claims to have as its primary goal a higher standard of living for its citizens. The only disagreement appears to be over the best method for increasing production and raising mankind's standard of living. Each theory of social organization - democracy, communism, fascism, socialism - claims to offer the answer. Unfortunately, all of these theories have flaws that lead not to more production for everyone to consume but rather to less production for everyone to fight over. As average individuals, you and I might assume that if the great academic and political minds of the world are unable to understand these problems or to find solutions, we could never hope to do so. In fact, the problem is far simpler than you would imagine. Understanding the problem and its solution is really just a matter of common sense. Society is nothing more than a large group of single individuals. In order to understand society you must understand how a single individual thinks and acts. Since you are an individual, if you understand what motivates you, you can understand society. Let us return to the island. Once cast onto your deserted island, all you need do to raise your standard of living is work hard and create more wealth. The more wealth you create, the higher your standard of living. As your work improves your life, you will be stimulated to work even harder. Successful effort begets more effort. But it works the other way, too. Anything that destroys or steals away your wealth or anything that causes you to abandon your labors and thus reduces production, will cause your standard of living to fall. If you try to grow a vegetable garden and the wild pigs keep breaking down your fence and eating your plants before you can harvest them, you will shift your labor away from growing the vegetables and devote it instead to either doing battle with the pigs, building stronger fences or doing something else that yields greater wealth for the effort involved. The theft of your plants by the pigs could lead you to give up gardening altogether. In the same way, if other people rob you of the fruits of your labor, that, too, will discourage you from continuing to work. Again, you will be forced to devote your energy to defending your property and that will take away from the time you have to produce. Moreover, if someone is successful in stealing from you, that person will have no incentive to produce things himself and thus his production will fall. Theft destroys your incentive to work, as well as the thief's. The important conclusion to be derived from this is that theft ultimately results in lower production and thus in a lower standard of living for the average member of society. This is the most important conclusion that you will get from this book. If you understand it - really understand it - that understanding will alter almost every economic action you take. Theft is not a moral problem; it is a practical problem. Theft destroys production and everyone, even the thief, eventually loses. Value You've been cast ashore and are struggling to meet all your needs. How do you decide whether it is better to spend your efforts weaving a net for fishing or gathering firewood to keep yourself warm? You simply give it a little thought and you decide which you would rather have. In other words, you place a value on fish a value on fire and choose the one of greater value to you. If you are cold but not too hungry, you may choose to gather wood; if you are hungry but not too cold, you may decide on the net. There is no absolute right or wrong involved or at least none that you can perceive from your vantage point. Your choice is based on your personal judgment of the relative value of the two goods, fish versus fire. No other person in the world could have better judgment than you in this matter, for it is your hunger and your comfort that is being satisfied. This leads to another very important conclusion. There is no such thing as absolute value; value is relative. There is no standard of value that is fixed by nature; every value choice is relative to the individual making the choice. The value of anything is completely subjective. Wood is not intrinsically more valuable than a fishnet, nor is gold intrinsically more valuable than water. There is only one person confronted with a choice among alternatives. There is only one person who determines whether you prefer fish rather than fire, gold rather than water or shoes rather than gasoline. That person is you. Your decision is always correct for you and anyone else's opinion is meaningless. Price This leads to the next concept, price. You may think that price is a few numbers (with a decimal point thrown in) scribbled on a small tag dangling from something you'd like to buy. That's only one example of price. Price is a measure of the rate of exchange between one thing and another. It is a measurement of the value you place on an object or activity. Even if you are alone on your island, everything you want still has a price attached. If you are willing to spend two hours gathering firewood, those hours, that effort, is the price of the wood. If you are willing to spend two days making the fishnet, two days of labor is the price of the net. Price is the rate at which you will trade something you have for something you want. The Price-Value Link When we trade, we are demonstrating conclusively that we value what we want more than we value Our wants are endless and each time one is satisfied it disappears and another pops up to take its place. We each have a scale of values and everything in our individual worlds arranges itself in an order of priority on that scale. Whenever we notice something we don't have is higher on our scale than something we do have and we find someone who has the reverse situation, we make an exchange. Things are constantly rearranging themselves on our scales. Thus, values fluctuate for us as our situations change. One moment we are willing to pay one price for something, the next moment perhaps more or less. In the marketplace, the prices of goods merely reflect the average values individuals place on the goods and services produced. Looked at in this way, it should be obvious that there can be no such thing as a fair or an unfair price. Price is a result of values and values are individual judgments. Plunder This is a book about plunder - plunder that robs you of the fruits of your work; that diminishes your Yet illegal theft is a relatively minor problem. Over your lifetime, it is doubtful that it has cost you The wealth you lose directly to these swindlers is substantial but it is not your only loss. As the success of these swindlers has grown, more and more producers give up the effort of production and join the plunderers. As the number of producers dwindles, production falls and society's standard of living falls as well. You are carried along in the slide. You are told by politicians, economists and social scientists that man's standard of living has reached its peak, is now falling and will continue to fall and that we must be content with less. These experts point to the evidence: world economic turmoil, the unrest of the third-world nations and inflation and stagnation of industrialized countries. They blame the problem on overpopulation, dwindling natural resources and the selfish nature of man. Poppycock! The "experts" have totally missed the real cause of our problems. Our standard of living will stop growing and will fall for one reason: the systems of plunder have become so incredibly large and sophisticated that the individual's desire to be productive is being destroyed. Economic crises, labor strife, inflation and social upheaval are merely symptoms of a growing plunder. If you are a producer, you are a victim of the plunder, as well as the victim of the social turmoil. You must begin to build your defenses against plunder. The first step in self-protection is to accurately identify and expose the plunderers. Legal plunder is that process by which one individual uses the power of government to either control Summary Now that we have touched on a few of the most basic points in human economics, let me recapitulate
From these laws we can deduce that a higher standard of living can only come from more production These economic principles are ironclad rules of human nature that will not and cannot be changed. |
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Welcome to the world's greatest carnival, the American economy. Here you can take a chance at winning the American Dream. You can work hard, save your money, invest it wisely, and win that coveted prize - financial independence. All it takes is the three virtues: hard work, thrift, and investing in America. But wait. You say you tried it and came away disappointed? You worked hard, saved and all you have to show for your effort is a tiny savings account shrinking after taxes and inflation, a job that is threatened by recession and a few stocks that rise and fall like roller coaster cars?
John Pugsley is chairman of