Provided by a reader, originally appearing at the Chris Bardy Blog on Typepad.
The Curse of Wealth Unearned
Whenever modern situations become worrisome, it is nearly always instructive to peer back into history for perspective and understanding. With the crazy, off-the-wall economic policies of the current United States government, there are many historical events from which one can draw context. One such moment in time is the monarchy of Spain during the 1500s. See for yourself if there are not parallels inumerous.
In the late 1400′s, explorations for gold and passages to the east produced the discovery of what became known as the New World. Spain quickly edged out Portugal as the dominant player in this game throughout much of the 1500s, and literally tons of gold and silver made its way across the Atlantic from the infamous Spanish Main in Mexico, Latin and South America to the coffers in Seville, Spain. There were many unfortunate effects of this, such as the near total decimation of the Inca and Mayan native populations, as well as the instigation of the African slave trade. First the natives, and increasingly so the Africans, were needed to man the mines. As a result of this system, massive amounts of gold and silver were hauled across the Atlantic and into Europe. Some estimates say that this amount was so enormous that the total of precious metal in Europe at the end of the 1500s was more than five times what it was at the beginning of that century when the New World was discovered!
It would be logical to deduce that Spain became one of the richest nations in the world as a result of this massive influx of wealth. But interestingly, and very educationally, this was not the case.
Author Peter L. Bernstein writes:
“Once the gold began arriving in quantity, the Spanish were far more proficient at spending than at producing. The massive imports of gold and silver stimulated the spending skills at the same time that they stifled Spain’s incentive to produce. Spain acted like a poor man who makes a great windfall at the gambling tables but comes to believe that the money is his destiny rather than a nonrecurring event . . . . Late in the century the . . . Parliament declared, ‘The more of [gold] that comes in, the less the Kingdom has. . . Though our kingdoms should be the richest in the world . . . they are the poorest, for they are only a bridge for [the gold and silver] to go to the Kindgdoms of our enemies.’ Another Spanish observer, Pedro de Valencia, wrote, ‘So much silver and money . . . always has been fatal poison to republics and cities. They believe money will keep them and it is not true: plowed fields, pastures, and fisheries are what give sustenance.’ Gold has always been associated with power. Once the kings of Spain realized how much new wealth the discoveries of gold in the American colonies would bring them, they convinced themselves that their wealth was great enough to bend the world to their will.’”
An apt analogy would be of ‘second generation wealth.’ It is almost a cliche that sons squander their father’s wealth, thinking that they have somehow, by eating at the same table, sleeping under the same roof, and being sufficiently ‘talked at’ by the patriarch, been bestowed the ‘magic touch’ which their father used to produce the wealth in the first place. The squandering of the father’s empire in such cases is so common as to be almost a rule. This is because there is no ‘touch’ of greatness, nor family superiority, nor endowments or bestowed rights, there are only the laws of success. And those laws are almost immediately broken by a son taking over the reigns of a great empire for which he was not forced to labor to create nor strive to earn. The violation of the earning principle produces harsh results and even harsher lessons. Sorry golden boys.
Another comparison, and the one that inspired this article, is made to the current United States government and its hubris and arrogance in thinking it has found its own Spanish Main in the printing of free money by the Federal Reserve banking scam (er, um, I mean banking system). Having arranged for itself a tidy little sitaution in which it can produce currency out of nothing, the government has taken to acting like the monarch of sixteenth century Spain, with figurative ships laden with “bailout money” and “earmarks.” Our bureaucratic government has taken leave of its senses in a ‘gold fever’ all its own creation, thinking it can disdain major industrial and agricultural infrastructures while gifting billions of dollars in bailouts to its partners in banking complicit in its schemes. Worse, it seems to think it can foist this on an American citizenry without ramifications, as though Americans are naive Incas or backward Mayans.
Tellingly, however, the Incas were not naive, only trusting. The Mayans were not backwards, only fooled into thinking the Spaniards were gods. Today, Americans, or at least some of them, seem to be falling into the same traps of the Incas and the Mayans: too trusting of the government, and somehow duped into believing in political messiahs. To continue such foolishness will result in the same fate as the indiginous peoples of Latin and South America; decimation.
But America cannot stand upon its stolen spending power any more than Spain could stand upon its stolen treasure. Wealth unearned bears with it a curse. Instead, as Peter Schiff said, “Consumption is made possible by production and credit is made possible by savings.” Government economic shenanigans are no substitute, but rather a drug taken to defer the pain until later, at which time the pain is even greater.