Books That Aren't About Investing That Every Investor Should Read, Part I

By P.J. O'Rourke

Having investments is like having kids. You want them to grow and prosper with liberty and responsibility. You don't want them ruined by bad ideas, like getting a "Feel the Bern" face tattoo.

That's why good investors care about more than just the markets. They care about the freedom that makes those markets work, and the wisdom behind the freedom. Good investors also care about the things that threaten freedom, such as foolish politics and ideology.

Nobel Prize-winning economist Milton Friedman (1912-2006) possessed the wisdom behind the freedom. He was the leading free-market economist of the 20th century and maybe of all time.

Academically, his most important work was proving the importance of a rational monetary supply and showing the disastrous results of irrational political meddling with money.

Here is Friedman on what caused the Great Depression:

The Fed was largely responsible for converting what might have been a garden-variety recession, although perhaps a fairly severe one, into a major catastrophe. Instead of using its powers to offset the depression, it presided over a decline in the quantity of money by one-third from 1929 to 1933... Far from the depression being a failure of the free-enterprise system, it was a tragic failure of government.

I'd like to hear what Friedman would say now that the "tragic failure of government" is going in the opposite direction – expanding "the quantity of money" by insane proportions. I bet he'd blister some central bankers' ears.

However, the most important thing Friedman ever wrote for the general public was Free to Choose (which he co-authored with his wife Rose, who was also an economist with a degree in philosophy as well).

The Friedmans explain why the free market is good for everybody – rich, poor, minorities, majorities, the disadvantaged, and those who the politicians tell us have so many advantages that regulatory agencies and the IRS need to take some away.

Well, good for almost everybody. The free market distributes power to individuals. The free market is not good for politicians. They want that power for themselves.

Free to Choose originally accompanied a 10-part PBS series of the same name, which began broadcasting in January 1980.

(The series is still watchable, if you aren't distracted by Milton's disco-era burgundy blazer with foot-wide lapels and his necktie knot the size of a softball.)

After a decade of "stagflation" and idiotic economic policies from Richard Nixon, Gerald Ford, and Jimmy Carter, America was suddenly exposed to clear and concise common sense about what marketplace freedom means.

What it means is every freedom that we have. Freedoms are physical things. All the physical goods and services of the world (including freedom of speech and belief) are traded in a marketplace of some kind.

When the marketplace is free, the Friedmans say, then "an exchange between two parties is voluntary [and] it will not take place unless both believe they will benefit from it."

When the marketplace is not free, the exchange doesn't have to be voluntary. The exchange could take place under threat of force, even though you know you won't benefit from it. You could be sold into slavery.

The second message of Free to Choose is that we should avoid, as much as we can, all kinds of government interference in free markets – including (and sometime especially) "beneficial" government interference.

We live in a democracy and freely elect the people who govern us. So we may think that government actions are extensions of our own freedoms. The Friedmans warn us to be careful about thinking that way...

Every accretion of government power for whatever purpose increases the danger that government, instead of serving the great majority of its citizens, will become a means whereby some of its citizens can take advantage of others.

And don't think poor people are the exception...

The poor tend to lack not only the skills valued in the market, but also the skills required to be successful in the political scramble for funds.

Even when we have "good government," we're giving up our individuality. We have to conform to what the government tells us to do. That isn't going to make everybody happy. In the free market, all parties are unanimous about the deal being a good deal. In the un-free market produced by government threat of force, somebody's getting a raw deal...

The ballot box produces conformity without unanimity; the marketplace [produces] unanimity without conformity... That is why it is desirable to use the ballot box... only for those decisions where conformity is essential.

The third message is that economic "fairness" is equal parts sham and danger...

A society that puts equality of outcome ahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of people who use it to promote their own interests.

I put it differently at my house. I have a teenage daughter whose continual response to the problems of life is to say – or rather, to whine – "That's not fair!"

One day, I'd had too much and snapped. I told her, "You're cute. That's not fair. Your family is pretty well-off. That's not fair. You were born in the United States of America. THAT'S not fair. Honey, you'd better get down on your knees and pray to God that things don't start getting 'fair' for you!"

Free to Choose was written more than 35 years ago, but instead of seeming out of date, it reads like something you hope somebody will write tomorrow.

The Friedmans used a number of then-current public-policy issues to make their points. Every one of those issues is still with us and causing more trouble than ever – cradle-to-grave welfare programs, pollution (as "climate change" was called back then), workers' rights, consumers' rights, income inequality. They titled one chapter "What's Wrong With Our Schools?" and another – about to become all too relevant again – "The Cure for Inflation."

The only part of the book that feels old is the last chapter, "The Tide Is Turning." It begins...

The failure of Western governments to achieve their proclaimed objectives has produced a widespread reaction against big government.

This reaction didn't last.

The tide, sad to say, has turned again, flooding our political system with all the muck, slime, and raw sewage of liberalism, socialism, and populism that we've seen this election season.

With no Ronald Reagan on the horizon, who knows when it will be Morning in America again? As necessary as Free to Choose was in 1980, we need it more right now.

Regards,

P.J. O'Rourke