Unconventional Solutions

by Justice Litle

The following is an excerpt from my speech at the 2006 Agora Financial Wealth Symposium, The Once & Future Money – How and Why We Will Return to the Gold Standard.

To give you the flavor of where this is going, I’d like to share a quote and a historical analogy. First the quote. This from the father of “creative destruction,” economist Joseph Schumpeter, regarding the danger of fixed habits of thinking:

The very nature of fixed habits of thinking, their energy-saving function, is founded upon the fact that they have become subconscious, that they yield their results automatically and are proof against criticism and even against contradiction by individual facts. But precisely because of this they become drag chains when they outlive their usefulness.

Again, to emphasize: Fixed habits of thinking become drag chains when they outlive their usefulness. We are now at an inflection point in history, I believe, when conventional thinking is more of a hindrance than a help. The old ways of thinking threaten to become drag chains.

Now, onto the historical analogy. This line of thought may strike you as a little odd at first, but bear with me.

We tend to see urban pollution as a modern problem. But did you know that urban pollution was a serious problem for Western world cities as far back as 200 years ago? The greatest source of pollution for 19th-century cities was, believe it or not, the horse. Horses were ubiquitous back then. They drew pretty much anything that was heavy and had to move. Horse-drawn carriages, trains, wagons, supply carts… you name it.

Of course, there were no horse restrooms, so these animals had to relieve themselves in the streets. This might seem like a quaint issue until one realizes that the average city horse could produce up to 35 pounds of manure and a quart of urine a day. (Yuck.) Today, we have to deal with global warming and Peak Oil – back then, they were dealing with global stench and peak manure. It truly was a serious problem. And they couldn’t keep up with it, because the cities were growing rapidly. So the conventional thinkers of the day had no problem breaking out their 19th-century spreadsheets and calculating that at the rate the population was increasing, everyone would soon be up to their knees in road apples. Again, a serious problem!

With the benefit of hindsight, we know how the problem was solved. But think about the solution for a moment.

The horse pollution problem was not solved through tinkering with the current system. Nobody put diapers on the horses. Nobody figured out how to vaporize the manure. Nobody figured out how to make the stench disappear. Nor was the problem solved through political intervention. No government policies, no politician’s promises, no rules and regulations did the trick.

The problem was, in fact, solved in a way that almost no one at the time could have expected. It was solved through a combination of technology and innovation. The automobile ultimately all but vanquished the horse from the cities. Before that, electricity pitched in by electrifying virtually all the streetcars in the late 19th century, removing the need for horse-drawn trains. (So we know something else: The problem was not solved overnight, and multiple processes were involved.)

Now, I believe to understand how we’re going to get out of this mess we’re in – this gigantic financial mess the world is in – it is necessary to conceive of a solution that represents as radical a break with the past as the automobile was with the horse-drawn carriage.

What’s amusing about the historical analogy just discussed is that it has more relevance to the present day than one might think. Consider how our fiat-based global financial system is now strained almost to the breaking point by the tons and tons of manure heaped on it by politicians! Also similar to back then, the answer to today’s fiat currency problem is not to try to accommodate the horse’s rear end – i.e., politicians – but instead, to figure out how we can bypass it completely. I believe we can do this, that we can cut politicians out of the monetary loop, through grass-roots, free market solutions that embrace technology and innovation. The revolution begins at the periphery, and, over time, will engulf the center.

Editor’s Note: Justice Litle is an editor of Outstanding Investments, ranked number one by Hulbert’s Financial Digest for total return performance over the past five years. He has worked with soybean farmers, cattle ranchers, energy consultants, currency hedgers, scrap metal dealers and everything in between, including multiple hedge funds. Mr. Litle also acted as head trader for a private equity partnership, and made contributions to Trend Following: How Great Traders Make Millions in Up or Down Markets, a popular trading book by Mike Covel (FT/Prentice Hall).