At the most basic level, the entire economy and financial system is highly unnatural. It is entirely made up out of thin air. Stocks, bonds, cash, money – all of it is just a figment of the human imagination conjured up from nothing to try to reflect the state of what is. In some ways the financial system and the monetary system is real as it reflects things in the real world that we transfer from one another like real goods and services, but in another sense it is a total fiction in that it also reflects things like intangible services and goodwill. But even those tangible goods are highly unnatural – iPhones don’t grow in the wild after all.
The point is that our entire economy is a human construct. It is created by animals who intervene in markets on a daily basis. We are all making discretionary decisions every minute of the day. There is no “natural” order to all of this. There is only the constant state of human beings manipulating an otherwise natural world. And that is, after all, what we are best at. We are the only animals on the planet constantly disrupting the natural order of things.
This is primarily the result of the fact that human beings run surpluses against all other things in nature. We utilize tools that ensure that we don’t have to rely purely on that “natural” order of the world. We don’t wait for the seasons for warmth. We conjure heat up by manipulating the natural order of things. We don’t wait for the migration of animals to feast on meat. We conjure it and store it up as we please. There is nothing “natural” about the way the economy and the financial system operate. It is, in fact, a giant manipulation of the natural world.
We usually hear about the “natural” state of the financial markets during some political diatribe. Or we hear about how discretionary intervention in the economy is bad. Or how anything other than passive investing is silly. All of these ideas are based on some flawed myth about a “natural” order in the economy or the financial markets. But this idea of a “natural” state of being ignores the fact that human beings only created an economy and a financial system because we have become masters of manipulating our natural surroundings. It is our greatest strength and perhaps our greatest weakness.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.