Easy Money: You Don’t Want It Anyway


“Castles in the air — they are so easy to take refuge in. And so easy to build, too.” – Henrik Ibsen (The Master Builder, 1892)

In his Daily Reckoning, Bill Bonner once observed that many of the world’s greatest empires collapsed soon after they had the “good luck” to get hold of “huge quantities of gold and silver.”

Starting with the Romans, the pattern has been pretty much the same: Conquer the world, force your colonies to give you their riches, and then destroy yourself spending them.

Spain is a good example. “The conquests were extremely profitable. But nothing ruins a nation faster than easy money. The money supply grew larger with every ship’s return from the New World. People felt rich, but prices soon soared.

“Worse, the easy money from the new territories undermined honest industry. In the bubble economy of the early 16th century, Spain developed a trade deficit similar to that of the U.S. today. People took their money and bought goods from abroad.

“By the time the New World mines petered out, the Spanish were bankrupt. The Spanish government defaulted on its loans in 1557, 1575, 1607, 1627, and 1647. The damage was not only severe, it was long-lasting. The Iberian Peninsula became the ‘sick man of Europe’ and remained on bed-rest until the 1980s.”

France, England, and Germany had similar experiences. Napoleon’s conquests, for example, took less than a dozen years to complete … but the empire collapsed even faster.

“By the end of the 19th century, all that was left of the French empire were a few islands no one could find on a map and some godforsaken colonies in Africa that the French would soon regret ever having laid eyes upon. Almost all were lost, forgotten, or surrendered by the 1960s — with nothing much to show for them except what you find in the Louvre … and a population of African immigrants who now weigh heavily on France’s social welfare budget.

“England’s empire was much grander, stretched farther, and left more debris when it collapsed. But the end result was about the same: The pound had been degraded and the British were nearly bankrupt, while the crime rate in central London rose to surpass that in New York … thanks largely to immigration from the former colonies.

“Germany lost its overseas colonies after WWI. It then created another empire — by conquest — in the late ’30s and early ’40s. The enterprise ran into Russia’s empire in the East — resulting in history’s largest and bloodiest land battles. In the end, thanks partly to American intervention on the side of the Russians, the German empire was destroyed. The Russian empire collapsed under its own weight 44 years later.”

“Empires, like bubble markets,” Bill concludes, “end up where they began.”

As I write this, I’m in Rome … which followed the same pattern. It began as a charming town on the Tiber and became the center of the universe for a thousand years. It then fell apart relatively quickly and has now gone back to being a charming little city.

With personal fortunes, the pattern is similar. People who earn their fortunes quickly and easily (a lot of professional actors and athletes come to mind) often fall quickly from their perches only to lead long, sad lives of poverty and obscurity afterward.

Fortunately, the contrary is also true. People who work hard for their money and develop the saving and spending skills of hardworking people seldom see their wealth disappear.

All that money everyone thought was being made from Internet stocks two years ago — how fast did it disappear? If you lost money, consider yourself lucky if you were left with what you started with. When it comes to investing, the universal law that governs empires applies: Easy come, easy go. So don’t waste any time or energy hoping for 100% stock returns or buying business opportunities that promise you a “lazy man’s way to riches.” Accept the fact that the fastest and easiest way to get rich is to work hard for as many years as it takes. Get started now and you’ll get there a day sooner than if you start tomorrow.