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Economics

The Emperor’s New Clothes

THE Emperor’s New Clothes, the famous fairy tale by Hans Christian Andersen, tells a story of a vain Emperor who enjoys parading his fine clothes around town.

One day a pair of swindlers promise to weave a magnificent suit of clothes for him which are so fine, they tell him, that they are invisible to anyone who is unfit for his position or unusually stupid.

The Emperor and his ministers couldn’t see the clothes but each of them pretends that he can in order to avoid appearing stupid. The townspeople, upon hearing the story of the clothes, also pretend to see the clothes.

The story ends with the Emperor parading his new clothes through the streets until an innocent child shouts “the Emperor has no clothes!” and everyone suddenly realises the truth.

The Emperor’s New Clothes is just a fanciful children’s story. Surely nothing this silly could happen in real life, could it?

Apparently it can, and examples abound of social situations that revolve around a convenient fiction. This often leads to hardship and misfortune.

You may have heard people say some of the following:

  1. Property prices always go up (hint: they sometimes go down and quickly)
  2. The purpose of business is to maximise profits (hint: the aim is actually to provide value to other people in a way that allows the activity to be sustained or scaled)
  3. Money is real (hint: money is social fiction backed by trust – it used to be backed by gold but that got expensive)
  4. Quantitative easing is a legitimate monetary policy tool which is not the same as printing money (hint: quantitative easing is ipso facto exactly the same as printing money, and is the kind of activity that led to hyperinflation in Weimar Germany and Zimbabwe)

Can you think of any other examples of “the Emperor’s New Clothes”? Share your thoughts in the forum.

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