17 October 2009

Charles Walters: New Wealth and the Productive Economy

Here is an essay that explores the historical concept of "New Wealth" and what we call 'the productive economy.'

For us, there is a real place in the general economy for lawyers, bankers, merchants, and those who enable the organization and distribution of 'new wealth.'

It is a matter of balance. When one segment dominates the other destructive imbalance results.

When labor dominates, the economy will often slide into long periods of slow growth and cultural narrowing or even stagnation, with a badly lagging industrial development and technological innovation.

When the organizers dominate, the wealth transfer from the many to the few tends to strangle economic growth with the onset of weak-minded successors and heirs, leading to periods of degeneration as it overreaches its capability. The society becomes stratified into elites, enablers, systemic serfs, and free rabble. The imbalance of stratification stresses social cooperation and tranquility and leads to a change in governance as the organization collapses. The American Revolution was an example of this, the beginning of the end for the British Empire.

As communication and information technology improves, and behavioural persuasion becomes more sophisticated, the organizers and oligarchists can extend their domination to ever larger portions of the world population. The control of currency and commerce are almost as important as military power to the maintenance of empire. The Fall of Rome was as much an artifact of technological shortcomings, despite significant advances and innovations in the prime of the empire, exacerbated by a general weakening of governance through a corruption of leadership.

This essay is offered as a stimulus for thought and is not intended as a general endorsement of this author or his organization.

Enjoy your weekend.

By Charles Walters

So 2008 is gone, leaving in its wake the end of an era conceived in iniquity, nursed along in delusion with religious propitiation to the capricious god called high finance. As promised in these newsletters and other editorials, we have already started making drastic adjustments in our political and institutional arrangements. A fuller version of the entire story is contained in my semi-autobiographical, fully historical novel, A Beast of Muddy Brain, which was released at the recent Acres U.S.A. Conference in St. Louis.

Usually the passage of an era is viewed in terms of leaders and military people who hog the pages of history. This is not the case with Beast. Here the nearly century-long story unfolds as the life of a single farmer and his family.

In this column, however, a small part of the story brought into focus by recent events lays out a few lessons found in unopened books.

Military Industrial Complex

By the time Dwight D. Eisenhower warned of a military-industrial complex in his farewell address, the complex was already a reality. Ike wanted to say, "Congressional-industrial- military complex," but his advisors convinced him to delete any reference to the "honorable ones," this in spite of their penchant for both hidden and open bribery.

The military-industrial complex was in fact launched February 27, 1947, in the White House cabinet room. The cast of characters included Secretary of State Dean Atchison, a few congressional leaders, including Republican Senator Arthur Vandenberg. The product of that meeting was the replacement of the republic with a national security state and a public policy of waging "perpetual war for perpetual peace," the last phrase a Gore Vidal quote. The first of these became characterized as cold. It became hot in Korea and tepid in terms of scale into the now present.

It was Senator Vandenberg who in effect told Harry S. Truman he could have his militarized economy if he employed the canard that the Russians were on the way. This dark secret was dressed up as the Truman Doctrine, war being the engine of credit used to save Greece, Turkey, then Europe and the rest of the world from the nearly prostrate Soviet Union.

Mark that date --- February 27, 1947. Align it with the buildup drive to pass new farm legislation and the full implementation of the new-fangled Bretton-Woods Agreement. Bretton Woods has already been described fully in this column (October 2008). The infamous farm act of 1948-1949 (the Aiken bill) has been the subject of commentary as long as this paper has been published.

The 80th Congress

Truman called the 80th Congress the worst in history. And yet its action in the matter of the Aiken bill fit hand in glove with the destruction of the simple and obvious system mandated by the U.S. Constitution. The end result that swung from the neck of the nation like a dead albatross was a provision called "60 percent of parity."

The military-industrial complex decreed that the nation's commissary could be maintained by underpaying agriculture by 40 percent, thereby releasing millions from the farms for factory work, military factory work included.

In perhaps another 50 years, economists may rediscover the awesome truth that a steady decline in farm income translated into a steady decline in national income, the ratio being 1 for agriculture, 7 for national income --- a ratio fixed by the state of the arts.

The shortfall in farm and national income became so uncomfortable during the second Eisenhower term, an injection of $72 billion was decreed for the military-industrial (and now university) complex status quo for agriculture. By the time rumblings that formed the National Farmers Organization became evident in 1955, hogs were selling for 10 cents a pound, corn 10 cents a bushel. War was ever triumphant in those days. There was a Communist under every stone, as is the case now with terrorists. Loyalty pledges were demanded, and neighbors were invited to fink on each other. By the mid-1960s, some 2,400 farms were closed down each week, the land and other assets being transferred into "a few strong hands."

What Was Wrong?

What indeed, was wrong with this equation? Agriculture --- Farm Bureau, agribusiness and academia excepted ---appealed to physics in its role as a new wealth industry and commonsense while institutional arrangements were being dismantled, and new ones constructed that were suitable to finance, esoteric manipulations, and a dream as old as Genghis Khan --- one world. Representative government of, by and for the people is now no more than a footnote in history. Only corporate America and a compliant military have true representation in Congress, the bribe is that powerful, whether paid in the dark or openly as an obscene fee for a speech while either in or out of office. The two-party vote has become so repugnant hardly half those eligible even bother with the exercise.

The Source

"The land is the source or the substance from which wealth is drawn;" wrote Richard Cantillon in Essai sur la Nature du Commerce en General, and he continues, "the work of man is the form which produces it, and wealth in itself is nothing other than food, commodities and the amenities of life."

Cantillon's treatise described the source of new earned income at a time when John Law ruled the economy of France. Cantillon and Law clashed, chiefly over the real character of money.

Law established the Banque Generale in 1715 and had it converted to a state bank three years later. His every move was designed to drive raw materials prices down while he, John Law, furnished substitutes to repair the deficit. In his own way, he developed a war against poverty, created make-work projects such as digging a canal at Briare, and he took steps to make Paris a seaport town. All tolls were abolished so that the grain trade could be "freed." Import duties were reduced on oil, leather, tallow and wines so that free trade could furnish France with cheap imports. Commodities fell in price. And new money issues were constructed by the Banque Generale, which simply monetized collateral. It took this economy only two years to explode.

After the dust settled, about the only thing left was Richard Cantillon's Essai, the masterpiece that reached the purity of theory in one lesson and limited itself to the possibilities of life in the next.

New wealth is not easily comprehended in a society addicted to wealth on the gaming table, at the end of a stock trade or embodied in currency created out of thin air by institutional arrangements that no longer ask the questions of a child: Where does it come from? Where does it go? The transition from the simple business equation to some idea of earned income at the national level that can emerge as national profits (social surplus) and savings leaves most people and most economists bewildered. They see the CEO who walks off with, say, $10 million after scuttling his company as wealth, and so it is in terms of the individual. But he has left in his wake disturbing exchange consequences and no direct effect on buildup of national profits and savings. The parasite creates no new wealth, and usually debilitates new wealth creation, because the predator merely transfers money from one pocket to another, and in terms of physics creates nothing.

There are close to one million lawyers in the United States. They transfer a great deal of money from their clients and victims into their own coffers. This transfer is called earnings. It adds to national income, but it adds nothing to national profits and savings.

Wal-Mart is said to be the largest corporation in the nation if not the world. Bentonville billionaires are now a part of American legend. Yet Wal-Mart produces no new national wealth. Like the baseball game or the professional football contest, it transfers the money called wealth by talk show hosts from one pocket to the next, but the net effect of these enterprises is to enable new wealth industries to fabricate things like baseball bats from lumber, helmets and gear from plastic --- all sourced from raw materials --- to stimulate economic activity, but adds little or no national profits and savings for stable investment.

To find the source of new wealth, we are required to examine new wealth industries.
Financial services are not new wealth creators. Quite the contrary, they make the stable dollar a relic of yesteryear because in the main they create money, but do not create the interest required to make this super-grift appear real. The grift called debt may enable instant gratification, but it also transfers the wealth of a nation into the hands of a few. That is why the interest mill delivers nations into convulsions at regular intervals in history.

In turn, debt is enabled by anything less than broad-spectrum distribution of landed resources and money income. Further, as new wealth industries are deprived of parity earnings, either instant depression or deferred depression (deferred by debt) must follow in the fullness of time.

Those French philosophers of the 18th century not only reasoned well, they forecast the inevitable as the court and its syncophants installed debauchery as public policy. Finance based on debt creation has replaced the court in our day, purchased the Congress and trapped the American worker into virtual indentured servitude. Finance now bills itself as a prime mover, not as a grim reaper that inevitably destroys the simple and obvious system gifted posterity by the Founding Fathers.

What, then, are the new wealth industries on which national solvency depends?

New Wealth Industries

It can be seen that even the making of a lead pencil involves a staggering complement of services, know-how, sales efforts, even advertising. The only part that meets the test of new wealth is the raw material component --- the lumber, the graphite, the ink for printing, all of which invite a look at nature's gift. Depending on the state of the arts, the raw materials component in products for the sales floor use up to eight times more labor than raw materials. Therefore we speak of new wealth industries as those that require a heavy raw material input.
Food to stoke the metabolic furnace of human beings comes first. It takes some 2,000 calories a day to feed a hard-working human being. That is why agriculture is the largest new wealth industry, accounting for fully 70 percent of the raw materials used to operate the economy.

Fuel, minerals, lumber, gravel, fossil fuels, fish all together account for approximately 30 percent of the raw materials used to run the economy.

The lumber used to make that No. 2 lead pencil may be a small component in the manufacture of the end product, but it is most important because along with graphite it accounts for the lion's share of national profits and savings possible based on the pencil's fabrication. People taking in each other's laundry can create employment, transferring money wealth from one pocket to the next, but that trade-off is strictly neutral in creating the profits and savings needed for sound investment and sound expansion.

Is Labor Primary?

The answer is "yes" --- but that "yes" has a codicil.

The only source for national profits and savings is the raw material input as monetized by the agency of price. That is physics speaking, once you trace those profits and savings back to their origin. That is why national profits and savings rely on new wealth industries.

It is hard not to belabor the point. Take the baseball stadium that Chamber of Commerce types chest-thump into being at the taxpayer's expense, usually with the declaration that a home team generates so-and-so much income. At the local level, it is made to look that way. But from the plane of observation called national profits and savings, the game creates nothing except the few dollars involved in bat, glove and paraphernalia manufacture and the little titanium used to mark base lines.

It is labor that enables the use of raw materials. It is labor that harvests the lumber, mines the minerals, catches the fish, grows the crop. Producers, processors, and an improved state of the arts all are essential. The apparatus of economy pyramids into national income, but not national profits and savings. The policeman, the fireman, we require their service, and their salaries help that pyramid called national income stand on its raw materials base. All facilitate civilization. But they create no national profits or savings. That chore is left to the food they eat, the clothes they wear and the gift from the planet traced to raw physical product.

The Attack

Why, then, do civilizations try to cut the legs from under the source of new wealth? It may seem an assault on the intelligence of the reader to point out that the worldwide scramble is for the control of raw materials, food included. This much stated, we have to wonder aloud why public policy always seems to cut off the nation's legs at the knees by underpricing all of agriculture and many of its other raw materials. In modern times we exacerbate this delusion by ignoring the values embodied in recyclables. The above expresses itself in food's role in energy transfer from the sun to plant to human metabolic necessity. The cycle has to replicate itself daily, monthly, annually!

Finance and debt appear to be prime movers, but they cannot substitute for national profits and savings based on raw materials without engineering convulsion at regular historical intervals.

We now know that interest doubles a debt very quickly. At 10 percent, the doubling time is seven years; at 7 percent, it is 10 years. It is interest that builds a collapse position in 80 to 90 years.

The Fed will be 100 years old on December 23, 2013.

This article is reproduced from Acres U.S.A. The Voice of Eco-Agriculture Volume 39, Number 1, January 2009.