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Facing the Facts of Today

on Wednesday, 28 December 2016. Posted in From Debt to Prosperity (book)

From debt to prosperity - Chapter I

In recent years we have suffered from a world-wide depression. Everyone wants business recovery. Yet millions are hungry while knee-deep in wheat, lacking clothing when cotton is plowed under, homeless while houses stand vacant. Surrounded by an abundance of the things we need, we experience want in the midst of plenty. What a sad con­trast!

But this sorry spectacle becomes even more vivid when we contrast Producing-America with Consuming-America. When we compare America the manufacturer with America the shopper we find that the manufacturer can produce but the shopper cannot buy. In this situa­tion the machinery of business is stalled.

Business recovery means economic recovery. Economics is a mat­ter of everyday business experience for it is only the business house­keeping of society. Everyone in business is familiar with economics by practical experience. We needn’t fear economics as something that is difficult to understand for we can talk about it in simple everyday words. Instead of struggling to grasp a mass of abstract ideas it is much better to think of economics simply as everybody’s business.

If we are to talk about business we had better begin by defining it so that we may know just what business is. The process of satisfying desires with goods in exchange for money is called trade or business.

Business must be carried on because its transactions actually do satisfy our desires for goods. We know that we have constant needs for goods and abundant means for producing them. So to understand the meaning of any sort of economic recovery requires first that we know what is the purpose of the economic system.

Purpose of the Economic System

Let us picture in our imagination a vast plate glass shopwindow, reaching all the way across the continent from New York to San Fran­cisco. Inside that window are all the goods that America makes. Out­side it are 121 million of us, would-be shoppers, all of us with our noses flattened against the window just as we used to do when we were chil­dren.

Let’s go into the shop and see what we find there. The first thing that impresses us is the amazing variety of goods that are on sale in the shop. There are almost a million items offered for sale — everything that we need in order to live in comfort and convenience and satisfaction.

Suppose we ask the shopkeeper how he can maintain this supply of goods? He will show us warehouses bulging with goods. Behind the warehouses is a chain of factories and behind the factories are farms and mines, and behind those, laboratories and schools, and back of all these things the American people themselves with their ambition, their enthusiasm, their inventiveness and their history. With these resources the shopkeeper can guarantee to provide us with a supply of goods be­yond the limits of imagination.

That supply of goods and services is America’s Real Wealth. The ability to produce and deliver these goods and services is the only true limit of our Real Credit. Recent surveys show that our present produc­tive capacity can supply goods and services to every family in the na­tion at the rate of at least $2500 a year. So there is no question about the abundance of our tangible Real Wealth.

As we look around in this workshop of wealth, we remark how few people are working in it. Everywhere we look we see labor-saving machinery that has been designed and installed purposely to eliminate human drudgery. Thanks to Science, the curse of Adam has been lifted from the backs of men and transferred to the broader backs of Na­ture’s forces by means of power: steam and electrical energy. Our con­trol over these forces can keep the shopwindow filled with goods, yet we have just begun to use our servants efficiently. The sight of all the goods they can produce in the store of plenty should make us feel very wealthy.

Now let’s join the 125 million shoppers outside the window. (The U.S. population when this book was written.) What a change we find here! Instead of the orderly scientific cooperation of the productive system and all the abundance of goods created by it, when we get outside we find a struggling mob of worried people. Everybody is fighting everybody else and most of us seem to be getting the worst of it.

All of us are shoppers and consumers of goods. We need food, clothing and shelter in order to live. We have besides many other de­sires we would like to satisfy. Why have we built up this vast store of wealth and all the activities necessary to maintain its supply?

As shoppers and consumers of goods, if we ask ourselves this ques­tion the answer is obvious. We produce goods in order that we may consume them. The purpose of production is consumption. All of us know from experience that there are many goods and services that we must obtain from others who are better able to supply them than we are. Some systematic process for the production and distribution of these goods is necessary if we are to work together in an orderly and intelligent fashion. So modern business developed and its enormous ca­pacity to produce goods and render services is now highly specialized.

Briefly, we may define the purpose of the economic system by saying that it exists to deliver goods and services as, when, and where they are required for consumption.

With this purpose clearly in mind and remembering that we are to contrast America the manufacturer with America the shopper, let us look at our economic system of today.1

The general facts of our present difficulties are painfully familiar to all of us by personal experience. They may be classified in four main groups: Poverty, Debt, Taxation, and Depression. Of these it is hard to say which is the heaviest curse on our 20th century civilization. But it is significant that all four are found together in the greatest age of science and power over nature that man has ever known.

The Paradox of Plenty

Thanks to science we have at last achieved the long-desired age of plenty. Inventions and technological advances have, almost unbeliev­ably, increased our capacity to produce real Wealth in the United States, yet we cannot distribute the consumable goods that even now we produce. And at least half of this immense productive ability lies idle.

Producers wish to sell. Their salesmen offer goods to distributors, who dare not buy because they cannot sell to consumers. Shoppers are eager to buy. Many are hungry and cold and homeless. But they can­not eat or clothe themselves or find shelter, for they have no money to purchase what the producer wishes to sell them.

This is the famous paradox, “poverty in the midst of plenty” of which we have all heard — a humiliating state of suffering and misery in the richest nation on earth. The Rt. Rev. C. E. Riley, Dean of Niagara, has referred to this paradox as a “damned blasphemy.” Those are strange words from a clergyman. But stranger still, it seems that all this suffering is due to a glut of goods, to the very surplus of wealth itself.

Ninety percent of the population of the United States does not manage to get enough to live in decent security. Worse than this, more than thirty million people, nearly one quarter of our total population, are living on a mere subsistence level, with barely enough food to keep them alive, a roof over their heads, and clothing to cover their bodies.

Taxation And Debt — and More To Come

Meanwhile business stagnates for lack of sales, and we struggle under an increasing burden of heavy taxation and debt. In 1932 our taxation exceeded 13 BILLION dollars which means that in that year every person at work gave one day out of each two-and-a-half for the payment of taxes alone. In 1933-34 taxes continued to climb. The promise of still higher taxation is fast becoming a painful actuality.

Increasing governmental expenditures for relief and recovery must be paid principally out of more and higher taxes. As tax-payers we are all headed for the day of drawing our belts still tighter over an already empty stomach. For the skyrocket of climbing taxation is on the way up, and the zenith of its course will bring an explosion of na­tional bankruptcy. Must we patiently sit by waiting for this to happen?

Growing welfare and relief funds add to the burden of those who are employed. And already these funds are proving insufficient to pro­vide a decent share of food, clothing, and shelter for the unemployed and their families.

The total number of persons now unemployed in the United States is estimated at about eleven million. Most of these are willing and eager to work, but we cannot find jobs for them. Yet somehow they must live. So to supply them with food, clothing, and shelter, we draft young men into camps, plan unnecessary building projects, and use hand labor when a steam shovel would do the work better and quicker. All this out of public funds, in the name of relief from unemployment. Where do these funds come from? The Government derives them main­ly from taxes, so that in effect all of us taxpayers are employing the unemployed.

Even though the funds immediately necessary for relief are raised through bond issues, taken up mostly by banks, the bonds themselves must eventually be retired out of taxation. We are merely piling future debt upon present debt, mortgaging the future to pay for today’s confusion.

The efforts of the government to distribute additional purchasing power through loans, civil and public works programs, relief measures and the requirements of the NRA, have increased employment and stimulated some producers, but the buying-power reaching the hands of the nation’s shoppers has been insufficient to absorb the total of this production. Admittedly the NRA has reduced unemployment but many of the people thus employed are working part time, on hours so short that they do not actually receive half of the total NRA mini­mum wage requirements. The steady march of technological progress cannot be halted simply by limiting hours of work and over-burdening the payrolls of business.

In December 1934 there were 19,018,503 persons in the United States receiving relief from public agencies. Approximately one out of every seven of our population is dependent on welfare and relief funds.

It has been estimated that the sum spent on the government Re­covery Program equals the stupendous figure of $12,000 per minute. This money is being borrowed, mainly from the banking system through government bond issues. At the same time statisticians estimate that more than 85% of the business assets in the United States are mortgaged to the banking system. Business cannot borrow, banks can­not lend, consumers cannot buy. In this vicious circle recovery is stalled.

Every man, woman and child in this country today is $226.00 in debt for Federal Government indebtedness alone and that figure is go­ing up.2 How can it ever be repaid? Yet the attitude prevails that pay­ment of our debt is a small thing to worry about at the moment and we can go right on borrowing and enjoy spending ourselves rich. This is planned as the practical way of our present poverty!

How can more debt be the way out of our present indebtedness? We might as well try to stop the weather from getting cold by taking off more clothes.

The Stupidity of Sabotage

We also have the surprising spectacle of an organized and govern­ment-sanctioned plan of sabotage — the deliberate destruction of agricultural wealth to restrict production to the level of current consumption. How can wealth be made available to needy consumers by destroying it? Obviously the destruction of wealth also destroys corresponding human satisfactions.

Economic Confusion

Writing in the Saturday Evening Post of man’s age-long dream of plenty for all, and his present inability to manage his own affairs, Garet Garret says, “In the very act of seizing the reality of unlimited plenty he is frustrated, not by anything that happens untowardly to the dream itself, but because the dream comes true. Plenty overwhelms him. He cannot manage it. And when he tries to say why, what he says does not make sense to his own ears. Because people can produce more than they can consume, they cannot consume as much as they want. Does that make sense? Yet he must behave as if it does, unable to think what else to do.”

“With paper money out of the public treasury, which is his own pocket, he pays himself to plow up his cotton because there is too much cotton, hires himself not to grow wheat because there is a surplus of wheat, buys for himself young pigs and sows and kills them to be rid of them; with the same paper money out of his own pocket he pays himself to limit his hours of labor; and none of this makes sense, for obviously, by these means, if continued, he will make the world poor... Never was worse confusion. The wonderful economic mechanism we had been boasting of goes absurdly wrong.”

Plain Facts

Certainly our rich natural resources, our fields and mines and fac­tories, with all their productive ability, exist today as they did in 1929. And with still more certainty we know that the needs and desires of our 125 million people for food, clothing, and shelter, to say nothing of such things as radios, warm blankets, and automobiles, are as great, if not greater, than they ever were.

Yet we are told now that we are in debt. Since 1929 the value of our national wealth, measured in money, has shrunk by more than 100 billion dollars — nearly one-third of its total 1929 value.3 The “financial experts” report that in terms of money almost one-third of our wealth has vanished into thin air.

Now, if one-third of our country had been destroyed by earth­quake, fire, or flood we could understand how one-third of our wealth might have been destroyed. But there has been no such catastrophe. Nature has been kind to us. America is here as beautiful and plentiful as ever with her rich crops and her factories filled with machinery.

What has happened to this wealth that has made it lose its value? Nothing at all. The wealth itself still exists, but its value in terms of money has been destroyed. We have made the fatal mistake of confus­ing our WEALTH with MONEY, and we have thus deprived ourselves of the wealth we need.

Outside the shopwindow of plenty we stand looking in and wish­ing for more money, for more buying-power. Discouraged and bewild­ered, we yearn for the wealth of goods in the window when it is denied us simply by the limitations of our own creation, the Money System. What a tragic absurdity! And it is doubly stupid because it can be changed whenever we decide to change it.

Bewildered Business

Let’s try to put the problem simply and precisely. Working from the known facts will perhaps give us a clue to the answer. Indus­trial engineers testify that we are able to produce in abundance all we require to satisfy our needs. Then why don’t we do so? Plainly it must be because we have already produced more than we can sell.

Our clue must lie somewhere in this so-called “over-production.” Why can’t we sell these “surplus goods?” Because there is not enough buying-power in the country to equal the prices of the goods we have produced. That is plain to everyone.

“The trouble is clearly not lack of desire but lack of purchasing power.”4

This shortage of buying-power in the hands of would-be shoppers is rooted in our money system. Yet money has been devised by man himself as a measurement of value for convenience in carrying on busi­ness.

Is it possible that as business operates today there must always exist this unsaleable surplus, which we have absurdly dignified by the name “over-production?” Surely it is ridiculous to talk of over-produc­tion so long as consumers need goods and wish to buy them. The very idea of over-production is a stupid falsity so long as there is unsatisfied demand.5

Under-Consumption — And Why

Now we are getting close to the heart of the problem. Very apparently our difficulty is concerned not with over-production but rather with under-consumption. To be able to buy goods consumers must have buying-power. But there is a shortage of this necessary buy­ing-power. Under-consumption exists because we have not sufficient purchasing-power to buy the total of the goods we produce.

There is ample provision for financing production but little and faulty provision for financing consumption. Producers can produce but consumers cannot consume.

And why do consumers lack buying-power? The answer is to be found in the financial system itself. This constant lack exists because the money system, which was designed to accomplish the smooth flow of goods from producer to consumer, has inherent in its nature TWO FUNDAMENTAL DEFECTS so serious that the system has broken down. These disastrous defects are the root causes of depression, pov­erty, debt, and taxation, because they give birth to a chronic shortage of buying power. The shortage has been with us both in time of “de­pression” and of “prosperity.”6

The Failure of Finance

There must be no quibbling about the breakdown in the function­ing of the money system. It is a fact. This is a serious charge, but there is ample evidence that it is well founded. The evidence is apparent not only in the records of what has happened; it is vividly demonstrated in our every-day experience.

The failure of the money system is felt by everyone even little children though they do not understand why they suffer. For the facts of modern money are quietly hushed in the newspapers, and the atten­tion of the public distracted from the cause of its privations. Yet these facts are evident in the failure of nearly half of the banks in the United States during the past ten years, involving the loss of use and ultimate partial destruction of deposits amounting to $4,885,000,000.

If this is not evidence enough of the collapse of our money system, we may well remember the 1929 crash and its sudden destruction of financial values, when our national income shrank from 81 billion in 1929 to 48 billion in 1932. Or we may recall the “bank holiday”— what a happy name for it! — of March 1933 with its freezing of deposits, and the subsequent withdrawal from circulation of all the gold upon which our money is supposed to be based; the international failure of the gold standard; the necessity of the government’s present deposit insurance guarantee plan, designed purely to stimulate confidence in the banking system; the wholesale default of bonds and mortgages; the failures of insurance companies and investment houses; and a long list of personal failures resulting in new all-time highs for suicide. We know personally the pressure of the present scarcity of money and credit both for busi­ness and consumers, and the prevailing misery of our mortgaged and debt-ridden population.

Awakened by suffering, public interest has at last begun to focus upon this shortage of buying-power. The failure of the money system to accomplish the smooth flow of goods from producer to consumer can no longer be concealed. Let us face the facts. What has caused the fall of our financial structure?

With the coming of Power, Money has failed man. So long as pro­duction remained difficult, and goods were relatively scarce, our anti­quated money system could operate well enough to enable business to continue. New markets were constantly being opened up to absorb the surplus of our production. But today, when we are able, through the use of power machinery, to produce on the greatest scale in history, the money system has not been adjusted to these new conditions. Science and invention have outgrown our old ideas of money.

To understand why this has happened, and to see clearly the basic cause of our chronic shortage of buying power, we must first know how the money system works in practical operation. Since its operation has resulted in failure we must discover the facts behind this failure. We have seen that the lack of buying-power is responsible for under-consumption. Now let us determine what causes the chronic shortage of money.

 


 

1) The author wishes to acknowledge indebtedness to A. R. Orage for the picture of the shopwindow and other material contained in Orage’s Social Credit broadcast, Lon­don, Nov. 1934.

2) February 1935.

3) Figures of National Industrial Conference Board.

4) Digest of America’s Capacity to Consume, Brookings Institution studies p. 57. General Hugh Johnson, former National Recovery Administrator, stated in 1933, “The ability of the people to buy is not so great as the total cost of what there is to sell.”

5) “The United States has not reached a stage of economic development in which it is possible to produce more than the American people as a whole would like to consume.” Digest of Brookings Institution Studies, p. 57.

6) “Those who are most concerned about the existing economic situation are think­ing of something more deep-seated and basic than the mere fluctuations of the business cycle. They observe that although we have great powers of production, some of which remain unutilized even during periods of prosperity, large sections of the population continue to have unfulfilled desires and needs. This paradox of want amidst what appears to be potential plenty had suggested that there may be a basic maladjust­ment which seriously impedes the functioning of the economic system.” Digest of Brookings Institution Studies, p. 1.