ABC of Economics, Part 4

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Part 4 of 5

Chapter I

Politics, A Necessary Digression

Science or no science an economic system or lack-of-system is bound to be affected by the political system in which or beside which it exists, and more especially by the preconceptions or prejudices or predispositions and attitudes implied in the political system. 

The preconception of democracy, let us say at its best, democracy as it existed in the minds of Jefferson and Van Buren, is that the best men, kaloikagathoi, etc., WILL TAKE THE TROUBLE to place their ideas and policies before the majority with such clarity and persuasiveness that the majority will accept their guidance, i.e. ‘be right’.

The preconception of let us say the Adamses, or aristodemocratic parties is that privilege, a little of it, will breed a sense of responsibility.

The further Toryism is that the best should be served.

In practice it is claimed that the best get tired or fail to exert themselves to the necessary degree.

It seems fairly proved that privilege does NOT breed a sense of responsibility. Individuals, let us say exceptional individuals in privileged classes, maintain the sense of responsibility, but the general ruck, namely 95% of all privileged classes, seem to believe that the main use of privileges is to be exempt from responsibility, from responsibilities of every possible kind.

This is as true of financial privilege as of political privilege.

The apparent exception seems to occur at the birth of any new privileged class, which amounts to saying that any new governing class is bound to be composed of exceptional men, or at any rate of men having more energy and being therefore more fit (apt) to govern than their fellows.

The dross of the intelligentzia, lacking the force to govern, constantly try to spread the belief that THEY are the ‘best’, the agathoi, etc.

Obviously no best, no even good, governing class can be spineless; this applies even to an administrative class, or people administering economics. The term ‘good’ in either case must include a capacity for action; some sense of relation between action and mere thought or talk.

A lot of rot is talked and written on the assumption of political and economic laws existing in vacuo.

I go on writing because it appears to me that no thoughtful man can in our time avoid trying to arrange those things in his own mind in an orderly fashion, or shirk coming to conclusions about them, i.e. as man living perforce among other men, affected by their actions, and by his affecting them.

To separate ideas that are not identical and to determine their relations.

As to the history of the subject, a fig for that history save in so far as it applies to the present and to the day after to-morrow.

A democracy, the majority which ‘decides’ in a democracy functioning as such, would presumably choose sound economics shortly after it had learned to distinguish the sound from the unsound. Subjects of an autocrat would obey, and continue obeying the economic decisions of their ruler or rulers as long as the orders were economically sound, and for a considerable period after those orders were unsound. Various durations of patience in intermediate forms of government.

A break, revolution, chaos, need not imply any new discovery or ambition or new form of soundness; it is, nevertheless, usually engineered in the name of some form of justice, or some social belief with economic implications.

The point is that the orders of an omniscient despot and of an intelligent democracy would be very much alike in so far as they affected the main body of the country’s economics. Whether as independent citizens, individuals, etc., or as pack animals, the nutrition of the population would have its importance.

For any particular country, the most immediate road thereto has a good deal to be said in its favor  and that road would start FROM the conditions in which the said country finds itself at the moment.

The present moment, the moment under consideration.

Chapter II

Capital is generally considered as per-durable, eternal and indestructible. This is probably an error. Gold coin in circulation wears down, whence paper currency, to save attrition. Paper has to be renewed. The expense is trifling but mathematically extant.

Jewels might seem to be property and not capital. They or precious metal can be buried in cellars. Whence they work as a magnet.

Observe the force of the wildest and mildest hopes of profit, and consider the imponderabilia that enter into any consideration of credit (‘the expectation that the other man will pay’).

A further point is that not only particular masses of credit may rot, but that the credit of ANY economic system, qua system, may rot.

Not only may a year’s crop fail, but the tree itself may.

There have been so-called systems based not on any sound thought or equation but on nothing more than a temporary accident; as say the chance of swapping glass beads to the heathen, or the monopoly of a trade route, or the willingness of Indians to swap forty square miles of land for a rifle.

Some of these systems have lasted for a least three hundred years. Nile tolls are at the beginning of history. Kublai understood paper currency. The Mantuans in the quattrocento considered a cloth pool on the lines of the Hoover government’s buying of wheat. There is probably no inventable scheme or measure that can’t be upholstered with historic background.

Chapter III

In 1933 Where are We?

1. For civilized countries the problem of production is solved. There are doubtless particular products not producible in particular geographic areas, and particular uncivilized areas where industrialization, improved methods of production would solve the local troubles, but for the ‘great powers’ etc., the problem is not production.

2. The shortening of the working day (say to five or four hours) would so aid the general distribution in all civilized countries that they could carry on without other changes for a considerable period.

3. But this would not in the long run permit them perpetually to dodge the problem of a fair and/or adequate distribution of credit slips. Called the problem of money or of the fiduciary system.

That is the main question and the overwhelming question of economic science. It is, I should assert, open to permanent solution. Scientific solution.

4. But a permanent and scientific solution of it would still leave us with the necessity of practicing the ART of economics; that is to say, we should still have to exercise constant vigilance with the same caginess that the peasant shows in selecting his next crop. There is no way of dispensing with the perceptive faculties. Five year planners, ten year planners, clever men, etc., will for ever have to guess and to try to guess right re—what is to be produced and how much and when.

Make fair the distribution of paper slips certifying work done, keep the work distributed among a sufficient proportion of the people, and you still must have constant caginess not to find yourself in October with nothing but wheat, or nothing but aluminium frying pans.

And toward this end, there is probably no equation other than the greatest watchfulness of the greatest number of the most competent.

One man asleep at a switch can very greatly discommode quite a good railway.

In a world of Kreugers and Mellons you might say the switchboards are enveloped (on purpose) in darkness. What I am getting at is, that with all the solvable problems solved, clear and in the open, there will still be ‘opportunity’, there will still be need to use wits.

Chapter IV

Inflation

(Science as possibly distinct from art in economics)

Inflation was said to be ‘understood’ in Germany after the war. There are now almost universal cries for inflation (Germany, U.S.A., and elsewhere).

There are very few demands for control of inflation.

Inflation is perhaps the ambiguous or camouflaging homonym for a dozen or more manoeuvres.

Dissociate what we can. For many people it means merely abandoning the gold standard. Merely having certificates for something other than precious metal.

The banks (the bogymen) inflate and deflate at will, or appear to.

We are told that the tariffs on money are too high, and the tellers are answered that the bank rates on overnight money are almost nil. So that is not the real crux. The banks possibly use their freedom to inflate and deflate to their own disproportionate advantage.

TWO sorts of nations exist: those which control their finances and those which ‘are financed’.

There are, I take it, intermediate degrees, nations that try more or less to control part of their finances, or that exercise a semi-conscious control over their finances, or have an unconscious influence on them.

The American (U.S.) treasury was ‘freed’ about a century ago. It was somewhat confused by the civil war, etc.

Once again we are not even concerned with HOW a people or nation is to get control of its economics but with WHAT it ought to do with them if it did get control.

Another form of the question is: what price should it insist on getting from the present controllers if it continues to tolerate their control, i.e. what is the minimum (or maximum) of intelligence and of intelligent measures it should demand of its ‘owners’ or financiers.

We have stated at least part of this in the formula.

ADEQUATE (and more or less just) distribution of credit slips (certificates of work done, etc.).

I have put ‘ADEQUATE’ in capital and ‘just’ in lower case because that is the order of their importance.

There is a very great margin of error, a very great coefficient of injustice possible in a quite workable and quite comfortable economic system. The Miller of Dee and the rest of it. Once a human being is comfortable, even tolerably comfortable without actual suffering and free, more or less, from IMMEDIATE worry, he will not bother (to an almost incredible degree he will refuse to bother) about economics.

But an inadequate distribution of credit-slips will upset the whole system, any system; it will heap up obstacles before anyone is aware, it will heap them up all over the place and without ascribing responsibility to anyone in particular, and without offering handy solutions.

Chapter V

‘Adequate’ with Queries about Solutions

The Mahometans ran on a share-out system.

I forget whether every fanatic got an equal share. It don’t much matter, it was so long ago, but at any rate they had national dividends, at least as long as they continued to conquest.

It is difficult to conceive national dividends in our day and in our countries without a noisome increase in bureaucracy.

National dividends have worked in the past. Undoubtedly most people would like to receive ten guineas a month is crisp bills from the postman or other trusted minion of officialdom.

It sounds so easy, so easy that hardly anyone (including the author) can believe it.

It seems as if the recipients ought at least to go through the motions, or to hold themselves ready to do something useful in return for the bonanza, or at least to keep awake and make sure that something was being done, that the greenbacks or Bradbury’s or whatever, meant and continued to mean something other than greenbacks.

I seem to remember a time when Major Douglas wrote books without mention of national dividends.

I am now making simply a catalog or list of offered ‘solutions’. I am inclined to leave the national dividendists to show HOW they will insure the perennial delivery of needed goods against distributed greenbacks. I am not denying the possibility. I merely await fuller enlightenment.

As nearly as I can recall Douglas’s early expositions, he claimed that in the present system a certain proportion of the credit-slips, or what should be the quantity of same, were sucked up or absorbed or caused to disappear.

I am purposely putting this the ‘other way on’ to see whether the idea is sufficiently will constructed to stand being joggled about.

In the ‘present industrial system’, work is done, goods produced, and the manufacturers, owners, traders, etc., demand from the public more credit-slips than the work is worth, or at any rate more credit-slips than the governments and banks will permit to be available against that work.

And the effect is cumulative. There are constantly more goods and constantly fewer and fewer valid certificates, which same leads to constipation.

And again, if I remember rightly, Major Douglas explained how the wangle was wangled. According to him, if I translate correctly, a certain part of the credit-slips received by the entrepreneurs was wormed down a sort of tube, i.e. instead of equaling the cost for the thing made and given for it, it equaled that cost plus part of the machinery used in producing the article (part of the plant).

And nothing was done against this amount of credit taken in from the public and hidden. It flowed continually down into the ground, down into somebody’s pocket.

Result—constantly more and more goods for sale—constantly fewer certificates of work done.

So that to keep things even, one would have either to print more slips, or to compute the cost in some other way, i.e. to distinguish between real cost and costs according to the traditional book-keeping.

According to traditional book-keeping the Major’s requirements would have meant that impossible thing: sales under cost. But he figured that they would not be less than the real cost, and that the paradox was all on paper.

All of which requires a bit of thinking.

Manifestly we have seen companies building new plants out of ‘profits’. Manifestly we have seen crises.

Chapter VI

The foregoing is perhaps very confusing. I state in one place the maker ought to get certificate of work done, a fair certificate equivalent TO the work done.

Then I appear (to some readers) to say that he gets too much. When I ought apparently to say that he gets too little.

There is no contradiction. He gets too much, or asks too much for some of his product, and is unable to get anything for the rest.

Let us say he makes one million brooms that really cost him 3d. each.

He asserts (in accordance to inherited beliefs of his accountants) that they cost him 5d. and must be sold for 6d.

He sells 400,000 for 6d., has 600,000 left on his hands, and ultimately goes bust. Despite the fact that five hundred or seven hundred thousand people could use the brooms.

That is an ‘impossible case’. Or rather it is a crude statement, and there are various intermediate conditions.

Say he drops his price to 1d. and sells his six hundred thousand spare brooms, and thereby ruins some other manufacturer, etc., etc.

My imaginary example is merely to show that high price needn’t ensure perpetual success, and needn’t be the best possible commerce.

The issue of credit (or money) must be just, i.e. neither too much nor too little.

Against every hour’s work (human or kilowatt hour), an hour’s certificate. That can be the first step. That can be scientific. Ultimately it must be scientific.

But it will not get you out of the necessity of using intelligence re—what and how much you produce.

What? can be answered by ‘Everything useful or desirable’.

And the how much can be answered by ‘all that is wanted’ with allowance over for accidents.

That may sound very vague, but it is nevertheless reducible to mathematical equations and can be scientifically treated.

The equations (algebraic equations) will not mean merely any old quantity turned out haphazard.

Their answer will govern the length of the working day. By which I still mean the number of hours’ work per day for which a man is paid. Over and above which, he can paint pictures on his wall, stuff his armchairs, breed fighting cocks, buy lottery tickets, or indulge in any form of frugality or wastefulness that suits his temperament so long as he confines his action to his own property (vide definition in Part I, Chapter I).

So long as his action is confined to his own home and front yard.

Chapter VII

Digression perhaps Unnecessary

Personally I favor a home for each individual, in the sense that I think each individual should have a certain amount of cubic space into which he or she can retire and be exempt from any outside interference what so damn ever.

From that I should build individual rights, and as they move out from that cubicle or inverted trapezoid they should be modified by balancing and counterpoise of the same-sprung rights of others, up to the rights of the state or the congeries.

Parallels political and economic.

Chapter VIII

Economics

There would seem to be the following kinds of error or crime in the issuance of credit-slips against work.

1. The issuers may refuse to issue any slips, or adequate slips against the work.

2. They may issue too many.

3. They may issue them in such a way that for products produced and distributed in a complicated manner too much of the credit goes to some, or some kind of the labour, and not enough to some other.

The terms ‘labour’, ‘work’, throughout this discussion apply to the man with a shovel, the clerk, the transporter, the entrepreneur, etc. Everyone who acts in the transposition of the article from mother earth to the eater (eye of beholder, hand of user).

Chapter IX 

I know of no alphabetic or primer simplification of the questions of de- and in-flation. I mean nothing easier to comprehend than the history of some particular instance, say the story of Van Buren versus Biddle in the 1830s.

At the other end of the scale, Doughty’s Arabia Deserta or Leo’s history of the eighth and ninth centuries can illumine the reader re—what occurs when there is NO production.

The point is that in any system, in any conceivable system, there arise similar problems, whether under Soviet or Florentine Banker.

1. The goods needed,

2. The transport,

3. The use or consumption. The necessity of motion, which means both of goods and of the ‘carrier’,

4. Monetary carrier.

A small amount of ‘money’ changing hands rapidly will do the work of a lot moving slowly, etc., etc.

As in mechanics some sizes of machine are found fit for some work, etc., detailed applications without change of principle. Fruits of experience as to detail: ideas as to main causes.

This looks like a mare’s nest or like wilful confusion! What the Major said fifteen years ago matters less than getting a valid and clear statement.

The manufacturer is ‘paid’ in two ways under the present system. He gets ‘money’ or ‘is owed’ money for what he sells, and he gets ability to borrow from banks, i.e. his action and potentiality to produce enable him to get credit as will as payments (cash and deferred) and the banks get more credit than they give HIM, i.e. he has to hand part of it back to them, and for the part he hands back he gets no direct credit, though he may get the ability to have more (on similar terms).

Perhaps the only value of these statements is a test value. I mean that I am merely saying 5 and 2 make 7 in place of the other economists’ statements that 2 and 5 make 7, to see whether either they or their readers understand their previous statements.

After all, this is a very rudimentary treatise.

By the time the banks have got more credit than they gave the manufacturer, the potential consumer hasn’t enough credit to purchase the needed goods. Where would he get it? The banks will always give him less than he has to give them. They are not there for their health.

The book-keeping cost of the goods is the cost (real) of the goods plus the cost of the money, or the rent of the money.

I take it that in the perfect economic state the cost of the money is reduced almost to nothing, to something like the mere cost of postage, and that this cost is borne by the state, i.e. distributed so as to be a burden on no one in particular.

Once that end is attained, the general intelligence can apply itself to the problem of what and how much to produce.

The state conceived as the public convenience. Money conceived as a public convenience. Neither as private bonanza.

Chapter X

Novelties

The possibility of novelties in economics is probably somewhat exaggerated. Hume by 1750 is already talking of paper credit and cites someone or other to the effect that the great amount of gold coin in Athens seemed to be no use to the Athenians save in facilitating arithmetic.

Twenty years ago we were asked to think that someone was being a ‘modern’ with a large ‘M’ economist because he ‘left out money’.

Some know and many fail to state or keep clearly in mind the need of money, which is the need of a common denominator FOR THE SAKE OF ACCOUNTING, so as not to send book-keepers crazy with columns of ten horses, twelve cows, nine locomotives. Consider the chips in a poker game, more convenient than to have each man betting his shirt, watch and cuff-links.

A GRAVER FAILURE to dissociate: is in the nature of wealth. Crises in the sheik and sheep trade seldom occur. I mean that the primitive grazer counts his property in sheep and is not continually worried if he cannot sell out his whole herd.

Half the modern trouble is the mania or hallucination or idée fixe of MARKET and market value. The fundamental difference in wealth is that of animal, vegetable and mineral kingdoms.

All manufactured articles partake of the main property of the latter, namely, they do not increase and multiply.

The shepherd’s sheep multiply, the crops that are sown multiply, and neither requires much work. I mean the shepherd sits around, with a boy and a dog. The dangers from bears and wolves and other incidents of primitive shepherd’s life have been diminished. In legendary countries he may still do odd jobs of knitting.

The sheep supply clothing (Jefferson’s calculation was that one sheep per person gave sufficient wool.). The meat is disagreeable but nutritive. There is no question of keeping the shepherd FULLY employed.

Crops demand work (too much) at special seasons.

But with a minimum of care crops and sheep multiply.

Your possessions and mine do not multiply. Your tables, pianos, etc., remain set as a mineral, but you can’t get more by digging up the floor of your cellar.

Hume already saw that ‘the increase and consumption (italics mine) of all the commodities, which serve to the ornament and pleasure of like, are advantages to society; because, at the same time they multiply those innocent gratifications to individuals, they are a kind of storehouse (italics his) of labour . . . which in the exigencies of the state, may be turned to the public service’.

Hume might have served as a warning; for his ‘exigencies of state’ are mainly war, which fact ought to have made people think a bit more deeply. I suggest that it didn’t, for the simple reason that they didn’t in the least understand his first proposition.

No book can do ALL a man’s thinking for him. The utility of any statement is limited by the willingness of the receiver to think.

The practices of rent and interest arise out of the natural disposition of grain and animals to multiply. The sense of right and justice which has sustained the main practice of rent and interest through the ages, despite countless instances of particular injustice in the application, is inherent in the nature of animals and vegetable.

There is no need to postulate any greater perversion than natural indolence, and that in itself is insufficient as postulate. There has always been a supply of slackers, members of less civilized tribes, or non-possidentes ready and glad to watch sheep for part of the wool. The impulse of the French in our day to get work out of the Congo is wholly traditional and ‘normal’.

As for selling children into servitude, etc., the whole problem is no longer—but at many periods of history has been hardly more than—the duration of mortmain. How long shall the dead hand rule, and to what extent?

The two extremes: superstitious sacrosanctity of ‘property’ versus Jefferson’s ‘The earth belongs to the living’, which was part dogma, and part observation of a fact so obvious that it took a man of genius to perceive it.

It led Jefferson to the belief that no nation has the right to contract debts not payable within the lifetime of the contractor, which he interpreted to mean the lifetime of the majority of the contractors who were of age at the date of contract. So that from a first estimate of thirty-five years, he finally fixed on nineteen years as the limit of validity of such debts.

By the light of his intelligence American economics improved from the time of the revolution till the confusion of the U.S. civil war.

No system of economics can be valid unless it take count of this inherence in vegetable and animal nature (which inherence includes or extends to ‘overproduction).

The term ‘over-production’ usually means ‘more of a thing than will sell’.[1]

Chapter XI

Dissociate Permanence from Permanence

Dissociate the perdurability of granite from the perdurability of grain or of a species of animals. Some people seem to demand the same kind of durability from a germinating organism as they do from the lump of rock.

At the other end of the scale they say: A bank manager need know nothing save the difference between a bill and a mortgage. Several ‘great financiers’ and prize-receiving ‘economists’ in our time fail to make this distinction.

Economic habits arise from the nature of things (animal, mineral, vegetable). Economic mess, evil theories are due to failure to keep the different nature of different things clearly distinct in the mind.

The economic ‘revolution’ or an economic revolution occurred when raw supply ceased to be limited to static mineral matter (plus animal and vegetable increases).

The minute work began to be in great measure ‘raw supply’ the need for a change in economic concepts arose.

The minute you have practically unlimited stores of work at your disposal, by the simple device of letting water run down hill through a pipe onto a turbine (or any other device), you have got to begin to readjust your mental derivatives.

Not only will sheep go on begetting each other, without much attention from the shepherd, but lights will shine, stoves give heat, trains move, etc., while a couple of men watch a dynamo.

The cattle drover fed his family. The turbine can work for the group. Even the idea of national dividends (which I dislike) seems less goofy from this angle.

It is as idiotic to expect members of a civilized twentieth-century community to go on working eight hours a day as it would be to expect the shepherd to try to grow wool on his sheep by hand; the farmer to blow with his own breath on each buried seed to warm it; the poulterer to sit on his hens’ eggs.

Chapter XII

People are so little used, or shall we say the readers of books and papers are so little used to using their eyes, or so little traveled as never to have seen simple phenomena.

Has the reader ever seen women at a well curb, or at a public spigot or pump?

Kitchen plumbing, the spigot in the home, means half an hour’s idleness (or leisure) per day to every female member of the community. (Civilized community as compared with the savage and with many very far from savage communities.)

This is not a theory of the leisure class. It is a fact of leisure humanity (i.e. civilized human life).

Note

1. After the last war Henry Ford as an experiment broke up a number of armoured vessels. He made no money profit, he got back what it cost him, and he was left with a great number of engines, which, for all I know, he still has. There is no reason to suppose that these engines do any harm, any more than the ruins of Aigues Mortes or Carcassonne.

Yes, they occupy space. You don’t want ’em in Piccadilly Circus. I have also seen a sign translatable as: ‘Mountain to let, capable of enalping 30,000 muttons’. There is still room to breathe and walk about the face of the planet.