Forums:
Abstract
Can you drive a car on an empty tank? No! If you drive as far as you can will you still have a full tank? No! Well, our mercantile economic system functions exactly opposite because the currency that measures economic activity accumulates and is not consumed as it is spent, unlike fuel. The fuel to drive the human body is food or more correctly the caloric or heat content of the food we eat in order to function and produce work.
It has been estimated by the United Nations Food and Agriculture Agency that the human body is capable of producing approximately 0.5 horsepower on a continuous basis for approximately 10 hours per day. More in short bursts. The engine to accomplish this output is estimated to require about 2,000 to 3,000 kilocalories (kcal) per day depending on body weight and physical activity. A currency, established to measure human activity must have the same characteristics as the fuel consumed. That is, it must be equal to the fuel (kcal) value of the energy being expended and must be consumed in the process. Any substance that is not consumed but accumulates cannot serve as a proxy. That includes specie and paper money.
How then can a way be found to emulate the barter system when trade was conducted without either specie or paper money? The answer is a currency that represents the fuel value of the kcal used to produce the material that is being traded and is consumed as it is spent by its holder. Paper money can function in that regard if it is distributed first on the basis that the kcal it represents is being produced and at the end of the year is consumed and replaced by that which represents the next year’s production. The currency issued may be replaced if not spent only if the kcal which backs it has not been consumed. An example is wheat, rice or corn which can be stored and not lose its kcal value or ability to reproduce. In no case can the exchange unspent ever exceed the amount remaining in storage. Surplus must in any case be produced to allow for the crop to reproduce the succeeding growing season. If even more is produced it can be saved and the effects of drought or excessive moisture can be mitigated. In no case can the amount consumed exceed the amount produced plus the surplus needed for reproduction.
Equality of exchange in the barter system is unconsciously determined by the time (fuel consumption) required to produce it. If it took 2 hours (50 kcal @ 2,500/10) to pick two bushels of apples and 2 hours (50 kcal @ 2,500/10) to harvest 50 pounds of beets, they are equal in a trade, nature having supplied the grower with the material in the trade for free, the energy expended being equal. If it took a carpenter 30 hours to produce a chair and 30 hours for a seamstress to produce a dress, they are also equal in trade. This is true if the energy expended is equal. When the population increased to where people sold only their time, not the product of their skill by working for others, did the need for a proxy means of exchange become required. Instead of an exchange which had the characteristics previously described, specie, in particular gold and silver became the medium of exchange and those who owned it made the rules for its distribution.
When the framers of the Constitution included the provision that only gold and silver be accepted in payment of debts, the country incorporated the economic system that they brought with them from England. It resulted in the end of the barter system and gave those with the gold the power to make the rules for its distribution and whose government now determines who gets how much of what through the tax code. In the case of England it was initially the King and then the Lords and ultimately the Parliament. This paper explains why this system is doomed to failure and even enables one to predict when it will actually occur.
When I worked as an ironworker the union wage in New Jersey was $5.25 per hour. Today it is over $100 per hour. The original skill has changed significantly due to specialization but its output is only slightly higher due to the introduction of better tools. It is the dollar that has changed and for the reasons pointed out in this paper. If a worker is paid by the week or the month after he has produced the work, how does he get the fuel (kcal) for the week or the month before being paid so he can buy the food (fuel) necessary to produce the work before he gets paid? Sounds like driving the car before putting in the gas.
Bears Work But Don’t Get Paid
Of all the animals, birds and reptiles in the world humans are the only ones who require money in order to survive. To obtain money one must work for it or be given it as charity. Like humans, bears require water, air and food in order to survive. Air is evenly distributed, so they can live anywhere there is water and food. It is not the same with humans. Man can live in splendid isolation so long as there is someone to bring him water and food but, it now comes for a price. The bears and other creatures have not learned how to cultivate their food to increase its quantity so it is food that determines how many of them there are and they must go and get it. When there is not enough food, they weaken and become susceptible to disease and die or they fight each other for what is available.
Animals that live in the tropics do not have to venture far from their food source but are still limited in number by the amount available. If their number exceeds that which nature can support they must migrate to where it is available or fight each other over it. They will inevitably find that the area to which they migrate has a species that is consuming what is available and they must resort to eliminating their competition for it or share in that species surplus.
Of all earth’s living creatures man alone can adapt nature to fulfill his food needs. That adaptation is limited to nature’s supply of reproducible food which in turn is limited to the amount of water, light and nutrients available and the limitation of plant diseases and other creatures that rely on the same sustenance that sustains man. Through agricultural research and the creation of hybrids we have minimized the natural loses and through irrigation and fertilization have maximized the production of foodstuffs on each acre of arable land. Unfortunately, we have not controlled the number of mouths that need to be fed to survive. At the same time, we employ an economic system that empowers a government to determine who gets how much, favoring those who enable that power.
When the English first began their colonization of North America they encountered natives whose existence was enabled by their ability to enhance nature to produce certain food crops, mainly corn. As they moved further west, they began to encounter natives who migrated with the animals and whose numbers were limited to what nature randomly provided. The new settlers did two things that resulted in the disappearance of these natives; they displaced them from most of their land and indiscriminately slaughtered the bison or other animals on which these natives relied on for food, clothing and shelter.
Food is the fuel that enables life and humans of a certain maturity the capacity to produce work. There is only so much food produced and we have, in the United States, reached the limit that can be produced on an acre of land. This volume already requires augmenting nature with extra water and soil nutrients (fertilizer) that has not required a commensurate increase in manpower (consumers) because of the development of machinery. This enabled the increase in the number of consumers who employed their time in the mercantile economy.
The mercantile economy utilizes non-reproducible commodities as its basis and uses a proxy to effect exchanges as opposed to barter. The first use of that proxy is to obtain the fuel necessary to sustain life. It would have been reasonable if the proxy took on the same characteristics as that used in barter and that is the time made possible by the fuel (food) supply. That is, it is actually consumed as it is generated and distributed equally as required by all, including those who do not work. You cannot run a machine until you supply it the energy it needs to operate. By the same token, you cannot generate work without first taking on fuel (food). The consequence is the economy is only as large as the fuel supply and if it is unequally distributed people migrate or war against those who control the unequal distribution. We have also reached a point where the government has to subsidize the production of staple crops because farmers would grow more profitable crops or sell the land to increase their income.
America’s indigenous population did not need money. When the English colonists began settling among the indigenous population they too needed no money, until their numbers exceeded the ability of the land to support them. They then migrated to other areas where there were few indigenous people or reverted to the economy based on non-reproducible assets. Those who remained relied on those who migrated to produce surpluses they could purchase with their exchange, enabling the migrants to purchase items from what we now call the mercantile economy.
As with every society in recorded history those who initially settled in America went through the economic phases of their predecessors. The first is pure Socialism. There is no means of exchange and the society exists purely on sharing, where the fruits of nature are shared as required by all. Sharing by the indigenous population was the only thing that enabled the Pilgrims to survive until they could plant their own crops. In this system, population was controlled not only by the amount of fuel (food) produced but childbirth deaths, and disease.
Feudalism is similar to Socialism in that the peasants live in the barter economy and the farmers took theirs from the top before providing surplus to the land owner for his use in the mercantile economy functioning with the use of the surplus to affect trade. Population control was randomly administered by war, disease and forced migration . When migration was no longer an alternative, war took its place. In war, as described very well in the Torah, the victor killed all the able-bodied men and enslaved the remainder. Not doing so resulted in a net loss, because the objective was to obtain more land to support the growing population. If the population conquered were already at the limits of their food supply no gain was achieved by adding more mouths to the consumer side of the ledger. Those enslaved had to eat and were put to work, like the slaves brought to America by the plantation owners who provided their food and minimal other needs in exchange for work. When outsiders interfere in civil wars and the result is a stalemate, it only results in the interlopers accepting the responsibility to support the imbalance deferring future conflict. If they do not, there is no benefit and the situation remains unchanged.
The barter economy was dealt its fatal blow with the coming to America of the industrial revolution brought on by the invention of the steam engine. It drastically altered the economy by shifting the means to amplify the output of humans from falling water power to anywhere where water was available. Mercantilism flourished to supply the raw material for budding industries. Who can forget the company towns that arose in the coal mining areas of Pennsylvania and West Virginia? It was slavery but in a different form. It was further exacerbated by the invention of the internal combustion engine and the growing use of electricity. Slavery was not dead; it just paid better for those who were fortunate to be employed. The problem was the growing industries that used non-reproducible raw materials needed slaves but had to find them. Unlike the plantation owners of the South who grew them after the abolishment of involuntary servitude in 1808, they attracted them from surpluses as a result of farm mechanization and from abroad. As a consequence, the owners of industry were amassing wealth and using it to buy up any competition.
The inequity created by this distribution of nature’s wealth was not lost on the politicians who controlled the distribution of exchange and the attack on the monopolists began in earnest, culminating in the passage of the Sherman Anti-trust Act. This resulted in the dilution of ownership that led to the ability of the management of the new companies to divert most of the profits of the now impotent diverse owners to the managers of the new companies. They accomplished this through internal management control of the boards of directors. With profits now diverted to a select few making stock no longer a good investment. Manipulating the stock price became the mechanism of the speculators and the way to earn more money. Nothing the government has done since has changed this but the speculators who can make a living at it have been drastically reduced in number and are hiring the highest paid slaves in history in order to manipulate the market. It is also the reason very few outside the stock market arena were adversely affected by the market crash of 1929. Not so today when people’s savings are tied up in funds that the speculators use to play their games.
There is a myth that says that Henry Ford was very benevolent when he paid his workers more than any other auto manufacturer so they could buy the product they were making. Nothing could be further from the truth. He paid those more to keep them from his rapidly rising competition. Ford workers were paid $5.00 per day, got no benefits and spent most of their pay for lodging, clothing and food and the balance back to their families just like the immigrant labor of today. If they were able to actually save $0.20 of their pay it would take them over a year to save enough to buy a car they would not need or waste their savings on.
Craft, or skilled labor, developed in the United States the same way it had in Europe. The numbers were restrained by the Guilds or associations made up of the skilled or “journeymen” and their progeny. The United States equivalent was the American Federation of Labor (AFL). Their monopolies were further protected by licensing requirements just as the legal, medical and other professions are today. In the 1930s, unskilled factory labor did not enjoy this protection. We look back on the era between 1910 and the mid-1930s as the days of the sweat shops and the exploitation of human labor who were surplus in the agricultural barter system and those enticed from abroad. Complete disaster would have brought down the mercantile model had it not been for the continuing expansion of our agricultural base. It did however bring about the breakdown of family building among the lower working class.
The drought of the early 1930s illustrated how close we came to disaster when the wheat and corn crops in the Midwest were reduced by over 40% in less than two years by drought. It was during this period that the Roosevelt Administration introduced parity pricing through the Agricultural Adjustment Act (AAA) of 1933 just as the first of the drought years were taking hold. Heretofore, agriculture prices were in a continual free fall due to the surpluses available. Like the potato famine in Ireland in the 1840s, tens of thousands dependent on the farms for their own income migrated to the west, primarily California or lined up at soup kitchens and lived like the homeless of today. I remember vividly the scene along the railroad tracks near the city of Newark, New Jersey. Men were living in sheet metal and cardboard shacks built along the walls of the elevated railroad, just waiting for the soup kitchens to open. No one perished due to starvation as we still had an agricultural surplus, private charity and were actually exporting wheat and corn in huge quantities. People were exhausting their savings to purchase the necessities but many found the banks had loaned their savings causing massive bank failures. Today they are the homeless who flock to our cities in ever increasing numbers to beg where most of the money is.
The Roosevelt Administration was pressured to do something to alleviate the disaster. It instituted measures that have taken on a permanence that will make the government unable to respond to the real crises to come. Instead of borrowing, as we do in most emergencies, it instituted a massive infrastructure building program and funded it with a tax that was purported to be a savings program that would enable the retired to live comfortably in their old age. It was the first of the now so-called entitlement programs and it was called Social Security. It was nothing more than an illegal Ponzi scheme but was designed to have few beneficiaries. Life expectancy for males, the bulk of the working population in 1936, was 56.6 years and the benefits would only be paid beginning at age 65. Blinded by the need to do something, which was touted as the reason they did it, the people failed to see the ruse the government was perpetrating, primarily to maintain their advantage at the ballot box, until it was too late. In the first place, the government had not the power under the Constitution to pass such legislation, but when it was challenged, the Supreme Court had already been rendered an impotent rubber stamp with members all appointed by the Democrats that held it constitutional. The fact that the eligibility requirements were beyond the life expectancy of the population is a fact that in retrospect is difficult to believe people actually swallowed.
The same constitutional result occurred with the other two pieces of disastrous legislation, the Fair Labor Standards Act and the Taft Harley Act. One established the government as the determiner of a minimum wage and rules governing hours of work and the compensation therefore. The other gave organized labor (unions) the power to bargain exclusively with employers, in essence the power to extort higher wages and benefits in exchange for allowing the employer to stay in business.
To top off this unconstitutional legerdemain they also enacted legislation creating two separate government corporations now commonly known as Fannie-Mae and Freddie-Mac. One provides a guarantee on low interest loans to small businesses and the other on mortgages from the banks. This is particularly onerous in that it gives banks a fixed, but constant supply of money to loan and it guarantees the banks will not fail as a consequence of default on the loans. It does guarantee depositors their savings are protected. No one now puts money in a bank as an investment in their future, only their present. Interest on a loan is usury and usury is illegal .
Another is the disaster wrecked on the economy by collective bargaining. It results in an increase in the cost to the employer that may not be passed on to the consumer without loss of market share to a non-unionized competitor. The first response was to move production to areas of the country where unions did not yet exist or where states had enacted legislation discouraging their formation. The next response was to move production to a foreign country where they could repatriate the profits. The last and most disastrous is to not invest at all because one cannot compete with foreign production due to the differential cost of labor.
Food is the Proper Currency of an Economy
The basic staple foods are wheat, rice and corn. The reason these are the medium to be chosen as the backing of the currency is they are the most efficient fuel (kcal) producers and whose digestible volume provides nearly all the basic vitamins and minerals required for a proper diet. For example tomatoes have a high nutritional value but you would have to eat 18 times the amount of tomatoes to equal the kcal content of 100 g of wheat. On the basis of a daily diet of 2,500 kcal per day you need eat only 1.68 lbs. of wheat whereas you would have to eat over 30 pounds of tomatoes. The human stomach has a volume of about 1 liter and is able to process about 5.76 pounds of food per day. In addition, wheat, rice and corn are the most commonly raised crops, which is why they are called staples. One can actually live on a diet based solely on these commodities. Drinking water supplements the minerals also contained in the water in the above foods.
Charts developed from data available from the U. S. Department of Agriculture (USDA) illustrate the present situation regarding the crop of U. S. staples. These are shown in the Appendix as proof of the fact we are dependent on agriculture production, specifically grains and corn to sustain an economy and we are approaching a point where government charity will first be unable to house the growing population and those without housing, the food they need to survive.
The two economies can be illustrated mathematically by the following formulas:
Barter Economy P/p=1
Mercantile Economy D/〖p(1+g)〗^n=1
Where P = Production in kcal, p = population. D = Production of Dollars, g = growth of the population and n = 0,1,2,3,4,….. in years corresponding to crop production.
If g = 0, no matter what n is it requires that D must equal P however, P/p is a constant equaling 1,000,000 kcal and is consumed, whereas D is a variable dependent on the value of g. Rearranging the terms:
P/p=D/〖p(1+g)〗^n
In this iteration D can only equal P if g and n are zero (0). In this equation, the substitution of any number greater than 0 for g automatically increases D to a value greater than P. In order for the human race to survive, there must always be two, one man and one woman. For that to be possible, P must be 2p and for each additional, p times n. For the equation to balance, the value of D must decrease by 1/n. This is illustrated in the Appendix chart on the devaluation of the U.S. Dollar (D).
Since we became a country, it can be shown that the sheer volume of dollars issued either in script or in the form of credits in accounts and based solely on the kcal production of staples is so large it has not been seriously affected by borrowing (printing) which is why the system became entrenched and appears to be flawless. The collapse of this system is inevitable but has been exacerbated by the unequal distribution created by the government in the system of taxation. It has resulted in the need to provide government charity to those who earn no dollars by working. Jobs requiring subsidies are increasing and fewer free market jobs are being created. But the net is still in a downward spiral and cannot be reversed in this economic system without a systematic decrease in population coupled with an increase in agricultural production and abandonment of the mercantile model. The continued addition of population exacerbates the already begun decline.
Production and consumption are already in precarious balance world-wide and the inequality of its distribution is the reason for mass migrations and civil war. Implementation of a kcal based system described in my book “The Real Economy” and holding constant or actually reducing the world’s population will prolong the arrival of this inevitability. How the politicians, in violation of the provisions explicit in the Constitution, manipulated the system to create and sustain the unequal distribution of the mercantile system is covered in my book “The Constitution, a Document Steeped in History but Devoid of Promise”.
I apologize for the omission of the Appendix referred to in the essay however this site does not allow the uploading of personally generated charts and graphs. They only detail and confirm the summary facts presented and do not detract from their validity. Two of the charts, with less coverage in time but in confirmation of the U. S. Department of Agriculture data used to produce those referenced in the appendix may be accessed at: https://tradingeconomics.com/commodity/wheat and https://ycharts.com/indicators/us_wheat_acresharvested.
If you wish to actually view the Appendix please use the personal message option and give me an email address to which I may send it.