|A Raw Materials
State Of The Union Message
|Preface of Intent
In the tradition and intended spirit of a President’s State of the Union Address to the American People, this report will cover that which should be at the core of any true assessment of, and prescription for, responsibly addressing the economic health of the nation. Unfortunately there is presently no responsible parties in positions of political power addressing what is at the root cause of our present ongoing economic and financial ills. Hence the need for this report which will provide the needed perspective to understand and address our present crisis at its foundations with historically proven policies in line with the founding principles and traditions of the United States.
The missing perspective, summarized below, is rooted in what is called Raw Material Economics, a discipline of analysis and perspective born outside the realm of academia, by the necessity of citizens seeking to understand and to then rectify the crisis of the Great Depression. Then as now, the collapse in the price of raw materials represents the central factor to the nation’s economic collapse, an imbalance which must be addressed if we are to survive this crisis.
Luckily the last time the nation faced this crisis, policy was eventually adopted, forced into action by the necessity demanded by World War II, such that we have a historically proven manner with which to address the fundamental imbalances that are driving our present ongoing economic and financial problems. Discussion of this and our options today will be present in
this report to the nation.
Our Present Crisis: The Next Phase of Collapse
In order to address a crisis, one must first understand that there is a crisis, and what that crisis’s true nature is. The vast majority know that there is a problem, but politically the powers that be serve an agenda that masks our real problems and the necessary solutions.
Obviously the world just barely escaped a full financial collapse in 2008, but the fact of that matter is that financial collapse is still with us with the dangers driving the problem getting worse. Glass-Steagall was not reenacted to address the problem of massive speculation as it did in response to the market crash of the Great Depression. Instead of at least directing credit towards public works projects as during the new deal, credit has been utilized to expand debt
used to bail-out the bankrupt Wall Street banking operations at the core of the speculative bubbles which are a phenomena of a weak underlying economy, that has put everything up for sale at the pawn shop to keep the gambling going, while the American tax payer and our economy foot the bill.
It is the present collapse in the price of oil which points to a new phase in the on going national and global crisis. This is symptomatic of things getting much worse. Even though consumers are rightly relieved by the price drop, it is not producing increased demand demonstrating that the economy is not doing well enough to consume more. While it is beyond the scope of this paper, the drop in the price of oil, is not unrelated to the fact that the United States is presently conducting economic warfare against Russia a large exporter of oil. War must be seen as an epiphenomena of economic problems, where Russia and China represent countries with the power make their own economic decisions, serving to protect their interests, then be subjected to the problems incumbent upon an economic order that is not working.
Raw Materials Economics 101
From the Raw Materials Economics point of view, it is the drop in the price of raw materials that effects the whole economy and income of the nation. What Carl H. Wilken and his partners in the Raw Materials National Council discovered in trying to figure out and solve the Great Depression was that for every dollar ($1) earned through the sale of raw materials, seven dollars ($7) of national income would be created. This ratio, or multiplier was called the “Trade Turn”. Wilken, a farmer who asked why a good crop could not make a decent living for farmers? Why did we have a depression when the country could producer and make as much as it ever did? Now it was known since the collapse after World War I that for the economy to work, farmers, the bulk of the raw materials producers, needed to make an income that would allow them to buy factory goods, like tractors. The term “Parity” is used to describe what would be a balance between sections of the economy, raw material producers to manufacturers and the service economy, and also as regards getting a fair price.
A fair price is one that is fair, such that one is not loosing money consistently in making a sale. A farmers relationship to the markets is one where farmers are at the mercy of the elements, such that a good crop might actually work against oneself and other farmers. A surplus should be welcomed.
Now in 1933 at the depth of the Depression the Roosevelt Administration adopted the New Deal of which the Agricultural Adjustment Act (AAA) was inaugurated. It was recognized that farm prices must go up, but the way the AAA dealt with it was to mistakenly conform to the wisdom of the markets, by the Government interfering with Agriculture, which it had no provisions to in the Constitution, to so destroy food, to cut supply to raise prices. The fact of the matter is that this policy did not work as intended, and this is where the discovery of the Raw Materials National Council is important.
Wilken and company, in discovering the relationship between raw materials income and national income, further realized that this income became the driver of the economy, because raw material
income comes first by approximately six months, such that they could accurately predict national income six months in advance. Comparison of years and prices for major commodities like wheat, revealed that when prices were down there was a corresponding drop in national income.
The key to understanding this multiplier effect, is to understand that income from raw materials was invariably used because it in a sense had to. With less income there was less to spend, with less to spend then there would be less income injected into the rest of the economic chain.
Raw Material Production represents income, a fair profit, that is an earned income. Earned income is different than money that is made available by credit, which then has a credit premium on it which still has to be made up by earnings from work.
When the Raw Materials sector of the economy is not making a fair living for its production of what is essential wealth, and this is what is happening for decades, then the difference is made up through the expansion of credit which creates more debt. Right now we are at a point where we can not make up the amount of public and private debt that is destroying the economy of the nation and the world. Ironically debt expansion is collateralized by raw materials, but in a very deceptive way on through the speculation of raw materials at such places like the Chicago Mercantile Exchange that is a greater gambling pit than Wall Street. This is where the price collapse of oil is pointing to trouble for credit expansion, where credit through derivatives represents totally over leveraging on paper on paper promises far removed from reality.
To put things into perspective, from the basis of reality, it has been calculated that the price of wheat, our daily bread, should be selling for $18 a bushel to provide a parity price for the farmer, which would not have to be made up with a government subsidy. Subsidies to farmers have not worked, though they have helped, they just perpetuate a bad situation and the chance to make a fair profit. Interestingly this $18 a bushel for wheat is in line with what has been calculated to be a living wage for workers, which can only be supported in the economy if raw materials are appropriately priced.
Hopefully some bare concepts are coming together for one, that by underpricing of raw material commodities our economy does not have the earned income, savings and profits to spend. We must remember that raw materials, particularly food, represent the introduction of “new wealth” into the economy. This new wealth is new wealth that will be consumed, again and again. If we under monetize this new wealth, then we are not valuing this new wealth and thus we will have less wealth.
So what should be done?
What Should Our Policy Be? Parity!
A return to the policies that provided a parity price for our major agricultural commodities was the suggestion of the Raw Materials National Council back in the late 1930’s. It was what we need to re implement as it was implemented to fight World War II. With the emergency of World War II it was understood that one could not fight the war and have farmers going out of business.
Instead of forcing people to farm at gun point, a plan was put in place that basically made the markets conform to a price window of between 90%-110% of the Parity Price of storable commodities. There would be no limits on production. This was put forth under the Steagall Amendment and Stabilization Act of 1942. at the start of the war.
With a World War at hand one does not fool around, so that was the intent of stopping the funny business, and dealing with economic reality which required production minded approach to the economy, where the logistics of raw materials where a strategic necessity. Now what is interesting is that besides working during the war, it worked afterwards when then fighting stopped and where an economic downturn was expected. One of the members of the Raw Materials National Council was an economist for Sears Roebuck, Charles B. Ray who recognized that because the policy was in place that there would not be a downturn in the economy after the war, to which Sears acted accordingly and were rewarded for that understanding.
Unfortunately America lost its Parity arrangement a few years later, to weakened expressions of it. Even those weakened expressions of Parity would in less than a year help things tremendously for people in the nation.
Now what people need to understand is that Wilken was someone who believed in capitalism and that it worked well in distributing the most wealth to the greatest number of people. This is how democracy flourished, but only when the nation, our Republic did its duty, as found in the Constitution, to ‘promote the general welfare’. Besides the Hamiltonian expression of that through the promotion of internal improvement of the country, such as the Eire Canal, to help the productivity of universal labor in the nation, Wilken saw the importance of Government to simply act as a referee.
By forcing the market to work within a 90-110% Parity window, what was happening was that Congress had really for the first time determined the value of our currency to the necessary production of essential wealth thus conforming with Article I Sec 8 of the Constitution. The problem with the Gold or Silver Standard was that it created a lack of liquidity. Though having value, food stores have essential value, try not eating, and the value of ensuring parity is to ensure that we will have food available to us. Our daily bread is not a given, even though we may have the luxury to give it away, we still should not support a system that steals it, and thus robs from ourselves.
It is getting back to basic moral fairness in exchange that we must promote, and can do for we have done so in the past. The fact of the matter is the system is not working and we need to bring forth a plan for stabilization that protects everyone. Free markets are necessary, but should not dictate the cannibalizing of an economy for gain when left totally unchecked. This is why Glass Steagall was so important in stopping the power of those speculative entities that created the crash in 1929 and 2008, not to stop investment, but to make investment work for the improvement of our society, culture and nation.
Hopefully this paper will awaken some thinking and greater debate, where Raw Materials Economics represents a certain role within what is know as the American System of Economics which worked and can work once again.
Resources and Sources:
National Organization for Raw Materials Economics Normeconomics.org
All New Wealth Comes From the Soil by Carl H. Wilken
Unforgiven...American Economic System SOLD for Debt and War by Charles Walters
The Nature of Wealth by Fred Lundren and Jerome Friemel free online @ http:// normbook.homestead.com/
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