by Martin Harris
Retired Architect & Farmer
“Some ag economists argue that acceptance of a service-dominated economy, with commodities shrinking in value, will lead to instabilities far worse than the Great Depression of the 1930s.”
That was the closing sentence in last month’s “Northeast Opinion”
column, and it was based on two points:
(1) Like it or not, our economy is in a very long-term pattern -- centuries, actually -- of rewarding service-producers more and commodity-producers less, and
(2) There has also been a very long-term pattern -- centuries, actually -- of ag economists arguing that such devaluation of commodities leads to economic disaster.
Back in the 18th century, when the science of economics was just getting started, there sprang up a group which called itself “Physiocrats.” All new wealth comes from the sun, they argued, and so it was solar energy which supported the human economy: old solar energy stored in the form of minerals and fuels, and new solar energy in the annual crop harvest. Once created, such wealth then supports manufacturing, services, and government, creating jobs, savings, and investment.
Modern proponents of this commodity-centered theory -- the National Organization for Raw Materials (NORM) is one of its leaders --raise the argument to mathematical levels by relating rising national debt levels to declines in commodity values.
Because we have mistakenly chosen to assign commodity production less reward in our modern economy, the money not earned has shown up on our balance sheets in the form of debt: the trillions we owe ourselves and others in the form or national and personal debt equates to the shortfall in return to commodity production over recent decades, under the NORM theory.
To regain a debt-free economy, NORM
argues, we must monetize commodities at values in parity with the non-farm
economy, to ensure that adequate rewards are targeted to the primary sector
-- agriculture primarily, but
also fuels and minerals -- so that secondary and following sectors can offer their services to buy into the wealth created.
NORM’s views are not widely held. Far more popular, in a society which is 98 percent urban, is the view that for commodity prices, the lower the better; the less spent on raw materials, this theory goes, the more is available for services and everything else.
Thus, in publications ranging from the Wall Street Journal, to the economics-lite, such as Newsweek, we get the message that deflation is just fine as long as real paychecks (defined as those earned by non-farmers) don’t go down. And we do have deflation: from fuel oil to beef, from lumber to copper, the basic building blocks of our economy are worth less, adjusted for inflation, than ever before in history.
Other things have gone up, of course. We’ve chosen to buy services from government to the point where the typical wage-earner now pays more in taxes than he or she pays for food, clothing, and shelter combined. We’ve chose to invest in peace-keeping to the point where the real per-barrel cost of oil, a General Accounting Office study explains, is $100: $16 for the oil itself, $84 per barrel for the military presence in the Middle East.
And we’ve chosen to invest in luxuries: a society which spends so little for food can easily afford to buy pet rocks and presidential museums, privately-funded (but tax-exempt) social engineering foundations and publicly-funded national endowments for this’n that.
Former Federal Reserve Governor Wayne Angell inadvertently supported the NORM position, while on an excursion to the former Soviet Union, (Reported in the Wall Street Journal) by suggesting that the dollar’s value should be tied to a basket of commodities and that the task of the Federal Reserve System was to stabilize the overall economy by stabilizing commodities in value.
NORM suggests that commodities
be monetized at a minimum value, just as labor is monetized at a minimum
wage. Popular economists like Jane Bryant Quinn have no suggestion beyond
applauding even more commodity
deflation. Jane, who wouldn’t work for a shrinking paycheck herself, finds that prospect for primary-sector producers to be just fine.
Miss Jane wrong
Miss Jane is wrong, I would suggest, for the same reason that 19th century slave holders were wrong: producers who are un- or under-rewarded make poor consumers, and therefore can’t buy the products and services Miss Jane and her peers need to sell.
Unless she proposes to keep American commodity production up by the
use of bayonets, she’ll find that the absence of adequate rewards discourages
production, and she may have to plan on importing the makings of her beef
bourguignonne from Mexico or Indonesia, where, likewise, the producers
aren’t being paid enough to buy the
opinion-as-information platters that she has to sell. Thus, Miss Jane may soon be facing a problem: she may be a starlet of the information age, but she can’t eat information.