Our American Heritage
Some years ago, Emerson said, "It seems as if North America is the last effort of Divine Providence to help the human race."
The course of World events indicates that the great American philosopher's conclusion was a valid prophecy. Discovery of the North American continent and eventual establishment of the United States brought into being a form of government with economic policies which today can be used to lead the world into a new era of political freedom and economic development.
Our Position as a World Leader
The present position of the United States as a world leader in terms of political government and economic development can be definitely traced back to the beginning of the world.
In creating the Earth the Creator provided large areas of land surrounded by water for growth and development of the human race. Within this earth and soil tremendous resources of raw materials were provided for mankind's use, greatest resource of all being an abundance of those elements necessary for the annual production of crops and vegetation of all kinds.
This ever renewable supply of plant growth provides a supply of food for both human beings and the animal kingdom. The animal kingdom, of course, was the Creator's greatest gift to man - literally, a free labor force and processing plant to help convert grasses and crops into an additional supply of human food and other materials.
Finally the Almighty provided that the human race and the animal kingdom must have food to exist and food from which to create the energy to work, thus establishing the agricultural industry as the basic foundation for all economic development dependent primarily upon the weather cycle.
The power of the Creator to control the destiny of the human race through His control of the rain and sunshine is recognized by our Christian religion and various rituals of non-Christian peoples or other segments of the world's population.
We are taught to pray for the blessings of the Supreme Being, and especially when we dine we offer prayers of thanks to God for food we consume. Because of our basic need of plant growth and food for human existence, mankind is on a huge treadmill. We must have food to exist and obtain energy to work, and we must work to produce the food we eat.
Due to this basic need of food for human existence, the agricultural resources of the world have always been, and always will be, the governing factors in human progress. In these days of large corporations, we are prone to forget that agriculture is still by far the largest and most important industry. Rural markets established for the distribution of the annual production of farm products will determine the actual earnings for industrial expansion.
From the beginning, all landed areas were not endowed with equal resources of raw materials and soil or equal amounts of rainfall. Therefore, students of any attempts to help better the human race should recognize that the most we can hope for is equal opportunity as determined by the natural resources existing in various parts of the world. Those attempting to equalize the standards of living in all areas of the world or in any one country will be confronted with a problem of submarginal production of the many minerals available for use as well as submarginal areas of farm production.
In considering the strategic position of the United States in World affairs we should recognize first of all that in the world's landed area, which in the course of world progress became known as the United States, there were concentrated the greatest supply and variety of raw materials of any like area throughout the world. Therefore, in the development of the United States we had a distinct advantage over other countries.
We enjoyed a further advantage because of the immigrants who came from other countries to the United States with the courage and willingness to face hardships which faced them in their struggles to better their conditions in a new area of the world.
Many of them were dissatisfied with conditions in their native countries, and were imbued with the idea of religious, political and economic freedom. It was only natural for their descendants and additional immigrants in later years to demand this freedom to govern themselves as they set forth in the Declaration of Independence. After winning the War of Independence, it was also a natural sequence for them to establish a new form of government, in accord with their belief in Christianity and their desire for political and economic freedom.
Our System under The Constitution
These basic principles were incorporated in the Constitution of the United States. It provided for religious freedom by separating Church from State, thus permitting the growth of the different religious groups in accord with their interpretation of the Bible.
The Constitution protected their political freedom by establishing a Republic, a representative from of government. Under this system the people could select their representatives to take charge of the operation of governmental affairs and at regular intervals replace any representative who failed to carry out their demands for legislation which would protect and promote the general welfare.
Finally, under Article 1, Section 8, of the Constitution our forefathers took steps to protect the economic freedom of the United States by giving to Congress, elected by the people, the power to provide a monetary system independent of the monetary systems of other countries, and to regulate the value of the dollar, adopted as our monetary unit or measure of value. This power automatically gave to Congress the right to determine the value of United States production in terms of United States money.
Congress was also given the power to protect the price of products produced and sold within the United States, thus protecting our economy against exploitation by other countries. To illustrate the importance placed upon this particular section of the Constitution, the First Session of Congress enacted into law the first Tariff Act, thus automatically providing for price protection and, indirectly, price support for certain products. A simple illustration of the use of this price protection was the tariff on sugar, first enacted in 1789, and still being used at the present time to protect the domestic price of sugar.
Since the First Session of Congress thousands of various types of legislative enactments have become law and have in turn affected the price of almost everything we produce.
For example, we have legislation which provides for fixed contracts covering the principal and interest payments on all debts, public and private. We have through legislation provided for specific wage contracts between labor and industry. We have a minimum wage law and agreements pertaining to salaries for private and public employees. We have legislation providing for an income tax upon our earnings.
All of these measures and many others, directly and indirectly, affect the price and production of practically all kinds of goods and services in the United States and their eventual cost to the consumer.
A few generations after the economic principles stipulated in the Constitution were adopted, the mercantile system of Western Europe embraced an economic system completely contrary to ours. Their system called for a policy of "Free Trade" and "Free" markets. The principal purpose of their program was to obtain raw materials from their colonial possessions at the lowest possible cost.
Comparison of Economic Progress
It is interesting to review what took place under the two systems. Under our economic system individuals from other countries invested some of their capital in the United States, and in our early history helped develop some of our industries.
Our abundant production of raw materials, and, subsequently the discovery of gold, which was adopted as a fixed yardstick for foreign obligations, made it possible for the United States to pay for the use of foreign capital; and, in addition, to earn our won capital for economic expansion.
By the early part of the 20th century we had repaid most of the foreign debt and had developed our manufacturing industry to a point where we had a net export of manufactured products.
The rest of the world under the domination of the Western European nations, found large areas continuing in relative poverty and lack of development. The promoters of the European system never realized that cheap raw materials acquired from their colonies established a correspondingly cheap market for their own manufacture products. This, in turn, forced a lower wage level in Western Europe as compared to the United States, and marked an important turning point in the shifting of economic supremacy from Europe to the United States. The higher wage level led to a heavy migration from other countries, thus adding to the supply of labor needed in the rapid expansion of our economy.
In the period prior to World War I our population growth, from both births and immigration, was in approximate balance with our production of farm products and other raw materials. Our industries had progressed to a point where we were competing with Western Europe for the leading world markets for manufactured products.
The outbreak of World War I in Western Europe, in 1914, increased our market for both raw materials and manufactured products. Our involvement in World War I found us in a position of being the only country in the world with manpower and production to develop the balance of power required to win the war.
During World War I our price level more than doubled and average wages in industry increased from 23 cents an hour in 1910-1914 to 50 cents in 1919.
Basically the income of every country is its total production multiplied by the price at which that production is sold. Production and price level are equally important in providing markets for goods and the income with which to buy.
The direct result upon our economy of increased production at a higher price level was a rapid increase in our national income from an annual average of $33 billion in 1910-1914 to $73 billion in 1919-1920.
The 1920-1921 Depression
In 1920 the leaders of world finance wished to restore the buying power of an ounce of gold, which had not been changed during the war period. Commodity prices, as a result of monetary manipulations, dropped rapidly from 1920 to 1921, and our national income declined 25% in the one-year period from 1920 to 1921. This loss of income found us in a serious depression. We had lost none of our resources, our productive facilities or our supply of labor. The depression was due entirely to the sharp decline in commodity prices or the change in the monetary measure of value.
Tariffs as Price Supports
In 1920, the United States elected a new administration. The new administration, using its constitutional authority, passed a Tariff Act in 1922 to protect and support our price levels so that we would continue to pay the new rate of 50 cents per hour for industrial labor.
This moved up our wholesale commodity price level in 1925 to 60% above the 1911 level, and relatively 60% above the international price of gold. With this new price level for our production in 1925-1929, we averaged $82 billion of national income as compared to the $33 billion in 1910-1914. The increase in our income expanded our markets and created a higher level of savings and profits, and new capital for expansion. The additional capital brought about rapid development of the radio and automobile industries, and also brought into being a program of road building and other construction far beyond the dreams of our own people.
At this point in the history of the United States we had approximately 6% of the world's population, and about 6% of the world's landed area, and were producing goods and services at a price level which gave us approximately 50% of the income of the world in terms of dollars.
The Real Cost of Living
We devote a lot of time debating inflation and deflation. In this debate we think principally in terms of price, and do not analyze the fluctuations in price in terms of markets and ability to buy. A careful analysis of the economic record of the United States will reveal that at any point when commodity prices are below the level of wages and capital costs a shortage of income develops, and we find it impossible to utilize our potential production.
Therefore, it is important that we analyze the changes in price levels in terms of total consumption of goods and services. For example, the change of the wage increase from 23 cents an hour during 1910-1914 to an average of 55 cents an hour in 1925-1929 brought about an increase of 70% in our consumer price level. But, the increase in hourly wages from 23 cents to 55 cents an hour was 139%. Summed up, in 1925-1929 the industrial worker could buy 40% more with an hour of work than he could in 1910- 1914.
In terms of national income, the increase was 148% of total buying power as compared to a 70% increase in the consumer price level. On the whole, the move to a higher price level kept wages, commodity prices and capital costs in approximate balance, and increased the standard of living 40%. To illustrate, in 1929 we were producing 4.5 million cars and had added this to our standard of living.
In the 1925-1929 period, the rest of the world should have realized that the increase in our domestic price level of commodities would benefit them as much as it did benefit the United States. Businessmen and financiers should have taken steps to stabilize commodity prices and monetary values at the new level. Instead, indoctrinated with the theories of "Free Trade" and "Free" markets, they continued to take the same old steps - via monetary manipulation - to obtain cheaper raw materials from colonial areas.
During the period 1925 to 1929 the relatively large proportion of world income in the United States created a demand and a price for commodities in balance with wages and capital costs. But, following 1925 a steady downward movement in world commodity prices took place and the American price for commodities was above the world level. Competition from imports started a downward movement in our commodity prices. We were not prepared to adjust our tariffs to offset the effects of monetary manipulation, and in 1932 our wholesale price level for farm products was 54% below the 1929 level and back to 1911 levels, and in balance with $20.67 per ounce for gold. In other words, international financiers in 1932 were able to reduce commodity prices to balance with the international price of gold, the international yardstick for measuring the value of production.
The precipitous decline of 54% in our commodity prices reduce the value of our farm production, the reciprocal market for our industrial production, 54% in rural areas. A curtailment of production to balance with the loss of markets in rural areas reduced our national income in 1933 to $40.2 billion or 54% below the national income level of $87.8 billion in 1929. In the single year 1933 we lost $47.6 billion of national income simply because we did not maintain the 1929 price level for our production.
In exactly the same way in which a depression had occurred in 1920 to 1921, as a result of a decline in commodity prices, another depression happened again in 1929 to 1933. Again, there was no loss of our natural resources, our labor force or productive facilities. Again, as before, the depression was due entirely to a change in the monetary price for goods and services which we produced. Loss of income and markets in the United States forced the entire world into a depression.
Many economists in the United States often express the theory that lower prices will increase consumption. They overlook the fact that income, or buying power, is production multiplied by price, and that lower prices on an overall basis automatically reduce income and the ability to buy.
Theoretically, with lowered prices in 1932 we should have had more consumption of goods and services. But, the decline in prices in 1932 forced a loss of 54% of our income and buying power. We had sandwiches selling for a nickel each, but we also had 12 million people out of work and these workers and their families didn't have the nickel with which to buy.
There was no reason for the 1929 to 1933 depression other than a shortage of monetary income, the direct result of lower prices for the commodities we were producing.
Christopher Hollis, and English economist, who spent two years at the University of Notre Dame as an exchange professor in economics, pointed this out in his book entitled "The Breakdown of Money," published in 1935. Copies of this book have disappeared from our book stores, and can be obtained only from the Congressional Library and from the library at the University of Notre Dame.
A chapter of his book is devoted to the "American Slump," and he states specifically that the only reason for the slump was "monetary." He points out further that in 1929 we were producing 98% of everything we needed in the United States, and without a monetary change in the price level, a depression could not have taken place.
The depression following 1929 proves the accuracy of his conclusion. In the period 1930 to 1940 our price level remained below the 1929 level. During that period, we did not return to the 1929 income level, and hence continued in depression. Shortage of income, due to low prices, continued, and we lacked markets to absorb our production. In 1940 we still had 9 million unemployed workers. The shortage of income and markets also held down savings and profits, and we were not earning the new capital for expansion.
Importance of the Price Level
In 1940-1943 our commodity prices returned to the 1925-1929 levels. The effect on our national income was fantastic.
Our national income moved up from $81.6 billion in 1940 to $170.3 billion in 1943, an increase of 108% in three years. A careful analysis of our economic record from 1930 to 1941 reveals that the United States lost $563 billion of national income in this 12-year period because we did not have the good common sense to use our constitutional authority or power to protect our price level a the 1925 to 1929 levels.
The recovery of our price level, and resultant increase in income from 1940 to 1943, restored the nation's buying power to support full production. Our labor was put to work producing more goods from our natural resources. So-called surpluses of goods and labor disappeared, so that in 1942 and 1943 we had to establish price ceilings and ration our production to prevent inflation and provide materials needed to win World War II.
The United States and other countries in the world had the opportunity in 1925 to 1929 to stabilize world commodity prices at the new American level. Such a move would have prevented the depression of the thirties and also might have prevented the development of political ideologies which led to World War II, and which again find the world in a state of economic and political confusion.
Our entrance into World War II, December 1941, again found the United States in a position of being the only nation with the manpower and materials to help win that conflict.
A review of what took place in our economy from 1940 to 1943 should enable us to realize the almost miraculous importance of price-per-unit of production in the operation of our economy. In the short period of three years, a return to the 1925 to 1929 price levels increased our national income 108% or an average of 36% per year.
The loss of 54% of our national income from 1929 to 1933 and the gain of 108% in our national income in the three years 1940 to 1943, poses a significant question: what brought about this fantastic change in the national income? The answer to this question lies in the turnover of each dollar of new farm production in trade channels in the exchange of goods between rural areas and industrial areas.
From 1929 to 1933, as a result of lower farm prices, the value of our farm production moved downward a total of $6.8 billion. The national income moved downward $47.6 billion, or seven times the decline in farm income.
In like manner, from 1940 to 1943, with a return of 1929 farm prices and increased production, the value of farm production increased $12.4 billion and our national income increased approximately 7 times the increase in farm income, moving up from $81.6 billion to $170.3 billion.
In 1940 we were still in the depression set off by the price decline following 1929, and we had 9 million unemployed. At the close of 1943 we had full employment and a military force of over 12 million. Our production had expanded to a point where we were producing more war materials than all of the rest of the world combined, and despite rationing we had a higher standard of living than in 1930-1941. Of major importance is the fact that we developed this tremendous increase in production and income from our own resources, and in spite of the sinking of many ships by German submarines.
This brings up the question where did the money come from? It came from our increased production, multiplied by the 1929 price level and in approximate balance with wages and capital costs, which with the seven times turnover of our farm income, more than doubled our national income, so that we were able not only to finance ourselves but also provide financial aid for our allies.
During the war period we earned sufficient income from production to defray the costs of the war. But Congress did not have the courage or the foresight to levy the necessary taxes to meet the costs. The people were allowed to keep their additional income and the government borrowed needed funds by issuing bonds, thus increasing the public debt.
As a result of our fiscal policies we increased our total debt from $216 billion at the end of 1940 to an average of $505 billion in the five-year period 1946-1950.
Importance of Farm Price Supports
During the war period the average industrial wage moved up from 66 cents an hour in 1940 to $1.33 an hour, the average for 1946- 1950. In the post-war period, due to a 90% price support for farm products, commodity prices were not forced downward as they were in 1920 and again in 1929. This made it possible for our economy to adjust our price level and production to include the increase in wages and the increase in capital costs involved in the debt expansion to an average of $505 billion.
The new price level in 1946-1950 found the price of raw materials and wages and capital costs in balance. The new price level times our production provided a national income averaging $212.4 billion during 1946 to 1950 as compared to a national income of $81.6 billion in 1940. Operating our economy with $212.4 billion of national income we had a solvent economy. The Federal Budget averaged a surplus even with a tax reduction and the expansion of the private debt during 1946-1950 was in approximate balance with the actual profits and savings earned in operating our economy.
In the period from 1946 to 1950 the income of the United States was again almost 50% of the income of the world in terms of dollars, and again, an opportunity was afforded to stabilize commodity prices throughout the world at the new level required for a solvent United States and in turn provide the rest of the world with an income to expand and develop other areas, thus affording a higher standard of living for all countries.
But, again neither the United States nor the world leaders took necessary steps to adjust commodity prices and monetary values. Instead, we had a repetition of monetary manipulation and, following 1946, more than 30 countries devalued their currencies in terms of the United States dollar. The most important devaluation was the reduction in the value of the British pound from $4.05 to $2.80 in 1949, a devaluation of 30%.
The devaluation of the British pound and other currencies reduced the buying power of many world areas in terms of American goods, and also started a downward spiral in commodity prices following 1949. Again we did not take steps to protect our commodity prices against international monetary changes.
In 1951 the peak price of 22 primary raw materials as computed by the United States Department of Labor reached 135.7% of 1947-1949 price levels. The Wall Street Journal on July 31st, 1962, in its commodity letter on page 1, pointed out that the price on July 30th was 80.3% of 1947-1949 levels, a decline of approximately 40%.
Using a yearly basis, commodity prices in July 1962 were approximately 35% below the 1951 level. This decline in our price level reduced the buying power of rural America 35% in terms of our industrial production, and also reduced the buying power of many other countries 35% in terms of American prices. Stated bluntly, this means that in 1961 we were earning only 65% of the income required to operate a solvent economy.
While this decline in raw material prices was taking place, wages and the capital costs of operating our economy increased 60% following 1951. With the decline in markets in rural areas to buy the manufactured goods necessary to meet existing wages and capital costs, the economy of the United States was forced to operate at a heavy loss.
Since 1946-1950 we have had three distinct recessions. These recessions, or reduction in our output of goods and services, were nothing more than a downward adjustment to meet the loss of markets brought about by lower raw material prices and the loss of the trade turn of new dollars resulting from lower prices for raw materials.
In not a single year since 1951 have we had enough national income from production-times-the-price-at-which-production-was- sold, to meet the expansion in wages and capital costs. This brings up the question, how did we sell the manufactured goods produced in this period? The answer can be found in the expansion of $512 billion in the total debt (public and private) in the 11 years following 1950. We offset our losses by increasing the mortgage against future production and income.
This massive debt increase has taken place in all segments of our economy. The Federal Government, State Governments, Municipalities, corporations and individuals have spent all their incomes plus borrowed monies involved in an expansion of the total debt from $566 billion at the end of 1950 to $1,078 billion at the end of 1961.
Meanwhile, total wage payments and capital costs from the 1946 to 1950 period to the end of 1961 have steadily increased to a booming 129.3%. This brings up the question can we earn the income to meet this increase in wages and capital costs since 1946-1950?
Ever since 1929, deducting like imports from like exports, we have produced 98% of everything we need to create the national income required for a solvent economy. Therefore the answer to the question of whether we can meet the costs will depend entirely upon our use of the United States economic system to protect our price level at a point where our production will create enough income to enjoy a solvent economy.
If we fail to maintain the price level we need, we will find the rest of the world and their low-income levels determining our price level in the same way in which we permitted it to happen in the depression from 1929 to 1933. This will mean a duplication of the 1929 depression, with more than five times the dollar value of wages, salaries and capital obligations requiring liquidation.
If we adopt the economic plan brought forth by the mercantile system of Western Europe now being advocated, if we reduce our tariffs to conform to the theory of "Free Trade" and "Free" markets, we will find commodity prices moving downward to 1942 levels in balance with $35 an ounce for gold. To operate at the 1942 price level would force our income to move downward $250 billion from current levels. This would force a downward revision of 50% in our wages and financial obligations.
Should such a depression be permitted to occur, what would be the effect upon the rest of the world? The United States at the present time has approximately 40% of the income of the world in terms of dollars, and a return to 1942 prices in the United States would force a depression throughout the world. Current theories would be completely inadequate to prevent economic chaos.
The Effect of Theories on Private Enterprise
To illustrate the effect of current economic theories, private enterprise in the past 11 years has suffered a loss of income from 26% of the national income in 1946-1950 to less than 17% at the present time. Involved in this downward movement of the percentage of income for private enterprise as compared to wages and capital costs is a shortage of $375 billion in the past 11 years. With the current percentage of the national income for private enterprise it is impossible for private enterprise to earn a fair return for capital investment and earn new capital for expansion.
This reduction in the relative income for private enterprise was not due to low wages or lack of capital investment. The increase in wages and interest, reflecting the capital cost of 128.3% from 1946-1950, was adequate as a market for private enterprise. The lack of markets in rural areas due to low raw material prices prevented private enterprise from earning an income in balance with the increase in wages and capital costs.
Further increases in wages and capital costs, without a recovery in the income from farm production, will increase the operating loss of the United States and solve nothing in the same way that such increases have not prevented a relative loss of income for private enterprise since the 1946-1950 period. Unless we are willing to take steps to increase raw material prices, to put them in balance with current wages and capital costs, our system of private enterprise will be threatened with liquidation, and this in turn would mean disaster for our entire economy.
Importance of World Leadership
Unless the United States provides the leadership to restore the price level of commodities throughout the world to balance with current wages and capital costs in the United States, backward countries will not have the income to buy the necessary industrial production from industrial areas, nor will they be able to earn the new income for expansion. A depression would destroy the income we may wish to use in helping other countries.
This brings us back to our "American Heritage" or, as Emerson stated, the last effort of Divine Providence to help the human race. Our place in the universe can be outlined in a simple, understandable way for all countries.
1. As pointed out, the Creator set aside an area on the earth which later became known as the United States and endowed this area with resources sufficient for an almost complete economy.
2. In the course of human events the United States established a form of government based on the general welfare of all groups in accordance with the principles human freedom and equity of opportunity for the different segments of our economy.
3. The United States in its production of farm products and other raw materials from the soil was blessed beyond the hopes and aspirations of many other areas of the world.
4. In developing the economy of the United States we have compiled the most complete and detailed economic record in world history. This record points out very clearly the basic factors which can serve as yardsticks for human progress in direct proportion to the blessings inherent in soil, rainfall and sunshine.
The economic record of the United States reveals that the products of the soil represent the primary capital of all countries. The application of labor in the production and processing raw materials creates the wealth which can be divided by producers to expand their material needs. Any residue on and above complete usage of many products can be used as additional capital to build more efficient methods of production in the form of new machines, factories, better housing and, finally, even luxuries and excess production with which to aid others.
In the measurement of the real wealth produced by the application of labor to raw materials, the human race has developed very accurate and constant measures of weight and length and volume. To facilitate the exchange of goods and services in the channels of trade, the world has developed a monetary component as a measure of value for one product as compared to another.
But, the monetary measurement of wealth has not been constant, nor has it been equitable in evaluating the products produced in one country as compared to another, or between producers of different products. The fluctuation in the price of goods produced has too often permitted lower prices to create a shortage of monetary income, thus forcing producers to accept poverty to the point of starvation in the midst of plenty.
The record of the United States proves clearly how low prices on abundant production of real wealth can bring about misery and poverty instead of prosperity and expansion.
In the depression from 1920 to 1921, lower prices and loss of income forced many individuals to lose their savings in terms of money and property, savings which involved many years of labor and production. The record proves that during this period we lost none of our resources, labor or productive facilities. Rapid recovery in the twenties, with the restoration of a price level reflecting equity of price among the different segments of our economy, revealed that the depression was due to our failure to measure properly our production in terms of money.
Again in 1929 to 1933 our failure and that of the world to measure fairly the value of our production in terms of price found the United States and the world in a depression despite the fact that our natural resources provided materials for necessary production and prosperity.
Rapid and almost miraculous recovery of the economy of the United States, from 1940 to 1943, when commodity prices returned to 1929 levels, is additional proof that the missing factor for prosperity was the lack of a price with which to translate our production into monetary income and purchasing power.
This suggests the question: Why does the human race permit price fluctuations to bring on depression? The Bible containing the historical record of how the universe was created also contains the fundamental rules which govern our economic welfare. The principles are set forth in the quotation, "Every laborer is worthy of his hire."
It should be noted that the quotation does not say the same hire. In other words, each individual should be compensated in direct proportion to his production of goods and services for the use of society. This rules out many of our Socialistic theories under which we try to legislate equality of income, thus ignoring the fact that the abilities of human beings and differences in natural resources from which we produce our supply of raw materials automatically will result in differences in personal incomes and production capacities in different areas.
The natural laws provide for the redistribution of wealth. The human being was created in such a way that at the end of his life, the savings of wealth or riches which he has obtained through his efforts, honest or otherwise, must remain behind for future generations.
Let us examine how we obey this fundamental, economic law. We pray to the Divine Being for material blessings. Many of us actually offer thrice-daily prayers of thanks for the food we consume.
But, after praying for the blessings of the Creator and thanking Him for the bounty He has provided for us, we deny the blessings of the market place by underpaying the producers of farm products who cooperate with Nature in providing the products which are absolutely essential for our survival. Stated simply, we refuse to pay the farmer a rightful hire.
This can be illustrated with the use of our economic record in the past 20 years. In 1943-1952 we had legislation which provided for a 90% of parity price support for farm production. The program worked effectively and efficiently for the 10-year period, and the record proves that the price of farm products at wholesale was in approximate balance with other than farm products.
During this 10-year period society was paying a rightful hire to agriculture. But, instead of realizing that price supports had protected the post-war adjustment of our economy by protecting our price level, our income and the markets required by industry for a fully operating economy, a hue and cry went up all over the land that agriculture was being overpaid and subsidized by taxpayers. This resulted in a weakening of the supports.
Result? We have had three distinct recessions since 1946 to 1950, and the economy of the United States has been operating at a heavy loss in income.
In the period 1930 to 1941, the United States lost $563 billion of income, or approximately 7 times the relative payment to agriculture as compared to 1929 levels. At that time we absorbed the loss, and the mortgage against our economy remained quite constant from 1929 to 1940. But, in the past 11 years, the same loss of income involved in the underpayment for farm production, or approximately 7 times the amount involved in a decline of 35% in farm prices as wages and capital costs increase 129.3%, was passed on to future generations by adding $512 billion to the total debt since the end of 1950.
This debt expansion has solved nothing. But it has materially increased the price which society will have to pay for production of raw materials if we are to prevent a duplication of the collapse in 1929. A similar depression would involve over 5 times as much income, wages and salaries and financial obligations.
It is hard to realize that an intelligent group of people operating under the principles of the Constitution of the United States would consider 90% of parity price supports for farm products a subsidy. It is impossible to subsidize any segments of the economy unless the price is over 100% of parity or price balance with other groups. Furthermore, it is hard to believe that a country which boasts of being a Christian country should consider a proper price for the production of blessings of the Creator a subsidy. To do so is a denial of the blessings which we pray for.
Why should the United States worry about a stockpile of non- perishable farm and mineral products when in one year a drought can force us to kill off our herds of livestock as was the case in 1934? We need this livestock industry to serve us as both a labor force and processing plants in producing the farm products as a source of income and physical production.
When Nature provides sunshine and rain, at just the right times and in just the right amounts to bring forth an increase in our farm production, we should use the additional production to expand our material prosperity. If we had the good common sense to maintain farm prices - thus increasing the value of our farm production and in turn increasing the market in rural areas for industrial production and expanding payrolls and income for other areas - we would never suffer from a shortage of income, and, if necessary, we could use any excess of both goods and money to help other countries less fortunate than our own.
But in the past, when good weather conditions have expanded our farm production, we have marked down our prices, thus reducing our earned income at its source and multiplied this income loss in other trade channels. In fact, we often marked down the price to a point where we lost the income to utilize the production we had before the increase took place.
Everyone wishes to better his material welfare, but we forget that the wealth for expansion must be preceded by more production from the soil. The increase in production through an equitable price level must be permitted to expand the dollar income or market in direct proportion, if we are to enjoy the benefits of production increases.
The development of the United States clearly proves the importance of the price factor. In 1787, we had a population of approximately 3 million people. In 1929, we had a population of 120 million or roughly 6% of the population of the world. But by our conformity with the simple formula of production-times-price, we were generating 50% of the income of the world in terms of dollars - key factor in our whole expansion was our abundant supply of raw materials multiplied by a price level higher than the average world price.
Our production times a higher price level gave us a higher per capita income and a larger per capita market for goods. This, in turn, led to a higher level of savings and profits which in turn became a higher level of capital for expansion.
Let us illustrate this differential in terms of material benefits: in 1929, the Untied States had approximately one-half the miles of railroads in the entire world. We were producing and using one-half the steel production and driving one-half of the automobiles being produced in the world at that time.
In terms of per capita income at the present time we have over $2,300 as compared to $70 per capita in India, a nation much older than the United States. The question we face is set forth in the differential in incomes. Are we going to permit the same theories of "Free Trade" and "Free" markets, which long ago held back world expansion, reduce our price level to the average of the world? Or will we use our Constitutional authority to determine and strengthen the price of American production?
If we permit our price level to be determined by world buying power we will duplicate the 1929 depression and find ourselves losing $250 billion of the annual income we now have. This in turn would mean a world depression which would intensify the present condition of economic and political confusion.
The World Leadership We Should Provide
What other course can we take? We should use our economic system and maintain our price for raw materials in balance with wages and capital costs. From this as a solid foundation for continued prosperity, on an earned basis, we should provide the world leadership to bring about an equitable monetary measurement of new wealth or raw materials in backward countries. Without such a program the backward countries will not have the income to buy the products of industry or even earn the new capital for expansion.
Downward movement of raw material prices since 1951 has forced the United States to operate at a terrific loss. Unless this operating loss is corrected we will lead the world into another depression. If we permit this to happen will Divine Providence give us another opportunity? This is the real meaning of the quotation from Emerson, when he says, "It seems as if North America is the last effort of Divine Providence to help the human race."
The time to restore the price level for farm products and other raw materials to balance with wages and capital costs is now. Our annual operating loss has steadily increased since 1951 and at the present time is over $160 billion a year. We can't afford low-priced food and its resultant loss of 7 times the underpayment to agriculture, and keep on covering up our losses with new mortgages against future generations.
With an expansion of $512 billion in the total debt in the past 11 years, the time is later than we think.
Prepared by Carl H. Wilken Director of Research
National Foundation for Economic Stability
[The document is a transcribed from part 1 of a newsletter published by the National Organization for Raw Materials, Inc., published in 1974.]
Our American Heritage
A summary of The Economy of the United States From 1787 through 1961
Under the Constitution of the United States we have the right to elect those who determine the policies of government which affect our Economic Welfare
To be a well informed citizen every individual should read this vital message.
"Free Trade" in the World has led to exploitation, poverty, revolution and wars.
The World needs Equity of Trade, a system under which the producers of raw materials and manufactured products are paid a price which is in balance with wages and capital costs.
National Foundation For Economic Stability 1757
K Street, N.W. Washington 6, D.C.