Assuming that our United States economy is about a 10-Trillion Dollar economy (Gross Domestic Product) in 2008; and that 130-Million people are employed full time to produce that 10-Trillion Dollars, then the average value of a year's labor is about $77,000.00 per worker, in 2008. If in a moral sense each worker's labor is equal in fair value to the labor of every other worker, then we may calculate the percentage that we are paid annually relative to the average wage of $77,000.00 per year. Obviously we do not all receive this wage. Our economy operates on the principle that many must receive less so that some may receive more.
In our present economy some are able to siphon off great amounts of our collective productive labor, which they can exchange for other products of our labor, or hold for future consumption. If one person labors full time at the Federal Minimum Wage and receives $11,500 annually to exchange for food, clothes, shelter, and recreation, while another labors likewise and receives $115,000, and yet a third person labors likewise and receives $1,150,000; we must conclude that we use structural inequality in our social economy to control opportunities to labor and to consume the products of our labor. All three of these workers can be equally productive, but in our pyramid economy many have a large portion of their productive labor taken to benefit the relative few who control our economy and resources; because a relative few in every business control who will work, as well as determine what amount of each worker's productive labor they will be allowed to keep.
In a similar manner amongst nations, the levels of productivity differ so much that some nations are very affluent, while others are extremely poor. Many factors influence the wealth of nations, not the least of which are economic alliances that are somewhat exclusive, and not above discriminating against countries not in their alliance. Both resources and technology are selfishly hoarded.
The German and Japanese economies of the 60's, 70's, and 80's are good examples of prosperity through great labor. Both Germany and Japan were industrial powers prior to World War II, but they lacked raw material resources to fuel their economies, and were being manipulated economically by other Colonial powers, which supplied or denied resources. After W.W.II (with outside help, mostly from U.S. capital and commodities), these countries had the access they had always desired to raw material resources. Old barriers were broken by the pressure of war debts, allowing the sale of commodities, upon which they were able to unleash their industrial know-how. For Germany and Japan, internal consumption supported by the exporting of surplus labor in exchange for additional raw material to expand internal production and consumption has contributed greatly to these nations high standard of living, at the expense of those nations that provide raw resources to them.
In contrast, we see in the oil producing countries the economic power available from controlling resources. In the case of OPEC, we saw the Middle Eastern countries exporting oil and some refined products rather cheaply, until the world's demand, and politics, caused this commodity to achieve a high value in terms of surplus labor. The energy available to power machines and increase labor productivity was controlled by certain countries, allowing those countries to exchange their crude oil for a share of the productive labor of our machines, which consume their oil. Since our machines could produce many times more goods than our hand labor, we are willing to trade part of their productivity for the energy that keeps them running.
The great increase in surplus labor that flowed to the Middle East in exchange for oil was bartered for the many products of our labors: improved domestic services and infrastructure, vast acquisition of armaments, purchases of resources overseas, investment in property and corporations overseas. Most importantly however, many OPEC countries invested in the refinement and transportation of the raw resource, oil, thereby controlling this commodity from ground to final consumer, benefiting from the labor exchanged along this whole chain. The commodity is free to those who live on top of it, but the labor which can be gathered and controlled by its demand is not only immense, it is the proof of where material wealth is derived (labor) and how it maintains itself (control of resources and their consumption to acquire surplus labor).
Every nation has its own domestic currency, and trade amongst nations is accomplished by calculating exchange rates between their internal currencies. Exchange rates are calculated by comparing the amount of domestic currency that is paid for equal amounts of productivity. Exchange rates are also affected by the amount of natural resources brought to world markets when importing countries must buy the exporting country's domestic currency to pay for such resources. The control of values associated with any currency is the relationship of productive labor and resources coming to market and the amount of domestic currency provided by government treasuries to facilitate the bartering of labor and resources.
However, there are numerous other instruments of labor value, which are difficult for governments and central banks to control. Today much of our money takes the form of corporate and personal promissory notes, which we call checks, credit cards, letters of credit and corporate bonds. In the past a nation's economy would be temporarily stifled if the supply of gold did not increase with growing populations and increased production Likewise, that economy could be temporarily inflated if too much new gold came into its markets to purchase limited goods and services. But in today's world, where most money (labor) transactions are made using checks and credit cards, the government can only control the amount of money in circulation through the private banking system. When individuals, businesses, and even government agencies pay their labor-debts with checks and credit cards, and receive their labor-income in the form of checks and credit card payments, then the quantity of money in circulation can be expanded even against the wishes of government. To control money supply requires that we control credit; and this is done through interest rates on that credit.
To exercise some form of control on money supply, the Federal Reserve System, attempts to control money supply, and unfortunately productive labor, by controlling bank interest rates on our savings and our loans. The Federal Reserve System is a private bank owned by some of our private commercial banks. The United States has no government owned banks; all banks are privately owned. The Federal Reserve exercises control over banking by numerous operating regulations and by controlling the amount of cash banks have available to do business. The Federal Reserve sells government bonds, at profitable interest rates, to the banks to remove cash (credit) from the economy and it buys them back to add cash (credit), as the need arises. The amount of credit dollars added or removed from the system inversely affects the interest rates charged for those credit dollars; influencing the actions of borrowers. Interest rates on loans are the main control available to Government to control labor-money supply.
One travesty of our self-government is that we have a Federal Reserve that can only attempt to control banking activities via interest rates on a nation-wide basis. Because our banks are private profit-making businesses, rather than a government service like the Department of Agriculture, or Commerce, or the Food and Drug Administration, or National Transportation. If banking were a government corporation, the Federal Reserve could control the money supply and economic activity by taking capital (surplus labor-dollars) from areas that are abusing it and investing that capital in areas that need it, i.e. interest rates would be intentionally higher or lower in certain areas of the country that required help in slowing or expanding growth; without disparaging other parts of our country by using those interest rates as a brake or gas-peddle on the whole economy.
When the economy is sluggish and under-productive the Federal Reserve can coerce the commercial banking system to increase credit and lower the cost of that credit by lowering interest rates that banks pay to borrow from the Federal Reserve banks, or by buying back government bonds from Federal Reserve banks, providing them with more dollars to lend. That is, when banks have surplus cash that will not receive a profitable rate of interest from the Federal Reserve they will lower their lending rates. This encourages businesses to refinance loans for lower costs or borrow additional capital at lower costs to expand production, hiring more workers, whose labor and paychecks expand both production and consumption. Maximum employment is as important to increasing consumption as it is to increasing production and reducing government handouts to idle citizens. If the economy remains sluggish the Federal Reserve can simply create cash (credit) and infuse it into the economy through commercial banks to promote more borrowing and business expansion (to promote both additional production and consumption).
When the economy is booming from the effects of too much credit, inflation can result when prices rise to consume the dollars that are available. The Federal Reserve seeks to control such inflation by regulating bank interest rates to reduce the amount of credit available in the banking system for businesses, laborers and consumers to trade amongst themselves. This slows the expansion of consumption, and shortly thereafter the expansion of production. The Federal Reserve can pull out surplus cash by raising reserve requirements for commercial banks and by selling them bonds that give a good profit with no risk. If this is done timely and sufficient for the current economic conditions, the economy will expand and regulate itself by supply and demand.
All that the Federal Reserve is trying to accomplish is to keep the dollars available to be exchanged equal to the amount of labor available to be exchanged. If our economy runs out of new labor to hire for additional production, then it must make do or suffer the effects of individual companies using their own capital to offer higher wages to hold their labor force until they can raise prices to compensate for such moves. Such action by the Federal Reserve to control money supply necessarily includes all dollars: currency, checks, credit cards, and numerous forms of financing new debt.
Although we desire equilibrium between production and consumption to affect stability and hopefully prevent poverty, such a situation seldom occurs for more than a very short period. Nature itself can vary greatly in both food production and weather or geological extremes. Our own labors and consumption can be greatly affected by the doings of the environment. In agriculture, over-production via bumper crops are offset at times by droughts, floods, freezing and insects, causing major crop failures; the farmer is hurt both by bumper crops depressing prices and crop failure eliminating a crop to sell. In our economy the farmer is forced to operate as an independent business, subject not only to the uncontrollable variables of production, but also forced to compete for consumption demand with other producers in a market whose consumption demand is quite inflexible. Our food is not only to a great degree perishable, but we do not expand consumption when supply is increased; we only change our buying patterns to take advantage of value. And because of these factors, farmers live in constant economic peril.
Labor surpluses and labor shortages also disrupt manufacturing and consumption. Wars and political unrest strain our economic output and redirect our production away from individual consumption. The dynamics of our economy require that we constantly adjust our productivity and how it is distributed. A static population requires, in the very least, static productivity, whereas a growing population must increase overall productivity to match increasing overall consumption demands. From a production-consumption standpoint, if all laborers double their production in a given period then they will be able to double their consumption also. If overall labor productivity increases, but consumption by labor is static or declining (reflected in a reduced standard of living for laborers), then that increased productivity has been diverted to be consumed by others that do not labor, or exported to gain higher profits from foreign consumers.
We the people can also create new money for the economy, by issuing and exchanging additional credit in our economy. The manner in which check writers and credit card users can increase the money supply is founded on the economic principle of profit, or more correctly, surplus productive labor. New money is created when manufacturers and retailers issue new credit to consumers who have no current money (labor) to offer in payment for surplus goods. The seller takes the buyer's promissory note (credit card, loan contract) and uses it as money, operating as a bank would. By selling these promissory notes into the labor-money exchange system, more exchange money circulates than should exist. When prices fail to fall on goods and services that are in over supply, which in a strictly cash economy they must, the artificial demand caused by creating additional credit, creates that additional exchange money.
When credit is extended to a laborer, who promises future labor money to consume a surplus today; that promise is treated as ready cash and is absorbed by the economy as a whole as soon as that credit is given. This increases the money supply and will result in inflation if a balancing deflation is not created elsewhere in the economy. Overproduction by industries that can afford to extend credit becomes a boon for them and a bust for other parts of our economy.
Debts arise from borrowing against past surpluses. The return to the economy of any production over and above the current supply of money to continue our economic transactions will be new surplus labor, i.e., new money. It will cause inflation of prices in whatever areas of the economy that it is exchanged. If it is spent overseas it will cause price inflation overseas. If it is mainly directed toward purchasing real estate it will inflate the price of real estate. If it is directed toward ownership of commodities and resources it will inflate the costs of commodities, resources and the products made from them. If it is directed to owning stocks and bonds and other speculative items, it will inflate the cost of those items at no benefit to our productive economy.
The collective money derived from recent profits, over and above costs, losses and previous profits for the whole economy, is new loan money or new credit money. This new money causes headaches for those who wish to control inflation. The removal of this new money from the economy by the Federal Reserve could be very hard on marginally profitable businesses, which must borrow to maintain production and which cannot survive increased interest rates brought on by Federal Reserve intervention. When some businesses or individuals over-produce and increase credit, other businesses or individuals must suffer increased losses equivalent to the new credit or new money is created within the economy, disturbing the overall equilibrium and causing inflation.
When the government decides to not tax businesses and individuals on their increased productivity (new money), but then decides to let banks increase the cost of borrowing money for everyone, to absorb and control that new money, it does so at the expense of businesses and individuals who are not producing increased goods (new money). It amounts to favoritism by the bankers, supporting strength at the expense of weakness. Because Federal Reserve action through interest rates will cause losses, in weak industries and individual companies, equivalent to new profits throughout the economy generated by strong industries. Businesses that are not at fault for the creation of this new money; are the sacrifice by those in control of the economy, to allow those who create this new money to multiply its value. The stronger corporations become lenders to the weaker companies, or purchasers and liquidators of their weaker competitors.
New check money and new credit-card money are not counterfeit money, though the way we attempt to control new money disparages some parts of the economy as though it were counterfeit. To understand what is happening in different sectors of the economy we need to sort through the camouflage that the dollar puts on our economic activity. Rather than look at the dollar as universal money we need to see our economy as made up of ongoing labor-productivity money, and stored surplus labor in the form of debt money, investment money, speculation money, overseas US dollar money, tax welfare money and tax infrastructure money. With all of this money coming from our myriad sources of productivity and being spent to consume different goods and services, the attempt by the Federal Reserve to limit the growth or shrinkage of one type of money in our economy, puts blanket controls on all types of money in our economy.
One very socially damaging effect of our manner of controlling new money is that we somehow disdain full employment. Rather than reduce the labor necessary to provide a decent living for everyone, while having an abundance of goods for all to consume, we choose to reduce the amount of labor in the overall economy by having some continue to labor forty hours per week and others to not labor at all. Using the level of unemployment as a gauge of economic activity. It is fundamental to our form of capitalism, that in order for us to have a stable economy for the middle class, some citizens must have less and live in privation so that others can have more and live in affluence. It approaches slavery to require people to labor a certain number of hours per day over and above the amount actually given to them as wages. While those hours of productivity are taken and used by those who are forced to be non-productive, but must still be provided with material comforts.
Today we view the reduction of jobs in our society as a catastrophe. We worry about defense industry cutbacks because of the jobs that will be lost. We worry about changing technology because of the impact on people whose current skills will be replaced by machines. We worry about having state and federal prisons forming manufacturing facilities to rehabilitate prisoners into productive citizens, because we know other people will lose jobs in competing industries. We are so backward in our manner of controlling labor and sharing labor, that job loss is the number-two terror in our lives, right behind being a victim of crime.
The further down the economic ladder, the more desperate we are to keep a job, while those at the top seek more and more leisure, to spend the labor wealth that comes to them from the productive labor of others. While we desire in our hearts to be secure from want and to enjoy endless leisure, we live in fear and dread of being unemployed. We live this schizophrenia because we are ignorant and selfish at all levels of society and all levels of international interaction regarding resources, trade, and manufacturing jobs.
One of the fundamental principles of technological economics is called the "division of Labor". This is the social structure wherein laborers are trained to be proficient in one skill only, becoming highly productive in their skill; but also very dependent on other laborers to produce all of the goods that they are unable to produce for themselves. In cultures that are viewed as primitive, the division of labor is usually limited to the gender boundary. Where young men learn all the ways of the hunt and of community defense, such that each male becomes competent to perform all such tasks in the male domain. Likewise for women, each young woman must learn to accomplish all tasks considered to be in the female domain.
This does not mean that the better hunters, or arrowhead makers, or basket weavers will only provide for themselves, or will profit at the community's expense by bartering their talents for the products of others. Certainly talents are recognized and lend themselves to a slight division of labor, but in tribal communities such divisions are not structural. When the talented individual ages or dies, the community loses their contribution, which must be made up by the labor of others. The lack of a labor structure in such communities and the tradition of offspring marrying into other families, producing a community gene pool, allow special talents to come forth from any member of the community. There will be no hereditary powers concentrated in one family. No hierarchy of labors, divided to produce a surplus, controlled and consumed by hereditary leaders.
In what are called advanced societies the division of labor principle is credited as being the key to their advancement. Over the past thousand years it has become common for the European societies to develop and export this system through colonial domination. Though some may think that increasing populations cause the development of societies engaging in division of labor, such is not the case. Certainly a large population is required in order to develop and maintain a system engaging in division of labor, but a large population does not require division of labor, it only permits it to be developed as one form of social structure. When division of labor does occur, a society will experience a change in its density of population, such that large cities will develop to support the efficiencies of labor division.
If population increases beyond the capacity of its local environment to supply resources for that society, one of two things must happen; either that community must split into two groups requiring that one or both groups immigrate to new areas where they may maintain themselves without creating the social structure of division of labor; or if such a community grows in population and remains in the same location, then greater efforts must be expended in hunting and transporting resources over greater distances, as well as the development of agricultural industries as opposed to simple gathering of fruits and grains of smaller societies. Such pressures to develop complex supply systems require that individual labor becomes group labor and that group labor becomes specialized, to provide goods and services without waste or in a random manner. And thus division of labor is both permitted and required to maintain dense population groups.
Our large cities and nations are the culmination of this system. As we advance in manufacturing and transportation technology, we allow ourselves to maintain larger and larger populations in relatively small land areas (socially unhealthy densities). Division of labor promotes division of consumption, which causes division of freedom, opportunity and security, which promotes social unrest, crime, moral decay, and ultimately social destruction.
A society that chooses to grow in population, using division of labor, must have leadership and a government that is sufficient to the needs of its citizens. A simple system of one chief with a few advisors making all decisions regarding provisions for their tribe, as well as engaging in the daily labors themselves, will not work for larger groups. As a group gains population above a few thousand, they have become too large to see themselves as one extended family. They will remain strangers to many others in their group. And they will seek guidance and leadership from those chosen to lead, whose labor will be to make laws, keep records and direct the labors of its citizens to produce goods and services.
Once labor is divided and specialized and controlled to produce large quantities of foods and other goods, the division and distribution of food and other goods will not necessarily proceed according to need. History records the coming and going of hundreds of societies. In essentially all cases the leaders of all societies view themselves as elite, above the law, and the maker of law. These governments not only control the labors of their citizens, they tax those labors to provide goods and services for themselves, their armies, and the bureaucracies that facilitate their control over their population. Along with the development of the principle of division of labor has come the notion of wealth founded in the perversion of government when individual wealth controls the "division of consumption".
In less developed societies and many advanced societies the division of labor is broken into two major groups, menial or specialized. Menial labor is essentially slave labor, citizens without talents or education are required to accomplish all tasks that require exhaustive physical labor, and they are paid minimum wages that will barely sustain them. Those who perform specialized labors are made the taskmasters of the menial laborers; they become managers and builders of their society's infrastructure. Their wages and level of consumption provide them with some surplus to live a more secure life. This surplus comes from the abundance of food and fiber provided by nature and the menial labor used to gather and process it. At this level of division of consumption both groups labor daily, but one group receives much more for their time at labor than the other, and they receive that extra at the expense of the lower group. Some must have less so that others may have more.
Another great pitfall in the disparity of consumption arising from the division of labor is that in modern societies, changes in technology make the specialized labor of many workers obsolete. They loose their jobs and many fall into poverty while the developers and owners of the technology that displaced those workers gain wealth and profits to live in ease and luxury without regard to any social consequences. The safety net of unemployment insurance, seldom lasting longer than six months, is paid at or below a subsistence level, and is raised by taxing the labor of employed workers. Those who are unable to labor because of age, disability, or lack of skill are maintained at a minimum subsistence level by a welfare system. Essentially, the society of those who labor productively is taxed for a portion of its products to support a welfare system to avoid moral guilt and social chaos. Such taxes cannot eliminate the prospect of social chaos. They can only postpone it until the vagaries of our environment swell the numbers on welfare to a point where our productive labor cannot support them and brings about revolution and change.
As far as the elite leadership, they receive and consume goods and services provided by all laborers. They take what they want, with little regard for the privation of the lower classes. They maintain their authority by perversion of the law and suppression of dissent by police organizations that perform as they are ordered without questioning those orders. It only takes a small police force to control a large population.
Societies are coerced or persuaded to depend on leadership by a few. Most choose to be followers and they choose to follow the established leadership unless it threatens to undertake their destruction. Even when civil unrest is widespread, those who seek change are promoting a few new leaders who promise change. The establishment need only control such renegade leadership to quell the unrest, so that misery and injustice may continue to be the norm.
The perversion of the division of consumption is entrenched in all populous societies. The United States was born with this principle in place, a million slaves and a hundred thousand indentured servants in a total population under five million, belies the breadth and scope of this new government, then hailed by freeborn merchants and frontiersmen.
Even today we do by law and economic institution maintain a division of consumption that is in no way related to the productive labors contributed to provide goods and services for consumption. But there is no other way for dense populations to operate. A fair distribution of goods and services requires that laborers live in small autonomous groups (tribes or congregations), where all citizens labor to produce what they consume and to share freely with others.
MONEY? Goods and services cannot be had for money. They can only be earned through productive labor (your job), or acquired through borrowed labor (a bank loaning our surplus labor), or donated labor (charity and welfare), or stolen labor (go directly to jail). So if you are still dreaming of Liberty and Equality for all and the possibility of everyone becoming rich, fagettaboutit.
(c) June 2009
Craig D Hanks
This is the second part of an article that defines money. It is taken from the author's book "Social Benchmarks". Part_1 is also on this site.
This article is taken from a chapter of my book "SOCIAL BENCHMARKS". Other excerpts can be viewed at http://beyondfarenough.blogspot.com/
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