The Economic Fog
Francis Neilson
[Chapter X from the book, Sociocratic Escapades,
published in 1934 by G.P. Putnam's Sons, New York]
THE BUSINESS OF LIVING
No professorial economist has protested against the shocking way the
term "economics" has been abused by members of the present
administration. In all the speeches and books that I have recently
read, I have never met the term when it has been used in its fullest
sense; that is, embracing the primary stages of production to the
finished article that reaches the consumer, whether it be food, fuel,
clothing or shelter. Generally, I find the term applies to exchange
transactions concerned with semi- or wholly-manufactured articles.
Frequently, it refers to financial operations. The other day I read an
article in a magazine in which the author wrote about the "economics"
of Wall Street. Now if the term means household order, the business of
living, it ought not to be used in any other way than one that
includes all the order, all the work, concerned with the business and
management of the household. To apply it to such a section as
draperies, carpets, doilies or sofa cushions is scarcely appropriate,
and leads a great many household drudges astray. I see little or no
difference between referring to the economics of the scullery and the
ice box and the economics of the counting-house and the advertising
department of a business. It is true professorial economists have
themselves to blame for this strange way sociologists and sentimental
reformers use the word. I admit it is very easy in this complicated
system to lose sight of the fact that the process of making a motor
car does not begin in the automobile factory, and that the automobile
factory is, after all, only a part of the productive process. Long
before the parts of a car are produced, a hundred and one processes
had taken place elsewhere to produce the primary raw materials from
which the parts are made. Therefore, it seems to me that the term "economics,"
as applied to the processes of an automobile factory, leaves out of
consideration all that was fundamental in the work of production. Now,
it is this very matter of losing sight of the primary factors in
production that has caused so much confusion and brought this word
into disrepute. There are people who take fright at the word "economics."
I have heard of people who would not open the pages of a book that
dealt with economics. Some years ago a Greek scholar, who had
published some interesting essays on Plato's "Republic,"
told me he knew nothing about economics, and that the word became such
a bugbear to him when he was a young man that he made up his mind he
would never waste an hour in trying to find out what "the
confounded thing was about." If I had said to him that in the "Republic,"
the whole idea, in the early books, of the quest for justice, was a
perfect example of the description of the economics of starting a
community, he would not have believed me.
FACTORS IN PRODUCTION
It is not easy for a student, educated in a university, to learn,
when he goes into the world as a journeyman, what it is all about. It
is no use sending him to the the Encyclopedia Britannica, because he,
like so many of the writers produced by the London School of
Economics, does not show that he knows much about the fundamentals of
the science of political economy. It is true that he gives one the
idea that he does know, when he says: "We understand by economics
the science which investigates the manner in which nations or other
larger or smaller communities, and their individual members, obtain
food, clothing, shelter and whatever else is considered indispensable
or necessary for the maintenance and improvement of the conditions of
life." But never once in the article does he deal specifically
with the three factors in production - land, labor and capital - and
define these terms dearly so that the reader might have a grasp of the
fundamentals of the production of wealth. For a proper understanding
of the science of political economy, surely it is essential that the
student should have a clear idea of the economic meaning of the terms
used in describing the basic factors in production. It was, I suppose,
inevitable that a protectionist of the order of Professor Hewins
should ignore the definitions of these terms. Few people know how
important definitions of economic terms are today. Roger Bacon, seven
hundred years ago, told us: "The mixture of those things by
speech which are by nature divided, is the mother of all error."
All down the centuries thinkers have warned us of the confusion which
arises when we do not define the terms we use.
DEFINITION
The other day, Mr. John W. Davis gave an address at the University of
Virginia, and it was probably the most important address given at such
a place for a long time. So important indeed, that it inspired the
first editorial in the "New York Times," July 12. No one has
a greater respect for that splendid achievement, the "New York
Times," than I, but I do not always see eye to eye with its
editors. When, therefore, I read, in an editorial on Mr. Davis'
speech, the following, "Verify your references. Make your
definitions accurate. Otherwise, debate between reasonable men is not
possible," then I sit up and take notice, and vote a resolution
of hearty thanks to the writer of the editorial. It is about the best
advice that has been given for a long time. (Schools of economics
please copy, with or without consent of the editors.) Yet it is not so
easy as it seems because, apart from the exact sciences and the arts,
our lives, after we leave school, are spent in unlearning what we have
been taught at schools of economics and in the classes devoted to
sociology and kindred subjects. When I was a young man I was hauled
over the coals pretty severely by an old stickler for precise
definitions because I quoted an economic howler of Ruskin's from "Unto
This Last," and my friend, who was so catholic in his taste that
he could admire Ruskin and overlook his economic heresies, said, "Young
man, you need a dose of Richard Hooker. Read him!" I am sorry to
say I had no notion of Richard Hooker or what Richard had written. In
setting me right, and Ruskin too, my friend said.
Every day I live I find our modern instructors get further and
further away from the truth, no matter whether it is in political
economy, law, or social problems, they seem to heap confusion on
confusion. So I take refuge in the good solid thought of a few
centuries ago. Keep this in mind. Hooker says, 'Human laws are
measures in respect of men whose actions they must direct, howbeit
such measures they are as have also their higher rules to be measured
by, which rules are two - the law of God and the law of nature, so
that laws human must be made according to the general laws of nature,
and without contradiction to any positive law of Scripture, otherwise
they are ill made.'
MONEY
During the depression, there have been hundreds of books published on
money. One of the best is by Francis Hirst, "Money, Paper, Gold
and Silver," which is not only exceedingly interesting as a
history, it is also of great value as a guide for people who have not
been taught to think clearly on what money is and the uses it should
perform. In principle, there is no difference to be found in the use
of the coin of today, or of any coin, since the first one was made.
All coins at all times have been used for the same purposes. They have
been mediums of exchange always and are mediums of exchange now. Once
get the idea into your head that money, coins or bills are of any
other practical use, and you are lost in these days of money wizards,
such as Keynes, Irving Fisher, Gesel, Warren and Rogers. I carry coin
to make small change when I purchase things in shops where I am not
known. Dimes, nickels and so on go for matches, shoe strings, small
wares, and charitable gifts on the street. The bills I carry are for
the larger purchases. At the first of the month when I have to draw
checks to pay the store-keepers who have trusted me for several weeks,
I send another form of paper, intrinsically absolutely worthless. My
name on it satisfies the firm to whom it is made out, that they can
use it in their business as an exchange piece of paper of certain
value in making payments, in all probability for the raw material of
the article that I bought from them. When they deposit my check with
their banker, there begins a short process of debiting me with the
amount and crediting it to the firm holding the check. This goes on
all through the live-long business day, just crediting here and
debiting there - mere bookkeeping! I presume at the back of my coins,
bills and checks there exists, I do not know exactly where, wealth in
the shape of capital such as buildings and plant, or wealth to be
consumed: wheat, beef, wool, cotton, and so on.
EXCHANGE
No doubt it would be possible to deal in a different way with a
merchant who wanted not coin, neither bills nor check. If I desired
something he had to sell badly enough, and he wanted payment in real
wealth to be consumed, I could find out from him what it was he
wanted. Suppose he said, "I want a bushel of wheat; I want a side
of beef; I want a ham; and a bushel of potatoes." Now if I wanted
the thing he had to sell, say several tons of coal, 1 could go out and
get all the real wealth for consumption that he demanded and take it
to him. That would be the primitive way of doing things, just the way
millions of people in this country carried on their affairs when the
banks closed in March 1932. Some people who could not get their money
from the banks said that they did not know why they ever bothered
about one; it seemed to them so easy to get along with the people who
knew them. Numbers of people were so used to doing without the banks
by the time Mr. Roosevelt opened them, that they could probably have
worked put a system, as they did in semi-barter or, if you like, "on
the nod," which works with bookmakers and auctioneers, who take
enormous risks. During such a process, numbers of university
economists would have had excellent opportunities of learning all
about the "functions" of money. It is a pity they opened the
banks so soon, because it must be obvious to anybody, that studies the
works written on money, that a vast amount of experience is required
to teach our instructors much about the uses of coins, bills and
checks.
I suppose the ordinary every-day banker of this country would rather
submit to half an hour on a medieval torture rack than read a treatise
on money and its uses. I mean, of course, a treatise by someone who
knows what money island what its uses are. I have spoken to numbers of
gentlemen connected with banks, gentlemen who have been through the
banker-making processes at properly vaccinated universities, and I
have only known one who cared to linger for a moment on the mysteries
of the science. Not being a banker, but one who has to trust them, I
am obliged to keep a sharp look-out for any information that is going,
in book or journal, on this question, because I am firmly convinced
that we are very largely in the hands of people who ought to be
thoroughly examined by the directors of a mental deficiency
department.
INSTRUCTORS
Our tribe seems to roam over into England, just as the English tribe
of money "economists" roams over into this country.
Sometimes we take the advice of a Britisher whose advice the English
will not take at any rate of interest and, to my amazement, I have
found that the English will listen to advice from one of our money
economists, whose pet theories have no sound basis, and whose
wonderful charts are made on such flimsy statistics that they are
positively misleading. Such a gentleman has been instructing the
English in "The Times" (London). Let us see what this
magician has to say. He begins the article as follows:
There are two kinds of capital which should be
distinguished from each other. One may be called real capital, the
other money capital. Real capital consists of such things as land,
factories, machinery, houses, roads, railroads and their equipment,
and so on. Money capital consists either of money itself in the form
of currency or bank deposits or of claims to money.
The function of real capital is to produce either consumable goods
or services. When it is not fulfilling this function it is useless.
A factory which is shut down or a railroad which is not operating is
for the time being of no more account than if it did not exist.
It will be seen at once that the gentleman starts out to tell us
about a factor in production - capital, the assisting factor. He does
not attempt to define capital. He seems to take for granted that
everybody must know what he is writing about. He comes to instruct us,
and, like most of our instructors in political economy of recent
years, he says that capital consists of such things as land, etc. This
is a very good sample of the twaddle that passes today for economic
thought. How land, the basic factor in production, can be capital,
which is wealth that aids in the production of more wealth, is
something that never occurs to him. If he can not see the economic
difference between land and a factory or the machinery in it, then of
what value can his article be to readers of "The Times"? He
says, "The function of real capital is to produce either
consumable goods or services." This will be news to numbers of my
age who were taught the elements of political economy in schools that
were sticklers for definitions of economic terms. Real capital can not
"function" of itself. Real capital can not produce anything
by itself and, if the gentleman who wrote the article had read his
second paragraph over again, he would have found that in the space of
six lines, he contradicts his own idea, for he says: "A factory
which is shut down or a railroad which is not operating is for the
time being of no more account than if it did not exist." In the
case of the factory and the railroad we find that something has
happened and they can not "function." So it must be evident
that to function, another factor in production has to be called in,
and this factor, the one that supplies the functioning power, is
labor. The main idea set forth in this article is that we have got
into this fearful industrial mess because somebody has been asking too
much for money. The rates of interest have been too high. This is a
pet fallacy of our chart economists. It is estimated that the ten
years' period before the crash showed only a net return of 5 per cent,
to capital. Now, if there is one country on the face of the earth
where it ought to be an easy matter to prove that the higher the wage
the higher the return to capital is, it is here. The placer-digger,
two generations ago, got about twenty-four dollars a day, and he was
known to pay 50 and 60 per cent, for his capital. Under the low tax
system, high wage has always meant a high return to capital. It was so
in Australia; it was so in South Africa. It is government expenditure
and taxation which decrease the purchasing power of wage, and reduce
the return to capital.
The cure, the correspondent to "The Times" suggests, for
the difficulty, is taxation of money "whenever it remains idle
and ceases to perform its function of distributing goods and services."
He thinks that the pressure of tax will force the money into use, but
suppose there is no demand for it. To what use could it be put? Does
the writer of the article really believe that putting money and
capital to use stimulates consumers' demand for goods? Surely we have
been told, over and over again by these same people, that one of the
difficulties which occasioned the depression was the increase in the
production of commodities, factories, and houses, etc., far in excess
of the demand of the consumers. It was said that something like 25 or
30 per cent, of the domiciliary, industrial, and manufacturing plants
could never be used. And we saw, as the depression deepened, houses,
offices and factories lose tenants and users all over the country. The
spending fallacy, which seems to be in vogue today, arises out of the
preposterous notion that demand begins with producers and not
consumers. When the purchasing power of wage falls there is less
demand for houses, offices and factories. Unemployment increases and
private and public relief agencies assist the distressed. That means
that those who are working have not only to provide for themselves,
but to provide for their workless neighbors, at a time when
Government's expenditures are rising higher by millions a day, and
heavier taxation again reduces the purchasing power of wage and the
return to capital. Perhaps it would be as well to drop the word "function,"
in connection with money and capital. These things have no power of
functioning themselves. They are used merely to facilitate the
exchange of wealth and to aid labor in production.
INDUSTRY ON ITS BACK
This business of trying to stimulate industry by putting injections
into it from a dozen different syringes affords the non-party man a
good deal of amusement. When the serum of Mr. Wallace does not seem to
act in the way prescribed, General Johnson is blamed for the serum
that he is putting into the code victims. When the many stimulants of
Messrs. Warren and Rogers failed to bring about the desired level of
prices, then we were told it was because silver had been left out of
his calculation. Sip silver was given an injection and, so far, the
result has been negligible. There in Washington we have all these
different clinics in the Government hospital, where poor industry is
on its back, sometimes strapped down tight, at other times trying to
struggle out of an opiate, and other times begging for a transfusion
of the real blood of commerce, and all the doctors, with their serums
and their syringes, each prescribing a different remedy, each trying
to work on a different portion of poor old industry's body, all in
conflict, no general diagnosis, but there they experiment day and
night without hope of getting the patient up and on his feet.
Apropos of this condition of affairs it was only to be expected that
some of the chief reasons against the revival in the capital goods
industries is found to be in the restrictive regulations of 36 of the
first 280 approved codes against the installation of new machinery;
not only this, but against any increase in productive capacity. So one
precious lot in Washington is saying the reason why the recovery, that
Mr. Roosevelt thinks has taken place, is not materializing, is because
there is no movement in the capital goods industries. Across the road
is the N. R. A., and they are doing all they possibly can to see that
the capital goods industries will not move. For pantomime it can not
be beaten. It licks any clown and pantaloon business I ever witnessed.
Imagine, after four years of depression, when scarcely any replacement
of machinery of any kind has taken place in the majority of the
manufacturing plants, that there is no movement in the industries
which supply plants and the parts, though it is shown conclusively
that so far as goods for immediate consumption are concerned, there
has been under the scheme of distributing relief all over the country
an appreciable rise in consumption!
A. A. A. VERSUS N. R. A.
A clearer example of the confusion under which our administrators
labor today can not be found than that set out in the "New York
Times" editorial of July 12, dealing with Professor Moley's
defense in "Today" of what Mr. Wallace's Department has done
for the farmer. I pointed out in "Control from the Top,"
what would happen, and it has happened. The policy of the N. R. A.
people could not possibly succeed without hurting the farmer, for its
aim was to raise urban wages and prices. As the "Times"
plainly shows, the Agricultural Adjustment Act set out to "re-establish
prices to farmers at a level that will give agricultural commodities a
purchasing power, with respect to articles that farmers buy,
equivalent to the purchasing power of agricultural commodities,
according to the price level of 1909-14." When one department is
bent on raising wages and prices in urban areas by artificial means
and restrictive regulations, how is it possible to increase the
purchasing power of a farmer? And what is meant by purchasing power?
Surely a rise in nominal purchasing power, so far as the price of
commodities is concerned, must be affected by the cost of Government
and the amount of taxation that is levied. The burden of tax levied by
Government is scarcely considered by the Mr. Moleys. Here we have not
only a case of one department contending against the policy of another
department, but we have, besides, the curious picture of the
administration in both departments not realizing that in imposing the
increased taxation to pay for the Government's costly schemes,
Congress is actively engaged in preventing any and every possibility
of the policies of the A. A. A. and N. R. A. meeting with the
slightest success.
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