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SCI LIBRARY

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.