To many today the dominant principle of our national economy has become simply the idea of money changing hands. Rather than perceiving money as a convenient medium of exchange making it easier for us to equitably satisfy our many wants and needs, of which food is the most basic, we have instead seemingly adopted a concept that the acquiring of money is an end in and of itself.
In that process, however, we have ignored a certain logic of economics. Initially, every transaction on earth has a debit (a charge) and a credit (money). In all such transactions, save one, the equation thus reads, the individual debited, the individual credited. Only one transaction which comes out differently, however, is the one that sees nature's bounty harvested, and that transaction reads, the individual debited, nature credited, for the gift of nature is a profit, or social surplus, within the economic system.
When raw materials are thus harvested from nature they are turned into money. This is done through a pricing system whose equation is production times price equals income. Any operating economy therefore divides itself into two divisions: income and cost.
Producing what we want requires a continuous supply of raw materials: food and fiber, minerals, timber and energy. As such raw materials are grown and extracted each year from the earth and sea they produce what we call "new wealth." Here lies the key to a healthy economy for it is here where the actual exchange of money begins.
Take, for example, the growing of wheat.
After the farmer has cleared the land, plowed the ground and planted the seed, where there was nothing, wheat is grown -- new wealth. Harvested, the grain is taken to the miller, where the farmer is paid for the wheat. From such income farmers should be able to pay their workers, their production costs and their families' own cost-of-living expenses.
After the miller has ground the wheat and sold the flour it produces to a bakery, the miller's revenue is used to pay the milling company's production costs, including its employees' salaries. The bakery in turn uses the flour to bake bread, which is sold to a grocery store, which then sells it to the consumer.
Throughout this entire process, of course, money is changing hands, but it is the wheat, not the money, which is the focal point of the process. Ideally, the money earned should not remain stagnant, but rather be used by the people involved to buy other goods and services. Thus, the money will be constantly multiplying as it makes its way through the marketing process.
But because each part in this process depends to a very large extent on the other, a certain balance must be maintained if this economic system is to function properly and equitably.
A fair sharing of the national income as it is progressively distributed between the various divisions of labor not only provides an equitable, reciprocal market for all of the goods and services produced, but these goods can also be paid for at the same time with the cash (earned income and profits) already received in the annual economic cycle.
The price, for example, that farmers receive from the miller should properly correspond with the buying power of urban workers, which would include, of course, their production costs. This is what is meant when we discuss the concept of parity: a proper balance among the various parts of our economic system.
An equitable national income should not be based on simply the number of dollars one can accumulate, but rather on the precision of the distribution of those dollars. As the late banker Vincent E. Rossiter Sr. explained it, the key to that distribution is dependent on economic equilibrium, and economic equilibrium is based:
1) upon that amount of increase in raw material production needed annually to provide the needs and the wants of the modest increase in population, and vital to this factor is
2) the absolute necessity to price this raw material at a floor of 90% of parity in order to provide the cash to assure its production and consumption, without the injection of excessive debt.
Since most "new wealth" begins with what is produced from our natural resources, of which farming is the largest, it is essential that the creators of this "new wealth" receive their fair share of the income, for as their income rises or falls, so too will that of all the other parties in the process.
The production of raw materials and the subsequent industrial conversion and ultimate consumption of those materials have also traditionally been financed by ever larger bank loans at each step as value is added.
While raw material production is monetized "as though it were gold" by the commercial banks, the economy is being fueled by added loans which at the same time increases the total money supply, profits, dividends, wages and salaries, etc., as value is added. When consumers finally spend their money for the finished product, the money that was created in the value-added process is used by the retailer to pay back to the bank the money that was borrowed.
Thus, all the debt that was created after the original "monetization of the raw material" is eliminated, completely repaid, leaving the economy with only the "new wealth" created by the monetization of raw materials.
When Carl Wilken, mathematician and economist, began to study the causes of the Great Depression of the 1930s, he soon found a direct relationship between "new wealth," unemployment and the prosperity of the overall economy. He found whenever gross farm income equaled approximately one-seventh of the national income the national economy prospered. Further studies have shown that initial earned income from our natural resources multiplies from five to seven times as it progresses through the economy.
Yet in the past 55 years the US's so-called "cheap food policy" has successfully brought about a distortion in the nation's economic picture. Not only has such a policy resulted in a reduction of agriculture's share of national income in spite of its increased production, but it has also brought about a decline in small business income and thus a systematic destruction of our rural communities.
A.V. Krebs operates the Corporate Agribusiness Research Project, PO Box 2201, Everett, WA 98203. He publishes a free email newsletter, The Agribusiness Examiner; email avkrebs@earthlink.net; www.ea1.com/CARP/.