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Thread: weekend commentary - 'New Wealth'

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    Default weekend commentary - 'New Wealth'

    the principle of 'New Wealth' creation, versus wealth transfer, is a frequent topic of discussion and controversy in Dollar Den threads. Author Charles Walters offers one of the most straightforward explanations of 'New Wealth' that I have ever encountered ... as well as discussing the concept of 'national wealth and savings' versus income.

    (snip)"The Source

    "The land is the source or the substance from which wealth is drawn;" wrote Richard Cantillon in Essai sur la Nature du Commerce en General, and he continues, "the work of man is the form which produces it, and wealth in itself is nothing other than food, commodities and the amenities of life."

    Cantillon's treatise described the source of new earned income at a time when John Law ruled the economy of France. Cantillon and Law clashed, chiefly over the real character of money.

    Law established the Banque Generale in 1715 and had it converted to a state bank three years later. His every move was designed to drive raw materials prices down while he, John Law, furnished substitutes to repair the deficit. In his own way, he developed a war against poverty, created make-work projects such as digging a canal at Briare, and he took steps to make Paris a seaport town. All tolls were abolished so that the grain trade could be "freed." Import duties were reduced on oil, leather, tallow and wines so that free trade could furnish France with cheap imports. Commodities fell in price. And new money issues were constructed by the Banque Generale, which simply monetized collateral. It took this economy only two years to explode.

    After the dust settled, about the only thing left was Richard Cantillon's Essai, the masterpiece that reached the purity of theory in one lesson and limited itself to the possibilities of life in the next.

    New wealth is not easily comprehended in a society addicted to wealth on the gaming table, at the end of a stock trade or embodied in currency created out of thin air by institutional arrangements that no longer ask the questions of a child: Where does it come from? Where does it go? The transition from the simple business equation to some idea of earned income at the national level that can emerge as national profits (social surplus) and savings leaves most people and most economists bewildered. They see the CEO who walks off with, say, $10 million after scuttling his company as wealth, and so it is in terms of the individual. But he has left in his wake disturbing exchange consequences and no direct effect on buildup of national profits and savings. The parasite creates no new wealth, and usually debilitates new wealth creation, because the predator merely transfers money from one pocket to another, and in terms of physics creates nothing.

    There are close to one million lawyers in the United States. They transfer a great deal of money from their clients and victims into their own coffers. This transfer is called earnings. It adds to national income, but it adds nothing to national profits and savings.

    Wal-Mart is said to be the largest corporation in the nation if not the world. Bentonville billionaires are now a part of American legend. Yet Wal-Mart produces no new national wealth. Like the baseball game or the professional football contest, it transfers the money called wealth by talk show hosts from one pocket to the next, but the net effect of these enterprises is to enable new wealth industries to fabricate things like baseball bats from lumber, helmets and gear from plastic --- all sourced from raw materials --- to stimulate economic activity, but adds little or no national profits and savings for stable investment.

    To find the source of new wealth, we are required to examine new wealth industries.

    Financial services are not new wealth creators. Quite the contrary, they make the stable dollar a relic of yesteryear because in the main they create money, but do not create the interest required to make this super-grift appear real. The grift called debt may enable instant gratification, but it also transfers the wealth of a nation into the hands of a few. That is why the interest mill delivers nations into convulsions at regular intervals in history.

    In turn, debt is enabled by anything less than broad-spectrum distribution of landed resources and money income. Further, as new wealth industries are deprived of parity earnings, either instant depression or deferred depression (deferred by debt) must follow in the fullness of time.

    Those French philosophers of the 18th century not only reasoned well, they forecast the inevitable as the court and its syncophants installed debauchery as public policy. Finance based on debt creation has replaced the court in our day, purchased the Congress and trapped the American worker into virtual indentured servitude. Finance now bills itself as a prime mover, not as a grim reaper that inevitably destroys the simple and obvious system gifted posterity by the Founding Fathers.

    What, then, are the new wealth industries on which national solvency depends?

    New Wealth Industries

    It can be seen that even the making of a lead pencil involves a staggering complement of services, know-how, sales efforts, even advertising. The only part that meets the test of new wealth is the raw material component --- the lumber, the graphite, the ink for printing, all of which invite a look at nature's gift. Depending on the state of the arts, the raw materials component in products for the sales floor use up to eight times more labor than raw materials. Therefore we speak of new wealth industries as those that require a heavy raw material input.

    Food to stoke the metabolic furnace of human beings comes first. It takes some 2,000 calories a day to feed a hard-working human being. That is why agriculture is the largest new wealth industry, accounting for fully 70 percent of the raw materials used to operate the economy.

    Fuel, minerals, lumber, gravel, fossil fuels, fish all together account for approximately 30 percent of the raw materials used to run the economy.

    The lumber used to make that No. 2 lead pencil may be a small component in the manufacture of the end product, but it is most important because along with graphite it accounts for the lion's share of national profits and savings possible based on the pencil's fabrication. People taking in each other's laundry can create employment, transferring money wealth from one pocket to the next, but that trade-off is strictly neutral in creating the profits and savings needed for sound investment and sound expansion.

    Is Labor Primary?

    The answer is "yes" --- but that "yes" has a codicil.

    The only source for national profits and savings is the raw material input as monetized by the agency of price. That is physics speaking, once you trace those profits and savings back to their origin. That is why national profits and savings rely on new wealth industries.

    It is hard not to belabor the point. Take the baseball stadium that Chamber of Commerce types chest-thump into being at the taxpayer's expense, usually with the declaration that a home team generates so-and-so much income. At the local level, it is made to look that way. But from the plane of observation called national profits and savings, the game creates nothing except the few dollars involved in bat, glove and paraphernalia manufacture and the little titanium used to mark base lines.

    It is labor that enables the use of raw materials. It is labor that harvests the lumber, mines the minerals, catches the fish, grows the crop. Producers, processors, and an improved state of the arts all are essential. The apparatus of economy pyramids into national income, but not national profits and savings. The policeman, the fireman, we require their service, and their salaries help that pyramid called national income stand on its raw materials base. All facilitate civilization. But they create no national profits or savings. That chore is left to the food they eat, the clothes they wear and the gift from the planet traced to raw physical product.

    The Attack

    Why, then, do civilizations try to cut the legs from under the source of new wealth? It may seem an assault on the intelligence of the reader to point out that the worldwide scramble is for the control of raw materials, food included. This much stated, we have to wonder aloud why public policy always seems to cut off the nation's legs at the knees by underpricing all of agriculture and many of its other raw materials. In modern times we exacerbate this delusion by ignoring the values embodied in recyclables. The above expresses itself in food's role in energy transfer from the sun to plant to human metabolic necessity. The cycle has to replicate itself daily, monthly, annually!

    Finance and debt appear to be prime movers, but they cannot substitute for national profits and savings based on raw materials without engineering convulsion at regular historical intervals.

    We now know that interest doubles a debt very quickly. At 10 percent, the doubling time is seven years; at 7 percent, it is 10 years. It is interest that builds a collapse position in 80 to 90 years.

    The Fed will be 100 years old on December 23, 2013."(snip)

    This article is reproduced from Acres U.S.A. The Voice of Eco-Agriculture Volume 39, Number 1, January 2009.


    ~
    Last edited by Melonie; 10-18-2009 at 09:30 AM.

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    Default Re: weekend commentary - 'New Wealth'

    We are stuck in the system we have, unless we shoot the sheriff who comes to evict us, the repo man who comes to take our car, and we can trade with the farmer for our food.

    As you can tell, a couple weeks ago I was an optimist, but I have since returned to being a pessimist.

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    Default Re: weekend commentary - 'New Wealth'

    Quote Originally Posted by Melonie View Post
    the principle of 'New Wealth' creation, versus wealth transfer, is a frequent topic of discussion and controversy in Dollar Den threads.
    The downfall of US started when greedy people stopped investing to create wealth and started gambling in derivatives that create nothing.

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    Default Re: weekend commentary - 'New Wealth'

    ^^^ yes, but .... with the but being that both US corporations and US investors were given a strong incentive to do exactly this via a change in early 1990's gov't tax policy. Dividends and ordinary income were made less 'valuable', while capital gains were made more 'valuable' ... and particularly so for 'derivatives' like stock options. Granted that greed quickly reared its ugly head, but many of the mechanisms by which this paradigm shift took place were tax driven ... i.e. mergers & acquisitions, recruiting employees via stock options versus salaries and benefits etc.

    However, lets not drift too far away from the author's fundamental point ... which is that there is a huge difference between the accumulation of 'new national wealth' via the monetization of raw materials, versus the mere redistribution (or even consumption) of pre-existing 'national wealth' via the trading of services or of existing goods. As the author pointed out, 'speculation' indeed produces apparent income for the successful wheeler-dealer. However, in the vast majority of cases, that apparent income comes as the result of an offsetting apparent loss to someone else. Today's serious problem is that those apparent losses are turning into real losses, and that the US taxpayer is the likely real loser.


    We are stuck in the system we have, unless we shoot the sheriff who comes to evict us, the repo man who comes to take our car
    well, there is another option. Just vote for a 'new sherriff' who will not only refuse to evict you, but who will force the holder of your mortgage to sacrifice principal and interest earnings so that you can stay in your home despite not being able to afford your original mortgage payments !

    ~
    Last edited by Melonie; 10-19-2009 at 03:24 AM.

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