Part 12

Would a farmer prosper if every year he sold a thousand dollars’ worth of his products and got back only eight hundred dollars’ worth of other products? Wouldn’t that depend upon how much credit to him had piled up in account-books as a result? If none, wouldn’t he have exchanged his products at the rate of $10 for $8? How long would a farmer prosper if he considered that kind of balance of trade as favorable?

Precisely so with international trading. The only difference is that in the farmer illustration we have a solitary individual, whereas in international trade we have many individuals grouped in national wholes. In comprehensive Economics that difference is no difference at all.

A credit balance between national communities is simply the difference in Value remaining after all international trading to a given date has been entered in the books of account. If that balance be on the credit side of one of the nations, the creditor individuals of the creditor nation may draw against it. To them it is a favorable balance, in book-keeping terms. But if it is never to be paid off with imports, which seems to be the aspiration of those who applaud so-called “favorable balance of trade” theories, is it not in truth an unfavorable balance?

If the reply be that the balance will be paid in gold, what difference does that make in any comprehensive Economic sense? Gold itself is a product of Labor applied to and upon Land. To import it in payment of international balances would be precisely the same, Economically, as importing other products of Labor.

Some private businesses may prosper through “favorable” balances of trade, but Business everywhere and as a whole, Business in the comprehensive sense of the science of Economics, must find “favorable” balances of that unbalanced kind extremely unfavorable to the people of every nation as a whole and to most producers individually.

International balances of trade are but aggregates of individual balances. The favorableness or unfavorableness of either kind depends upon difficulties of collection. If, for illustration, an individual has a credit balance in his account at a bank, it is a favorable balance provided he may “check it out” at will in payment for products or services; but to the extent that obstacles to his “checking out” are put in his way, the balance has an unfavorable aspect. If the obstacles be prohibitive--a 100 per cent stamp tax, for illustration,--the credit balance would be decidedly unfavorable. It would be unfavorable in less degree only as the stamp-tax was reduced from 100 per cent, down to 50 per cent or 25 per cent or 1 per cent. The depositor would have sold more value than he could buy; that is, he would have “exported” from his products more than he could “import” from the products of others.

A like conclusion is inevitable in the aggregate of world trading. To the extent that exports of Wealth are not offset by imports of Wealth, to that extent every trading balance is unfavorable. The Economic benefit of credit balances of all kinds, whether individually or in community totals, depends upon ease of collection.

V. AN ILLUSTRATION OF THE PRODUCTIVE PROCESS

By means of the primary and the subsidiary categories described and illustrated in this Lesson, all the tangled data of the Productive Process in Economics may be readily unraveled. Consider for further illustration the Productive phenomena involved in so simple a specimen of Wealth (Artificial Objects) as a needle in the hands of a house-wife engaged in mending family clothing.

She bought the needle at a retail store along with many other needles gathered together in a bunch--a “paper of needles.”

How did that “paper of needles” get into the stock of the retail store? It came with other commodities from a wholesale store. How? By a railway train, on the complicated structure and management of which, as well as upon the roadbed, the track and the station houses, a great variety of Labor had been expended.

Where and how did the wholesale store get that needle? Directly or indirectly, and by similar complicated methods of transportation, from a needle factory.

How did the needle factory get it? Its workers made it. How? By means of machinery, Artificial Products--Wealth used as Capital for the production of further Wealth.

Of what did those workers make the needle? Steel. Where did the steel come from? From transformations of iron in a steel mill. The iron? From iron ore. The ore? From natural deposits in the earth.

By what magic was all that brought about? By an infinite variety and complexity of specialized Labor, which, applied to a variety of special kinds of Land (Natural Resources)--in country, town and city,--produced all the Wealth (Artificial Objects) necessary for the production of more Wealth, namely the Capital; and this consisted of implements and structures made from and upon Land by Labor; of implements and structures for the production of those implements and structures, also made from and upon Land by Labor; of transportation facilities of many kinds similarly made and operated. Also buildings for stores as well as factories--all in a confusion of industrial specialties that can be unraveled only by generalizing the details in accordance with natural law as disclosed by the Basic Facts.

Let that unraveling be done and still we may be bothered by collateral problems to which those details give rise--banking, for instance, and book-keeping all along the productive lines.

To follow in detail the ramifications of the Production of that needle from the first effort of Labor to which it owes its existence, to its delivery at the retail store in a “paper of needles” to the house-wife in whose deft hands we find it, would drive even a magician mad. But all confusion is banished if we classify the multitudinous details according to their natural characteristics respectively, as Labor, Land and Wealth.

And as of the details of that needle’s production, so of all Economic details, from least to greatest, from simplest to most complex, throughout the labyrinthine intricacies of the Productive Process in Economics. To study separately all the Economic constituents of even the simplest civilized habitation and their respective relations to it, Economically, one would need training in many different kinds of specialties, from forestry to decoration. Yet systematic Economic thinking assigns every Economic detail to three categories which can be studied without risk of confusion. It need hardly be again explained that those three categories are Labor, Land and Wealth. Every constituent of such a habitation, no matter how minute, is assignable for primary Economic study to one or another of those Basic Facts--to Land for the site, and for all the rest, from architectural designing to decorative completion, to composites of Land and Labor.

Likewise of every other human contrivance for human satisfactions. In multitudinous detail it is an inexplicable mystery except to an all comprehensive body of experts, and even to them if they ignore the Basic Facts. Yet every complexity disappears when the details are assigned to their appropriate natural categories of Man as the sole producer, Natural Resources as the sole basis and source of production, and Artificial Objects as the product; or, reverting to technical Economic terms, when the confused details are appropriately assigned to Labor as the Productive power, to Land as the basis and source of Production, and to Wealth as the Product.

All Economic details, from least to greatest, from simplest to most complex, from most familiar to most mysterious, throughout the labyrinthine intricacies of the Productive Process in Economics, are like the details in the Economic history of the house-wife’s needle of our illustration. What the points of the compass are to navigation, or the four fundamental divisions of arithmetic to mathematics, such are the three Basic Facts to the Productive Process in Economics.

SIXTH LESSON

DISTRIBUTION

At the outset in this Lesson let the difference between Distribution of Wealth and delivery of Wealth be again emphasized.

Delivery is part of the Productive Process to which the next preceding Lesson was devoted. No Wealth is finally produced until, finished for ultimate consumption, it has been produced to ultimate consumers by final delivery.

Quite another thing is Distribution in the technical Economic sense. In this sense Distribution is the apportionment of Labor-produced Wealth in appropriate categories with reference to the Economic relationship of Labor to Land--of Man to Natural Resources.

A better term than Distribution, since this term has been so much abused by giving to it the sense of delivery by transportation (a mere phase of Production), would probably be Division. But Distribution of Wealth has too long served as the technical term for the Economic division or sharing of Wealth, to be discarded offhand.

Although the Distribution of Wealth in appropriate shares, with reference to the Economic relationship of Labor to Land, affects the sharing of Wealth by individuals, it does not completely dictate either the proportions or the magnitude of individual shares. These may be determined not only by natural Economic law but also by purchase, by common usage, by conventional inheritance statutes, by highway robbery, by forgery, by burglary, by petty theft, by “confidence” tricks, by lucky speculation or gambling games, by beggary, by “crooked business,” by generous gifts, by legal distortions, by taxation, by a thousand and one other influences, legitimate or illegitimate, outside the jurisdiction of natural Economic law. Radically different are those fundamental Economic apportionments in Distribution with reference to the natural relations of Labor to Land.

Fundamentally, Economic Distribution is a twofold apportionment of the Wealth produced by Labor from and upon Land, whereby one portion is naturally allocated to Labor as its producer and the other to Land-ownership as the controller of Natural Resources and sites.