The Nature Of Money
NOTE: Charles Walters authored this article in November 2003 and it was published in Acres USA.
"On September 7, 1942, at 9:00 p.m. CWT, President Roosevelt delivered one of his famous fireside chats. It was an economic message that in retrospect is a message for our times. The year 1942 was wartime. It was also an economic crisis.
The war effort required structural bal- ance for the American economy. Inflation had to be controlled. Speaking in his homey way, Roosevelt said the cost of liv- ing meant what a dollar can buy. Since Pearl Harbor, the cost of living had increased 15 percent. In May 1942, the government attempted to freeze the cost of living. This was proving impossible because the congressional authority was exempting some sectors from rules gov- erning the rest. In the process of giving his explanation, the chief executive drew attention to agriculture. Earlier, Roosevelt had asked Congress to stabilize basic stor- able commodities.
At that time the President told Congress that there were seven elements in the national economy which had to be controlled, and any element out of bal- ance made control of the cost of living impossible. At issue were stabilization of taxes and farm commodities at parity.
“Parity is the standard for the mainte- nance of good farm prices. It was estabished as our national policy way back in ’33. It means that the farmer and the city worker are on the same relative ratio with each other in purchasing power, as they were during a period some 30 years ago . . . [when] the farmer had a satisfactory purchasing power; 100 percent of parity therefore has been accepted by farmers as the fair standard for the prices they receive,” Roosevelt said. He went on to explain that the parity norm could not be exceeded, nor could it fall short.
Later, when the Employment Act of 1946 was passed, Roosevelt’s concept was confirmed. Structural balance was absolutely necessary for stability, and dis- parity was the real road to serfdom. The very first Economic Report of the President confirmed the parity require- ment if the nation did not wish to court impossible debt and ruinous inflation.
During the postwar years, U.A.W. President Walter Reuther settled an auto- mobile strike at near parity because, in his words, “I’m not going to bargain for the wooden nickels of inflation.” He knew, he said, that labor could not have a higher parity than agriculture.
China has become dependent on an American trade deficit much as urban America has become dependent on a rural and farm deficit. The 1996-2003 trade deficit illustrates the approach of a termi- nal point. It jumped from $191 billion to $485 billion. Hardly anything in the American malls has an American label. Take this down to something a second grader can understand, but which eludes tenured professors: since 1996 the United States has imported $1.31 worth of goods for every dollar’s worth exported. As these lines are set down, the numbers are close to $2 imports for every dollar of exports. It can now be computed that the deficit has to grow by at least $50 billion a year, perhaps $100 billion a year for the NAFTA/WTO model to continue.
The talk in favor of world trade has it that the import-export razzle-dazzle is necessary for world peace. Each nation is to spend what it earns, this so each trader nation can exhibit its comparative advan- tage. The banana grower grows bananas. The Third World country sells what it has, mainly cheap labor. In turn, the United States is to sell its high-priced trucks, air- planes and supercomputers. Never explained is how a 25-cent-an-hour work- er will be able to buy a pickup truck or a bottle of French wine. All this leaves unanswered the question, Just where is the necessary trade expansion going to come from when one and all are tapped out? This much stated, it seems the American farm model was a poor one for international trade to follow.
This business of exploiting the poverty pockets of the world is an ephemeral procedure in any age. The money those Chinese workers earn weaving rugs and stitching Wal-Mart clothes does not come back to the United States via purchases. From 1996 to the present, foreign exchange reserves of Asia have gone from $500 billion to over $1.3 trillion.
Japan’s reserves have escalated from $217 billion to $534 billion. Do a roll call of nations and the pattern is the same — only the amounts differ. Hong Kong, from $64 billion to $116 billion. Taiwan, from $88 billion to $182 billion. South Korea, from $34 bil- lion to $128 billion. These data are generally reported by the International Monetary Fund, various financial papers, and world media such as USA Today.
The international trading system has about the same circularity as home-base U.S.A. and the balance between wages, capital costs and agriculture, as well as the imbalance between agriculture and corpo- rations, rentals and business in general.
Still the sound bites tell the people that with free, unregulated trade everyone ben- efits. Because of this exchange between poverty pockets and the United States, standards rise. Temporary collateral dam- age is to be expected, but this is a small price to pay for the vast benefits for every- one. Consumers benefit by tripping to Wal-Mart, and the 9 or 10 million unem- ployed by the trade model will ultimately find work. It’s all circular. That this analy- sis begs the question Why? is ignored. Why, indeed, haul stuff from here to there if all you do is pollute the oceans?
It is now admitted that unless each nation spends what it earns, the logic of free trade collapses. Probably it collapses because it is not supported by logic. It has already become a job destroyer. It ships unemployment around the world like rancid potatoes.
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