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Forum Post: Raw materials economics, an alternative to investment/interest driven capitalism.

Posted 3 years ago on May 24, 2014, 3:11 p.m. EST by wickerman (62)
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The Birth of Raw Material Economics

by Charles Walters

The birth of raw material economics -- while ancient in origin -- has been credited to Benjamin Franklin, the Philadelphia philosopher, printer, and statesman, and to Thomas Jefferson, who as a historian once wrote “invented the United States.”

Although Jefferson gave a published expression to the concept of raw material economics, it was Franklin who sat down the general proposition in concise and understandable terms.

Writing in “Positions to be Examined” concerning national wealth, April 4, 1769, Franklin pointed out that there were three ways in which a nation might become wealthy:

By war, which permits taking by force the wealth of other nations; By trade, which to be profitable requires cheating. For example, if we give and receive an equal amount of goods and services through trade, there’s no profit other than that obtained in our own production cycle. By agriculture, through which we plant the seeds and create new wealth as if by a miracle. Because of the natural laws of physics, raw material production times the price of first entry into trade channels has the following effects: (1) The raw materials supply determines the number of jobs available in fabrication, processing, and use -- from raw materials production to manufactured products -- and distribution.

(2) The dollar value put on this new wealth raw materials production determines the amount of money which can and must be used to produce, buy, and move all the raw materials through the economy. As various costs are added -- chiefly labor and capital costs -- the add-on factors pyramid themselves into national income.

(3) The value placed on raw materials automatically becomes the initial market (total number of earned dollars available) for the exchange of the manufactured goods. It also defines the level of profits and savings for the economy. During several periods in this century, when the U.S. economy enjoyed full employment and controlled debt expansion, fully half of the market for manufactured goods remained in rural America, where they were created via the production, transport, processing and consumption of raw materials into trade channels.

Starting in the 1920s and going through the 1960s, several entrepreneurial gentlemen of profound knowledge and inquisitive nature about macro-economics became the “Founding Fathers of Raw Material Economics.” They re-examined the Franklin-Jefferson principles by researching and analyzing the nation’s economic records. Their findings are summarized above.

Those “Founding Fathers” were: Charles B. Ray, Carl H. Wilken, Dr. John Lee Coulter and J. Carson Adkerson. They were ably followed by such stalwarts as Arnold “Red” Paulson, Vince Rossiter, Merle Willard, Kermit Couch and others.

From http://www.normeconomics.org/essays.html

The plan implemented in the Steagall amendment http://en.wikipedia.org/wiki/Steagall_Amendment_of_1941 that effectively ended the great depression was based on this economic model. The prosperity generated is spread over the entire economy and, unlike the interest/investment model that we currently use, does not concentrate wealth in the hands of a few. It worked until the wealthy managed to repeal it, thus returning us to the interest investment model that we currently use.

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[-] 4 points by Nevada1 (5843) 3 years ago

Good Post

[-] 1 points by wickerman (62) 3 years ago

Here is another that explains the system in more detail, it is also from NORM. http://www.normeconomics.org/outofbalance.html

Out-of-balance raw materials prices causes national debt creation by Fred Lundgren Co-author The Nature Of Wealth

The Nature of Wealth talks about raw materials and how their prices influence the overall economy.

Our study of raw materials spans the 20th century and is confined to the U.S. economy and the first point of sale value of raw materials. We calculate this value as a percentage of annual total "National Income." The National Income is a macro economic series of numbers used by government and economists to calculate the income created by production during a single year. National Income differs from "Gross Domestic Product" (GDP) -- the more popular and inflated series that reflects the retail value of all goods and services.

In a nutshell, NORM looks at total annual raw materials income as a percentage of all income, and uses proven formulas to predict how changes in raw materials prices change the economic condition of the country.

This method of calculation differs from the input/output calculations of a factory. The raw materials you speak of are partially processed. Labor costs have been added to them after the first point of sale. To be considered a pure raw material, their value must be calculated at the quarry gate or, at the time they are harvested as plants and sold.

Economists get confused and often lose credibility when they calculate "fair" first point of sale values for raw materials. Their calculations appear mysterious and elusive. They usually end up making excuses for businesses who increase their profits by exploiting raw materials producers.

NORM removes the mystery and subjectivity from the process. NORM establishes the intrinsic value of raw materials based upon the the technology (labor efficiency) of the current era. From this we conclude that the annual value of raw materials at the first point of sale should average about 1/7th of the annual "National Income." This income becomes the primary input of new value in the economic pipeline each year. It is important to economic growth.

Today, the US has a National Income of about 6 trillion dollars. This number is about 1-1/2 trillion dollars too low for current technology and population. A little over $1 trillion of this $7- 1/2 trillion should be paid to producers of raw materials at the first point of sale. This $1 trillion should pay for all the agriculture, petroleum, timber, quarry materials, fish, recyclables etc., as they pass into the pipeline each year. Instead, less than 1/2 of this amount is paid for annual production at the first point of sale and the income shortage must be offset by debt expansion so the economy can consume its production. By maintaining the correct raw materials income level, the economy creates a sufficient flow of dollars to purchase its production without adding unnecessary debt to the economic system.

Sadly, Americans have allowed public policies to squeeze National Income while driving raw materials prices far below 1/7 of national income. Today the number is about 1/20th of our national income, and that is far too low. As a result, the U.S. must create private capital debt to purchase its annual production of goods and services in an effort to compensate for the underpayment. Every profit-driven society, (every society based on private enterprise), does this to some extent.

In America today, the correct, or "PARITY" ratio of raw materials income to national income should be 1 to 7.38. In other words, the value of raw materials at the first point of sale should comprise a little under 1/7th of the economy. These numbers evolve over time as technology addsto the efficiency of labor which causes a re-division of labor among thevarious segments of the economy.

In the year 1900, the parity ratio of raw materials income to national income was 1 to 2. In simple terms it means that one person was engaged in raw materials production, (on average) for every two persons employed elsewhere. As technology improved, this ratio grew. People leaving the farms by the millions changed the ratio most of all. A similar reduction was seen in the labor force of other raw materials industries.

This ratio can be referred to as the "trade turn" or the roll-over of dollars as they flow from the raw materials stage of production, through the economic pipeline, and finally to the consumer. In 1900, this roll-over was 1 to 2. By World War Two it was 1 to 5. Again, technology has increased it to just over 1 to 7 today.

With all of the above information in tow, here is a bench mark answer to the question how much should raw materials producers earn?

The producers of raw materials in the U.S. should earn an annual gross profit of 42% over their cost before federal taxes are assessed. If the taxing system is fair, they should earn a combination of equity and cash at a ratio of 3/4 equity and 1/4 cash. These two amounts should yield the same ratio of net income to gross income as parity annual (national) raw materials income ratio to national income. That is, raw materials producers should have a net income after taxes, (a combined net income of cash and equity increases,) that total about 1/7th of their gross income. The balance of their gross income must flow to others.

[-] 1 points by BradB (2693) from Washington, DC 3 years ago

interesting... Thanks!