Few people ever consider the connection between trade and our monetary system. Yet in Article I Section 8 of the U.S. Constitution, it says among other things that "Congress shall have the Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States. . . .To regulate Commerce with foreign Nations, and among the several States and with the Indian Tribes [and] to coin Money, regulate the value thereof, and of foreign coin, and fix the Standard of Weights and Measures."
Charles Walters, trained economist, author, journalist, past president of the National Organization of Raw Materials Economics (NORM), historian and founder of Acres USA put it this way: The U.S. Constitution gave Congress the power (and the responsibility) to coin money and regulate its value in terms of U.S. production. (It must be noted here that Acres USA was dubbed by Walters as being "the voice for eco-agriculture" with eco-agriculture being an acronym for economically and ecologically sustainable agriculture.)
As an aid to gaining a better understanding of the underlying substance of these words, we have created a short and a long version of a slide presentation we call Free Trade and Our Money System. Both versions are based on Charles Walters' book Unforgiven . . . The American Economic System SOLD for Debt and War. You may want to tackle the short version first. Here is the long version. The long version will be further augmented by this 2009 article entitled The Primacy of New Wealth by Charles Walters. Both the long and short version of our Free Trade and our Money System slide presentation meld the work of Charles Walters with our own research.
Written from a macro-economic perspective, Walters' book Unforgiven draws critical connections between our current money system and "free" trade dogma that has, in one form or another, been with us since the founding of our nation and before. Colonial backlash against what we will call the then extant form of "free" trade, which was manifested in the Boston Tea Party, was in fact a primary cause of the Revolutionary War - the other being a desire for a uniform monetary system that was independent of other monetary systems around the world.
You may want to review the first fifteen slides of The American Struggle to get a clearer picture of the manner in which wage and price manipulation was historically achieved by the "money power" through "debasement" of the prevailing money standard (gold, silver, bank paper and even colonial scrip). Indeed, the various methods used by the "money power" for centuries to "debase" the prevailing money standard demands a new definition of "usury" as being the abuse of monetary authority for personal gain, not just excess interest as we've all been taught.
Trade was another method by which wages and prices could be manipulated. So it was that the key impetus for the Boston Tea Party occurred as a result of massive imports of tariff-free British East India tea, thus dramatically lowering the price of domestic tea, leaving much local tea unsold. Domestic tea producers were soon bankrupted and could no longer afford to buy other products, which then affected the price structure of the whole domestic economy, throwing the colonies into recession.
History, properly studied, reveals that unfair, monopoly-style trade practices together with the deliberate "debasement of the money standard" are the key strategies that have been employed for centuries by a select few who have figured out how to abuse the monetary authority for personal gain. Thus, recessions are hardly an invention of modern man. Charles Walters addressed the manner in which recessions are made to happen when he wrote the introduction to an online book about raw materials economics called The Nature of Wealth. In this introduction, Walters describes why recessions are simple to understand, "if you know the rules of the game." Note that his explanation roughly parallels the techniques employed by the merchants of the British East India Company described in the first several slides of The American Struggle slide presentation mentioned above.
As Walters writes:
In the article entitled The Primacy of New Wealth linked above, under the segment aptly titled "The Source", Walters brings in a historical perspective concerning the true source of all wealth and the practices and policies that lead to the wanton destruction not only of its value, but the economy as a whole. He does this by relating the divide between French Physiocrat Richard Cantillon and the infamous John Law.
Later in the same article Walters comments that a big part of the current problem is that society has become addicted to gambling and greed centered on fictitious paper claims to wealth, and that those kinds of addictions create a psychological and intellectual barrier to a basic, yet crucially important understanding of how a healthy economy can only be achieved by properly pricing the source of new wealth, which is its raw materials production, which then creates earned income:
Later in the same article Walter's begins a segment that asks "Is Labor Primary?" answering thusly:
And so we get to the concept of parity for raw materials (aka new wealth industries), particularly agriculture. Agriculture is key among "new wealth industries" for the simple reason that 70% of the nation's total raw materials production each year comes from the agricultural sector, this based on an eighty year average.
For the record, parity for raw materials - and most particularly farm parity as is discussed here has nothing to do with "purchasing power parity" (or PPP) which is an economic technique that attempts to determine the relative values of two currencies. Purchasing Power Parity is used by the World Bank, the IMF and the Central Intelligence Agency of the United States. The IMF has a page where it defines and discusses purchasing power parity. The CIA World Fact Book provides a short definition and a comparison of GDP/Purchasing Power Parity between countries. More on PPP here.
While purchasing power parity is not directly connected to farm parity as is discussed here, purchasing power parity figures currently calculated by the CIA could be used to develop an "equitable trade" policy without the need for misnamed "free" trade agreements. Thus, as NORM Economics suggests, the PPP data developed by the CIA could, without much difficulty, be used to set up a "parity account mechanism" that would compensate for the differences in the purchasing power of native currencies while at the same time respect our labor and that of our neighbors and trading partners. More here and here - click on link for pdf file entitled How and Why of Equitable Trade 2017.
Farm parity was defined in a 1942 USDA pamphlet titled Farm Parity Prices and the War as being a price for the farmer's product that will give that product an exchange value for the things the farmer needs to buy. You could think of farm parity as a cost of living wage for the farmer. Those with a more conservative perspective might understand 100% farm (and raw materials) parity as being equal to free DOMESTIC market prices as set by the same DOMESTIC market, assuming said domestic market has not been ruptured by debt or by exploitative forms of international trade that seek out - indeed depend upon - "high" and "low" markets.
An Iowa farmer by the name of Carl Wilken was the impetus behind the creation of the 1942 USDA pamphlet mentioned above, and is also considered the founder of NORM Economics. An exacting mathematician with a penchant for economics, Wilken spearheaded what came to be known as the "Golden Era" of agriculture which ran from 1941 to 1952, this as a result of the passage of the "Parity Laws" in 1941 which laws came about because of Wilken's tireless, almost superhuman efforts to educate key state and national leaders on the issue. Wilken was the central figure in Charles Walters' book Unforgiven.
Walters describes Wilken's work and his discovery, made with the help of Dr. John Lee Coulter (who was Dean of North Dakota State University's Agricultural programs) and Charles B. Ray (who was an engineer for Sears, Roebuck & Company), that agriculture has a multiplier - as do all segments of the economy. But the more important part of this discovery was the fact that agriculture had the highest multiplier. Wilken and his team found that every dollar of gross farm income generates SEVEN dollars of new wealth being added to the national economy, on an EARNED basis.
The caliber of Wilkens' work becomes evident when one understands that his formula accurately predicted America's national income fourteen years running. Wilken and his team further found that because raw materials income always comes first by approximately six months, they could actually predict national income six months in advance. Raw materials production, especially from agriculture, was in fact the driver of the economy.
The proof offered by the predictive capacity of raw materials income further confirmed the multiplier effect of agricultural products discovered by Wilken and his team: national income was always roughly seven times the farm income. So long as raw materials entered the trade channels at prices in balance with the rest of the economy, the economy could operate on an earned-income basis with no build-up of debt, or need for exports, since a balanced economy also is one that can consume all, or nearly all, its products.
Conversely, when farm prices were down, so too was national income. Thus it could be proven FROM THE RECORD that for every one percent that farm prices fell below parity, there would be a one percent increase in unemployment, a one percent loss in factory production, and a one percent loss in National Income. All was based NOT on theory but on meticulously collected data painstakingly analyzed.
All of this is of course putting aside for the moment the manner in which monopolies have all but obliterated a functioning "domestic exchange economy" to borrow a phrase from Charles Walters.[Said monopolies, including banking monopolies, having acquired their monopoly position through continuous rupturing of the internal, domestic price structure via a "debased" money system and trade practices that fostered the necessity of expanding income with debt.]
On the main page of the online book The Nature of Wealth, authors Fred Lundgren and Jerome Friemel link to a youtube video of a 1994 NORM conference. Charles Walters, then president of NORM Economics, introduces Fred Lundgren who takes the audience through the massive statistical updates he and Friemel made to Wilken's work. You might want to watch at least the first 30 minutes of this video. The online version of ''The Nature of Wealth" is also useful for its links to sources for statistical information used in the relevant chapters. The Resources Page also provides a list of official statistical sources.
Most economic thinking today encourages us to think of the economy as a more or less random exchange of goods and services, without any particular direction to the movement of the overall system. Charles Walters, through Wilken, showed us that the economy is not random at all. Rather it is a regular cycle that repeats over and over. The cycle begins with the production of raw materials which then move to a processor, or chain of processors, who turn the raw materials into finished products ready for sale at a retail outlet. While cycles may overlap because of differing start and end points, they always begin with first taking raw materials from the Earth and then sending them through various stages of processing all the way to the final sale to the last buyer who is the consumer.
So it is that most of the earned income of the country is the turnover of the farm income, several times removed from the source but nevertheless put into circulation at the beginning of the economic cycle when the raw materials produced by agriculture were sold.
It should be easy enough for everyone to see that - as the main page of NORM Economics indicates - this natural law of economics will, if steadfastly applied, lead to widespread prosperity for all - provided there is no debasement of our currency and no rupture of the domestic price structure through so-called "free" trade.
As most of us know, our current monetary system relies on the creation of credit (or debt) to serve the purpose of money (the U.S. dollar), this through the Federal Reserve System. No money is created to pay the accumulating interest on all this credit (or debt) creation, debasing the currency at ever faster rates over time, per the well known mathematical laws of increase or exponential growth.
When Walters died in January of 2009, Acres USA ran one of his article which summed up a primary cause of the "Great Recession" of 2008. This article was called The End of a Delusion. Remarking that "the money system under which we live, one in which interest is paid on money created out of nothing, is the most irresponsible the world has yet seen", Walters provides a vivid picture of the damage said interest does to the earnings of ordinary people and the savings of society as a whole, via the mathematical law of increase, as follows:
As mentioned elsewhere on this site, the solution to our "irresponsible money system" is the NEED Act (or a reasonable rendition thereof), the prototype having been developed by the American Monetary Institute with Charles Walters having served on the development team.
The second impediment to prosperity for all lies in the exploitative nature of so-called "free" trade. The National Organization for Raw Materials Economics (or NORM Economics) firmly supports and has developed a prototype for an Equitable Trade policy which expresses proper respect for our labor and that of our neighbors and trading partners. Such a policy is one that serves our common interest in elevating our standard quality of living as well as theirs, and promotes our general Welfare by paying our prices for both our own and their products or services.
In an older article no longer available current president of NORM Economics, Randy Cook, succinctly and clearly explains the basic elements for trade equity paraphrased as follows:
- We must consider purchasing power differences properly and adequately. This means that we must have a means to adjust the price of foreign products (which are measured in terms of foreign money) to the price of OUR products as measured in terms of OUR money. We can do this via tariffs, quotas, and perhaps most importantly, the "parity account" mechanism. This keeps the rest of the world from trying to sell to us as the "high market."
- From the first element flows the next: We MUST pay OUR price for foreign products. Thus, U.S. businesses (and their customers), will no longer be able to take advantage of savings offered by exploiting the labor of say, 4 year olds working 24-7 in some far-off country to produce our widgets or "exotic" (but unrealistically cheap) food.
- We MUST buy ONLY what we cannot make ourselves. Thus, we may see the return of many of our industries, steel being one example.
- We MUST NOT "dump" our excesses onto other countries - which in turn means that we must not seek to produce products beyond a reasonable cyclic strategic reserve.
The ingenious "parity account" mechanism developed by NORM Economics is briefly explained in a one page, downloadable pdf file called How and Why of Equitable Trade found here. A longer explanation is here.
We clearly have the knowledge and the tools to create planetary economic and environmental sustainability, not to mention abundance for all. While acknowledging that it will take more than a village to go from here to there, the onus is still on the individual: are you willing to study, understand to the best of your ability and then relate this information to your family and friends, your village officials, your Congressmen and women, your local news outlets or whatever conduits you feel most comfortable with and adept at? We have truly reached the precipice and without you there may very well be no real future for the bulk of humanity. In the end it all comes down to just how badly do we - individually and collectively - want a world of fairness and abundance shared by all.