BELIZE CITY, Mon. Nov 18, 2019– Two words, two words we take for granted every day we live on planet earth. What do they mean? How do these words affect our daily lives?
Let’s start with the economy. What does it mean when we talk about the economy of say Belize or another of the 190 nation-states of the United Nations? The economy of Belize means all the goods (rum, chicken, concrete, furniture, beer, sugar, orange juice concentrate, bananas, meats, boats, etc.) produced in Belize.
We usually agree that the economy is composed of 3 parts – (i) the primary sector of agriculture and forestry, (ii) the second or manufacturing and construction sector of converting the raw products of agriculture into finished or useful goods for human survival. Humans need food for energy, clothes to protect us from the elements and houses to protect us humans from other humans, a place to lay one’s head at night, and protection from animals and the elements. And (iii) lastly, the overheads part. Recently, the big boys changed the name to service sector, but it’s still the same – overheads.
But please understand, humans don’t produce goods for the sake of producing goods. The purpose of an economy is to reproduce people. People have to eat, be clothed, and housed themselves. No food, no clothes, no homes, and soon no people, no humans. So, a functioning economy must provide enough high-dense nutrition for its citizens, good quality clothes, and durable long-term homes along with the extras such as traveling on holidays, owning a basic automobile, and the other items humans desire. This produces a people that are happy – the purpose of government.
In 2018, according to the SIB, Belize’s GDP was about $ 2.6 billion dollars. Agriculture and mining that provided us shelter and food, including food for sale to foreigners, was some $ 281 million dollars or 11% of the total. If Belize’s economy was really functional, agriculture should be about $ 400 million dollars. Manufacturing, including oil and construction that processed our raw materials, produced some $ 397 million dollars in value or 16% of the total. Note: in a properly functioning economy the manufacturing sector is about 30% to 48%. In China it is 47.5%. Government, the brain of the economy, including health and education, consumed about $ 316 million or 12% of the total as necessary overheads.
If we use the accountant model, everything other than the production of useful goods must be “overheads” by definition, and thus unnecessary. But some overheads must be paid from production to make the entire process work. These include health, education, government (the brain), research, and transportation. Other persons such as the employees of the FIRE sector do no useful work, produce nothing useful, but sit and wait for the production workers of agriculture and industry to produce useful products, then use political/military force to take the products of the sweat of others. The FIRE sector (finance, insurance and real estate) consists of land, monopoly rights and financial claims that yield rentier returns in the form of interest, financial fees, economic rent (unearned income), and monopoly gains. In other words, the FIRE system is pure “free loaders” – they don’t work but wait until the producers work and produce goods necessary for life, then because of the political power of the FIRE system they extract what they claim as their share of the bounty. They are parasites.
As an aside, the so-called British System economists such as David Ricardo, Adam Smith and Thomas Malthus all agreed that the FIRE sector was parasitic.
In today’s Belize, the FIRE sector claims about 38% of the GDP both directly and indirectly as bounty. And it has been growing every year for the last 30 + years. This is the main reason why the rich have been getting richer while the poor are getting poorer every day, and the tremendous increase in the FIRE sector accounts for the huge increases in poverty over the last couple of years. Closely associated with the FIRE sector is this business of creating money as debt, eventually leading to the reason why the global financial system of the trans-Atlantic sector will blow up very shortly. Creating money as debt always leads to the situation of debt which cannot be repaid.
Thomas Edison once remarked that if a person wishes to become wealthy without working hard they should become the owner of a commercial bank.
In today’s world there are three different economic systems before the world. There is still the remnants of the old socialist/communist system in Cuba. In 1989/1990, that system collapsed. That system is dead and doesn’t work. Why? In 1851, in his book, Harmony of Interests, Henry C. Carey told Karl Marx that communism cannot work because it wishes to bring everyone to the level of the bottom. In Carey’s words: “Here lies the error of communism and socialism. They seek to compel union, and to force men to exchange with each other, the necessary effect of which is to sink the whole body to the level of those who are at the bottom” (emphasis from original).
The other two economic systems in operation today are different versions of capitalism. Both versions support private property. But democracy is not important in any of the two systems. The oldest version has for the last 250+ years been the called the British School of Economics because of the economists that island produced, such as Adam Smith, David Ricardo, and the Rev. Parson, Thomas Malthus. Today this British School is called Neo-liberalism. It is practiced in most of the 190 countries of the UN. Its theory is free trade, austerity, and no government intervention in the economy, except to bail-out the elites. And comparative advantage, which preaches that some countries are fitted to grow trees, but they should export the logs to other more suited countries who can manufacture the logs into lumber and say, furniture. That government should farm out the privilege of creating money to private bankers who in turn will control the local economy. Taxes should not be paid by the elites, only the masses, because the elites are investing money that makes growth possible. Certain countries should not attempt to create manufacturing industries within their borders, but should continue the colonial policy of being producers of raw materials for export to the trans-Atlantic region.
That greed is very normal and should be promoted in society. The model is Hollywood’s Lone Ranger. The motto is to buy cheap and sell dear. That it is okay and lawful for man to exploit man, especially the “inferior races”. That poverty is natural, and normal because the elites are superior to the masses. As Lord Keynes wrote in The General Theory, the insight of Malthus on Diminishing Returns was the origin of Keynesian economics. Malthus had argued that productive investments would supposedly lead to a fall of profits and wages and the end of economic growth.
Karl Marx accepted this nonsense, and called for the overthrow of the capitalist system. Belizeans, this is where the present-day madness about “post-industrial-society” sprang from. Ask any student of economics in today’s school and they will tell you about the iron law of diminishing returns. This foolishness that originated in Malthus’ works has profound policy implications for how we live, whether poor, middle-class or rich.
What is taught in our economics schools today has NOTHING to do with the real world. Remember, the British system economists were not interested in truth, but rather to justify English policy of colonial exploitation, racism, and genocide. If wages and profits will fall because of increasing investment in manufacturing, then the way to postpone this day is to increase overhead expenses so that less money will be available for capitalists to invest in manufacturing. Therefore, there is no need to invest in manufacturing in Third World/developing countries. Keep them as “hewers of wood and drawers of water” (slaves).
Today, the new twist is to instruct Third World/developing countries that they cannot manufacture because their actions will cause the Earth to overheat, so they must remain poor (climate change). Thus, if the overhead section of the economy must increase, why not spend it on priests, like Rev. Malthus; gentlemen of leisure, like Lord M. Keynes; or give more money to the 1% rich people as we do today in the FIRE sector of the economy.
Technology, Belizeans, is a fact of life today. I don’t mean the foolishness that the oligarchy does by changing the meaning of the word “technology” to mean computers. A computer is a tool like a hammer. It’s not technology. Technology means the application of scientific knowledge for practical purposes, especially in manufacturing industries. It also means engineering or applied science for human wellbeing. Technology or engineering is the reason that profits and wages have not fallen in capitalism, except when men deliberately interfere to increase exploitation of men by men. It is also the reason why workers’ standard of living can increase continuously, and how politicians can end poverty in countries; and why there is no limit to growth. If we run out of some raw material on earth, we have the entire universe to exploit. The British System is a system based on pessimism.
The other version of capitalism got its start in the United States with the first Secretary of the Treasury, Alexander Hamilton, with his Report on the Subject of Manufactures in 1792. In the 1830’s it was dubbed the American System of Political-economy or the American School, by Whig US Senator Henry Clay. From the period 1815 to 1914 the American School made the United States the greatest nation-state on earth. Google the name, Henry Charles Carey, and Wikipedia says: “Henry Charles Carey was the leading 19th-century economist of the American School of Capitalism, and chief economic adviser to U.S. President Abraham Lincoln”. Carey’s works on political economy were translated into German, French, Japanese, Italian, Russian and Chinese. When he died in 1879, the newspapers all wrote that “America’s most widely known private citizen has died.” He was one of the original founders of the Republican Party and responsible for its economic platforms from 1860 to about 1871.
The fundamental differences between the American and British Schools of economics were that the Americans believe in exploiting nature rather than man. The Americans firmly believed in tariff protection of agriculture and manufacturing industries, because they lived through the problems of fighting British free trade which threatened their local industries. The United States Civil War was not caused by slavery, as Hollywood would have us believe. It was because of the Morrill Tariff put into effect by Abe Lincoln and drafted by Henry C. Carey.
Those who are interested in learning about the American School or American System of Economics should read the works of Alexander Hamilton; Mathew Carey and his son, Henry Charles Carey; E. Peshine Smith; Andrew Steward; William C. Jarvis; Friedrich List; Henry Clay; Horace Greeley; William Elder; Robert E. Thompson; Simon Newcomb; Simon Patten and John William Draper.
The major concepts of the American School are:
a. Exploiting nature rather than men
b. Tariff protection of local agriculture and manufacturing as free trade has always benefitted the strong at the expense of the weak.
c. High wages to workers, because as E. Peshine Smith, wrote: “In order to make labour cheap, the labourer must be well-fed, well-clothed, well-lodged, well-instructed …”
d. Money creation is a public utility and should be under the control of elected representatives of the people, not controlled by private individuals for private gain and control.
e. The theory of Diminishing Returns is not valid to physical reality. Technology and innovation always cause new methods to enter production, and thus profits and wages don’t diminish but instead lead to higher productivity and thus higher wages to workers.
f. A view of soil fertility and agricultural productivity as a product of capital investment. Ricardian rent and trade theory assumed that the addition of chemical fertilizers to stop the “mining” of the soil by plantation agriculture was of no consequence. As a note of history, it was not the farming sector that supported the creation of a Department of Agriculture in America. Rather, it was industrial protectionists who argued that the dominant form of market crop production being done in the United States – plantation export agriculture – was economically destructive. The new Department of Agriculture reached its high point under Abe Lincoln and Henry Carey, and again under Franklin D. Roosevelt and Henry A. Wallace.
g. Public infrastructure as a means to lower costs in an industrial society by introducing new methods of production, and the public support of research and development.
h. Government intervention in an economy. Government must put a bridle on corporate bodies, and must establish the pursuit of happiness as a natural right of citizens. In Belize this principle is enshrined in the PUP Constitution as a sacred duty of government to create full employment and completely end poverty.
(To be continued in next week Tuesday’s issue)