The agricultural surplus and full employment

Ever since some ancient farmer realized he could produce more if he plowed with a horse and collar rather than an ox and harness civilization has been blessed with an agricultural surplus and challenged to maintain full employment.  When the definitive social history of the world is written it will probably focus on the distribution of the agricultural surplus.

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The big question is who is to entitled to benefit from this surplus.  Should it be shared equally or should most of it go to an elite.

For most of history the elites have answered the question in favour of themselves and enforced the decision with force.  For them the challenge was to leave the workers enough food to maintain sufficient population to produce the goods and services needed by the elite.  Certainly there were times, the medieval plague being one, when a declining population allowed the workers to claim a greater share of the agricultural surplus and to escape some of the most onerous hardships.

With industrialization three things happened to change the traditional model.  The demand for labour increased so that workers could claim a greater share. The quantity of goods and services produced increased so there was more to share.  And the elite figured out psychological tactics were a more efficient and less messy way of maintaining their privileges.  The work ethic and tying the distribution of goods and services to jobs are more effective than soldiers.

Major issues with the agricultural surplus are who is to benefit and who decides how it should be used.  Clearly the ancient Egyptians had an agricultural surplus and used it to build the pyramids.  As there is no evidence they had money the decision to build the pyramids was probably made by very few and maybe even one person.

In our own civilization the decision making is at two levels.  At the lower level we as individuals decide how to spend our money and so make decisions about the use of the agricultural surplus.  As our money supply is created by the banking system making loans, bankers have an even greater say in the disposal of the agricultural surplus.  They make loans according to their interests and their values.  As most of them are business orientated they will probably make loans for oil or mining before they would for a new opera house or art gallery.

At least until recently it has been in the interests of most business people for the general population to be willing to work long hours for little money.  Thank you for the work ethic and looking down upon people who do not work and especially those on welfare.  What is in the interests of  business people is not necessarily in the best interests of the people working for them. It could be we have been conned into believing in the work ethic.

So long as we maintain this committment to the work ethic a full employment will be a major economic and political goal even if we might be happier without it. If we had a universal basic income, many people would be able to devote their lives to activities which do not make a profit.

This blogger believes the current economic crisis is long-term and based on resource depletion.  Yes, we still have lots of energy and mineral resources in the earth’s crust but we have mined those that are most accessible.  Those that are left are so difficult ands expensive to extract they have limited value.

If this is true then we are in for an extended declining economy and it will be a major challenge to adapt.  There is even a possibility the agricultural surplus will go down. Adapting will require us to get over the hang up of full employment and will require something radical such as a basic guaranteed income.

If past trends hold the long-term equilibrium is likely to be a small and rich elite supported by a small and poor worker class.  Getting there will involve a lot of human suffering and probably extensive stench.  This writer would like to see population at a sustainable level and a great deal of equality.

 

Please help promote this weblog

Please send the link to this post to your friends and social media.  Promoting a weblog can be difficult.  I get some referrals from LinkedIn.  I used to get quite a few from Reddit but I have been “shadow  banned” for linking to my own weblog.  Self promotion (and free speech?) are serious offenses on Reddit. I figure my strength is in the thinking that goes into the posts and I thank you for helping.  (r/economics   r/libertarian   r/economiccolapse  r/Degrowth )

Why your savings and pensions are at risk

The fractional reserve way of creating money means a lot of people are at risk of losing all or part of their savings and pensions.

If there is too much money supply in the economy then we have inflation and people with savings or pensions lose some of their purchasing power and those who owe money benefit because they repay their loans with less purchasing power.  Now you know why governments and the people who speak on their behalf promote mild inflation.  This is at least unauthorized taxation if not theft.

pexels-photo-2105902If you have deflation, then people who are owed money win because they are repaid with more purchasing power than they loaned.  The borrowers lose because they have to repay with more purchasing power.

To be fair to everyone we need to manage the economy so that just the right amount of money is available at all times.  At a time when the economy is on a down trend, this is very important as too much money puts us in danger of hyperinflation.

Getting this amount right has long been a challenge to central banks although the common sense answer is fairly simple.  The money supply should vary with the quantity of goods and services we want to exchange and it should be flexible up and down.

The wrench in the simplicity is the fractional reserve way of creating money.  When banks make loans they must (or should) keep a fraction of the amount on reserve for when the depositor wants his/her money returned.  As the amount is only a fraction banks are at risk of a “run” if depositors lose faith.  And because of the fractional reserve there is a multiplier effect involved.  Does not this sound like a set up for a crisis?  The mechanics of this process are a little complex although I have always found it easy to understand. To figure it out I suggest you Google “fractional reserve” or look at my free e book Funny Money: Adapting to a Down Economy or look at the essay Going to Market on this weblog.

The other end of the wrench is  that interest is charged on the loans made by the banks.  Mainstream economists have given little or no thought to the consequences of this. Because all of our money is created by the making of loans, if all the outstanding debt were to be paid off at one time there would not be enough money to repay it all because of the interest.  The charging of interest on the debt/money means there is never enough money available to repay all outstanding debt. Inflation is built into the fractional reserve way of creating money.

The system works only so long as the economy and the money supply continues to grow.  An upset in either means crisis of which we have had many.

The relationship between money supply and economic output is expressed in a formula, MV=PQ, some times known as the quantity theory of money.  Money times the velocity at which it circulates in the economy is equal to a price index times the quantity of goods and services produced.

I get ticked off because this is frequently taken to mean there is a direct, proportional relationship between the money supply and the inflation rate or price level.   Can’t people see there are four variables in this formula?  Total output is an important part of this formula.  If it should happen to go down something needs to happen to another variable.

Our society has a strong commitment to economic growth and a need to keep it growing so that people will not suffer from unemployment.   Some desperate people are trying to stimulate growth by increasing the money supply. This may increase inflation but it will not lead to growth unless we can find inexpensive energy and mineral resources to support it.  I suspect the new American president has  his eye on parks and reserve lands to encourage more economic activity.  He will probably succeed in the short term to be followed by a major economic collapse.

This blogger thinks we need some major economic reforms, not only in our financial system but in our commitment to economic growth.  We need to minimize our production and exchange of goods and services so we are using fewer energy and mineral resources.

A lot  of people operate on faith in our financial system and ignore suggestions we need reform.  I think the risk is so great that prudent people will at least give some thought to these issues.  It is your savings and your pensions and your future that is at risk.

 

 

Please help promote this weblog

Please send the link to this post to your friends and social media.  Promoting a weblog can be difficult.  I get some referrals from LinkedIn.  I used to get quite a few from Reddit but I have been “shadow  banned” for linking to my own weblog.  Self promotion (and free speech?) are serious offenses on Reddit. I figure my strength is in the thinking that goes into the posts and I thank you for helping.  (r/economics   r/libertarian   r/economiccolapse  r/Degrowth )

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