Friday, May 3, 2013
Production: The basis for wealth
All the perplexities, confusion and distress in America arise not from defects in their Constitution or Confederation, nor from want of honor or virtue, so much as downright ignorance of the nature of coin, credit, and circulation. ~John Adams
At the root of all our national problems is money. We want more. We want more as individuals, families, businesses, local, & national governments. We seem to 'get it' at the lower levels. We know that we either have to work, or con someone into giving us money to increase wealth. But for some reason, when we go to the national level, we disconnect. We think money grows on trees. We can just print money & give it out. We view the federal govt as a doddering old grandfather, who hands out money to greedy & grasping children.
But it doesn't work that way. Wealth, to be real, must come from real production in the nation. You cannot just print numbers & pictures on paper & declare it to be of value. It has to have backing.
True wealth has to be created. You have to have a product that others will give of their wealth to purchase. This is true from the smallest level to the biggest; from an individual to a superpower. Here are the steps.
1. First, there is labor. This is always the first, but it requires EFFICIENT & PRODUCTIVE labor. Labor by itself has no value, only in what it is able to produce. The commodity produced must have a market, & it needs to be competitively priced. But labor is required to make it, extract it, or assemble it. Oil, soybeans, cars, washing machines, homes, industrial plants.. all of these things required labor to produce.
2. Next, you need demand. Food is always in demand, & has historically been the most important commodity we work for. People used to spend a lot more of their working time to earn food. Mechanization has lowered the cost of food so we can spend the fruits of our labors on other things. That disposable income has opened up markets for other products. That has created demand. So now there are many other things, besides food, that we can spend our labors on.
3. Services that improve production. These are in high demand, since they improve our productivity, & increase our wealth. A farmer by himself can farm so much land. With a mule he can produce more. With a tractor, a lot more. The cost of operating the tractor is offset by the increase in production. Mechanization has increased production in every area. Farming, mining, manufacturing.. all sectors of the economy have improved production with technology & mechanization. These services include research & development, & the concept of higher education. All of these things can provide cost saving measures that increase production.
4. Capital. This is a tool for production, not production itself. An individual or group can put together a process for creating a product, or farm, or extract oil or gold or copper. Capital can be used to hire others to do the work. If the product has demand & volume, a profit can be made for the capitalist, even though he did not do any actual work in creating the product. Capital can be amassed by long term individual savings, or corporate ventures where many people pool their wealth to produce increase. But capital by itself has no productive value. It must be used by those actually producing something to increase wealth.
5. Wealth. This is the result of intelligent labor. A farmer increases his growing area, expanding his production, selling more crops, & amassing wealth from the increase. Much of his increase he puts back into the farm.. outbuildings, machinery, barns, buying more land.. all of these things increase the wealth of the farmer. A miner or manufacturer does the same. Even a day laborer can save his daily wage to buy larger investments, or open his own business venture. But all this wealth is acquired by a combination of market demand for the product, luck, & hard work.
This is all very basic stuff.. most children figure this out early on. But there is a growing sense of 'entitlement'. That is the idea that somehow, just being alive entitles you to wealth. Working smart & hard are not factors, anymore, but it should be provided at birth. I am not sure where this idea came from.. perhaps from statist regimes that have a cradle to grave management system for the citizens. But those don't work, & a free people are always more productive than an oppressed one.
A productive people can afford to support a certain level of dependents. If there are enough who are willing to work hard, many others can be afforded a life of leisure, or at least dependency. The problems arise when the dependents grow, & the producers diminish. At some point, an imbalance occurs, & the society can no longer function. You can stall by borrowing, but eventually, reality sets in. Someone has to work & produce. These workers should be allowed to keep the increase from their labors, rather than have govt or the capitalists take from them. But without a productive people, a society cannot prosper or even survive.