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On a Basket of Hard Commodities: Trade Without Currency

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Message From Guest, Richard Freeman:

Today, April 27, we will be discussing Lyndon LaRouche’s paper, “On a Basket of Hard Commodities: Trade Without Currency,” which was written July 18, 2000. I would urge you to read it before the meeting tomorrow evening.

LaRouche’s “Trade Without Currency” paper is challenging and very rich. Literally, one could give 5 to 6 classes on this paper. We will aim to get some crucial conceptions, which LaRouche considers important, across.

I hope to convey and discuss the connection of trade without currency and LaRouche’s principle of potential relative population density, which is the main concept of the paper.

At minimum, I would ask you to please read the section excerpted below. Please bring a copy of the article to the discussion Thursday night. I will also provide important graphics at the bottom of this page.

The Practice and the Theory

The key to establishing a reasonably determined standard unit of account for a basket of commodities, is to reject, from the outset, the reductionist input-output presumption of Britain’s Piero Sraffa, for example, that consumption might be represented as a process of production of commodities by commodities. We must examine the way in which combined market-baskets of economic infrastructure (such as public works), combined with household consumption and with technologically progressive, hard-commodity forms of increasingly capital-intensive investments in capital goods of production and physical distribution, increases the relative productive powers of labor, as this is to be measured, in physical product, per capita and per square kilometer. It is that factor of rate of growth, as expressed in hard-commodity terms, which defines the appropriate notion of assignable economic value.

So far, so good; but, there is a catch. In some respects, such measurements of growth-rates are relatively obvious; but, therein lies an often overlooked subtlety, to ignore which may have dreadful results. Consider the more obvious kinds of measurements, and then what might appear to some to be the awfully clever subtleties.

The essential calculation to be attempted, in any rational scheme of economic studies, is what is best identified as the potential relative population-density of the population of the national economy as a whole. The measurement to be derived from this standard, is a measurement of the rate of increase, or decrease of that potential. That measurement defines what should be understood as expressing an underlying notion of economic growth. The following steps are featured.

Competent study of economic processes begins, not with the production of commodities, but, rather, the production of people. That is to say, with the development of children into becoming, decades later, functioning adult members of the economy as a whole. Indeed, here lies the natural root of the formation of capital.

To structure calculations to this effect, we must define a minimal size of a typical family household, and its included birth and mortality rates. We do this, in order to estimate what is necessary to meet the standard for growth and self-sustained well-being of that population as a whole. One defines the level of technology—e.g., a set of technologies—which allows that population to generate a corresponding net rate of physical-economic growth. We define the relationship between the adult work-force and the total population, as organized in households—that is to say, organized in the way in which viable forms of households produce the emotional and intellectual development which is to be desired in the functioning adult member of society. This establishes a rough standard for purposes of comparison.

One then defines the corresponding structural characteristics of the division of labor in the society as a whole. The first objective, is to estimate the market-baskets of household consumption, infrastructural development (e.g., public works), industrial output, and agricultural output, and to measure these, also, both per capita and per square kilometer of the total territory of the national economy. This defines sets of “market baskets” of the commodities, including professional economic services (e.g., health, education, science) required by each of these broad categories of market-baskets. These categories of consumption, plus waste, are compared with total output of the economy, as measured in the same terms. The obvious comparisons, of better, less, or stagnant, in rates of increase, follow.

Thus, by applying a synthetically chosen price to a household income measured in terms of per capita of labor-force, and also per unit of area, we have a convenient and reasonably reliable method for estimating monetary values. By adding the actual relative free energy generated by production, in addition to costs so determined, we are able to estimate both total output of the economy, and a corresponding, estimated rate of growth. Insofar as this estimated rate of growth coincides with a corresponding rate of increase of the potential relative population-density, the estimate for rate of growth is sufficiently sound for purposes of accounting and other administrative functions respecting the economy at large.

Notably, in a rational economy, prices are not set by anarchic free trade, but by human boundary conditions imposed upon the economic process as a whole. These boundaries, by their nature, must be set chiefly by governments.

Typical of such boundary conditions, are so-called “protectionist” measures, such as those former regulations of the economy which have been removed under the influence of the Mont Pelerin Society or kindred fanatics, especially since the January 1969 inauguration of the ill-fated dupe of the Mont Pelerin Society, President Richard Nixon. These protective boundaries were then assaulted, even more savagely, under the 1977-1981 reign of that free-trade and fiscal-austerity fanatic President Jimmy Carter who, with suitable historical irony, launched the chronic indebtedness of the U.S. Government which has plagued the nation since (Figure 2). Similarly, the decline in the percentile of national-income of the lower eighty percentile of family-income brackets, since the 1977 inauguration of President Jimmy Carter, shows a decline in the U.S. popular conditions of life, which corresponds to both the cannibalistic looting of previous improvements in productive potential, and a corresponding general lowering of the per-capita physical productivity of the labor-force as a whole.

Protectionist measures do tend to increase prices, if only in the short to medium term, as the rabid monetarists never cease in whimpering about this effect. (In the medium to long term, the higher rates of increase of productivity made possible by higher rates of hard-commodity capital formation, result in a secular decline in prices of particular products, while generally improving the quality of those products.) Thus, that increase of prices may be viewed as a rise above a so-called “free trade” level, to a “fair trade” level.

These protectionist, regulatory measures have two indispensable benefits for any economy whose government is sane enough to impose them. First, they provide direct or indirect protection to the income-levels, and therefore to the potential productivity expressed by households of operatives; this, combined with rational taxation policies, ensures that the incurred price, by government and the private sector, of maintaining the desired level of potential relative population-density, is secured. Second, in so acting, governments create the market for those medium- to long-term public and private capital investments, on which improvement in the potential relative population-density depends.

Promotion of the general welfare, which is an integral part of the fundamental constitutional law of the U.S.A.—if recently a flagrantly violated obligation—demands that those measures which are needed to ensure the improvement of the potential relative population-density of the nation, per capita, and per square kilometer, are taken. This includes public works which no private entrepreneur could undertake as a business proposition; clear, on this account, is the responsibility of the sovereign government for the conditions of life and work of all of the people and of all of the territory of the nation.