A beautiful graph from a 1939 book on radio advertising.
Verifies yet again the correct picture of the Depression, which is almost always misstated by ShareValue commentators. The boom of the ’20s ran up beyond the realistic capacity of the economy. The collapse from ’29 to ’33 brought the economy down to where it should be, plus an overshoot in some areas. After that, things started to grow at a realistic pace again, thanks to FDR’s restoration of USEFUL WORK.
There’s a more important distinction inside this graph. In the ShareValue world we only discuss selling. When we analyze real estate or cars, we NEVER mention the majority of the population who buy things to USE. All of our talk is about SPECULATIVE INCREASE for selling. We do the same with bonds and stocks. In earlier decades people bought bonds and stocks solely for the interest or dividends. Both of these ‘appliances’ were meant to be USED AND ENJOYED, not SOLD. Now all of the discussion and math is about speculative sale value, which treats the LEAST USEFUL ‘appliances’ as the best. In a real economy, a bond with zero interest, like a car that doesn’t run, is worthless. In ShareValue, a bond with zero interest is the most valuable.
The graph clearly distinguishes sellable from non-sellable items. Cars are sellable, and in most cities cars were a luxury. Streetcars and commuter trains and buses were everywhere. Telephones were a fairly expensive luxury, so the people who couldn’t really afford a phone in the real economy gave it up.
Other items, radios, vacuums, irons and washers, were hard to sell and hard to give up. Obviously the book’s author was interested in the steady increase of radios.
The modern focus on INCREASE OF SALE PRICE factors out the REAL PURPOSE of buying and owning things. All of our economic stats intentionally reverse REAL VALUE.
Basic problem: When money creation happens automatically at the moment of making a LOAN, people who are attempting to run their lives and businesses by thrift, without borrowing, are completely ignored.
The money supply EXPLICITLY EXCLUDES REAL VALUE.
REAL VALUE comes from REAL LABOR. Turning raw materials and components into a useful product, or cultivating crops and livestock, or arranging and advertising products for easier purchase.
Money creation at the point of lending doesn’t even begin to recognize any of these activities. A business that makes or sells things WITHOUT BORROWING FIRST is not recognized as creating value. In the Western system, EVERY loan, whether it goes toward real production or gambling or stock manipulation, is recognized as creating value.
The current system treats DESTROYED VALUE as an increase, and completely ignores CREATED VALUE. Perfectly backwards.
Before 1975 the distinction didn’t matter quite as much, because many loans went directly toward creating value. Building new factories, improving productivity, redecorating a store. Now that the vast majority of loans are strictly criminal, serving to MURDER real business and expand the already infinite fake “wealth” of the robber barons, the distinction matters.
The alternatives are Sharia and Soviet.
Sharia, when applied properly, should create money exactly when value increases. Unfortunately there is no proper Sharia in the current Muslim world. According to this article, modern sharia banks don’t create money differently, but do try to prohibit loans that serve speculation. Might achieve the same goal, but doesn’t solve the basic problem.
Unsurprisingly, the Soviet system AS ACTUALLY APPLIED got it right. From this clearly written article:
First, Gosbank had no discretion over the quantity of money. Its money-creation activity like its credit activity was entirely passive, arising as a byproduct of the production plan.
When a farm delivered its milk output, it would obtain a document from the cheese factory verifying that the latter had received its milk input. The document was then turned over to Gosbank, which credited the farm’s account according to the value of the milk delivered, and debited the cheese factory’s account by the same value.
Likewise, after the cheese was produced and shipped to the State food store, the cheese factory obtained a document verifying its delivery of cheese. Again, the document was turned over to Gosbank, which this time credited the cheese factory’s account and debited the store’s account. Finally, when households purchased the cheese with cash, the State store deposited its cash receipts with Gosbank and was given a credit of equal value.
With this simple example, we can see how every transfer of physical output from one location to another, and every bit of value added in production, was mirrored by an associated financial transfer through Gosbank.
I don’t know if Marx designed it this way, but this was the reality.
= = = = = END REPRINT.
Remembering what caused me to start thinking about this reversal. Around 2012, after tossing the TV, I gradually eliminated partisan talk radio. I ended up with the local ‘money talk’ radio station, which was lively enough for background noise but not egregiously political. Ray Lucia, the network’s chief talker, often discussed strategies of decumulating after retirement. Which assets should you sell first and which should you postpone? Lucia firmly recommended selling the most solid and reliable assets, like treasury bonds, FIRST. Keep the speculative crap because it’s “guaranteed to increase” way beyond the interest on the bonds. This struck me as crazy.