Ignoring the Fundamentals

Production equals Wealth....Wealth equals Production.

Probably the most basic law of economics is the definition of wealth; that the combined production, investment, and savings of a nation is defined as being that nation's wealth.

Production begins with taking raw materials; by drilling, mining, or harvesting; then transporting, processing, distributing, and using in manufacturing those materials until they become products for consumption.

A simple example; someone pulls minerals out of the earth, someone moves them, someone extracts and purifies them, someone combines them to make a metal, then someone uses that metal to make something useful. Bingo...wealth has been created!

Every worker contributes something to the overall wealth of the nation. In early times a person could create wealth by, say, raising chickens. Then they could trade eggs or chickens to someone else for shoes or some other good. When it becomes awkward to trade a cow, for example, for a basket of eggs, the concept of money comes into being. Money is simply an artificial means of representing production in a handy to carry around and easy to spend manner.

As long as money represented chickens, cows, shoes, and other production...all was good. A person could earn more money by being more productive. As everyone became more productive, usually with the help of technology, more and more stuff became available and prices stabilized or dropped...with more stuff  to share, everyone enjoyed growing prosperity and a higher standard of living. Such a deal!

But there's always a catch. As societies grow, production becomes stalled without a proper legal system to adjudicate disputes, or a system of transportation to move goods, or organized security against outside threats. The organizing of community solutions to these issues is called "government" and at basic levels this actually increases overall production. Thus the costs of government are absorbed by the increased productivity. The people who work in government can be paid by productive workers, what we call the private sector, because the money actually represents productive capacity. Therefore, all is still in balance.

This evolutionary process, however, always goes awry. Never in history has government stopped growing and leveled out at a point where added value equals increased productivity...never! It simply seems to fly in the face of human nature to stop growing government, no matter how obvious it is that it is a foolish thing to do.

So what happens....the amount of "money" has to change to meet the demands of the growing number of non-producing workers who want to purchase goods. Productivity increases as technology continues to increase capacity to produce, and a growing population increases the labor pool available for production, and so begins a balancing act. As long as money supply and productivity stay in balance everything appears to be okay to most folks. But this only encourages more government growth.

Eventually it all turns downhill...prices begin to go up as more purchasers with more money begin to bid for a constantly dwindling supply of goods. The people, and their leaders, have learned to ignore the fundamentals.

"Well heck," says some soothsayer..."we'll just become an information economy...we don't have to produce as much as we want to consume." But pretty soon folks realize they can't eat information, wear information, or live in information. Someone has to produce food, clothing, and housing.

So the next step...sell the information to some nation that will grow food and make stuff. For a short time, as long as that information has some value, this seems to work. At least it covers up the truth to those not paying attention.

Then, when the value of the information drops, the nation asks productive nations to accept "notes"...in affect they buy products on credit. If acceptable to the productive nation, the one with the too large government finds itself creating and growing an ever increasing debt cycle. The issue could be resolved of course...the borrower could simply stop borrowing and begin to push production...partly through pulling out all the stops, so to speak, and getting people to stop trading in information and start producing stuff. Partly through reducing the government work force and having those people get into production. If things go well, and spending discipline holds, the nation could work its way out of debt and begin growing wealth once again.

Unfortunately...this scenario hasn't happened as often as logic might lead one to believe. In fact, once nations reach a certain level of wealth some strange things begin to happen. Some of these strange happenings are universal, as documented by the historian Sir John Glubb in his paper "Fate of Empires." Whether the Greek empire, the Persian Empire, the Ancient Egyptians, or the Roman Empire...all successful civilizations eventually become self-loathing, self-absorbed, soft, spoiled, and end up committing cultural suicide. They are not brought down by invading barbarians...at least not until they have destroyed themselves from within.

There are key milestones each fading nation goes through; a loss of will to commit to warfare to protect themselves being one. The population reaches a point where they delude themselves into believing they are "superior" and "intellectual" and therefore morally above the making of war and taking of lives. This delusion defies logic and historical precedent...but it continues to take place. It is reminscent of the man who refuses to have anything to do with weaponry...even though he knows full well his family could helplessly fall victim to marauding criminals. He would "morally" prefer his family be slaughtered than to take up arms...seems unimaginable, but it is quite common in decaying societies.

Another delusion is the concept of cultural "guilt" for being successful. This drives populations to demand an end to productive activities...often times in the guise of protecting nature. Farm land goes fallow, mines close, oil wells are sealed...the spigot of all wealth production is turned off in a macabre acceptance of self destruction. Again, the delusion of being morally superior plays an important part.

The same moral delusion forms the basis of "group benevolence"...the concept that everyone must be cared for to the full extent of a nation's wealth. This leads to people choosing to become unproductive, then the treasury of the nation is drained until no one can be taken care of, including those who produce.

The end result; the people refuse to draw natural resources from around them, and refuse to produce the goods and services necessary to thrive. At the same time, they enrich politicians who promise to "share the wealth" with the people...even though there is no longer wealth to share. Eventually the people take to the streets...violence ensues...and the nation falls into tyranny. It is now inevitable that the nation will become easy pickings for an outside force.

Not that we should worry here in our warm, safe homes in our cozy western countries. All of that bad stuff only happens to civilizations past; that expanded government too much, who spend themselves into debt, and whose people become enamored of movie stars, phony politicians, and pop singers in place of military heroes, economists, and business leaders.

Certainly couldn't happen here...not in America!

Hey...I promise to keep my eyes and ears open and let you know if it does.