Reciprocal System #558 "The Road to Permanent Prosperity" ch16-Foreign Trade A [Thomas Newsome]

Transcript

hello everyone and welcome to my channel this is an educational Channel and uh we check out great theories of everything ancient and modern and um you know show how these things can be utilized uh today is our 558th video that we've done on the reciprocal system of theory from Dewey B Larson and um this is a Theory of Everything uh otherwise known as the universe of motion Larson was uh one of the few scientists to uh try to construct his um cosmology uh based on motion not matter not energy not not force but motion larsson's first postulate states that the universe is composed entirely of one component motion existing in three dimensions in discrete units and with two reciprocal aspects space and time so that's how we got the reciprocal system is the reciprocal relationship between space and time all of our scien ific entities quantities are uh basically fractions with space or time as the numerator and time or space as the denominator uh and time and space can have multiple exponents so you can have time to the third power or space to the fourth power or um however um I guess you can't really get Beyond six uh because you have three dimensions and then you can have three dimensions in in the numerator and the uh negative3 in the denominator or whatever um so uh that's kind of how the reciprocal system works uh if you want a more detailed uh explanation of that watch any of my first 474 videos on this subject in this on this channel um lson ended up writing uh a lot of books on uh The Sciences chemistry physics astronomy but he also wrote a couple uh other books he wrote some uh a book on metaphysics and he wrote two books on economics that are based on the same Theory and uh we are looking at one of his books on economics uh in this section here um it's called the road to permanent prosperity and uh we are uh about to start chapter 16 of that book now I started this uh book maybe about a month uh in a week ago and so if you want to start from the from the top go back to chapter one of that book um several weeks ago but for now we're going to um turn some pages in chapter 16 of this book on foreign trade one of the great tragedies of human existence is that so many of the issues which divide the race most sharply issues which lead to dissension and Ill feeling and all too often culminate in physical violence are nothing more than Phantoms illusions that are founded on faulty observation misunderstanding or erroneous reasoning a large part of the industrial Strife that now constitutes one of our most serious domestic problems originates from the vigorous pursuit of objectives which fall mainly into two categories one objectives which will be accomplished automatically in any event irrespective of whatever effort is exerted for or against them and two objective which are inherently impossible to accomplish all of the economic loss to the workers to the business enterprises and to the nation at large as well as the social disturbances generated by struggles over such issues are therefore incurred to no purpose the participants in these unnecessary and fruitless conflicts are simply victims of misinformation and error but however serious the consequences of these futile industrial conflicts may be they are far overshadowed by the results of the equally futile and pointless economic disputes between nations industrial Strife causes serious economic losses and may even lead to civil disorders but International economic rivalry often leads to war the greatest of human calamities historians are sharply divided as to just how large aart economic factors play in the origin of Wars but all agree that economic issues rank high among the important causes and there are those who contend that most modern Wars are were basically of economic origin LL Bernard for instance in his book War and its causes gives us this conclusion quote the immediate causes of Wars are usually political or personal but they have ordinarily Arisen out of underlying economic conflicts and conditions end quote the costly and destructive Wars that have had their origin in the pursuit of economic mirages are doubly tragic in that unlike the industrial situation where the true economic facts are perfectly understood even by the specialists in the economic field most economic and political leaders have a reasonably clear grasp of the basic economic relations between nations and the problems that are being experienced are due to their inability or unwillingness to transmit this understanding to the general public largely inability on the part of the economists and unwillingness on the part of the political leaders as Winston Churchill described the situation existing in the Years immediately preceding World War II quote the multitudes remained plunged in ignorance of the simplest economic facts and their leaders seeking their uh votes did not dare to in uh undeceive them no one in great Authority had the wit ascendancy or Detachment from from public Folly to declare these fundamental brutal facts to the electorates nor would anyone have been believed if he had end quote the lack of understanding of economic fundamentals among the general public is to a large degree the result of a misconception of the role of money in the economy the value of money is almost always regarded as the fixed item in economic comparisons as brought out in the discussion of fundamentals in chapter 4 however economic value is subjective and highly variable under equilibrium conditions that is where there is no net flow to or from the reservoirs the value of the local currency is an average of the true relative values and therefore serves as an acceptable substitute for the fixed standard of value that does not exists but the public perception of the currency is that it is an absolute rather than relative standard and money is therefore regarded as the fixed element in the price structure it follows that when unbalanced Reservoir transactions take place and prices respond the resulting High Cost of Living is blamed on the increase in prices whereas what has actually happened except in emergencies such as wartime is that the value of the currency has dropped by reason of wage increases cost inflation or diversion of purchasing power to recipients of new money money inflation the problem that has developed is not a real increase in prices but a decrease in the real value of money the factor that is responsible for most of the variations in the true value of money is of course inflation as explained in chapter 12 money inflation is a phase of a cyclic process and it is not cumulative The Continuous inflation that is characteristic of present day economies worldwide is cost inflation as stated earlier this type of inflation has no effect on real wages before taxes or on business profits and it therefore has little effect on the general operation of the economy economists have noted this fact but have no explanation and admit that they are puzzled by it quote the inability of analysts to find major find major costs of inflation says Samuelson has led some to think that the aversion to inflation is a social phenomenon end quote nevertheless even though cost inflation does not work to the detriment of the average worker it does give rise to Serious inequities because the factor offsetting The Continuous rise in prices is a continuous series of wage increases and under present conditions some workers receive ear earlier and larger increases than others this eventually results in an unbalanced wage structure that is highly discriminatory and also has some undesirable effects on foreign trade that we will examine shortly the other major effect of cost inflation is that it reduces the value of fixed interest obligations bonds mortgages pensions life insurance policies Etc if there has been a 100% inflation in 20 years which is about the US rate the true value of these fixed interest assets has decreased by half this is obvious and incontestable yet a large segment of the population probably a majority refus to accept it because of their long-standing commitment to the opinion that money is the stable form of value the US Treasury Department for instance proclaims in their advertisements for savings bonds that quote no one has ever lost a penny in these Bonds in terms of money this statement is correct but the message that the statement is intended to convey that the investment retains its original value throughout the life of the bond is totally false in 20 years the bond has lost half of its value the same concentration of attention on money value rather than real value can be seen in the profusion of arguments in favor of discontinuing the indexing of certain payments particularly social security whenever the nation finds it necessary to consider reducing expenses quote why should these people be receiving increases in their income while the rest of us are having difficulty making both ends meet on what we are now getting uh is the complaint that is repeated over and over again the truth is that these are not cost of living adjustments as they are usually called nor do they increase anyone's real income they are inflation adjustments that are necessary to avoid actual decrease inrees if the payments were made in some form other than money the true situation would be clear to everyone let us assume for instance that instead of a money payment the pensioner contract with the government called for receiving 1,000 gallons of diesel oil at specified intervals of time then let us further assume that the government revises the official definition of the gallon reducing its size by 1 half so that on the next delivery the pensioner receives 1,000 of the new gallons leaving the tank only half full few would deny that in this case the government is defrauding its creditor this is exactly what happens if no indexing is applied to contractual OB obligations such as Social Security the government by means of its wage and monetary policies continually redefines the value of the dollar in terms of buying power the only measure that has any real meaning in economic life a payment of the same number of dollars after a decrease in the true value of the dollar is no different from a payment of the same number of gallons after a redefinition of the gallon has reduced its size if the creditors receive no more than the original number of dollars they are being defrauded those who see the indexing as an increase in the payments are being misled by the money illusion which makes a decrease in the value of money appear to the public as an increase in the price of goods the same considerations apply to all financial obligations the government but where the transactions are voluntary the terms of the contract usually contain some built-in protection against inflation for instance the interest rate on bonds set by the markets generally includes a component representing the anticipated rate of inflation so that the net return to the bond holder approximates the normal interest rate some similar adjustments are applied in private transactions the principal victims of the continuing cost inflation are the owners of long-term obligations bonds issued when inflation was relatively low private pensions which are rarely adjusted for the full amount of inflation if at all insurance policies Etc one of the most unfortunate features of the situation is that these Investments that are the most subject to loss of value because of inflation are the types of investment other than home ownership in which most of the savings of the less affluent participants in the economy are concentrated the misunderstandings described in the foregoing paragraphs illustrate the point that the extent to which economic knowledge has been passed on to the general public is not much greater now than it was in the days to which Churchill referred it is therefore necessary in a work addressed to the public as well as to the economic profession to review the entire International economic situation with particular emphasis on those aspects of foreign trade that are usually minimized because they are distasteful to the voters in beginning this discussion we will look at first at a domestic trade example which is closely analogous to foreign trade in almost all respects let us examine the economic status of a family operating an isolated farm this group of individuals produces a certain quantity of agricultural Goods some they consume short circuiting the market cycle the balance over and above their own needs constitutes purchasing power which the family is able to utilize to obtain various other Goods from the foreign merchants in the nearest city these City goods are not absolutely essential to the existence of the farm family if necessary the farm operations could be organized in such a way that the family would be entirely self-sufficient in fact the normal Farm Life in Pioneer Days approached this condition but the farmers have found that by increasing their production of those items to which their land is best adapted they can gain a purchasing power that can be utilized in the City Markets to purchase Goods that would be difficult if not impossible to produce with the facilities available on the farm at the same time the workers in the city factories and stores get the benefit of the efficient large-scale production of food on the farm thus both groups are Ena to enjoy a higher standard of living than would otherwise be possible it is evident that this process of exchange does not increase the total amount of work that has to be done on the farm that is it does not create any more jobs Indeed the ability of the farmers to buy good cloth or soap at a low price instead of spending long hours making inferior products with their own inadequate equipment has actually reduce the amount of work necessary to maintain the same living standards and if they so desire they may reap the benefit of the foreign trade in the form of increased Leisure but they also have the option of devoting all or part of the time thus saved to further production by means of which they can raise their standard of living it is also apparent that money is not essential to the transactions between farm and City it is merely a convenience the same final result could be reached by Direct barter the use of money to facilitate the process does not alter the the fact that what has been accomplished is an exchange of farm products for City products the Farmers Exchange their products for money then turn around and exchange the money for City Goods the money was in the hands of the city Merchants to start with part of their working capital and it is back in their hands when the transactions are complete in this case the use of money as a medium of exchange does not prevent us from seeing very clearly that the amount of City Goods which can be obtained by the farm group is limited to the value equivalent of their farm products of course they may have a small amount of cash on hand at any particular moment representing the incomplete portion of a previous exchange transaction which can be used in addition to their current production and they may be able to get a certain certain amount of credit on the strength of anticipated future production but it is obvious that they cannot um continue buying in excess of their income from sales of their products they cannot pay for goods in any other way than with Goods that is principle two here as always purchasing power is created only by production it can be Borrowed by means of a credit transaction but only temporarily and in limited amounts if the foreign merchants in the city are very anxious to sell greater quantities of goods they may work out some kind of a long-term credit arrangement whereby for a Time the farmers may buy more than they can pay for that is more than the value of their current production such credit may be fully uh Justified if it is extended for the purpose of financing the purchase of fertilizer tractors or other Goods which will ultimately increase Farm production enough to pay off the loans in Goods but aside from this type of transaction the merchant who extends credit to a farmer or anyone else for the purposes of enabling him to buy more than he produces is lacking in intelligence he is certain to be left holding the sack in the long run even in the case of loans extended for the legitimate purpose of increasing production repayment will have to be made in Goods in order to be reimbursed the city Merchants must sooner or later buy more goods from the farmers than they sell to them there is no kind of magic whereby payment can be made in any other way if a merchant closes his eyes to this fact and continues to insist on selling more Goods to the farm group than he buys from them the ultimate result can only be cancellation of the debt through bankruptcy of the farmers now where does this situation differ from trade between countries from an economic standpoint the only major difference is that the two countries have separate currencies and the bankruptcy if it takes place comes about gradually by a progressive depreciation of the currency rather than Suddenly by Court decree otherwise the same considerations apply the benefits of foreign trade are exactly the same as those acing from trade uh between farm and City each participant is able to enjoy a higher standard of living by reason of his ability to trade goods that he can produce efficiently for goods which he could produce only inefficiently if he could produce them at all this exchange of goods does not require either party to the transaction to do more work that is contrary to popular belief foreign trade is not a job producer in fact the use of specified good specialized Goods produced on an efficient basis as purchasing power for buying foreign Goods actually enables the same standard of living to be maintained with less work as was pointed out in connection with the farm situation money in foreign trade is still only a medium through which goods are exchanged for goods and above all it is just as true in the case of foreign trade as it is in trade between farm and city that only Goods can pay for goods any juggling by means of credit or other devices can only postpone the day of settlement and increase the amount of goods that must be transferred from debtor to creditor to balance the accounts when that day finally arrives we can get a clear picture of the foreign trade situation by the same method of analyzing the flow of goods and purchasing power that was employed in the study of do of the domestic economy as emphasized in the earlier pages the basic economic transaction is an exchange of goods for goods thus foreign trade is essentially an exchange of domestic goods for foreign Goods but here as in purely domestic trade it is convenient to use money as a transfer medium this separates each transaction into two parts an exchange of domestic goods for money which we call an export and an exchange of money for foreign Goods which we call an import an export is an exchange of domestic goods or services for foreigners money an import is an exchange of money for foreign goods or services the terms goods and money are used in this definition in the broad sense senses in which they were previously defined that is Goods includes Services as well as Commodities and money includes everything that is accepted as money ordinarily exports and imports are visualized in geographic terms Commodities shipped out of the country being called exports and those brought into the country being called Imports but there are other International transactions which are identical with commodity exports and imports so far as their econom EIC effects are concerned although they do not have the same Geographic aspects services rendered to foreign tourists for example are exports on the basis of the foregoing definition while the services received by American tourists in foreign countries are Imports the economic a activities of Resident aliens are part of the domestic economy unless they send some of their earning out of the country or take them along when they leave in that case productive Services corresponding to the money that leaves the US are Imports Gifts of goods to foreigners are merely a form of consumption and have no foreign trade implications Gifts of money are claims against our future production and therefore have the status of imports in this case we are in effect importing and and paying for goods of zero value an investment in a foreign country is a purchase of capital assets located in that country and has the same immediate economic effects as the purchase of foreign consumer goods that is it is an import however those Capital assets that remain in foreign countries participate in the economies of those countries and therefore have a continuing effect uh on the international e economic relations net earnings from foreign investments are exports from the US standpoint unless withdrawal of the funds is restricted in which case the amount that cannot be withdrawn becomes an additional investment if foreign trade is kept on an even basis that is exports equal Imports the money Purchasing Power Stream is not Disturbed in either country the total utility of the goods secured by means of this purchasing power increases but the effect is the same as if domestic productivity Rose a similar amount here there is no Reservoir transaction and the market price level remains in balance with the production price now suppose that we export more than we import the flow of goods into our domestic markets decreases by the amount of the difference but the exporters receive some kind of payment money or credit instruments convertible into money which can be used in the domestic markets the flow of money purchasing power to the domestic markets therefore does not lessen in spite of the decrease in the quantity of goods available for purchase in these markets the price level consequently Rises and the American people have to pay the bill for the excess Goods that have been exported it may be hard to believe that we have to pay for these Goods at the same time that the foreigners are paying money for them but a close consideration of the market relations developed in chapter 9 and 10 will show clearly that this is true the inflow of foreign purchasing power not balanced by a corresponding flow of goods to the domestic markets is equivalent to an input into the Purchasing Power Stream from one of the domestic money reservoirs and it has the same effect in creating an inflationary unbalance in the system looking at the situation mathematically we begin with the normal relations B over v = p if there is no change in production then the diversion of goods to the export trade causes the volume of goods flowing to the domestic markets to drop from V to EV where e is a fraction while the amount of money purchasing power available for use in the domestic markets remains at B the new market equation for the United States the exporting country is then B over EV equal p over e since e is fractional the equation shows that the price level in the domestic Market Rises if production is increased to take care of the export business the volume of goods entering the domestic markets remains at V but the money purchasing power available for use in these markets Rises to AB because the increased production generates a corresponding increase in money purchasing power we then have AB over V equal a the factor is greater than Unity so again the result is a higher price level in the domestic markets thus regardless of whether the export demand is met from existing production or from increased production the result of an excess exports over Imports is an increase in domestic prices an inflation of the price level okay I think uh we're going to stop it off right there and um I think we got that's uh halfway through the chapter and so if uh we're lucky we might be able to finish it tomorrow um either way uh we will continue tomorrow and um work our way through this chapter on foreign trade thank you for tuning in today and have a great