Accumulation of Capital through Creation of Scarcity
Wealth can be accumulated by open destruction of a defeated nation’s wealth to make a commodity scarce and the world dependent upon the monopolized source.
Adam Smith describes just such a destruction of a peaceful and happy society’s wealth and their impoverishment for the accumulation of capital by a few. Spices and silk from the East brought overland comprised the majority of trade between Europe and the East for centuries and efforts to control that trade resulted in many battles, large and small. Muslims shutting off the overland trade routes to the East forced the search for a new route by sea.
Nutmeg and cloves growing wild and plentiful on the Molluca Islands made them, like air, of high desirability but valueless. Natives made an easy living picking the spicy blossoms and leaves. If all traders had access to those spices, the European market—mostly nobles and wealthy traders, no commoners because they had no money—would become quickly flooded, and the price would collapse.
To create capitalized value for spice traders, it was necessary to monopolize those spice trees and keep spice prices high. So the Dutch burned every spice tree they could not control. The other side of the coin of the immense wealth accumulated by a few Dutch traders through monopolization of the spice trade was the impoverishment and depopulation of the Molluca Islands.
The Molluca Island spice monopoly gives a quick lesson in how value is transferred from defeated nations to the powerful through capitalized value of entitled, monopolized, property. If those islanders had kept title to their islands and spice trees and a free market existed, it is they who, eventually, would have, through furnishing spices to the world, become wealthy.
If all traders had access to those spices in those early years, there would have been much more, and cheaper, spices in the world, the islanders would have profited immensely, and they would have quickly learned the mechanics of gaining wealth through trade.
Creation of scarcity through open destruction of commodity production is a well recognized principle of neoliberal economics. In America during the Great Depression cattle and pigs were slaughtered and buried and paying farmers to not produce is standard practice yet today.
Though many of the world’s forests were cleared by burning and more natural gas has been flared off in oil fields than has been consumed, oil, coal, timber, and other natural resources are not openly destroyed to produce scarcity.
But wasteful consumption of those resources when plentiful and cheap, and waste for war, does produce scarcity. The continued flaring of natural gas the burning underground coal mines with no attempt to put them out is a waste our grand children will pay for. That waste of plentiful resources can only be corrected through a democratic, cooperative, coordinated social policy.
Invisible Economic Borders Channeling Wealth to the Imperial Centers
Note: To the extent the developing world gains control of their destiny and receive full value for their resources, the economics described herein can change rapidly.
Due to being underpaid for equally-productive labor, resources on the periphery are harvested, and sold to the imperial centers for far less than full value. With that cheap labor, products are manufactured cheaply but primarily for export; those underpaid workers do not have the buying power to purchase what they produce. With their citizens lacking buying power, these nations do not develop industry and wholesale and retail infrastructure for local distribution.
Consumer products could be sold within the low-paid producing region if the value of both the industries and products produced were priced relative to the wages paid to build the industry and products. But high wages in the developed world and low wages in the developing world create invisible borders which channel those products to imperial centers.
This is graphically demonstrated by current wages paid in the developing world being typically under 2%, never over 5%, a product’s sales value in the developed world, even before the 1997-98 currency collapses on the periphery reduced their wages by half.
Theoretically, over time, distribution within the developing world at low prices could develop. But the large buying power in the imperial center and the low buying power on the periphery dictate there will be a limited horizontal flow of money on the periphery and thus a limited development of a balanced regional economy outside the imperial centers of capital.
It is impossible for the developing world to capitalize their wealth without owning their own resources, owning and running their own factories, being paid equally for equally-productive labor, and selling on established markets. Nor can they develop social capital without the broad-based local buying power that title to their own productive wealth and equally-paid labor would create.
It is consumer purchasing power—adequate wages, adequate commodity prices, and profits from efficient industry and efficient traders—that determines who ends up with the world’s products for a quality life, others have no money.
Consumer purchasing power and capitalized values are both derived from title to natural resources, title to industrial capital, title to distribution mechanisms, and adequately paid labor as well as efficient industries. High-capitalized values require mass markets and mass markets develop only from adequately paid labor.
The common thread of a productive and profitable society with a high living standard is sharing both work and wealth while using and sharing the increased efficiencies of technology. A society with equally-paid labor and properly-paid capital (not overpaid capital) will have more real wealth.
Properly-paid labor and capital means elimination of monopolies which means capitalized values will be far lower even as use values are far more broadly distributed and utilized.
The Economic Multiplier, Horizontal and Vertical Expansion of Wealth
Although imposed belief systems have always claimed otherwise, people throughout the world can, on the average, be trained to be equally-productive. All it takes is an education, training, and the opportunity. If adequate capital were equally distributed through-out the world, the reality that picking grapes is just as important to society as building automobiles would quickly become apparent.
The difference in skills hardly qualifies for the difference in pay. There are many grape pickers and other low-paid workers who are just as qualified as many production, construction, and transportation workers. Though not true of all, many high-paid workers learned on the job the same way those low-paid workers learned their skills and the work of a large share of well-paid labor is repetitious, just as simple, yet not as hard or dirty as the work of lower-paid labor.
Look at the difference in capital accumulation through the discrepancy in pay as outlined in Plunder By Unequal Pay for Equally-Productive Labor: A five-times pay differential when trading between equally-productive labor nations results in a wealth accumulation advantage of 25 to one, to be paid twice as much for equally-productive work is to accumulate four-times as much wealth in trades, and being paid 30% greater when trading will still accumulate almost twice as much wealth.
But the defeated, dependent, world’s loss of wealth is even greater than the above example. Forcing these defeated dependent societies to import a product they do not need, or which they could produce themselves if permitted the requisite technology and capital, is a sale 100% overvalued. Actually, as those societies are also being denied the benefits of the multiple use of this money, the economic multiplier, as it moves through the economy and creates more commerce, this unneeded product is, on balance, several hundred percent overvalued.
For example, if a society spends $100 to manufacture a product within its borders, the money paying for materials, labor, and other costs moves through the economy as each recipient spends it.
Due to this multiplier effect, $100 worth of primary production can add several hundred dollars to the Gross Domestic Product (GDP) of that country. If money is spent in another country, circulation of that money, and thus the additional wealth generated, is within the exporting country.
If imports and exports are equal in labor input and produced by equally-paid and equally-productive labor, the trades will be equal. But they are not; they can be unequal to the extreme.
To understand that we must understand not only multiplication of wealth through the horizontal flow of money, the economic multiplier, but the vertical expansion of wealth in an industrial economy as a society becomes wealthy through increased efficiencies of technology, higher value production and capitalizing those values.
Friedrich List’s Fundamental Thesis
The fundamental thesis of Friedrich List is:
“Commerce emanates from manufactures and agriculture, and no nation which has not brought within its own borders both those main branches of production to a high state of development can attain … any consider-able amount of internal and external commerce.”
Further challenging laissez faire, List points out that governments should support and protect industry and this will utilize unused labor and resources to an ever higher level of production.
The new manufacturing industries utilize otherwise wasted agriculture products and natural resources producing valuable products to be marketed in trade for other products, preferably cheap natural resource commodities, to also be processed into finished manufactured goods.
List also points out how such importation of natural resources and local manufacturing, as a national policy, would create a wealthy and powerful nation selling only what was surplus above the needs of the population while nations allotted the role of providing those unprocessed natural resources and purchasing back their manufactured prod-ucts will produce no surplus and will be poor. Adam Smith’s analysis is worth quoting a second time:
A small quantity of manufactured produce purchases a great quantity of rude produce. A trading and manufacturing country, therefore, naturally purchases with a small part of its manufactured produce a great part of the rude produce of other countries; while, on the contrary, a country without trade and manufactures is generally obliged to purchase, at the expense of a great part of its rude produce, a very small part of the manufactured produce of other countries. The one exports what can subsist and accommodate but a very few, and imports the subsistence and accommodation of a great number. The other exports the accommodation and subsistence of a great number, and imports that of a very few only. The inhabitants of the one must always enjoy a much greater quantity of subsistence than what their own lands, in the actual state of their cultivation, could afford. The inhabitants of the other must always enjoy a much smaller quantity…. Few countries … produce much more rude produce than what is sufficient for the subsistence of their own inhabitants. To send abroad any great quantity of it, therefore, would be to send abroad a part of the necessary subsistence of the people. It is otherwise with the exportation of manufactures. The maintenance of the people employed in them is kept at home, and only the surplus part of their work is exported…. The commodities of Europe were almost all new to, and many of those of America were new to Europe. A new set of exchanges, therefore, began to take place which had never been thought of before, and which should naturally have proved as advan-tageous to the new, as it certainly did to the old continent. The savage injustice of the Euro-peans rendered an event, which ought to have been beneficial to all, ruinous and destructive to several [most] of those unfortunate countries.
Friedrich List’s thesis restructured as an international policy for all nations to have an equal share, which the highly respected President Franklin D. Roosevelt also suggested and President Kennedy hinted at just before his assassination, would create a peaceful and wealthy world.
One hundred dollars paid to a community for what were once wasted resources and labor will create, through the economic multiplier, possibly $350 worth of economic activity within a community and even more in capitalized values.
Gaining Wealth through the Vertical Building of Industrial Capital and the Horizontal Flow of Money
That $100 worth of formerly exported raw material can be processed ever finer and manufactured into ever more complicated products and services until the costs of the original raw materials are barely detectable in the high-value-added products.
Money spent building new industry to produce new products or services of continually higher values are continually spent horizontally for products and services and continually increasing the economic activity of a newly industrializing nation.
The high price received for that high value added product circulates within the economy and multiplies the economy to an ever-higher level.
It requires the proper balance of industry, resources, and agriculture to maintain those increased production values which, in turn, maintain land, industry, store, office, and home values.
The natural resources necessary to maintain the economic balance of industrial nations are primarily in the undeveloped, impoverished, world. Thus the centuries-long effort to control the countryside and maintain the flow of resources to developed world industries at a fraction of its value.
The industrial-agricultural ratio of a nation or region can vary greatly depending on the abundance or lack of natural resources. The scarce resources in the wealthy highly-industrialized Japan and abundant resources in the poor nations cheaply providing Japan’s factories with their raw materials dramatically outlines the true cause of wealth in Japan and poverty of those who provide those resources.
The poor nations provide the resources and purchase manufactured products. Japan buys the low-value resources and sells high-value manufactured products.
Because the developing world has little industry to utilize their labor and resources to produce high-value consumer products and they are paid a low price for their labor and resources, there is almost no vertical industrialization, little horizontal movement of money, and thus little wealth.
When one adds up both the vertical and horizontal multiplication of wealth in an industrialized country, one has to seriously question the advice given to developing nations by the imperial centers of capital that their successful future depends on continued mining and harvesting of raw material and forgoing manufacturing because that is their “comparative advantage.”
The small savings on importing any item must be laid against the entire vertical and horizontal gain to the region when manufacturing their own consumer products.
Industrial development multiplies consumer buying power and profits from consumer spending further multiplies profits which further multiplies investments, further multiplying profits and consumer spending, and all continually multiplying capitalized values.
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More pages in the “America Gains Economic Freedom” section
- Accumulation of Capital through Creation of Scarcity
- The Periphery of Empire is a Huge Plantation Providing Food and Resources to the Imperial Center
- Historical Struggle for Dominance in World Trade
- World Wars Decides Who Controls World Trade
- The World Breaking Free Frightened the Security Councils of Every Western Nation
- America Became a Full Fledged Empire
- America Protecting the Imperial Centers, Check A Globe
- Protection for the Imperial Centers, Free Trade for the Periphery of Empire
- The Unwitting Hand Their Wealth to the Cunning
- Orchestration of Death Squads and the Writing of History
- Who are the Powerful? Who are the Violent and Powerful Who Ordered and Oversaw These Atrocities?
- The Developing World Attaining Full and Equal Rights