Introduction:

The idea of borrowing our way out of debt is ludicrous, but that is what the United States is attempting to do. For years, our basic national policy has been to borrow our way to prosperity. And now it has caught up with us, resulting in serious unemployment, high federal deficits and business and personal bankruptcies in record numbers. So what is our response? More borrowing, more debt and more earned income diverted to interest payments instead of prosperous economic expansion.

If debt were the way to prosperity, we would be in paradise. However, this debt policy will lead us only to a fool’s paradise. Why does a country with such an abundance of raw materials, tech-nological skill and private enterprise know-how need to go further into debt?

The implementation of the Agricultural Adjustment Act of 1938 and later the Steagall Amendment generated prosperity during times of war and peace from 1940 to 1950. The National Economic Stability Act (NESA) proposed in this report is an improve-ment over the previous acts. NESA is a self-supporting program, thus reducing the cost of government. NESA will increase the earned income of individuals and broaden the tax base of federal, state and local governments.

This program will ensure the United States does not become a country of individuals without assets or freedom —that our free enterprise system is preserved.

Prosperity through earned income or false prosperity by increased debt? It's your (and our) choice.

Primary Supply: A Basic Perspective

Introduction:

The fundamental truth of economic well-being for the consumer as well as business, originates in the production, processing, distribution and utilization of raw materials. This idea, however, has not been taken to its logical and necessary conclusion—and until it is, the broken dreams and missed opportunities that trouble our economy and afflict our people will continue unabated.

The Consumer: The Economy in Microcosm

Macro-analysis of the U.S. economy is, of course, important —the best way we have of judging the health of the whole. But this perspective can overlook a very elemental fact: the purpose of the economy is to deliver well-being to its citizens. If it cannot perform this crucial role, then no matter how robust the GNP (Gross National Product, now Gross Domestic Product) may look, the economy has failed.

This is precisely where the American economy is falling the shortest. Take a close look at the consumer's condition, and you see that times are every bit as tough as people claim.

1950-1980: The Thirty-Year Slide into Debt

To determine where the consumer is now, we need a standard of comparison. Let's take 1950 as the point of reference. The economy appeared healthy, the country was enjoying a brief period of peace. And the consumer was in good shape.

In 1950, per capita income was $1,560 per year. Of this amount, the typical consumer paid out 18.5% for food—low by the standards of most of the developed world—and 21.5% for taxes.

By 1980, the per capita income had grown to $9,502. Some of this growth was due to real increases in income, but much of it came from inflation, as the dollar lost purchasing power each year. The consumer now put out only 12.3% of income for food and 27% for taxes. In relative terms, then, the consumer's lot had apparently improved.

Except on one very crucial count. Back in 1950, the typical consumer was paying out 3.74% of his or her income for interest. In 1980, interest payments actually accounted for 33.9% of the consumer's income.

Think for a moment what this means? More than one third of per capita consumer income went to pay interest on indebtedness. How had this debt arisen? And what does it mean for all of us?

A Pattern of Debt

The indebtedness weighing down the consumer and diverting over one-third of each individual's spendable income can be found in every sector and at every level of the American economy.

The federal government's continuing deficit is well-known and widely-publicized. The problem has gotten worse by the year. Government has now become such a major user of borrowed funds that its actions are a principal determinant of interest and money market rates.

Business, too, is the captive of growing indebtedness. The private sector requires continual infusions of borrowed capital. Today, however, financial expertise rather than entrepreneurial capacity has become the way to corporate success. Business fortunes rise and fall with the interest rate. When the rate becomes too high, as has happened the past several years, businesses strangle slowly. Incapable of surviving on their own resources, cut off from sources of affordable funds, businesses stagnate and firms collapse by the thousands.

Competition among consumers, corporations, and government for a finite supply of funds has, by operation of the laws of supply and demand, driven the prime rate up and up. In 1950, our national baseline of economic health, loans from banks, equaled 33.7% of deposits, and the prime rate was a mere 2.07%. In 1980, when growing indebtedness was signaled by a loan to deposit ratio of 81.2%, the prime rate had soared to 15.27%. In fact, the prime rate has been higher longer in recent years than any time since the Civil War.

Where the Debt Begins

To understand how we have sunk into this economic morass, we have to step back for a moment and look at the economy in fundamental terms.

The American economy begins with raw materials. Without a continuous supply of raw materials, productive sectors cannot produce, consuming sectors cannot consume, and exchanges of goods and money cease. The economy grinds to a halt.

The whole of the American economy depends on the primary suppliers, the industries that produce raw materials—namely agriculture, lumber, fishing, and mining. When these raw materials are receiving equitable prices at the point of first sale into the economy, the whole economy is healthy. But if they are receiving substandard prices, their debility handicaps us all.

America's pattern of indebtedness originates in the primary-supply sector. Farming, which represents 70% of the primary-supply production, best demonstrates the causes and the consequences of debt.

Borrowing This Year to Pay for Next

Agriculture is one of America's biggest technological success stories. Not only does the United States feed itself abundantly; it is also the world's largest food exporter. If farmers and ranchers stopped producing, starvation would spread throughout the world. The reason for America's premier position is productivity based on sophisticated agricultural techniques and mechanization. At the end of World War II, one farm worker produced enough to feed 14 people. Now that same farm worker can fill 50 or more hungry mouths.

Yet, despite this enviable record, agricultural earnings have fallen. Today's sophisticated farming industry earns less per acre in real dollars than its much-less-productive post-World War II counterpart.

The culprit in agriculture's downturn is commodity prices. In 1950, commodity prices were strong. The ratio of prices farmers paid for factors of production to the prices they received for their crops — a figure called parity ratio — was about 100, as measured by the United States Department of Agriculture. By 1980, the parity ratio had fallen to 64.

Agriculture has been squeezed tight by prices falling relative to expenses. Because agriculture earns less income than it needs to support itself, farmers must borrow. Between 1950 and 1980 the ratio of debt to equity in agriculture more than tripled. This swelling burden of debt decreased the number of farms, cut personal income to agricultural entrepreneurs, and shrunk the farm tax base.

The Origin of Debt

The debt that afflicts the entire American economy —from the household budget to the federal deficit— actually originates in agriculture's cycle of inescapable indebtedness.

The economy begins with primary supply. All economic sectors depend ultimately on extracted raw materials. What is true of physical production is also true of the flow of money. The economy's many exchanges of money begin in the primary supply sector's use of the money it receives for raw materials to pay for such production factors as rent, capital investment, amortization, and so forth. The firms and individuals that receive this money use it to pay for their own factors of production. The recipients of this money also use it to pay for production factors. On and on the cycle goes.

The money cycle is the basis of what economists call the “multiplier effect.” It is an accepted fact that every dollar received as gross raw material income in a given year enters five to seven subsequent exchanges—in a sense, $1 becomes $5 to $7.

The multiplier effect is the key to understanding the central role of the primary-supply sector in the economy. Production begins in the primary-supply sector; so does the flow of money. If the primary-supply sector receives adequate income, then all the other sectors will receive adequate income. But if there is a shortfall in primary-supply sector income, then everyone down the line also comes up short.

This is exactly what's been happening. Low commodity prices have cut agricultural income — and, in turn, the income of every other sector and industry. For each $1.00 agriculture loses, the economy's money cycle loses $5.00 to $7.00.

The evidence is all around us, in long unemployment lines, shuttered factories, rising debt, and strangling interest rates. Something — the right thing — must be done.

The Key

If economic policy is to succeed, it must aim at the root cause of the current malaise: primary-supply depression. We need a new policy focus.

The health of the primary-supply sector determines the health of the whole economy. Revitalizing primary supply means increasing net income. And that means equitable raw materials prices.

The National Economic Stability Act

Introduction:

Long reliant upon raw material prices that are too low to support a true prosperity, the American economy cannot restore itself through free market forces alone. This is because the free market system today does not function due to the concentrated power of raw material marketing conglomerates. In order to put the economy back on the right track we must enact a new law.

The National Economic Stability Act (NESA), as proposed by the National Organization for Raw Materials in this publication, is a much-needed law. Simply, this proposed law establishes a basic price structure for the most primary of all primary-supply products, namely storable grains, potatoes, and meat and dairy animals. These commodities are the basic food and feed products. Once they are priced correctly, the prices of other agricultural products and other raw materials will fall into line, laying the foundation for prosperity and stability.

The Main Provisions of NESA

NESA isn't simply one more commodities law. It is the whole law. NESA replaces all existing farm and agriculture statutes affecting the covered commodities.

1. NESA eliminates current federal crop subsidy, financing, and commodity buying programs.

Since NESA will establish a new and truly fair market, continued government intervention will be unnecessary. Government may purchase food for such programs as foreign aid and school lunches, but it must buy all such commodities on the open market and pay the same price as other buyers.

2. Prices for storable foodstuffs and fiber (corn, wheat, barley, oats, soybeans, rice, cotton, potatoes, grain sorghum) and for livestock, dairy animals, and poultry will be set at a minimum of 90% of parity and a maximum of 115% of parity.

These prices will be based on USDA figures drawn from the 1910-1914 base period, and they may fluctuate within the limits as the market demands. To ensure uniformity, the Consumer Price Index and the Wholesale Price Index will also be reset to fit the parity price structure.

3. The minimum wage equals the parity price of a bushel of corn.

This feature ensures the adjustment of the whole economy to the new price structure for primary-supply products, and it guarantees mass purchasing power sufficient to absorb the supply of those products at the new market prices.

4. Agricultural producers may plant the crops they wish in the amount they wish, but they can sell only what the domestic and export markets will absorb.

Production-for-sale quotas for each producer will be authorized by Marketing Certificates issued annually.

5. Excess product (i.e., over the amount allowed by the Marketing Certificate) must be stored at the producer's expense.

The stored product will provide an important hedge against bad weather and crop failure. Also, it can provide the basis for establishing a National Food and Fiber Reserve, which would greatly strengthen the nation's defense. This provision distinguishes NESA from the current parity pricing law for milk, which encourages overproduction by obligating the government to buy excess production no matter how much it exceeds actual demand.

6. Imports of the products governed by NESA must be priced domestically at 110% parity.

This provision is needed to prevent the domestic market from being flooded by cheap commodities from abroad. Ultimately, too, NESA will work to the benefit of raw materials producers overseas, by guaranteeing them a fair and adequate price for their products and thereby establishing their economics on the firm foundation needed for sound economic development.

Making NESA Work

Implementing NESA requires only a simple organizational structure, one that gives agricultural producers a major voice and that trims governmental involvement to the minimum necessary to ensure efficient and impartial administration.

Prices for regulated commodities will be set monthly for each Farm Credit District by the U.S. Department of Agriculture under the supervision of the National Board of Producers. The Board, chaired by the Secretary of Agriculture, will be elected by producers of the covered commodities. Each Farm Credit District will elect one member. Every county and state agriculture department will be advised by similar producer boards comprising three regular delegates and two alternates, all of whom must be producers of one or more basic commodities.

It will be the responsibility of the National Board to establish domestic and foreign demand before the production season begins and to update these figures every quarter. The Board will also issue Marketing Certificates and update them quarterly. Certificates will be based on the production history of each grower in 1980-81, with allowances made for new and retiring producers as needed. If the National Board finds that demand falls below 1980-81 production levels, the shares of larger-than-average producers will be fractioned downward.

To ensure compliance with NESA's regulations, sellers and buyers must report first-entry-to-market transactions to the county ASCS (now Farm Services Agency) office on a monthly basis. This requirement also covers co-ops, which are allowed to store, process, and market all members' produce covered by Marketing Certificates. Covered production may also be used as collateral for loans.

Contractors who buy or sell at prices above or below the set levels will be fined three times the dollar amount of the transaction. Fraud, including selling without a Marketing Certificate, will be subject to other legal penalties.

A commodity tax will be levied on each covered commodity upon first entry to the market. The amount of the tax will be computed to cover the cost of administering the program plus commodity marketing promotion and production research. The tax is to be included as an expense in the parity formula, so that domestic and foreign consumers and buyers will be contributing to the programs.

In keeping with NESA's self-sufficiency, all CCC (Commodity Credit Corporation) loans will be transferred to private banks and financial institutions, and all federal programs governing the commodities regulated by NESA will be suspended. Likewise, special concessions granted to corporations engaged in productive agriculture will be suspended. In short, agricultural subsidies for the effected commodities will end.

America’s New Economic Promise

Introduction:

The National Economic Stability Act, by restoring the proper balance between the market prices and production costs of agricultural products, creates only a minor structural change in the American economy. NESA is a restoration, not a revolution. But this one alteration, seemingly small, can profoundly better the many economic problems we face.

America is beset by a painful variety of troubling economic ills:
 • Federal deficit
 • High interest rates
 • Inflation
 • A lack of capital reinvestment
 • High unemployment
             • Compounding public and private debt

NESA will go a long way toward remedying each of these maladies permanently.

Balancing the Federal Budget

A balanced budget is necessary to any economic recovery. NESA will help achieve this goal in two ways.

First, the bill significantly cuts current agricultural appropriations by reducing the administrative role of USDA and by replacing the crop-support loan program with market forces. In the 1982 budget alone, these changes would cut about $35-billion.

Second, the tax base will expand and tax revenues will increase. This effect will be seen first in the primary supply sector. But as the increased income to that sector moves through the rest of the economy, gross income will increase in other sectors as well, thereby increasing the tax base. The same effect will occur in personal income as well as corporate income, when increased demand pushes wages up and widens employment opportunities.

A Return to Stable Interest Rates

The American economy has been almost fatally crushed by a burden of debt caused ultimately by income shortfalls arising in the primary sector depression. To make up for the lost income, managers and entrepreneurs in all sectors have borrowed. This solution, however, is only temporary; repeated income shortfalls mean repeated trips to the credit well. Competition for money, made even worse by a deficit-spending government's demand for funds, has pushed interest rates higher and higher.

NESA and restored price-cost equity will put an end to the debt spiral. Balancing of the Federal budget will take government out of the money market and lessen competition for funds, as will increased gross income to all economic sectors. Increased gross income will also allow firms to retire existing debt more quickly, thereby increasing loanable reserves and adding to the supply of money even as demand for that money falls. Interest rates must also decline.

Inflation

The lessened burden of debt will remove a primary cause of depression. Since producers and middlemen will no longer have to turn to credit to make up income shortfalls, price creep due to rising interest rates will no longer occur. In addition, the establishment of a price/cost balance in the primary-supply sector will tend to promote a similar balance in subsidiary sectors.

The Promise of Full Employment

Because of the multiplier effect, increased gross income to the primary supply sector will increase the income of other sectors. Demand will rise, forcing production up. This expanding industrial base will draw in more and more workers. Unemployment lines will shorten, perhaps even disappear, and the welfare burden will lessen substantially. America could become the worker's Mecca it has always promised it would one day be.

Re-Industrialization

As income and demand increase, investment in new capital goods to increase production will become more attractive. Producers will add to productive capacity, widening the market for capital goods. American industry will finally accomplish its long-needed re-tooling.

NESA: A Real Beginning

NESA is a simple and straightforward law aimed at creating economic balance. And it can work.

NESA is not a welfare program. It is, in fact, just the opposite. It creates a structure that will free producers to do what they do best—produce. Government is not charged with running the economic game—as it has so often tried, and failed—but with merely ensuring that the rules of that game are observed.

Nor is NESA a narrow law designed to guarantee the prosperity of only one group. NESA will help the whole economy, from the firms that produce primary-supply products to their ultimate consumers. With a fair price structure ensuring both an abundant supply of raw materials and the personal and corporate income needed to purchase them, the economy will provide growth and prosperity for all.

In Memory

"Blessed are they
who hunger and thirst after justice
for they shall have their fill."

Ours is a world blessed with the potential for peace and abundance for all. But lust for power and greed for wealth on the part of a few have driven mankind to new lows of economic injustice and human suffering. The underpricing of raw material wealth has unleashed the tyranny of massive debt worldwide with the result that entire nations are bankrupt. Hunger and starvation are rampant throughout many parts of the world while America's granaries overflow and our farmers are driven from the land. Even in the so-called "wealthy nations," unemployment and bankruptcy are commonplace. At the local level, crime is on the increase as desperate people face a hopeless future. International frustrations have spawned wars in almost every corner of the globe until the specter of worldwide holocaust threatens the very future of mankind. It is the responsibility of us all to study and to understand this phenomenon and to bring that understanding to others so that justice and peace may prevail.

Some who did understand were William Struckmeyer, Carl Wilken and Arnold Paulson.

We gratefully acknowledge their years of service in bringing that understanding to others as well as the many contributions these men made to this report.

Back Cover Quotes:

Mr. Alvin Rehse (retired)
330 Wall St. #5
Chico, California 95926

EXECUTIVE DIRECTOR
Mr. Ken Staloch (deceased)
16039 Prairie Villa St. S.W.
Tenino, Washington 98589

Mr. Vince Rossiter  (deceased)
Bank of Hartington
Hartington, Nebraska 68739

(Webmaster Note: This document was published as an educational brochure by the National Organization for Raw Materials in the 1980s)