Narrative by Fred Lundgren
Charts & graphs by Jerome Friemel

Chapter Two

"Inclusive" Prosperity from Private Enterprise
The principles outlined in the introduction and in chapter one have evolved into the discipline of Raw Materials Economics, which is a formula based approach to a fully inclusive private enterprise system.  It allows more individuals to prosper by producing or distributing needed goods and services at their "natural";  values, values known to be consistent with "the state of the art".   Raw Material Economics is an incentive based system because it uses the laws of physics, as applied to economics, to discover and adjust the value of products and services closer to their "natural" price based upon the energy, both human and mechanical, required to produce them.  RME as we will call it, does not force the socialistic redistribution of existing wealth.  Instead, it fosters adequate new production and consumption and the timely recycling of enough money to fairly represent the new wealth in the economic pipeline.
         Raw Materials Economics is the term we use to describe the "monetization" of raw materials; in other words, a monetary policy that recognizes the intrinsic value of raw materials and consistently places money and credit into circulation based upon the value of raw materials.  This system requires the stabilization of raw materials prices at levels at par or at "Parity" with technology and the "State of the Arts". This approach yields a steady flow of money through the economy and thus a more equitable and sustainable monetary system. 
         Raw Materials Economics IS a monetary policy based on the honest value our nations' production.  This means our nations' production of "things" would determine the value of money in terms of "things", instead of money determining the value of things in terms of money. In essence, Raw Materials Economics causes money to become a stable, storable measure of value. 
         For this system to function, a society must place sufficient monetary value on primary earth drawn products at the first point of sale, which is the functional beginning of the production cycle.  This allows a society to maintain the relative labor value of products and services so the income from these products will flow though the economy without creating unnecessary debt.  Ultimately, this will result in a natural economic balance that will optimize production, distribution and consumption, and eliminate unemployment. 
         Under this system of correct pricing, all production credit, or floor plan debt is continuously repaid at each stage of the production cycle and is returned to the capital pool of bank deposits upon the final purchase and consumption of each retail product.  Under this system of raw materials monetization, inflation is controlled through taxation, by adjusting down payment levels on installment purchases, and by increasing the reserve requirements of banks, rather than allowing the Federal Reserve to arbitrarily manipulate interest rates. 
         During the past 100 years, the monetization of raw materials has been inadvertently used to some extent to create money.  However, the economic record of our nation proves that raw materials monetization conflicts with the Federal Reserve's fractional banking system.  In other words, both systems of money creation can't simultaneously function at full velocity because the fractional re-lending of both earned income and the new debt dollars will cause hyper-inflation.  This happened in the early 1970s.  
         The confusion surrounding inflation and money becomes apparent whenever commodity prices rise.  If the price of basic commodities like grains and crude oil increases, a chorus of economists, central bankers and government officials warn of inflation, but strangely, when interest rates increase, which is pure additional cost with no offsetting value, these same people line up and say the problem is solved and Wall Street bond holders celebrate.
The RME system of natural price discovery and its associated flow of additional funds will "allow" the broadest level of individual and national prosperity.  The Nature Of Wealth proves that under RME, poverty can be eliminated by a nation of industrious people, who for the first time, will enjoy incentives consistent with their expenditure of physical and mental energy. 

In today's economy, however, too many individuals are forced to under-value their goods and services.  This form of competition is destructive.  It reduces the amount of debt free money in circulation far below the amount needed for consumption.  This results in an orgy of borrowing to maintain consumption yielding an economic system driven by perpetual debt expansion, under-employment, and unemployment.  This economy produces needless poverty.  It retards the production, distribution, and consumption of goods and services.  This economy produces avoidable pain.  It finally becomes a syndrome, offering unrealistically low wages to some, while automatically overpaying the labor of others.  This eventually results in lower profits and lower wages for the general population, which in turn drives the economy toward a production-for-use-system. This is the economy of today!

If allowed to continue untreated, this condition will convert the American private enterprise system into a debt system that promotes borrowing to survive. This scenario is not theoretical. Our nation is on that path today.  Statistically, if left unchecked, the US economy will be crushed by debt before the year 2030.  We will offer proof in later chapters.  The rich are getting richer and the poor getting poorer.  We've all heard this many times. This is not rhetoric.  It's a fact that becomes painfully obvious by reviewing the record books of American government. 
Current government data show that overall profit levels in America have deteriorated by one-half since 1953, concentrating more money in the hands of the powerful and more debt in the hands of the powerless.  Inevitably, individual citizens will continue to demand new laws to compensate for this growing long as the present trends continue.
This long term trend is the product of simple cause and effect.  It's the physics within economics which is always at work within a capitalist system. 
This downhill slide is not inevitable.  It can be reversed without compromising the private enterprise system.  The forthcoming chapters hold the answers.

In all its Glory
Winston Churchill remarked
"Many forms of Government have been tried, and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise.  Indeed, it has been said that democracy is the 'worst' form of Government except all those others that have been tried from time to time."

Churchill was referring to a system that can foster individual ownership, competitive efficiency, abundant productivity, and staggering amounts of personal gain while ignoring the needs of millions.  Our current American private enterprise system must plead "no contest" to Churchill's criticism.
A private enterprise system born of democratic rule is natural and wonderful by design, but without the principles of Raw Materials Economics to serve as a linchpin, it will ignore its potential.  It will refuse to maintain a "State of the Art" price structure.  It will oppose the price levels needed to produce, manufacture, distribute, and consume its products and services without excessive debt.  It will search the world for cheap labor and undeveloped foreign markets while ignoring the untapped domestic potential that that stands before it.  Thus, even a prosperous Private Enterprise System, in all its glory, leaves millions of its citizens uneducated and in poverty and millions more under-employed.
Raw Materials Economics elevates the study of economic systems beyond Churchill's criticism by offering national policy makers a score of mathematical formulas that predetermine the economic effect of each attempt to tweak the system.  RME shows policy makers how their "tweaking" affects a nation's labor force, or as economist call it (the division of labor).  It discards the theories and assumptions that make the study of economics something less than good theatre.  RME unlocks the secret of sustained full employment and the elimination of debt expansion, even for the most thick-headed economists and politicians.

Cheap At All Costs
Economists argue that technological improvements to manufacturing always increase efficiency, resulting in lower prices.  They claim lower prices in the marketplace give consumers more money to spend on new retail items.  This perpetual, misplaced desire for cheap prices is a chronic illness that has, like a virus, invaded the private enterprise.  Cheapness is only an illusion because cheap goods and services, (goods and services produced and sold below the price dictated by the state of the arts), eventually result in lower wages, unnecessary structural unemployment and a deteriorating standard of living, not an improved standard of living as conventional wisdom dictates.  Eventually personal and business profits earned from "cheaper" goods and services will evaporate as Americans are forced to compete with substandard wages in less developed countries.  Again, RME offers the alternative.
The Nature Of Wealth proves that productivity gains, when combined with price cuts designed to compete with cheap foreign labor is destructive.  This policy sacrifices the right of the worker to earn a living wage.  It increases under-employment, which creates under consumption and more borrowing to consume.  It creates a circle of debt.  This is not an accurate definition of increased efficiency. 
Improvements to efficiency can only benefit the economy if natural price levels of products are maintained.  Otherwise, the economy cannot maintain the purchasing power necessary to consume the cheaper products.  Further on, you will read repeated examples of tangible products that are sold according to their perceived value rather than their state of the art intrinsic value, and the detrimental affect this has on all concerned.

Peeling Away the Confusion
The dismal science of economics is notably flawed.  Over time, these flawed notions have accumulated in textbooks and are now taught in our schools and universities as conventional wisdom.  The original math-based truths of economics have been submerged under the newest interpretation of popular dogma.
The Nature Of Wealth peels back the layers of confusion which offend the honest measure of money and mathematically defeat policies that mire basic economic truth in debt.  We track, explain, and forecast the flow of physical and mechanical energy through the economy.  With more than a hundred graphs and tables as ammunition, we uncover simple and unalterable formulas. These formulas reduce themselves to stabilized ratios of cost to income and savings reflecting America's annual production from its origin as basic metabolic and kinetic energy (food and mechanical power) all the way through the economy until the "energy" collectively produced is collectively consumed and converted into spent energy, (entropy).

We demonstrate how long term ratios of cost to income and savings become lodestars (a star that leads or guides with certainty, such as the North Star), in the expanding universe of economics and how these ratios guide the economy with clarity. We show the dire consequences which certainly accrue to millions of people if the economy is quickly altered in opposition to these natural ratios, for the gradual changes to these ratios is controlled by the expenditure of, and payment for, human and mechanical energy.  Thus, the only changes to these ratios allowed by "nature" are changes made in response to improvements in technology that redefine the "State of the Art".   

The Nature Of Wealth uses these natural ratios to prove why debt cannot be repaid with more public or private debt expansion and why the so-called profits earned from capital debt expansion must eventually become more debt.  It establishes sound principles and proven formulas of economics to serve as girders supporting every individual's financial well-being, and the well being of the nation as a whole.

The use of official government records, some of which date back to the 19th century, were central to this effort.  These records provide the only data necessary to isolate the origin of profits, the flow of profits through the economy, and the relationship of profit and debt to each segment of the private enterprise system--even to each individual citizen.  Before our research began, proponents of RME had been relying on old evidence generated by a Great Depression era organization called The Raw Materials National Council, and the incomplete data of its successor organization, The National Organization For Raw Materials.  Since the evidence was outdated, it was argued by many economists that the formulas discovered by the Council were fairy tale anomalies or mere coincidences.

Our studies have provided final proof of these patterns, and more importantly,  their cause and effect!  We present them as the economic road maps that can be replicated, year after year to provide cleared path to prosperity for everyone engaged in the private enterprise system.  

The Nature Of Wealth offers a systems approach to economics, an approach that employs arithmetic and not philosophy, an approach that can be used to monitor the health of any political system that promotes individual gain and the private ownership of property.  It outlines a systematic approach to national and individual prosperity that's centered upon the annual flow of metabolic and kinetic energy (food and mechanical power).  This flow of energy can be measured in terms of BTU's, dollars, or by any other standard for measurement, even calories.

In the upcoming chapters, the connection between energy and economics will systematically materialize and displace the ill-conceived philosophy and half-truths that have stood for years between you and your personal economic logic.  As you proceed, consider The Nature Of Wealth  a technical manual on money and production that attempts to offer an intellectual rebirth to anyone willing to truly understand the economic system.  The result can be a blessing and a curse because, if we are successful,  you will never again view the economy from a conventional perspective. 

the physics within
an economic system
Updated May 1, 2014
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