POWER OF STORY: INTUITION

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

Why have we taken the past several sessions discussing such concepts as enterprise, production, the history of money, the Federal Reserve System, fractional reserve banking, and inflation? Is all this discussion necessary? Is it important at all? Yes, it is! Oh, yes, it certainly is.

Most people living in our present culture have never been given the basic rudiments of simple economics. We don’t understand what is happening or the rapid changes we are experiencing. We can’t see why the big fuss is made about balanced budgets, debt limits, or deficit spending. Just this week I had a young lady say to me, “I live by one simple motto: go with whatever is free and opt out of participating in the consequences.” I had to have her repeat her motto to me!

Our discussions over the past several weeks regarding some of the basic concepts of our economic system have been very important because intuitively we feel and know that something strange is happening in our economy, but we can’t put our finger on it or articulate what we feel. We all seem to be waiting for the other shoe to fall.

When we go shopping at the supermarket and experience the prices doubling or tripling, and then are reassured that our inflation rate is successfully running at a meager 2.1 percent, we are confused. When we pay $60 thousand for a like-kind automobile that just a couple of years ago we bought for $20 thousand, and the same house that our uncle bought in the ‘80s for $19 thousand just sold for $321 thousand, with three backup contracts waiting in the wings to purchase it, we are confused. But we are shown facts that the Consumer Price Index guarantees that inflation has not increased in any given year over 3.4 percent since 1992.

Born before the U.S. entered into World War II, and living during the latter years of the Great Depression, I grew up with the memories of international economic experiments and their consequences. Following World War I, Germany was demanded to pay for the damages they had caused while blowing up the countries they had invaded. They refused to pay for the war reparations until the pressure of the rest of the world forced them to pay. They paid the debts by simply going to their Fiat printing presses and rolling out newly printed German marks. That seemed to take care of the situation. The world was happy, the individually damaged countries were satisfied, and Germany was off the hook.

They were off the hook and unaffected until the other damaged countries decided to spend the newly created money. They began buying German goods and services with the phony German marks. Suddenly, there were all the new marks buying up all the German goods and services. Since there was nothing to back up the newly created money, all the prices began to double and quadruple because the value of the real marks plummeted.

In the end there were four quintillion marks in existence, and it was not unusual for a German shopper to pay as much as 750,000 marks for a few groceries. That is where we get the stories of the shoppers needing to take a wheelbarrow to the store to transport the necessary marks for the purchase of a few goods . . . and where someone along the route would accost the shopper, dump the currency, and steal the wheelbarrow.

In the very recent past, the U.S. has tallied upward of $17 trillion in debt (refer to our recent article on the amount of a trillion). When I wrote the book, What’cha Gonna Do with What’cha Got?, following the Carter administration we had just topped the incredible amount of $1 trillion dollars in debt. It had taken us well over 200 years to accumulate that amount. Now the debt number is in excess of $17 trillion. Our method of acquiring and assimilating that debt is far more sophisticated than the German’s method that was used after World War I.

Next week we will discuss how the Federal Reserve monetizes the federal debt and transforms it into spendable money.

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

POWER OF STORY: TENTS AND TIGER TEETH

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

Earlier we had an opportunity to agree or disagree regarding certain economic factors that we felt were the cause of inflation. We will begin our investigation by considering the fact that inflation is not caused by individual producers raising their prices. This is true whether we are talking about oil cartels, individual merchants, labor unions, or particular industries. I think the power of story can help us see this more clearly. Let's return again to our primitive friends: Two-Toes Tom, Scarface-Salesman Sam, Wanda[P1] Wonder-Weaver, and Healthy-Hunter Harold.

                                                           *Remember*

                             INFLATION is a sustained increase in the general level of ALL prices.

One evening all of our friends were sitting by the campfire discussing an interesting new idea. Scarface-Salesman Sam had just returned from visiting a faraway tribe. He said that everybody there was involved in a new concept called inflation. It appeared that it was benefiting everyone in the tribe. The idea was that if they all raised their prices by twice, then they would all have twice as much. Who wouldn't like that? Why hadn't they thought of that sooner? Just think of all the wealth they could have accumulated by now!

Our friends decided that it was high time they adopt this concept for their own tribe. They all rushed back to their tents to get some of their products to trade; there was no sense letting any more time get by.

On the way back to his tent, Healthy-Hunter Harold was just beaming. "Think of it . . . from now on, I'll only have to trade four packages of fresh meat for two stone axes instead of the usual eight. I can put twice as many trades together." Wanda Wonder-Weaver was also excited, since she would now be getting twice as much for her blankets. Two-Toes Tom, who had been tired a lot lately, was glad that now he could finally slow down a little, since he would be getting the same amount, but only having to produce half as many stone plows.

Excitedly, they all returned to the campfire to get started with their trading. Healthy-Hunter Harold wanted to go first with his fresh meat. Instead of the usual eight packages, he only brought four to trade with Sam for two of his stone axes. But alas! Sam was standing there with only one axe that he intended to trade with Harold for the regular eight packages of meat. Sam argued that since it was his idea, he should be able to go first, i.e., one axe for eight packages of meat. Harold informed him that would be fine, but the eight packages of meat would come off Sam's body!

It began to dawn on Wanda Wonder-Weaver what was happening. Whether Sam raised his prices and Harold paid it, or Harold raised his price and Sam paid it, you still haven't caused inflation. For if one price goes up, then the other price must come down. She realized that it wouldn't make any difference how many people were involved, or how many products were involved, or for what reasons they wanted to raise the price, they could not cause inflation, i.e., a sustained increase in the level of all prices, simply by raising their individual prices. For if one product goes up in price, then one, or a combination of other prices, must fall by precisely the same amount. Even if there is a scarcity of a product due to poor crops, strikes, or exports, the increase in the price paid for the scarce product will only result in your having less money left over with which to make other purchases.

If an oil cartel, e.g., OPEC, raises its price of oil by $50 billion, there should be $50 billion less in the system for consumers to purchase other goods. These other goods would then sit on the shelves and go unpurchased, thus causing a recession in business.

Wanda Wonder-Weaver gathered her blankets together and headed back to her tent. Ol' Two-Toes Tom sadly went to sleep, dreaming of how close they had all come to being wealthy!

You now can see that for whatever reasons prices are raised, e.g., scarcity, monopolies, wage and price fights, you cannot cause inflation . . . a sustained increase in the general level of all prices. You will see later that the raising of prices is a necessary result of inflation, not the cause.

That night Scarface-Salesman Sam went to bed troubled. What had he forgotten? Why didn't inflation work around the campfire that night with his friends? Then he remembered that the other tribe wasn't trying to make it work with the barter system. They were using a medium of exchange-"money." In fact, they were using gold coins. Sam knew that his tribe had used tiger teeth as money before. Why wouldn't inflation work with tiger teeth just as well as with coins?

The next morning he was up early to explain his new idea to the others. He told them that he had finally figured it out. First of all, they must go off the barter system and exclusively use tiger teeth as money. Secondly, if they would bring together all of their tiger teeth that they had used as money they could then count them. Thirdly, if they would double the number of tiger teeth that they were using as money, it would then be possible to charge twice as much for the same number of products.

At that point Wanda Wonder-Weaver stopped her weaving on her blanket and laughed out loud!

           With that kind of thinking . . . it's no wonder you guys are still primitive!
           Can't you see? . . . When you double the money supply and the supply of                    goods  stays the same,  you cut the purchasing power of the money in half . . .
           that is . . . it takes twice as much to purchase the same product.

                             

On the surface it might appear that everything would be going up in value. But it is not. The only way to have a sustained increase in the general level of all prices is to have a sustained decrease in the general value of the money.

Another way of stating that all prices are rising at the same time would be to say that the money system is falling in value.

The reason for Scarface-Salesman Sam's misunderstanding of the concept of inflation was due to his misunderstanding of the motive behind the concept. All he observed was that the merchants were getting higher prices for their products, but failed to see that the real value they were receiving was less. He didn't know that the king of the tribe was extracting from his people a silent tax through inflation to pay off the debt of his last spending spree, knowing full well that if the people understood what he was doing, they would revolt or elect a new tribal chief. You can't ultimately play games with smoke and mirrors or tents and tiger teeth.

      (Research ideas from Dr. Jackson's new writing project on Cultural Economics)

© Dr. James W. Jackson
Permission granted by Winston-Crown Publishing House

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

POWER OF STORY: INCREASE IN ALL PRICES

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

In order for a country to experience a functional economy, it must produce goods and services. Through that production income is created to meet the needs of the people of those countries. In the 150 countries I have traveled I have had the opportunity to observe various economies in action and have watched the choices made by the leaders of those countries. In many cases I have also had the opportunity to later observe the consequences those choices set into motion.

The leaders of those sovereign countries may begin to desire goods, services, military weapons, conveniences, comforts, or inordinate political clout for themselves. Their gross national efforts, however, may not have produced wealth enough for the legitimate purchase of those items. An overwhelming temptation then comes for those leaders to start tinkering with the economy.

One irresistible temptation comes when the leaders discover that they can purchase the right to govern the people by promising and periodically delivering goods and services to the constituents. In nearly every African country where I have had business dealings the leader, in an effort to gain the opportunity to govern the people, promises to deliver free electrical service to the urban and rural areas of the country as well as free medical health care to the constituents. Of course, he has absolutely no way to fulfill those promises until he gets into power and is in control of the economy.

The methods of tinkering with sovereign economies throughout history have been varied and extremely creative. The early kings always saw to it that they possessed the exclusive right to mint coins or print currency. In that position they had access to all the gold and silver coins that circulated through the kingdom’s treasury. The king’s men simply took the coins and artfully filed or clipped off a portion of the precious metal. That was called coin clipping. Sometimes the coins were put into moistened leather bags where they were shaken and beaten until small pieces of the coins would come off and cling to the inside of the bag. That was called coin sweating.

At other times holes would be drilled through the coins in order to retrieve amounts of precious metal. Upon occasion, the sovereigns would make a sandwich by using cheaper metal only clad with gold or silver but still call the coin by the same name. Obviously, that would devalue the coin. The king would then take the clippings he had gleaned and mint new coins. Since he was the first to use the altered coins, he would pass them off at full value. Suddenly there would be more coins and fewer goods in the kingdom.

The merchants were helpless to do anything about the coin tricks but they still had an alternative. Since there was, let’s say, twenty percent less gold in the clipped coin, they were forced to simply compensate by raising their prices by twenty percent to offset the difference. A sustained increase in the general level of all prices was experienced, i.e., inflation.

What the king had cleverly done was to impose a twenty percent tax increase on the people without having to go out and collect it. Now he had funds to go purchase his wants. Of course, it didn’t take long for the king to realize that he now had a new problem. The people began using the debased coins to pay their regular taxes. He felt cheated since he was not collecting as much gold now as he used to. But, no problem, like a dog chasing after his own tail, he would simply repeat the whole operation.

The old economist Adam Smith said that the kings who did this:

           . . . were enabled, in appearance, to pay their debts and fulfill their engagements with a smaller quantity of silver than would otherwise have been requisite. It was indeed in appearance only; for their creditors were really defrauded of part of what was due to them. All other debtors in the state were allowed the same privilege, and might pay with the same nominal sum of the new and debased coin whatever they had borrowed in the old. Such operations have always proved favorable to the debtor, and ruinous to the creditor, and have sometimes produced a greater and more universal revolution in the fortunes of private persons, than could have been occasioned by a very great public calamity.

A confiscation or straight tax by the king would not have been nearly as harmful as inflation. A tax would have only affected the relationship between the king and those taxed. But the tragedy of inflation is that it affects and disrupts the relationship of everyone in the country. People who have saved money as a store of value no longer have what they though they possessed. Creditors who loaned money with an anticipated return are repaid with less value, and insurance values are wiped out.

An increase in the supply of money relative to the supply of goods is the cause of inflation. Without the possibility of the sovereign government being able to alter the supply of money in the system, there would be no sustained inflation.

Next week: Tents and Tiger Teeth

         (Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com

POWER OF STORY: WHAT IS THE CAUSE OF INFLATION?

by Dr. James W. Jackson

Founder, Project C.U.R.E.
Author, The Happiest Man in the World: Life Lessons from a Cultural Economist

How does a sovereign nation assimilate and cope with an acquired debt of seventeen trillion dollars? Just how much is a trillion? Let’s see if we can transform this economic amount into a figure that we can better understand.

If Billy Bank Customer walked into his local bank, approached the teller window and requested the employee to count out to him one million dollars at the rate of one dollar per second, how long do you think it would take that teller to count out the money . . . nonstop . . . no lunch breaks, no potty breaks, no sleeping, no walking around, or talking to anyone, just counting?

        The answer is eleven and one half days and nights nonstop!

How long would it take Billy’s banker to count out one billion dollars at the rate of one dollar per second?

        The answer is thirty-two years, nonstop.

How long would it take Billy’s banker to count out one trillion dollars at the rate of one dollar per second?

        The answer is thirty-two thousand years, nonstop. That is longer than recorded history!

Now, we start losing touch with reality and our brain begins to bounce off the inside of our skull when we attempt to multiply that numerical concept by seventeen, or twenty, or twenty-five!

We are going to be dealing with the subject of inflation. Let’s establish a definition: Inflation is the sustained increase in the general level of all prices.

As long as we are in the question asking mode, let’s try a little quiz. Indicate whether or not you believe the following listed factors to be the cause of the monetary phenomenon called inflation:

                                                 Agree                              Disagree  

• When companies are allowed to have a monopoly on a product or service, they charge more, thus causing inflation, because everyone else then has to charge more.

• Greed and profiteering on the part of business operators causes inflation. 

•  When labor unions demand higher wages, it forces manufactures to raise their prices and that in turn forces new demands for higher wages, etc., thus causing inflation. 

• Imports, such as automobiles, electronics, and clothes, cause inflation.

•  Exports, such as wheat or timber to other countries, cause inflation.

• OPEC and other cartels cause inflation since they can demand a higher price for a product, such as oil, which is depended upon so heavily.

• When the supply of money is increased into the economic system without the same amount of goods or services being increased, the result is inflation. 

• When products become scarce because of strikes or poor crops, the price goes up and it causes inflation.

The phenomenon of inflation is nothing new in history. Of all the numerous currencies created throughout the world since the 1700s, few to none exist in their original form. Most changes center around deficits and debt. Next week we will further investigate inflation as it relates to the future of our own nation.

(Research ideas from Dr. Jackson’s new writing project on Cultural Economics)

Dr. James W. Jackson often describes himself as "The Happiest Man in the World." A successful businessman, award-winning author and humanitarian, Jackson is also a renowned Cultural Economist and international consultant, helping organizations and governments to apply sound economic principals to the transformation of culture so that everyone is "better off."

As the founder of Project C.U.R.E., Dr. Jackson traveled to more than one hundred fifty countries assessing healthcare facilities, meeting with government leaders and "delivering health and hope" in the form of medical supplies and equipment to the world's most needy people. Literally thousands of people are alive today as a direct result of the tireless efforts of Project C.U.R.E.'s staff, volunteers and Dr. Jackson. 

To contact Dr. Jackson, or to book him for an interview or speaking engagement: press@winstoncrown.com