Some Facts of Life

M. King Hubbert 1935

The persistence with which the moulders of our public opinion in the press keep reminding themselves and their public of the fallaciousness, not to say the perniciousness of the, Technocratic doctrines reminds one strongly of the little boy trying bravely to keep up his courage in the dark by constantly reassuring himself, ``I ain't sk-keered.'' It seems that such a number of things tend, to remind the gentlemen of the press of something or other Technocracy says, that they find it quite impossible to pretend it into oblivion.

We have, for example, the little matter of technological unemployment, which, in spite of the application of the most potent of witchcraft by our very best medicine men in an effort to conjure it out of existence, appears to be with us yet.

Lest there still be confusion on this point, let us review the pertinent facts:

Every piece of machinery introduced since the beginning of the use of tools has resulted in some job or other's requiring fewer man-hours for its performance than was previously the case. It was for that purpose that the tools were developed and introduced in the first place. In the industrial growth of North America new tools and machines were introduced but slowly at first. There came the steam engine, then steamships and railroads. There was the cotton gin, the reaper, and better plows. Man-hours were displaced in communication when the telegraph, and later the telephone, superseded the pony express. Finally, during the last fifty years, the whole works has blossomed forth into the finest and most complex array of industrial equipment ever seen by the eyes of man. And without exception each and every one of these developments has resulted in the doing of the job in hand with fewer man-hours than was ever before the case.

Jobs and Technology

Now where does all this lead us? To more jobs, or more jobless? The answer is, both; first the one, and then the other. In the pioneer days there were more than enough jobs for all, a situation that was met in part by the raising of families of a dozen children or more, and by the wholesale importation of cheap foreign labor. It is true that even at that time job. were being eliminated; but, for the period from the Civil War to the World War, industrial production wag increasing at about 5% per annum, while population was growing at only about 3%, and so, for that period, the birth rate of new jobs exceeded the death rate of old ones. It is true that the birth of new industries for that period and the expansion of old ones created more jobs than the introduction of new labor-saving equipment eliminated. The job. created by the automobile industry did, indeed, exceed those eliminated from the carriage industry.

In the period since the World War, however, a different aspect has presented itself. For reasons financial, rather than technological, industrial production has been leveling off in its rate of growth; but, since man-hours cost a minimum of 20 cents each as compared with kilowatt-hours at an industrial rate of one cent or less each, and since a kilowatt-hour will do more work than 10 man-hours, and do it quicker and better, and not talk back, it has been found to be more profitable to employ more and more of the latter and correspondingly less of the former. In other words, technological development with its introduction of labor-saving machinery is proceeding apace; and, since so much yet remains to be done, we venture to suggest that it will continue to do so into the indefinite future. Since production, in the meantime, has leveled off, the death rate of old jobs now exceeds the birth rate of new, resulting in a corresponding diminution of the total man-hours of human service required to maintain the operation of our social mechanism--a state of affairs which we predict will also, with only temporary reversals, continue into the indefinite future.

It must be emphasized that there need be no relationship between a diminution in the total amount of necessary human labor and of unemployment. The former is a direct consequence of technological advance; the latter results solely from human stupidity. Rationally approached, technological advance will continue to lighten human burdens. For a given number of total man-hours per year to be expended, any number of men one wishes to name may be employed, provided the working day be made short enough. It is conceivable that the technological advance might continue to such a point that, in order not to have an army of unemployed, the length of the working day wold have to be reduced, to five, or even three, hours per day, and it still be necessary to pay for the shorter day an amount equal to or greater than what is now being paid for a day of eight or ten hours.

Of course such a state of affairs would be disturbing, for it would strike at the root of one of our fondest American illusions, namely, that a man somehow earns what he receives. Should our citizens who perform socially necessary functions reach a state wherein they were paid a handsome standard of living for relatively small expenditure of effort on their part, they might possibly put on airs and pretend, that they were as good as bankers and others who perform no socially necessary function, and who allow themselves graciously to be served. This would be very detrimental to our great American institutions, and so is not to be countenanced if any convenient alternative can be discovered.

Getting "Wise''

Such an alternative exists in practice in the form of the dole, the CCC concentration camps, and the numerous work projects wherein, under the guise of philanthropy, a very large percentage of American citizens are coerced into donating their services in return for a pittance.

Of course, we are neither praising nor blaming individuals. We are only observing that any social administration that is incompetent to do better for the welfare of its citizens under circumstances of potential plenty has little to be said in its favor, and may possibly be on its way out.

But one of the more hopeful things about the human animal is that, no matter how slow and painful the process may be, he can learn, and that this learning is a unidirectional and nonreversible process. Thus, 12 million or more human beings who for various fractions of the past five years have been in the army of the unemployed, and 20 million more American citizens on relief, who prior to 1929 formed the nucleus of the great American sucker class so indispensable to ``normal'' business, will never be the same again. Evidence of a painful stirring of intelligence is to be observed in the unrest and dissatisfaction of the victims with the pittance of the dole and the sweatshop rates of pay on work relief.

There are those who like to describe this state of affairs as ``the breaking down of our public morale,'' ``the expression of gross ingratitude,'' or ``biting the hand that feeds them.'' What it actually means, however, is that the suckers are now getting ``wise'' to the fact that their plight is entirely the consequence of wholesale incompetence in the management of a social mechanism whose productive equipment is virtually tugging at the leash for action.

They are getting wise to the fact that 12 million American citizens unemployed and 20 million more on relief are not going to be starved to death, nor are they going to be mistreated indefinitely. They realize that by far the greater part of the so-called ``work'' relief projects are the nature of a sham and an hypocrisy--a pretense at doing useful work, when what is actually wanted is some way of keeping people busy without there being any useful production to show for it. Witness the road work wherein picks and shovels are employed while nearby steam shovels are allowed to remain idle. Why not pay the men for remaining idle and let the steam shovel dig the dirt? That, of course, would violate our folkways, requiring that one at least pretend to work for what he receives.

Why not take over factories and put the unemployed to work producing clothing for themselves? Why not take a part of the money used for home relief and establish soup kitchens wherein the destitute could have free at any time a substantial meal, well cooked and served? These, of course, would constitute competition with ``legitimate business.''

The unemployment and relief problem is with us yet. It has grown out of its diaper stage and is beginning to step out in long pants. Whether or not they bite the hand that is feeding them, whether or not they display, the proper attitude of gratitude and deference, and whether they work or whether they don't work, 32 million Americans now unemployed or on relief, and as many more as may be added in time, are going to continue to be fed.

A Sequence of Reasons

And then there is the little matter of finance, upon which the Technocrats have had a thing or two to say from time to time. In spite of the sanctimonious air with which such things are usually discussed, one may as well realize sooner or later that all finance is a game of paper and bookkeeping, played according to prescribed and arbitrary rules. One may as well know that if all the gold, all the coin, and all the U.S. currency (paper with some printing on it) in the United States were added together, the total would amount to only slightly more than 9 billion dollars. He might know that when banks show deposits totaling 50 billions of dollars there is nothing more tangible to show for it than some entries in the bankers' books. He might know that when one wishes to make a million dollars, he does so principally by the printing of some papers (bonds, stocks, etc.) and selling these to a sucker public. One may make money by working. He may earn one, ten, or even fifty dollars per day--but nobody ever earned million dollars by working, and it is doubtful that anyone ever will. Amounts of millions and of billions of dollars are entirely a matter of paper manipulation, not of physical work.

It is this latter point that is commonly ignored by those who are continually beating the big bass drum about the balancing of the Federal budget. The Federal Government for the last several years has been forking out money at the rate of several billions of dollar per year in excess of the amount which it takes in. it will be remembered that when this practice was initiated industry was pretty well shut down, the banks were closed, and business men generally were somewhat jittery.

The reason industry had shut down was that people were not buying goods. The reason they were not buying goods was that industry had not paid them enough money. The reason industry had not paid them enough money was that it could have the work done cheaper by machinery. But, be that as it may, what was supposed to be needed to start industry was money in the hands of the consumer. This money was supplied by the Federal Government, and it had its virtue in the fact that it was not collected from anybody. It was simply created out of thin air.

The Governmental Dilemma

Following this shot in the arm, industry perked up; and, since the injection has been repeated each succeeding year with a slight increase of dosage each time, industry has succeeded in reaching a level about halfway between the 1929 level of production and the low of 1932.

In consequence of all this, the Bourbons, who never learn and never forget, began to feel their oats, and to holler about balancing the budget, apparently little realizing that balancing a budget by any other method than that of lifting the tops off of all big incomes would in short order shut down the county tighter than it has ever been shut down before.

On the other hand, one may well wonder what the outcome will be if the Government debt continues to mount by 4 to 5 billions of dollars per year and loud noises from the same quarters as those aforementioned inform us that it will be recollected in taxes. This is very frightful to contemplate if one ever stops to consider that it is impossible. If the Government has to go into debt to supply the purchasing power necessary to prevent industrial paralysis, consider how much more emphatic the paralysis would be if it reversed the process and began collecting to pay back debts from a national purchasing power already insufficient to maintain industrial operation.

So there is the Governmental dilemma: shut-down if the budget is balanced, and eventual exhaustion of Federal credit followed by shut-down if it is not.

In any case, no one with an income of less than $10,000 per year need be frightened at the possibility of ever having to help pay to any great extent the expanding Federal debt, for if such is ever seriously attempted we may rest assured that it will be an experiment that will be short and possibly dirty.

The Declining Interest Rate

One of the more fundamental rules by which the financial game is played is to the effect that money invested should draw interest; that is, that $100 invested now should at the end of one year accrue to the amount of, say, $105. Thus, all the money invested in the stocks and bonds ostensibly representing industry is expected to yield a return to its owners in accordance with this rule. Since most of this 5% is reinvested, it follows that the total monetary capital structure of industry must increase by an amount of something like 5% per annum or faster (depending upon how fast new debt, or ``money,'' is created out of thin air in the meantime). The very maintenance of a 5% interest rate necessitates that this be true.

If, at the same time, industrial production expands at a similar rate of growth, there exists a 1:1 correspondence between the debt structure and physical production. Expansion of industry affords a field of new investment for the expanding debt structure while prices remain relatively stable.

Such, it may be recalled, has been the case of American industry for the period from the Civil War to the World War. Industry was expanding at about 5% per annum, the debt structure expanded, and prices and the interest rate remained relatively stable.

After the World War industrial production failed to keep pace, and its curve has since been progressively flattening out. Investments were forced into foreign debts, ``favorable'' trade balances installment selling at home, and pure paper. While, by such methods, the growth of the debt structure was maintained after fashion, it is quite obvious that if new fields for investments due to an expanding industry are not forthcoming, then one either ceases to invest entirely, or else pays more money for the same old stocks and bonds (or perhaps some new ones) from existing industry. Since profits are dependent upon production, it is obvious that profits from industry as a whole cannot more than temporarily expand unless production expands correspondingly.

Therefore, the total return of capital investments into industry must be geared to industrial production. If the price level is kept constant the yield will decline because of more money being invested in order to share a fixed dividend; if the price level is increased the paper interest rate can be maintained but the goods a dollar will buy will correspondingly decline. In either case the net result is the same: With a non-expanding industry the interest rate in equivalence of real goods must continue to decline.

In the light of the foregoing, it is informative to note that, according to the Bulletin of the Federal Reserve Board, the yield on conservative investments -- U. S. long term bonds -- since 1919 has declined as follows:

In other words, the interest rate is declining toward zero and the liquidity of the banks and other financial institutions is approaching 100% -- another trend which, with only temporary reversals, we predict will likely continue indefinitely.

The implications to the Price System game of a zero interest rate are many and significant. It means the disruption of banking and of the insurance companies. It means the withdrawal of the principal means of support of endowed institutions such as large universities. It means that people who have been accustomed to easy living from the return on their investments may have to join the more ordinary mortals already on relief.

In situations of this sort we must always keep in mind, the rather probable possibility of solving our domestic difficulties through the subterfuge of promoting a nice friendly war with somebody. Consider the advantages: there would be an industrial boom, turning out munitions. By one move the unemployment and relief problems would be solved by putting the abler members in the army (and hoping they would get shot), and the remainder to work in the war industries. War profits would follow, new fields for investment would open up, and even the interest rate might be jacked up a little. And a big time would be had by all--who lived through it in one piece.

Then after that, the deluge!

But where, you ask, does all this lead to? Simply to ``wising'' you up to the fact that you can't get blood out of a turnip. It is no longer fun to be fooled; the time is fast approaching when you will have to know some of the facts of life.