Ying and Yang

Home Origins Howard Scott

Technology Smashes The Price System

Howard Scott


Published in:
  • Harpers magazine, January 1933
  • The Northwest Technocrat, 4th quarter 1990, No. 321

A 1990 condensation of an article that appeared in the January 1933 issue of Harpers magazine and prepared under the direction of Howard Scott, Continental Director-in-Chief of Technocracy Inc.

"The reason why America finds herself in her present agony is because for many years she has been ignoring physical laws which are fundamental to her operation. Her present troubles are only another warning that the final day of reckoning is at hand. To say it one way, the cause of our troubles lies in the fact that during these years, instead of thinking of our well-being and of the operation of our country in terms of energy, we have thought of it in terms of something purchasable with dollars. If we are to understand the problem at all we have to grapple with this question of energy; upon it everything else rests.

"It is the fact that all forms of energy may be measured in units of ergs, joules, or calories that is of the utmost importance. The solution of the social problems of our time depends upon the recognition of this fact. A dollar may be worth -- in buying power -- so much today and more or less tomorrow, but a unit of work or heat is the same in 1900, 1929, 1933, or the year 2000. In a Price System, wealth is produced only by the creation of debt. A man is wealthy only when he is a creditor. If his wealth consists of bonds, stocks, mortgages, notes, equities, and so forth, he is merely the owner of a collection of promises to pay. Even currency is in this category, for you will find on the face of a dollar bill the words 'payable to the bearer on demand' -- with no questions asked as to how he happened to be the bearer.

"The units in which these forms of debt appear -- be they stocks, bonds or currency -- are units of value. Value cannot be measured; it has no metrical equivalent. A pound of coal is always a pound of coal, but the weight of a dollar's worth of coal is seldom twice the same.

"In the past, man was the chief engine and -- except for his draft animals and a few water wheels and windmills -- the only engine. By contrast, the largest single modern turbine has a capacity of 300,000 horsepower, or 3 million times the output of a human being on an eight hour basis. But since that turbine runs twenty-four hours a day, its total output is 9 million times that of one man. In other words, the output of four of these turbines is equal to the energy output of all the adult workers of the United States....A point was reached where technical improvements began to displace men....At the point where the rate of replacement of men by machines exceeded the expansion of the industry, a maximum of employment in the industry was reached and thereafter declined....And as the machines move forward, men with their trades and skills are left behind.

"Under our present Price System, we manufacture goods not to use but to sell -- and make a profit; and profit is a debt claim. When the great period of American industrial expansion began we had a huge frontier, the west was undeveloped, and we could make use of a great increase in population. The opportunity for this expansion was so great that for a period of years we could make any number of mistakes and still escape the consequences. Then, little by little, a horror began to appear. So swift was the advance of technology that machines and plants began to go out of date before we had got to a point where the debt incurred to buy them might be paid....To make a profit we borrowed, to pay what we borrowed we borrowed more, twice; we then borrowed all over again.

"A careful examination of the debt figures and the production figures of this country (and these figures have been repeatedly checked and cannot be brushed aside) reveals the appalling fact that for years our debts have been increasing at a rate faster than production and both of them faster then the rate of population growth!

"Modern industry is operated under the Price System, and to be successful it must do one thing: it must make a profit and pay a return on the money invested. Forgetting all other considerations for a moment, the amount of profit depends on the quantity of goods that can be sold. That is the reason for the incessant cry for trade expansion abroad and at home. On the other hand, inside his plant the producer has found that his profit increases if he cuts the cost of production, and that the surest way to do this is by producing on a large scale by means as automatic as possible--in other words with machines. A producer does not install machines in order to give his employees more leisure; he uses machines because they multiply, many times over, the output of which his employees were capable and at a faster and much cheaper rate. It is only lately that people have observed that the producer is putting out a most sinister profitless product -- unemployment....

"It happens that industrial investment is made for the most part by a very small fraction of our population, and the return on that investment must be put somewhere. It has been argued that this interest and dividend return goes into circulation again, but this is exactly what does not happen. The small investing fraction of our population cannot possibly spend all their interest and dividends, and the result is that this return must be reinvested in production. There is nothing else to do with it.

"Why is it that with all the available sources of energy in America the Price System will not work? The reason is that the Price System demands that the price of labor be high enough to buy the goods produced. The use of technology (in) industry sets three things in conflict with the system itself:

  1. The mechanics of placing purchasing power in the hands of the consumer is the exchange of money for the consumer's time (or labor) and technology is reducing the total amount of time required.
  2. The working of the Price System has forced the manufacturer to reduce the total number employed rather than to distribute the amount of time required among the total number of available workers. Technology has now advanced to a point where it has substituted extraneous energy for man- hours on an equal basis and where the distribution of human labor becomes impossible.
  3. Through increased investment in machines -- made necessary by the increasing rate at which they go out of date -- the manufacturer is forced to reduce the proportion of his costs which go to labor. This again inexorably worked against the increase of wages and the distribution of time.

"In other words, a Price System demands man-power (with a wage) if it is to succeed, and man-power for production steadily becomes more and more a thing of the past as the kilowatt-hour takes its place....

"On a population basis this country has a capacity of 3,600,000 horse-power [1990 figure is 7,383,000]. But the country is not run on such a basis. Technology has stepped this capacity up to a billion horse-power [1990 figure is 33,000,000,000], and it is this tremendous power let loose which is battering the Price System to pieces. Yet we cannot voluntarily cease the use of this energy, for we have now gone so far that our very lives depend upon it....Seven percent of the available energy is used in the provision of food. The other 93 percent goes to keep our society going. A close calculation estimates that if we shut off our coal, oil, electric and water power, a large percentage of us would be dead in twenty days....So highly integrated a mechanism has our country become with its very life dependent upon the smooth and continuous operation of our electricity, steam and water power, our coal, oil and gas. A chemist in the laboratory of an oil company can examine the sample of a certain grade of gasoline and tell you in figures that will never change exactly the maximum number of heat units that can be extracted from that grade. He can measure exactly, and that exact measurement is absolutely necessary in running our system. But can the sales manager in the office next to the laboratory tell you the exact price of gas next month, next year, or ten years hence? It is absolutely impossible. We are playing with dynamite when we attempt to harness the system to price.

"The supreme fault of the banker is not that his aims are sordid or that his appetite is rapacious. The trouble is that he is hopelessly out of date.

"We have heard a good deal in the past...about underconsumption, but it has occurred to but few people that it isn't what a people produce that proves their wealth, it is what they consume. Wealth is the conversion of available energy into use forms, be it potatoes, shoes, or electric light. The process of being wealthy consists in using up -- not wasting -- the products which, through the use of energy, we are able to make. The United States is the most nearly self-sufficient geographical and industrial unit on the face of the earth.

(Figures available in 1933: We have 50% of the coal reserves of the world and 40% of the iron ore. We produce and consume more than 69% of the world's oil. We are the greatest producer and consumer of natural gas -- 85% of the world's total. We occupy 3,400,000 square miles of land area -- have 6.2% of world population and produce approximately 50% of the world's energy.)

"To say it another way, our North American social structure involves a greater expenditure of energy per capita per day than any other social mechanism of the past or present. There are no physical factors in existence which would prevent the efficient operation of this Continent on an energy basis. The only thing that does prevent it is our devotion to a shibboleth -- PRICE; and it remains to be seen whether we shall pay for our devotion with our lives.

"A new system based upon recognition and an understanding of our available energy must be devised. That is the problem before the people. It can be done. Are we going to set about it before it is too late?"