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Same data except:
(1) Banker spends his interest.
(2) Entrepreneur spends only two shekels.
OVER-PRODUCTION: 3 playing cards.
Same situation as above. If a concern's profits seem disproportionately high, they may be lowered by
punitive taxation, but to do so will not tend to balance the cycle, unless shekel for shekel (or dollar for
dollar) an equal amount of money is given away to someone who will spend it.
LABOR TROUBLE (The Conservative Argument)
Using the same data, but with banker spending all the interest, run two cycles side by side. Let the
additional cycle suffer from labor trouble, the workers striking for high wages, and winning the strike. Let
the additional labor cost be 31.5 shekels. Necessary price of cards will be 2.5 shekels per card in this
cycle. But the other cycle can sell to the same market at 2 shekels per card. No matter what the final
market price, both cycles will have overproduction, or the second cycle will fail to obtain a return equal
to cost, or both.
Results:
(a) Market price 2 shekels, 1st cycle balances, 2nd cycle sells all its goods, but is insolvent by 31.5
shekels.
(b) Market price 2 1/2 shekels, combined over-production is 15.75 playing cards.
DUMPING FROM ABROAD (The High Tariff Argument)
Using the same data, place on the market from another cycle with lower costs of any sort, especially
labor, playing cards to sell at one shekel. Our entrepreneur is forced to cut prices and goes broke.
Orthodox solution, XXth century: protective tariff. Rational solution: Cease to manufacture the type of
articles being dumped on us, and pay for them with our currency. We gain the increment in real wealth.
INTEREST (The Anti-Semitic Argument)
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There is an element of truth to this argument that interest not spent as purchasing power unbalances the
cycle. The illustration given in the narrative is proof of this. And there were undoubtedly many Jews in the
banking business, though by no means a majority. Yet somehow on this slender pedestal, an incredible
structure of half-truths and outright falsehoods was constructed many times in history to 'prove' that
Jewry was engaged in a conspiracy to enslave the rest of mankind. It is difficult for us, in the enlightened
21st century, to realize that this preposterous myth was the cause of torture, mass murder, and an endless
number of vicious acts of racial discrimination.
MONOPOLY (The Trust-Buster's Argument)
This problem should be set up in three ways, monopoly of raw materials, monopoly of technique, and
monopoly of a field of enterprise. In each case modify the data to cause the holder of the monopoly to
(a) receive too large returns (b) freeze out a competitor.
Monopoly of raw materials is contrary to public interest. The state must exercise its right of control or
expropriation to prevent it.
Monopoly of technique is now limited to the royalty rights of the inventor, but in former times the owner
of a technique was legally able to monopolize it entirely, even to the extent of neither using it, nor allowing
others to use it.
Monopoly of a field of enterprise, where it is not based on the other types of monopoly, usually indicates
greater efficiency and should be controlled in the public interest rather than eliminated. We now believe
that the interest of the consuming public is paramount. It was formerly held that the interests of the little
businessman were paramount. This point of view is roughly equivalent to that of the machine breakers at
the beginning of the industrial revolution in the 19th century.
It is obvious that natural causes alone are sufficient to destroy a big business which serves the public less
efficiently than a small business, all other things being equal.
The above illustrations, while by no means exhaustive, show the type of error into which our forefathers
fell. In each case, the proponents of the above-listed arguments took a special case of the
production-consumption equation and treated it as if it were the general case. In each case they were
right as far as they went but by assuming their special case to be the general case, their conclusions
were invariably fallacious.
For comparison with 20th century economies the problem set up by Perry and Davis will now be
worked as an illustration of the general case of the production-consumption cycle, applying the modern
method of the dividend-discount for balancing the cycle.
Total cost of product: 126 shekels
Number of units (playing cards): 63 shekels
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Assume that holders of purchasing power refrain from spending 26 shekels. Therefore, if the government
issues a total of 13 shekels as a dividend, and authorizes a discount of 13.126 or approximately 10%, the
spread between production and consumption will be eliminated. Capitalization of the country will be
increased by 26 shekels and production will be greater in the next fiscal period, thereby increasing the
real wealth of the country.
This problem must be worked out with the chessmen, or their equivalent, to be appreciated. This type of
problem is worked out in more detail on page 171.
The invention of the discount method of preventing inflation is usually attributed to C.E. Douglas, a
Scottish economist of the early 20th century.
AFTERWARD
"A Clean Sweep."
Fifty years before Robert Heinlein's death in 1988, he wroteFor Us, The Living, his first novel.
Like many writers, Heinlein found himself repeatedly answering the same questions. In particular, "How
did you get published?" His polished tale went like this: He had lost a political campaign in 1938, and
faced a mortgage and no prospects of employment. He saw a contest inThrilling Wonder Stories
offering $50 for science fiction stories from unpublished authors and decided he would give it a try. In
four days of April 1939, he wrote his first story, "Life-Line" and decided it was good enough to submit
to the top market of the day, John W. Campbell'sAstounding Science Fiction. Campbell bought it, and
Heinlein never went back to what he called "honest work."
But as James Gifford has pointed out inRobert A. Heinlein: A Reader's Companion (Nitrosyncretic
Press, 2000), the story is not quite that simple. There was indeed a writing contest, but in the October
1938Thrilling Wonder Stories. However, there was no $50 prize; instead, it was a call for submissions,
at the normal word rates. Future great science fiction writer Alfred Bester won that contest and had his
first story printed in the April 1939 issue, when Heinlein was just starting "Life-Line" which shows
another flaw in the polished myth: the contest was already publicly won before Heinlein even began his
intended submission.
Bester never had a single story rejected by any editor or publisher but Heinlein did.
In fact, Heinlein faced a number of rejections. His second sale to Campbell, "Misfit," was accepted only
with revisions, and Campbell rejected six of his next stories, one right after another. Those six rejections
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