THE END
APPENDIX
TO CHAPTER IX
NOTE: This need not be read in sequence. It is included to amplify Davis’ remarks in order that the reader may understand the causes of economic confusion in the early 20th century.
There is an old tale of five blind men who were taken to “see” an elephant. Each examined it as best he could, and described it in terms of his experience.
One felt a leg and said, “It is like the trunk of a tree.”
One had grasped the tail and answered, “How ridiculous! It is a rope.”
A third countered, “You are slightly mistaken, brother. It is somewhat like a rope, but is actually a mighty snake.” He had touched the trunk.
Another ran his hand across the broad solid side of the beast and exclaimed, “How can you be so deceived? Verily, it is a wall.”
The last touched the elephant not at all, but heard him trumpet. He fled, for he thought the Spirit of Death was upon him.
They were all correct insofar as their data went. Each in grasping a part of the truth had reached a different wrong conclusion.
Twentieth century economists, of whatever school, almost unanimously fell into the same sort of error. Illustrations of how they made such errors, through examining some special case of the production-consumption cycle, are set forth below:
RENT TROUBLE (The Single Tax Argument)
Use the same data as used by Perry and Davis, except (1) the banker spends all of his interest, (2) the land owner does not spend his rent. OVER-PRODUCTION: two playing cards.
Nevertheless, title to land frequently results in individuals receiving returns in rent disproportionate to investment. This is Henry George’s “un-earned increment.” But un-earned increment does not in itself cause over-production, and taxing it away will not balance the cycle. On the contrary, it throws it further out of balance. Taxing un-earned increment out of existence is only a means of social readjustment.
PROFIT TROUBLE (The Socialist Argument)
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)
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
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.
AFTERWORD
“A Clean Sweep.”
Fifty years before Robert Heinlein’s death in 1988, he wrote For 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 in Thrilling 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’s Astounding Science Fiction. Campbell bought it, and Heinlein never went back to what he called “honest work.”
But as James Gifford has pointed out in Robert A. Heinlein: A Reader’s Companion (Nitrosyncretic Press, 2000), t
he story is not quite that simple. There was indeed a writing contest, but in the October 1938 Thrilling 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 accelerated a learning process into writing the kind of science fiction Campbell would buy. And before Astounding, even before For Us, The Living, Heinlein had tasted literary rejection. When he was in the navy, serving on the aircraft carrier Lexington, he had entered a short story in a shipboard writing contest. “Weekend Watch,” a little tale of espionage and intrigue at the Naval Academy, still survives in the Heinlein archives at UC Santa Cruz.
Heinlein lost that contest.
Perhaps his most significant rejection came before he wrote “Life-Line.” He had already written a complete novel: For Us, The Living, which was rejected first by Macmillan, who kept it for some time, and then by Random House, who returned it after only a month in June of 1939.
Precisely when the novel was written is a matter for scholarly conjecture, but the general date is fixed in a letter Heinlein wrote to Campbell on December 18, 1939: “A year ago I wrote a full length novel.” That places the window of composition between August 1938, when Heinlein lost his bid for California State Assembly, and April 1939, when he wrote “Life-Line.” In August 1934, Heinlein returned to California with his second wife, Leslyn, from a long hospital treatment for the tuberculosis that ended his naval career (Heinlein had a very brief first marriage in the late twenties). He briefly sat in on classes at UCLA—he was never formally enrolled there, nor did he ever audit classes officially—and he soon realized that he would not be able to afford postgraduate study, even if he could surmount the fact that Annapolis granted no undergraduate degrees at that time, making it difficult, if not impossible, to convince UCLA to admit him to graduate school.
Fortunately, in the fall of 1934, Heinlein encountered something far more exciting than running an academic obstacle course. Upton Sinclair is best known today for the 1906 muckraking novel The Jungle. In 1934, he was also known for a whole series of novels and books crusading for socialism and radical change—and for running for California governor as a member of the Socialist Party. For the 1934 campaign, he had left the Socialist Party for the Democratic ticket. Sinclair’s crusade electrified the nation, and terrorized the Republican Party, which had long been accustomed to controlling California. Robert Heinlein became deeply involved in Sinclair’s Utopian vision for California: End Poverty in California, better known as EPIC.
EPIC was one of the many plans put forward by various American political figures to solve the problems of the Great Depression, including Franklin Delano Roosevelt and his New Deal; Huey P. Long’s Share the Wealth (tax the rich 100 percent after their first million dollars of income, then redistribute the wealth to everyone else); Dr. Francis Townsend’s Old Age Revolving Pension Plan (give senior citizens $200 a month); and the Technocracy movement (put engineers and scientists in charge of society). FDR curtailed many of these movements by co-opting their best ideas. He raised the income tax on the rich to disarm Share the Wealth’s appeal and instituted Social Security in 1935 to supplant Dr. Townsend.
Sinclair’s idea for EPIC can be boiled down to a single phrase: “production for use”—a phrase which is ridiculed in the 1940 Cary Grant/Rosalind Russell classic, His Girl Friday. He suggested that California had two untapped resources: factories and farms that had been closed down, and the unemployed. Why not combine them, so that all the unused land and facilities could be used by the unemployed to produce the goods and services they needed for themselves? They would use scrip to run their economies, and anything left over as surplus could be sold to the general population. On paper, it looked like a simple equation.
In reality, it provoked two responses: one, a wild joy on the part of Sinclair’s followers that the problems of the Depression could be solved, and two, a great fear on the part of California’s wealthy that the Socialist Revolution had come for their heads—and wallets. The memories of the Russian Revolution were sharp for these wealthy capitalists, who viewed EPIC as a communist plot. The movie industry in particular went to war, producing phony “newsreels” that were far from representative of Sinclair’s plans, making it seem as though the communists and the nation’s unemployed would turn life in California into a nightmare. The Hearst newspapers and the Los Angeles Times went to work as well, destroying Sinclair’s hopes for election at every opportunity. FDR hammered the final nail into the coffin when he refused to endorse Sinclair as the Democratic candidate, seeing little reason to spend political capital on a potential rival.
So Upton Sinclair lost the election.
But Robert Heinlein did not give up the fight.
He was a neophyte political volunteer in the 1934 election, although he was quickly given six precincts to run. But after Sinclair’s loss, Heinlein began to move up in the Democratic Party, to carry on the EPIC fight over the next four years. Eventually, he helped write and edit the EPIC newsletter (with a circulation of two million in 1934), became a major player in the Democratic Party in Los Angeles, helped write the platform for the state EPIC movement, and served at the state level of the Democratic Party on the California State Central Committee. In 1938, Robert Heinlein moved from behind the scenes and took up the race for political office, running for California State Assembly.
His opponent was the Republican incumbent, corporate attorney Charles Lyons. Their district included Beverly Hills and part of Hollywood, which at that time were not only wealthy, but also conservative and Republican. Heinlein had only a small group of supporters in his campaign, because the Democratic Party believed there was no way to win that seat. He fought the good fight, but because his opponent had cross-filed as a Democrat for the primaries (which eventually became illegal in California), if Heinlein lost the primary, Lyons would automatically win the election—as the only candidate. Heinlein lost, by fewer than five hundred votes.
In many ways, the 1938 election was a triumph for the Democrats—they gained the governor’s seat for former EPIC member Culbert Olson and a number of state assembly seats. Although Heinlein’s loss stung, it did not end his political involvement. He continued in Democratic politics at least until 1940, when he attended the Democratic National Convention in Chicago as an observer with press credentials.
Still, with his formal education stalled and his political career stymied, where would he turn to pay off the mortgage on his house? His naval disability pension would be enough to keep the Heinleins fed and clothed, but not enough to cope with the mortgage, and in 1938, owing money to a bank was still somewhat shameful.
And how would he continue his efforts to help his country? EPIC showed every sign of falling apart: the EPIC newsletter ceased publication even before the 1938 primaries were over, and most of the EPIC politicians stopped identifying themselves as such, in order to win elections. Sinclair himself had returned full time to writing.
Sinclair’s writings had always harbored social commentary, not to mention social crusades. Heinlein knew Sinclair personally and had worked with him on the EPIC movement. Thus one writer’s life and work provided the model for another’s incipient career.
Heinlein turned to writing For Us, The Living.
Of course, Upton Sinclair was not the first writer to suggest solutions to social problems in the form of fiction—Utopias (perfect worlds) and dystopias (nightmare worlds) were well-known
literary forms by 1938. Heinlein would have known of the genre’s two most famous practitioners: Edward Bellamy and H. G. Wells, both major influences on Upton Sinclair’s Utopian socialism. Bellamy’s 1887 Looking Backward remains the most famous Utopian novel ever written by an American and may well be the book Heinlein had in mind when writing this first novel. In both novels, the main character awakens in the future to find an ideal society he does not understand. Through a series of Socratic dialogues, the protagonists (and the audience) learn how such a wonderful world can truly exist. Wells, whose “scientific romances” established the paradigms of science fiction for much of the twentieth century, also wrote many novels that portrayed future Utopias and dystopias. When the Sleeper Wakes was a particular favorite of Heinlein’s (the 1910 revision The Sleeper Awakes was the book H. G. Wells autographed for Heinlein when they met). The 1936 film Things to Come, adapted by Wells from his earlier novel, The Shape of Things to Come, ends with a launch into outer space, as does For Us, The Living.
Heinlein was primed by these writers, as well as by the science fiction pulp magazines he read regularly, to trumpet the future as a wonderful opportunity for progress. When he sat down to write For Us, The Living he was trying to do what he had done throughout his four years of political activity and would continue to do for much of his writing career—generate change for the better. The title comes from Abraham Lincoln’s Gettysburg Address:
It is for us, the living, rather, to be dedicated to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us—that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion—that we here highly resolve that these dead shall not have died in vain, that this nation, under God, shall have a new birth of freedom…
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