Perry shifted uneasily in his chair. "I didn't intend to cause you so much trouble, Master Davis."
"No trouble at all. You have done me a service. This is a most fascinating approach to the subject that has been my principle interest. By preparing to explain it to you, I understand it better myself. First tell me what you know of the present system."
"Well, in the first place it has retained private enterprise in industry. There I suppose it's a form of capitalism."
Davis nodded. "An inadequate word, but let it stand."
Perry continued, "However, although production, and so forth, is private enterprise, each citizen receives a check for money, or what amounts to the same thing, a credit to each account each month, from the government. He gets this free. The money so received is enough to provide the necessities of life for an adult, or to provide everything that a child needs for its care and development. Everybody gets these checks—man, woman, and child. Nevertheless, practically everyone works pretty regularly and most people have incomes from three or four times to a dozen or more times the income they receive from the government. There is no such thing as unemployment because there is always a demand for more production. Consequently wages are high. However prices are low, and to make the situation even more confusing, merchants regularly sell goods at less than cost, and the government pays them the difference. That is the general set up, if I understand what I have been told. It sounds impossible, an Alice-in-Wonderland business, filled with contradictions that deny common sense. It disturbs me. It challenges my reason. I'd be less annoyed at a perpetual motion machine."
Davis smiled. "I appreciate your difficulty. It is necessary first to clean your mind of a number of the errors, superstitions, and half truths that went by the name of 'economics' in your day. Consider for a moment the physical facts of the situation that you see around you. Disregard the money aspect for a moment and think in terms of goods, people, production and consumption. What then is the situation?"
"Well—I see that everyone has a pretty high standard of living, they live in good houses, and eat plenty of good food, and they have plenty of the comforts of life. That's the consumption side. On the production side I see factories and farms, and so forth, that produce at a high rate with lots of labor saving machinery. Nobody has to work very hard unless he really wants to. Anybody that does gets a big return for it in terms of goods and services."
"Do you see any difficulty in the picture now—still leaving money out of it?"
"Well, no. The physical wealth is there and the work done is enough to turn it into a high standard of living."
"Now describe 1939 in terms of physical economy—again leaving out money. Be careful not to use any term that implies money, such as wages, debt, price, and so forth."
Perry grinned. "You're preparing a trap for me. I can see it coming."
Davis was serious. "It's not a trap. It's a necessary expedient to lead your mind around its ingrown economic errors and enable it to think correctly. Go ahead and describe it."
"Okay. The country was just as rich in natural resources—richer as a matter of fact. We had plenty of factories to fabricate raw materials, but lots of them were shut down. Our farms produced liberally, plenty of good food, enough to feed everybody well. We had the technical knowledge, tools and materials to produce an abundance of luxuries and comforts, and in fact we did, for our retail stores were stocked to the ceilings with every sort of desirable article. That is the production side. On the consumption side about half of the population had less to eat than it needed and that of poor quality and wrong variety. In other respects they were worse off, living in houses that were fire traps, and disease breeders, frequently without running water and with primitive heating systems. Most of them had no medical or dental attention and were rotten with disease. My dentist once told me that four-fifths of the population never received dental care in their lives. The next third or so of the population just barely got by. They lived in fair comfort but in the fear of slipping back into squalor. A small group at the top had more than they needed of everything. While I'm speaking of consumption I suppose I should mention that we made a practice of destroying annually a large part of our production, especially food. Some people considered this wasteful, and we devised means to produce less rather than destroy part of what we had produced. But it came to the same thing."
"You speak of a small group that had too much. Do you know what the result would have been if everybody had consumed share and share alike?"
"As a matter of fact I do. I used to worry about that and worked it out on my slide rule in 1938 from some figures quoted in Time magazine. That was a news sheet published in those days. The average national income came to about one hundred and thirty dollars per month per family, which wouldn't have been a very high standard of living. But the same figures showed that only thirty per cent of the population had that much or more, seventy per cent had less. I have to mention money at this point, but I'll translate it into goods. A family at that standard of living would live in a cheap house, drive a second hand car, set a decent but not fancy table, have a radio, and go to the movies occasionally. But they would have no reserves, and sickness, accident, or the loss of a job would land them almost overnight in squalor."
"Then—still speaking in physical terms—was this average standard of living the best the country was capable of, by and large?"
"Oh no. Not nearly. The country was able to produce at least twice as much as was actually produced. Some authorities said three times or more. But anyone could see by looking around him that much more could have been produced. For one thing at least ten million people were out of work."
"Very well, then. You have described two different economic systems in terms of the physical realities involved. Now which one of them denies common sense, which one challenges your reason?"
Perry smiled. "You've sprung your trap, just as I anticipated. The 1939 system is the ridiculous one, certainly—when you look at it that way. But that still doesn't explain your cock-eyed financial arrangements."
"The paradoxes you appeared to find arise from flaws in your training. They have no reality. I am about to state an axiom: Anything which is physically possible can be made financially possible, if the people of a state desire it."
"That sounds good, but is it true?"
"Yes, if the people of the state understand finance. Tell me, what is money?"
"Money—money is a lot of things. It is a medium of exchange, based on some precious metal, usually gold. It is also a commodity, bought and sold, and rented out for interest. And it's capital for industry."
"Which one of those things is it?"
"Well—when you come right down to it, I guess money is gold."
"That's what J.P. Morgan thought, at least he told a Senate committee that in 1912. I wonder whether he was lying or deluded. Try this definition: 'Money is anything which can always be swapped for goods, or services.' I believe that you will find that to be the only characteristic common to all money, and common to nothing else. How much money does a country need?"
"How can anybody answer that question?"
"Apparently nobody tried to before the present economic regime. Money was expanded and contracted in a most senseless fashion. The panic of 1907 for example was produced by a deliberate contraction of money. But the answer to the question is simple, and arises from the nature or purpose of money as we defined it. A country needs enough money to enable its citizens to perform all desired exchanges of goods and services. Your 1939 system did not accomplish this; our 2086 system does."