By John Beasley
In Eastern Europe and Asia, typically a farmer grows a potato and sells it at the farmers market in town. A vendor who sells potato chips in town buys a large twenty-four-ounce potato for the equivalent of fifty cents. He or she cuts the potato on a rotating razor blade and deep-fries the potato into chips or crisps. He or she makes four brown paper bags of chips or crisps and sells them in the plaza for the equivalent of a dollar a bag. The total value of this transaction is the equivalent of $4.50 USD. The vendor, the small businessperson, puts the money in his or her pocket and this increases the value of the Gross National Product of that country by nothing. For the most part such transactions are unrecorded. They don’t contribute to the Gross National Product, or as the case may be shortly to the Gross World Product.
In the United States and the nations that have fallen under the influence of the United States, the potato sells for fifty cents at the farmers market and the sale is recorded. If any taxes are due, they will be collected. The manufacturer of potato chips buys the potato and makes three large bags of potato chips. The potato chip manufacturer sells the potato chips wholesale to the grocery store for one dollar a bag. The manufacturer records the sell and pays whatever taxes are due at the end of the year. The grocery store sells the potato chips for $1.99 a bag to the consumer. Every step in the production process is recorded and perhaps taxed. The basic value of this one large potato to the Gross National Product of the U.S.A. is about $9.47 cents. Every transaction in the production process of this potato is recorded by big corporations and included in the Gross National Product calculations of the U.S.A.
In the United States the potato supports the farmer, the potato chip manufacturer and the grocery store. As well, the U.S. Government not only taxes the entire supply chain of that potato, but also sells treasury bonds and other forms of national debt instruments based on the strength of the Gross National Product in the U.S.A.
At some point the nature of government is to borrow as much as possible and to tax as much as possible until their debt equals the Gross National Product. At that point the government has to somehow totally shut down their economy, perhaps default on their debt, or perhaps devalue their currency. If the U.S. Government devalued the currency by 50%, the contribution to the Gross National Product by the entire supply chain of the potato would increase to $18.94. The government might be able to borrow more money since they now would have a 50% debt to Gross National Product.
If we look back at the 1970’s when the U.S. economy went off the silver-gold standard, gasoline at the pumps in the U.S.A. under the silver-gold standard was about thirty cents a gallon. After the U.S.A. went off the silver-gold standard, the price of gasoline increased to about one dollar and twenty cents a gallon. Within a few short years the old silver and gold backed U.S. dollars were worth four times as much as the new fiat currency backed by only the “full faith and credit” of the U.S. Government. If the same situation presented itself today, in relation to the potato, the potato would be selling for two dollars at the farmers market and the cumulative supply chain of the potato would be contributing $37.88 to the U.S. Gross National Product calculations.
While at the same time in Eastern Europe and Asia the cumulative value of the potato supply chain would continue to contribute, generally speaking, nothing to the Gross National Product of those backward countries. Those countries are unable to tax that small business persons revenue stream or to borrow against it. If those backward countries could move production of potato chips or crisps away from small retail vendors and to large corporations, then the government in those backward countries could grow their Gross National Product. The larger the supply chain they could construct out of a potato (and all products) the larger they could grow the national economy and thereby their Gross National Product and their tax basis.
Surely, you would think, a small businessperson could defeat a large supply chain? The small businessperson would be more efficient than the large supply chain. The economics of scale used by the corporate supply chain would come into play. What if economies of scale failed due to some drastic downturn in the economy? What if the small businessperson suddenly had an advantage? What could save large corporations from such an economic crash?
Perhaps, a potato scarcity, or a vegetable oil scarcity, or a cooking gas scarcity, or a shipping crisis, or a banking crisis. Access to capital might also help save the corporations. Maybe the U.S. Government could print huge sums of money and give it to large potato chip corporations. Other factors might be higher taxes. The large potato chip corporations could ship their potatoes to Canada, Mexico or China and “value add” i.e. take the profit on the potato chips outside of the U.S.A. and import the finished bag of potato chips back into the U.S.A. and owe no taxes.
The corporation might even figuratively lose money on potato chips, thus realizing a tax credit in the U.S.A.. That tax credit could then be used to shield other streams of taxable income earned inside the U.S.A. But wait, how does that help grow the Gross National Product of the U.S.A.?
Since large corporations have figured out how to escape national taxation by “value adding” outside of the U.S.A.; the logical next step might be to begin calculating the “Gross World Product” and to begin collecting a world tax on potatoes. But, how would the U.S. Military get funding from a world tax on potatoes? Well, perhaps a Military Space Force to protect the entire worlds potato crops from potato eating Space Invaders? No, that is too stupid, the U.S. Military and the U.S. Citizens would never fall for that one.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of The Duran.