5 Rules Of Raw Materials Economics

Charles Walters wrote an article for the National Organization for Raw Materials (NORM) in which he stated

The birth of raw material economics — while ancient in origin — has been credited to Benjamin Franklin, the Philadelphia philosopher, printer, and statesman, and to Thomas Jefferson, who as a historian once wrote “invented the United States.”

Although Jefferson gave a published expression to the concept of raw material economics, it was Franklin who sat down the general proposition in concise and understandable terms.

Writing in “Positions to be Examined” concerning national wealth, April 4, 1769, Franklin pointed out that there were three ways in which a nation might become wealthy:

• By war, which permits taking by force the wealth of other nations;
• By trade, which to be profitable requires cheating. For example, if we give and receive an equal amount of goods and services through trade, there’s no profit other than that obtained in our own production cycle.
• By agriculture, through which we plant the seeds and create new wealth as if by a miracle.

All human wealth must originate somewhere in the real world and the process that explains human wealth creation begins with raw materials. Understanding this process which begins with raw materials requires appreciation of the essential role of human productivity.

These 5 Rules Of Raw Materials Economics provide a basic understanding of the process of human wealth creation.

1. The amount of raw materials removed from nature becomes humanity’s potential wealth.  The potential wealth of the materials determine the number and value of jobs available to produce, transport, process, manufacture, distribute and retail finished products made from these materials.
2. The values placed on raw materials determine the amount of money that can be paid for the tools and services used to produce raw materials and controls the price and volume of tools and services purchased by raw materials producers.
3. Tools and services purchased by raw materials producers and the tools and services purchased by other people during the same economic cycle becomes the original method of job creation and manifests all the wealth necessary to purchase all finished goods.
4. A fair balance between the value placed on raw materials and the value placed on finished goods automatically creates healthy markets and manifests the wealth required to purchase all finished goods.
5. The act of production times the fair value of production (AoP x FVoP = wealth), or the proper relationship between production and price, manifests all the wealth necessary for the debt free consumption of all finished goods.

Charles Walters concludes his article with this appreciation of those who compiled the documentation and promoted their findings

Starting in the 1920s and going through the 1960s, several entrepreneurial gentlemen of profound knowledge and inquisitive nature about macro-economics became the “Founding Fathers of Raw Material Economics.” They re-examined the Franklin-Jefferson principles by researching and analyzing the nation’s economic records…

Those “Founding Fathers” were: Charles B. Ray, Carl H. Wilken, Dr. John Lee Coulter and J. Carson Adkerson. They were ably followed by such stalwarts as Arnold “Red” Paulson, Vince Rossiter, Merle Willard, Kermit Couch and others.

Charles Walters could certainly be included among the stalwarts. I would also add Fred Lundgren and Jerome Friemel partially because of their book, The Nature of Wealth.

The essential element of their work seems encapsulated in the concept of Parity, emerging from the analysis of hard economic data and direct observation now stretching over 90 years. Raw materials producers must be paid well enough for them to begin another round of production without acquiring debt.

Parity pricing appears required for a healthy economy.