If the home is to produce, it must contain the means of production. And if it is to produce comfortably, the “means of production” must include the machines which will make this possible.
But by far the largest number of families in this factory-dominated civilization have neither lands nor houses, tools nor machinery. Money enough to buy them is for these families an iridescent dream. They cannot seriously think about producing their own essentials of comfort nor of making themselves economically free until some practical plan is available which would enable them to secure the means for domestic production.
How can a family today, which may be without any real capital to begin with, secure a home and furnish it with the machines that are necessary to produce a standard of living as high as that to which it has been accustomed?
With rising land values; with higher wages for building labor and high prices of building materials; with tools, supplies, livestock, farm equipment, and above all machines, often outrageously high in price, (because of the selling extravagances of manufacturers and distributors), a sum of money of which few families can boast today is necessary to establish the creative home which I have been describing. The average disestablished family, even if it now has a large income, finds the cost of living so high that it is certain to shrink from the task of saving the money needed even for a modest first step toward acquiring its own means for domestic production. How is this family to go about securing the money to buy itself a homestead? How is it to buy all of the things over and above real estate which it will need if it is to produce for itself material comforts at least equal to those which it now enjoys? It is difficult enough now to save. How is the family to make the out lays required for establishing a productive home and for equipping it with a full complement of domestic machines?
Let us see whether these questions are not in reality much less difficult than they appear at first sight.
Capitalization makes it possible to take anything capitalizable which produces an income of $60 yearly and realize nearly $1,000 upon it even though its real cost be only $100. The formula is:
(I ÷ M) × 100 = D
which gives us:
($60 ÷ $6) × 100 = $1,000
I being the annual income from the property, M the prevailing cost of money, and D the dollars realized through capitalization.
Plainly, the process of capitalization makes it possible to borrow capital with relation to the income from an investment and not the cost of the investment itself. Capitalize any income-basis with a net income of $60 yearly, and you can sell a thousand dollars worth of securities to secure it, even though it may actually cost you only a small part of that sum.
If that is not magic, nothing is.
Provided we have something to capitalize, the means for buying a homestead, for buying domestic machinery and for buying all that may be necessary to make an organic homestead function, can readily be procured.
Strange as it may seem, we have only in recent years rediscovered that time, the one universal possession of all men, is capitalizable.
The ancient world knew it well. Even in America it was generally understood hardly more than half a century ago. Slavery was a system for capitalizing time. The slaves were merely unfortunate creatures whose time had been made into property by law. In abandoning slavery, and the system of indenturing all sorts of workers, from servants to ministers of the gospel, which is so similar to slavery, society lost sight of the fact that time was capitalizable. This was no light loss to society; for the failure to provide every man with some method of capitalizing time made wage-slavery possible. Disestablished workers of all kinds, the professional workers as well as proletarians, have had no access to the accumulated capital of society until in recent years a new technique was developed which made it possible for them to capitalize their time and so re-establish themselves.
Now the one thing which the change in the economics of the family and the home which is here proposed does is to release time. Let our homes cease to be merely a place for consumption; let them become places of production as well, and much of our time is freed to be used for other things than the buying of consumption goods.
Less time has to be devoted to earning the money for rent when we produce shelter for ourselves.
Less time has to be devoted to earning the money for food when we produce most of our own foodstuffs.
Less and less time has to be devoted to earning money to buy things which are to be immediately consumed as more and more of the essentials of life are produced in the home itself.
Time thus becomes available for earning money to buy the machines which make drudgeless domestic production possible.
But what is most important, the time saved is released for capitalization.
For the time which does not have to be used for procuring the necessaries of life is in effect an income-base and with an income base, the magic of capitalization is made available for us. If by domestic production we cut our food bill in half, we save at least one day’s time per week. If we can earn $10 per day, the 52 days saved during the year create an income base of $520. Applying the formula, ($520÷$6) x 100, we get $8,666. This sum be comes theoretically available to us for investment as a result of domestic production of foodstuffs alone. But the $8,666 can be realized only if we are willing to pay interest for its use indefinitely. And also it demands of us a financial wizardry sufficient to secure money for 6%. In practice, money costs more than 6% and provision must be made for the amortization of the principal. This cuts down the dollars actually realized through capitalization. More than $5,000 may be realized if the money is wanted to build a home. Less than $500 may be realized if the money is wanted to purchase a tractor.
The saving of even one day’s time per week through domestic production makes a capital of from $500 to $5,000 available to us.
And cutting down the food bill by no means exhausts the possibilities for saving time through domestic production.
If credit were to be defined as electricity has to be, by what it does rather than by what it is, the temptation to say that it is money would be irresistible.
With money we can go anywhere and buy almost everything. With credit too we can go anywhere and buy almost anything. In this crucial quality—as a medium for buying—money and credit are almost indistinguishable.
It is not necessary to have money when it is possible to secure credit.
The businessman who needs money with which to equip his factory can capitalize it and with the proceeds from the sale of stocks and bonds equip it as he desires. But with only time to capitalize we cannot adopt the complex expedient of issuing stocks and bonds. Nor do we need to do so. Not only can we equip our homes with domestic machinery; we can secure the homes themselves by taking full advantage of installment credit, probably without paying the finance corporation more for the credit we use than businessmen have to pay investment bankers for the money they put into their corporations.
In America we have only begun to capitalize time through the instrumentality of installment credit.
But already nearly ten percent of the national income is devoted to the purchase of goods and real estate in this way. Nearly ten percent of the time spent by the American people in earning money is now devoted to paying for what they have purchased on installment credit. On the average, thirty days out of the average man’s working year is already capitalized by him through the instrumentality of installment credit. Yet the yearly purchase of real estate on the installment plan amounts to only $1,600,000,000. None of us need hesitate to take the first step toward the establishment of a productive home for lack of capital. Of course we have to show under the rules of the economic game as it is played today that we can earn money, save money, and pay money when we owe it. Yet if we prove these things by accumulating a nest egg, however small, a building and loan association will be glad to capitalize for us the time that we are willing to appropriate to acquiring a home.
Modern accountancy has made it plain that there is a great difference between expenditures for investments and expenditures for current expenses. If the treasurer of a corporation makes out two checks, each for one thousand dollars, and sends one of them to a manufacturer of machinery for new machines which have been installed in his factory, and the other to a banker for interest on bans, the two expenditures are clearly distinguished in his mind and on the books of his corporation. One represents investment—the other overhead expense. The $1,000 invested in machinery is expected to earn enough not only to enable him to pay interest on the investment, but the cost of the machinery it self. The $1,000 paid out for interest is an expense different in every respect. The treasurer finds it easy to distinguish between the two types of expenditures. But the self-same man may be very much surprised if he is told that identically the same distinctions exist with regard to many expenditures his wife makes for his home.
If she presents him during the same week with two bills each for $25—one for an improved fruit press, and the other for groceries, he is apt to think of them both as just $50 worth of household expenses. Yet the expenditure for the fruit press is distinctly investment, while the expenditure for groceries is distinctly current expense. The difference is practical, not academic. If the fruit press is properly used, it immediately begins to earn its own cost. It either reduces her expenditures for preserved fruits and for table beverages, or, if she is already making these at home it reduces the amount of labor expended in their production, and so frees her time for other activities. The saving made possible with domestic machinery is so large, often larger than that which is possible as a result of the installation of machinery in a factory, that the investment in an appliance such as a fruit press, is wiped out often in a single season. The equipment is then on hand to effect similar savings in the future and to make the purchase of other labor-saving machinery just so much easier.
If the investment in house, in gardens, in poultry yards, in fruit trees, in farm equipment, in machinery of all kinds is considered from this standpoint, no family should hesitate to use credit in order to purchase them. For, unlike expenditures for consumption goods, they cost nothing. They pay for themselves, for their maintenance, for their depreciation in precisely the same way that properly selected and properly operated machinery in the factory pays for itself. They are different only in that the net dividends upon the investment in them is so much larger than in factory machinery.
For with domestic machinery there is no cost of marketing the production, and little loss from improper balancing of production and consumption. The savings made possible by the use of machinery are not in large part wasted by costs of transportation, selling, advertising, wholesaling and retailing. Nor is the net dividend whittled away through the production of a greater supply than the market demands. Our own needs determine the amount produced and practically all that is produced is consumed.
Our real problem is therefore only the initial problem of securing the capital with which to purchase the machines which make domestic production practicable.
That problem vanishes when proper use is made of credit.
There is, it is true, no excuse for buying on credit if cash is available, or money can be borrowed on regular terms from a bank. Installment credit—the form most generally used—is rather expensive. But if due allowance is made for this fact, it still remains the part of wisdom to buy equipment for domestic production on this plan provided in each instance the saving which a particular purchase makes possible is greater than the cost of the installment credit. On most types of domestic machinery the savings justify the payment of even usurious “finance” charges. As a matter of fact, it is only because so very large a part of the installment buying of today consists of things that are productive in this sense that the whole edifice of installment buying has not already collapsed. The fact that so many of the things purchased on installments tend to pay for themselves is the explanation of the public’s ability to meet excessive selling costs and financing charges. Some figures compiled by Mr. Milan V. Ayers which were published in Advertising and Selling for August 8, 1828, are here arranged in two columns, one representing the public’s purchases of productive goods and the other of non-productive goods, for the purpose of demonstrating this fact.
|New passenger cars||778||1,556||2,334|
|Used cars and trucks||400||561||961|
|Jewelry store goods||108||108|
|Other farm machinery||31|
|Miscellaneous (not classified)||108|
The classification of the items as productive and non-productive in this table is open to much question. Furniture, to consider one type which I have classified as non-productive, might well be classified as productive on the assumption that the family which provides itself with furniture is producing for itself what a family in a hotel rents along with the shelter, laundry and maid service which the hotel furnishes. Pianos, phonographs and radio sets might also be classified as productive on the assumption that they enable the family to produce its own entertainment instead of paying for it in a club, theatre or movie. But even if these items are classified as non-productive, 36 percent of all the purchases of the American people on the installment plan are of a productive character. Add the purchases of real estate, which are estimated at more than four times the aggregate purchases of all the non-productive items, and it is plain that most of present day installment buying is self-liquidating in the same sense that investments in factories, factory machinery and real capital for business purposes generally are self-liquidating.
In spite of the high cost of commercial installment credit, in spite of the terrific burden of selling costs that are loaded upon many of the things sold on the installment plan, it is the part of wisdom for those of us who are without capital to buy and equip a productive home on the installment plan.
So long as our scientists, engineers, inventors, all those whose ideas predetermine the developments of this industrial age, continue to concern themselves with the development of factory machinery and factory techniques; so long as clever business men, advertising men and salesmen continue the development of mass production of consumption goods with distribution in the national market at the expense of the local production with local distribution, there is little hope for any great development in domestic production. But let them once begin to see the enormous market for household appliances which a general movement toward economic self-sufficiency would bring into existence, and captains of industry would begin the process of cramming domestic machinery down the throats of the masses, just as their prototypes have always crammed new ideas down the throats of the masses in every age.
Alexander crammed Greek ideas down the throats of all the populations he conquered. Cæsar crammed Roman ideas down the throats of most of Europe. Constantine crammed Christian ideas down the throats of the masses wherever his rule extended. Manufacturers with their factories have up to very recent times crammed the ideas of Smith and Mill concerning the production and distribution of wealth down the throats of most of the world. Between the industrially-minded big-businessmen of America, the Fascists of Italy and the Bolsheviks of Russia, mass-production under scientific management is being crammed down the throats of the modern world.
For the quantity-minded care nothing about the nature of ideas but only about how they can be turned to account for their own aggrandizement, their own power, their own glory, and how they can use a new idea for the purpose of winning in the competition with their fellows. The ideas which they impose on mankind vary from age to age. There is no consistency in them. They are perfectly willing to be pagan in one age and Christian in the next; competitive in one age and monopolistic in another.
For the past one hundred and fifty years they have been busily developing the factory, filling the world with smokestacks, and harnessing mankind to factory machinery. In the next fifty years they may turn around and undo all that they have recently done by decentralizing electric power and promoting the sale of domestic machinery.
Well, let them wheedle, flatter, frighten, even bully mankind into the idea of domestic production. Let them develop and manufacture domestic machinery, furnish the individual home with power, multiply the agencies for credit so that larger and larger sections of the population can buy the means of domestic production. Let them wax rich and powerful in the process—as those who pioneer in it surely will. They will at least make it possible to lessen the ugliness of civilization instead of, as today, making it almost impossible to do so. Above all, they will make it easier for the quality-minded to achieve the freedom to be themselves.
There will be fewer factories, less waste of precious raw materials, and more time for all of us to devote to expressive living if business men devoted themselves to making such a world. And certainly in a world filled with creating and producing homes there would be more comfort than prevails in the factory-dominated homes of today.
Next Section | The Factors In the Quest Of Comfort: IV. Wisdom