Purchasing capacity is the value that money holds that allows people to purchase more real goods for less money.
Factors such as rapid increases in the money supply which is an inherent problem in a fiat based currency system will generally cause inflation and devalue the purchasing capacity of money.
In New Zealand, the Consumer Price Index (CPI) is the standard yardstick for measuring the purchasing capacity of money.
“Questions and Answers on Economics – Section A
1) Question: What do we want, increase in per capita income or increase in purchasing capacity?
Answer: According to PROUT, increases in per capita income are not a sufficiently reliable and scientific index to determine the standard and progress of a particular socio-economic unit. Rather, this approach is misleading and deceitful, because it refers to a simple mathematical calculation of total national income divided by total population. This does not give the correct picture of the standard of living of the people of a particular socio-economic unit as the wealth disparity in society is concealed. Per capita income shows the mean and not the variation of income distribution. If inflation is also considered, the reliability of per capita income is further reduced.
Purchasing capacity, on the other hand, is the real index of how people’s economic needs can be met by their income. All PROUT’s plans and programmes in the socio-economic sphere should be aimed at increasing the purchasing capacity of the people. PROUT stresses increasing purchasing capacity and not per capita income.
Per capita income is not a proper indication of the increase in the standard of living of the people because while people may have very high incomes they may not be able to purchase the necessities of life. If the per capita income is low and people have great purchasing capacity they are much better off. So, purchasing capacity and not per capita income is the true measure of economic prosperity. Everyone’s requirements should be within their pecuniary periphery or purchasing capacity.” – Sarkar, Prabhat, December 1987, Calcutta, Proutist Economics, Questions and Answers on Economics – Section A
“Increasing Purchasing Capacity
To effectively implement this, increasing the purchasing capacity of each individual is the controlling factor in a Proutistic economy. The purchasing capacity of common people in many undeveloped, developing and developed countries has been neglected, hence the economic systems of these countries are breaking down and creating a worldwide crisis.
The first thing that must be done to increase the purchasing capacity of the common people is to maximize the production of essential commodities, not the production of luxury goods. This will restore parity between production and consumption and ensure that the minimum requirements are supplied to all.”…
…”The maxim of PROUT’s productive economy is, “Increase the purchasing capacity of the common people above all.” If this maxim is followed in practice, it will be easy to control the prices of commodities through the cooperative system and economic decentralization.” – Sarkar, Prabhat, June 1979, Calcutta, Prout in a Nutshell Part 13, Some Specialities of Prout’s Economic System, Increasing Purchasing Capacity
“If people are guided by the needs and potentialities of their socio-economic unit, the law of productivity is benign. Maximum production in the economy will provide a congenial environment for more investment, more industrialization, more employment, increasing purchasing capacity and increasing collective wealth in an ever progressive manner.
Purchasing capacity: Planning should also result in the increasing purchasing capacity of every person. PROUT does not support the existing practice of considering the per capita income as the index of people’s economic standard. Per capita income is a deceptive and defective measure of collective wealth popularized by capitalist economists to fool people and cover their exploitation. The genuine measure of people’s economic advancement is increasing purchasing capacity.
To increase people’s purchasing capacity, the easy availability of the minimum requirements, stable prices, progressive, periodic increases in wages and salaries, and increasing collective wealth must be ensured.
In a Proutistic economy, there will be no limit to purchasing capacity – that is, purchasing capacity will be ever increasing. The minimum requirements must be guaranteed and should always be increased according to time, space and person, and this can best be done by continuously increasing the purchasing capacity of the people in relation to the economic development of the concerned socio-economic unit. The greater the purchasing power of the people, the higher their standard of living.”…
…”At each and every level of planning, there should be short-term and long-term planning. In all cases, the maximum time limit for short-term planning should be six months, and the maximum time limit for long-term planning should be three years. Short-term and long-term plans should be drafted in such a way that they are complementary to each other. The immediate goals of planning at each level are to guarantee the minimum requirements of the local people, eliminate unemployment, increase purchasing capacity and make socio-economic units self-sufficient.
Benefits of Block-Level Planning
There are many benefits to block-level planning. The area of planning is small enough for the planners to understand all the problems of the area; local leadership will be able to solve the problems according to local priorities; planning will be more practical and effective and will give quick, positive results; local socio-cultural bodies can play an active role in mobilizing human and material resources; unemployment will be easily solved; the purchasing capacity of the local people will be enhanced; and a base for a balanced economy will be established.“- Sarkar, Prabhat, 1981, Calcutta, Prout in a Nutshell Part 12,
“In a decentralized economy the commodities produced by a socio-economic unit will be sold in the local market itself. As a result, there will be no uncertainty in the local economy or the economic life of the local population. In addition, money will be circulated within the local market so there will be no outflow of local capital. The possibility of an economic catastrophe in the local economy will be largely eliminated. In such a system, people’s income will have an upward trend and their purchasing capacity will continuously increase. No economic system in the world has been able to continuously increase the purchasing capacity of the people, because economic power is concentrated in the hands of a few.”- Sarkar, Prabhat, 16 March 1982, Calcutta, Prout in a Nutshell Part 21, Decentralized Economy – 1
“The more that government revenue is spent on developmental programmes – not including the salaries of government employees – the better it is for the country’s economy. This policy will render great service to the masses and lead to increasing socio-economic development. As a result of the constant circulation of capital, national wealth will increase. While the government must think about the bare necessities of government employees, increasing the salaries of government employees by reducing the amount of money spent on public services can never be supported. The more that money is invested in developmental programmes, the better it is.
This policy will also indirectly lead to an increased standard of living for government employees. If any government increases the salaries of government employees without investing money in public services, the market will go out of control. Consequently, government employees, even if they are paid higher salaries, will not be benefited. If the market price of a commodity is five rupees and if the salaries of the government employees are doubled with the intention of providing them greater amenities, will the purchasing capacity of the government employees also be doubled? If they go to market with more money in their pockets they will find that everything costs more. Such an approach is like adding fuel to fire. If the market price of commodities goes sky-high the country will be thrown into the clutches of high inflation.
So, increasing the expenses of a government department at the cost of developmental programmes amounts to committing economic suicide. If production is increased through investment in developmental programmes instead, the purchasing capacity of the people can be increased without increasing their salaries. When purchasing capacity is increased, both government and non-government employees will benefit.
In pure economic terms developmental programmes are those programmes which directly increase national wealth and indirectly support this increase. Programmes which only increase national wealth indirectly, not directly, cannot be regarded as developmental programmes until the minimum requirements of the people are guaranteed.“- Sarkar, Prabhat, 17 April 1988, Calcutta, Prout in a Nutshell Part 15, Developmental Programmes
“5) Question: What is the significance of the value of wealth?
Answer: In the subtle economic sense, the value of wealth is the real wealth. Wealth, if not properly defined, may mean only riches. But the value of wealth is to be measured in terms of its capacity to purchase commodities. That is, the purchasing capacity of wealth is its real value. This real value of wealth has not yet been properly understood in numerical terms by economists.“- Sarkar, Prabhat, 25 February 1988, Calcutta, Proutist Economics, Questions and Answers on Economics – Section B
“The minimum requirements can be assured through guaranteed purchasing capacity which should be enshrined in the constitution as a fundamental or cardinal human right. This will give the citizens of the country legal power if their minimum requirements are not met, hence the necessity of purchasing capacity will be reinforced by constitutional law. As people’s economy will deal with minimum requirements and people’s subsistence problems, it must take precedence over other parts of the economy.“- Sarkar, Prabhat, 5 June 1986, Calcutta, Prout in a Nutshell Part 12, Quadri-Dimensional Economy, People’s Economy
“If the percentage of the population engaged in non-agricultural industries in a country is less than twenty percent, the country is said to be industrially undeveloped. The per capita income of the people cannot be very high. The standard of living also cannot be very high because people’s purchasing capacity remains very limited. Because of the low capacity for purchasing consumer goods, the import index always remains lower than the export index, or in other words the area has to remain a satellite of a developed country. Consequently, the balance of power in the world is jeopardized and war is always possible.
If the percentage of people engaged in non-agricultural industries is kept within twenty to thirty percent of the population, this is the state of balanced economy – a really balanced socio-economic structure.“- Sarkar, Prabhat, 6 April 1986, Calcutta, Prout in a Nutshell Part 12, Principles of Balanced Economy – Section A
“Depression is not a natural phenomenon. Pause is a natural phenomenon. In a Proutistic structure pause may occur but depression will not occur. To save society from depression, the approach of PROUT is to increase purchasing power by increasing production, reduce disparities in the value of wealth, and increase the circulation of money; that is, by keeping money rolling. Empty slogans will not do. Attention will have to be given to increasing the level of production.
In capitalist and communist countries, the mode of production is defective. In capitalist countries, labour does not work in the interest of the management and management does not allow the rolling of money due to the concentration of wealth. In communist countries, labour does not feel one with the job and that is why there is sluggish production.
The cooperative model of PROUT is free from both sets of defects. PROUT is well-adjusted with human ideals and sentiments. Other socio-economic systems are ultravires to human existence and all-round elevation.
In capitalist economies, production is for the profit of the capitalist and the profit goes to individuals, groups and the state exchequer. In socialist economies or so-called communism, the profit goes to the state exchequer and a microscopic fraction of the profit goes to the actual producers. In both cases capitalism exists, and whenever fresh financial investment is required, inflation takes place.
In a Proutistic economy, production will be solely for consumption. As there will not be any profit motive, there cannot be any fresh inflation, and the existing inflation will gradually die out. In Proutistic production or consumption, in the first phase the money value remains constant and full-fledged purchasing capacity will be guaranteed to the people. In the second phase, when production increases in the revised economic order, money will get back its natural market value. Finally, after consumption, money will get back its actual value. Inflation will be checked and purchasing capacity and the minimum requirements of life will be guaranteed to the people.
The second phase will continue for ten to fifteen years. After the expiry of this period, that is, in the third phase, minimum requirements of life will increase and people will acquire more purchasing power. This power will increase at an accelerating rate.“- Sarkar, Prabhat,13 September 1987, Calcutta, Prout in a Nutshell Part 13, Economic Dynamics
“Questions and Answers – 3
Question – Once PROUT is established, will we reach a saturation point for the minimum requirements in the physical, psychic and spiritual strata?
Answer – It has been said that according to PROUT the minimum requirements of life should be assured through the availability of essential goods and purchasing power. It has also been said that the minimum requirements of life are not of a fixed standard – they must increase in the course of time. Though physical hunger is limited, human longing is infinite, as this is something subtle.“- Sarkar, Prabhat, 25 February 1988, Calcutta, Prout in a Nutshell Part 14, Questions and Answers – 3
“It may be questioned whether it is wise for any government to guarantee the minimum requirements. If the state is to supply cereals, pulses, salt, gram, ghee, butter, etc. to all people then naturally the state has to institute some process of control which people may not like. Hence PROUT’s view is that people should be guaranteed the provision of sufficient purchasing power to meet these requirements. In that case the state need not adopt control measures. The other disadvantage of guaranteeing the supply of minimum requirements is that if consumable goods are supplied to everyone, people will become lethargic. They should therefore be supplied with purchasing power in exchange for their work according to their physical, psychic or spiritual capacity.
Diversity is the law of nature. So there cannot be any hard and fast rule about guaranteed minimum requirements. They will vary according to time, space and person. A few persons with extraordinary physical, metaphysical or intellectual ability may demand something more than ordinary people. Special amenities have to be provided for them. Certain items like food, housing, education, clothing and medical facilities are minimum requirements.
Nothing is stationary; everything is moving. So the minimum requirements and special amenities will also undergo changes with the changes in time, space and person. What should be the approach of Proutists? There should be a never-ending endeavour to minimize the gap between minimum requirements and special amenities. Minimum requirements will take the place of special amenities and extraordinary persons will get more items as special amenities. The third Five Year Plan prepared by the planning commission of India presents an unwholesome picture – it presents unsystematic and unplanned government activities and the planned exploitation by vested interests. Though there has been inordinately high investment, the purchasing power of labourers has not been sufficient for them to meet the minimum requirements. Hence, while on the one hand labourers received less consumable goods due to less purchasing power, on the other hand entrepreneurs have captured excessive purchasing power and consumable goods causing excessive disparities in wealth. Economic balance has been upset. The major part of the capital investment went to the entrepreneurs and a microscopic fraction went to the labourers. There is therefore no middle class people in India of the type that existed in pre-independence days. Today well-dressed labourers have become the so-called middle class.“- Sarkar, Prabhat, July 1961, Ranchi, Prout in a Nutshell Part 15, Talks on Prout, SECURITY
“I have not said anywhere that society should give plenty of money to everyone; I have only said that the purchasing power of each and every person should be increased. Suppose the price of rice is Rs. 5 per kilo: it does not matter if the per capita income is as much as Rs. 1,000. Whether the salary is high or low is not the point: the main thing is the purchasing power. If the purchasing power of each and every individual is increased, there will be no physical trouble.” – Sarkar, Prabhat, 8 December 1978, Calcutta, Prout in a Nutshell Part 13, The Importance of Society
“In a decentralized economy the commodities produced by a socio-economic unit will be sold in the local market itself. As a result, there will be no uncertainty in the local economy or the economic life of the local population. In addition, money will be circulated within the local market so there will be no outflow of local capital. The possibility of an economic catastrophe in the local economy will be largely eliminated. In such a system, people’s income will have an upward trend and their purchasing capacity will continuously increase. No economic system in the world has been able to continuously increase the purchasing capacity of the people, because economic power is concentrated in the hands of a few.” – Sarkar, 16 March 1982, Calcutta, Prout in a Nutshell Part 21, Decentralized Economy – 1, Principles of Decentralized Economy