This is a redacted version of a private communication sent earlier today. My comments are inserted [in reply].
On Mon, 27 Jan 2003 16:38:29 >Dear Wally, Vic, and Bill: > >While I am waiting for Rodney Shakespeare to make a response, I thought I'd >write to you three alone. I offered to Wally to help back him up in the >discussion group, and he said that what was needed was to clarify the >national dividend of social credit from the "second basic income" of >Shakespeare's version of binary economics. I believe I did that. > >In the course of this, two matters came up that I wanted to address just to >you three. One was Bill's statement that Douglas's essential observation >(i.e., the A+B Theorem) was about the fact the people do not spend all of >their income but save and/or invest it. ----- [in reply] I don't think I said it in quite that way. That has nothing to do with the A + B theorem. That would be pure underconsumptionism, where people do not spend all of their income. A + B itself has nothing to do with underconsumptionism although underconsumptionism does have something to do with social credit theory. The conclusion from A + B is that income is falling in respect to the costs of production. The causative factor is labor displacement. This is what sets social credit apart from every other system of analysis. Underconsumptionism: Spending from income is falling in respect to the costs of production. A + B: Income is falling in respect to the costs of production. -- While it is a true observation, I >think I can confidently appeal to both Wally and Vic that this is not what >gives us the A+B Theorem. > ----- [in reply] Indeed it is not. -- >The other was the question of setting profit margins. In "The Use of Money" >Douglas says that if you just issue > ---- [in reply] I think you are paraphrasing here. I haven't seen "The Use of Money" so I can't comment directly. Will you send it to me? If there is deficiency in effective demand then issuing more tickets is not and cannot be inflationary. Inflation is usually a costing issue and not a supply and demand issue. That is to say, inflation is not usually the result of "too much money chasing too few goods." It is not the quantity of money that counts but the way it is introduced. -- >more tickets to make up the lack between the purchasing power available and >the prices of the goods for same, . . . you get a rise in the prices of >articles, . . . because there is nothing to prevent the prices being raised >when the sellers find there is more money about. But you can produce exactly >the same result by, let us say, halving the price of everything. That is to >say, instead of doubling the amount of money on one side, if you halve the >price of everything for sale on the other side, you will produce exactly the >same result as if you had doubled the money without raising the prices. (p. >15) > ----- [in reply] If the "tickets" are issued where they enter the costs of production, they add to prices dollar for dollar in that they add to the costs of production dollar for dollar. It does nothing to close the "gap" between "prices" and "purchasing power." Prices rise and the "gap" remains. That is inflation. Page 15. An actual quote would be preferable here. -- >Now you cannot confidently speak about "halving the price of everything" if >at the same time sellers can set the "pre-halved" price at whatever they >want. In fact, it makes a mockery of the whole argument, because it would be >just as vulnerable to sellers' raising prices as would issuing more tickets. >This realization was a breakthrough in my understanding of Douglas, though >you might say it should really have been obvious that the "compensated price" >and "halving the price" are an abandonment of market prices. The seller >gives up his right to charge what the market will bear ---- [in reply] As a general matter he doesn't have that right now. "What the market will bear" is below his costs of production. -- in return for the >advantage of participating in the program. It is a perfectly fair >arrangement. > ---- [in reply] The intent of the compensated price and dividend is to enable the producer to make a profit so that he continues to produce. If production stops then consumption stops. Moreover, if profit is fixed at some arbitrary level the consumer loses his sovereignty. Some bureaucrat substitutes his choice for the choice of the consumer. Then you just have another variation of planned economy. A "cap" on profit rewards the inefficient producer at the expense of the efficient producer and does nothing to help the consumer. There are many exceptions to this general proposition, of course. Natural monopolies, for example, the financial system, i.e. "banks" being chief among them. -- >Finally, I want to say that if social credit is compatible with market >prices, ---- [in reply] It very much depends on what you mean by "market prices." The upper limit to price is determined by effective demand assuming competitive markets. The lower limit is determined by the costs of production. If effective demand is below the costs of production then the dividend and compensated price can fill the "gap." Profit, actually, is not tangible reality but a function of double-entry accounting. Just numbers in account books. The A + B theorem relates the costs of production, not to profit, but to "salaries, wages and dividends." Note "dividends" is the operative term, not "profit." -- then my entire approach to Rodney Shakespeare was in error. Indeed, >I would then have to admit that he is right and that there IS no difference >between what he calls a "second basic income" and a national dividend. > ---- [in reply] If your thinking is confined to "money" and not "effective demand," yes, there is no difference. "Debt free money" is "debt free money." Note, though, that he says "second." What you might not know is that Rodney writes from the perspective of "binary economics," the economics of Louis Kelso. Kelso mostly "cribbed" from social credit with a lot of errors thrown in. Their "individual productiveness" argument is a truncated though distorted version of A + B. It is a heretical form of social credit. The binary "two factor" argument goes something like this: The man by himself can produce X. Together with the machine he can produce 20X. So five percent of "productiveness" is attributable to the man and ninety-five percent to the machine, which by rights should respectively go to the "owner" of the man (himself) and to the "owner" of the machine, the capitalist. But the capitalist cannot consume 19X, but maybe only three, four or five X. There are limits to his consumption. And the man in order to subsist needs to consume more than 1X. So, in the interest of justice and practicality, an intrusive government and organized labor step in to give the man more than 1X, what the binarians call the "unfree" market. It is all very inefficient. The binarians would correct this through distributing ownership of new capital formation through various tax-incentive gimmicks, so over time the ownership of capital becomes broadly based. They would also require the full dividend payout of profit. But profit is not in the form of money but operationally is accrual to equity according to the rules of double-entry accounting. As a general matter it does not exist in a form that can be paid out by the corporation. Douglas made that perfectly clear in his testimony to the Macmillan Committee. It has to be monetized in some way. If it is monetized by the corporation itself by taking on more debt, the debt has to be amortized through sales, which is fine for some firms in the competitive market that are making above average profit. They can do it but most firms can't. The costs of production are "salaries, wages and dividends" plus "B" which is increasing in ratio to salaries, wages and dividends for the economy as a whole. One way to think of "B" is that it represents accrual to equity. In the financial sense it is concomitant to capital formation. In the history of capitalism it never has been the case that capital formation has been self-financed, i.e. through savings, or retained profits or in contemplation of future profits in reflux to today's spending financed by bank credit. That is the mythology of Adam Smith's capitalism, not the reality. In the financial sense there has always been an extraneous input, whether from "favorable" balance in foreign trade, the "printing press," or otherwise. Social Credit proposes to rationalize that extraneous input though the compensated price and dividend. Bill _____________________________________________________________ Get 25MB, POP3, Spam Filtering with LYCOS MAIL PLUS for $19.95/year. http://login.mail.lycos.com/brandPage.shtml?pageId=plus&ref=lmtplus ==^================================================================ This email was sent to: archive@mail-archive.com EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^================================================================
