Now, if I understand the argument correctly, unless there is a profit over and above this explicit cost, the producer will decline to continue production, and since incomes have been provided as costs, and prices must excess costs, then the incomes received will be insufficient to pay the price required for the product, unless there is recourse to new purchasing power. We have been assuming no net saving, and so lets add the assumption of no net credit. SC says that things must start winding down, and will keep on winding down.
This is where I cannot see it. The profits are also income. The assumption of no net savings means that there is no net retained earnings. That means profits are distributed, and spent. So the costs plus profits provides the effective demand to pay for the price of the production, and the role of the stock of savings is just to act as a lubricant to exchange. -------------------------------- You describe a system that we would describe as being in the condition of dynamic stasis. It is dynamic because it is a functioning-living organism, but everything is remaining the same through time. Nothing is changing. Net credit and net saving are constant. Entrepreneurial profit is zero. Accounting profit is constant - but greater than zero - because in the rules of accounting dividends are not counted as expense though the reflux from dividends count as income to firms. In terms of cash flow, firms (and the statistical firm) are making disbursements into account balances held by people (A) and firms (B). These account balances represent a subtrahend from system flow. In stasis inputs to these balances equal outputs and outputs equal inputs (net saving is zero, net investment is zero, net credit is zero, etc.) If we direct our attention to the retail sector, in stasis, its B payments equal the A payments of the totality of the remaining stages of production. The totality of A payments for the economy as a whole equal the B payments plus the A payments of the retail sector. But this holds true only in the unnatural condition of dynamic stasis. In the condition of steady state growth - a higher level in our analysis, inputs to account balances exceed outputs considered as rates of flow. This is made possible by modern creditary mechanisms. >From the perspective of firms as a sector, inputs represent spending and outputs represent the reflux from spending. In the condition of steady-state growth inputs exceed outputs but the outputs remain proportional to the inputs through time. >From the perspective of the retail sector, its B payments exceed the A payments of the totality of the remaining stages of production, but A is remaining proportional to A + B for the economy as a whole through time. That is the definition of growth that is steady state. In pure cash-flow accounting this would be a negative number, which would make it impossible to account for profit thereby making it impossible for there to be an entrepreneurial economy. This dilemma is resolved through innovations in accrual accounting that permit the delaying of costs into the future (through depreciation, etc.) so that they are expensed against future sales, which are prospectively greater than today's costs. This works fine so long as growth is steady state, because by the very definition of steady state, tomorrow's A is proportional to today's A + B. But there is nothing in double-entry accounting (the cost accountancy of firms) that can accommodate continuous deviations from steady state, such as if the ratio of B is increasing to A, where the ratio of A is decreasing to A + B. So the highest level of our analysis is considering and devising mechanisms to accommodate the effects of labor displacement. "Labor displacement" is the generic term but it applies to all real inputs to the productive process. There are financial impediments to this natural displacement. The removal of these impediments is the path to a sustainable world. -- On Sat, 15 Feb 2003 21:49:51 Dr. Bruce R. McFarling wrote: >The difficulty in untangling the disagreements between these >two is that they agree on so much, and in a way after the >point of disagreement they retain a family resemblance. > >They agree: >- the importance of money is to permit expression of effective demand >- most money in a monetary-production economy is credit-money held >as deposits in the banking system >- there can be fundamental problems with effective demand in >monetary-production economies under current financial institutions > > >Here is, I think, a scenario that highlights the fundamental >dispute, as near as I can see it. > >Consider the operation of a stable economy through a production >period -- say, a quarter. There is a pool of savings, but there >is NO net savings or dissavings in the quarter ... say, short >term overdrafts are permitted, but they must be made good out of >income, whether earned or borrowed from someone else. > >Now, all explicit costs of each firm are either earned income >at the firm or payments to other firms. And then at these firms, >they are split between earned income at THOSE firms or payments >to other firms. If we get back to payments made near the beginning >of the period for work performed in the previous period, these are >roughly equal to work done toward the end of this period that >will be paid for near the beginning of the next, so in the end, >all costs can be resolved as income earned. > >Now, we could make the argument that part of the costs have >already been received as income and spent in the previous income, >but that would be a sliding window fallacy if we do not also >recognise that this means that some money will be received as >income this period that will not be resolved as costs of final >production until the next period. If we let this economy >begin growing, we will obviously be in an imbalanced position, >but here the overall agreement between SC and the GT that something >would be out of whack will get in the way, hence the stable >economy assumption. > >Now, if I understand the argumnent correctly, unless there >is a profit over and above this explicit cost, the producer >will decline to continue production, and since incomes have >been provided as costs, and prices must excess costs, then >the incomes receieved will be insufficient to pay the price >required for the product, unless there is recourse to new >purchasing power. We have been assuming no net saving, and >so lets add the assumption of no net credit. SC says that >things must start winding down, and will keep on winding >down. > >This is where I cannot see it. The profits are also income. >The assumption of no net savings means that there is no >net retained earnings. That means profits are distributed, >and spent. So the costs plus profits provides the effective >demand to pay for the price of the production, and the role >of the stock of savings is just to act as a lubricant to >exchange. > >In General Theory reasoning, this is a model of a monetary >exchange economy. The reason is that in order to permit >firms to use money to gain control over the means of production, >there must be net credit. No net savings in the face of net >credit will lead to the OPPOSITE of the SC A+B argument: more >effective demand than the total price of the produce. A >monetary-production economy is therefore incompatible with >no net savings, and financial institutions must exist that >permit income to be received but not directed to spending. > >The problem with effective demand, from the GT reasoning, is >that once a given level of effective demand is generated from >OUTSIDE the income-expenditure loop, then income will stabilise >at a level that permits an equal amount to be HELD as saving. >Specifically, as income is injected, it passes to a firm, >where it is saving until it is disbursed, and etc. if it >is disbured to another firm, while if it is disbursed as >income it is saving until it is used to finance expenditure, >at which point is is received at a firm ... AND SO ON AND >SO ON ... until someone receives it and is able and willing >to hold it as saving. > >Hence the argument that exogenous demand and propensity >to consume determine the level of effective demand, and >this may easily be at a level that does not result in >the full productive capabilities of the economy being >brought to work. > >So that is, as far as I can tell, the core of the dispute. > >Income = Cost >Cost+Profit = Price x Quantity, ergo Income < Price x Quantity > >versus > >Cost is Income, Profit is Income >Cost+Profit = Price x Quantity, ergo Income = Price x Quantity > > > _____________________________________________________________ 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. 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