Re: [SOCIAL CREDIT] National dividend?

[Pat Gunning]

Bill, it seems to me that you are using your critical powers to dispute my claims while exempting Douglas from the same kind of criticism. My assessment is that Douglas tried to use the same method I used to comprehend the phenomena of the occasional boom-bust cycle. However, he chose a different starting point. I believe that that was a mistake. You seem to argue on the one hand that this method is incorrect yet that Douglas's A + B theorem is also correct. This seems a contradiction, even from your own perspective. Two minor points before continuing. I would not call Gary North a prominent Austrian economist. In any case, there is not much similarity between his work and my own. Also, your lumping neoclassical with Austrian economics would be very much disputed by today's American Austrians, although not by me. The American Austrians tend to equate neoclassical economics with the use of econometrics and mathematical modeling. Now on to the chase: In my earlier message, I wrote about the method used in economics to understand a phenomenon. This method consists of contrasting a situation in which an item is present with a situation in which it is absent. This is also the method economics uses to define phenomena. It has been called the isolating method and may have first been described in economics by the Austrian economist Frederick Weiser. (It is discussed in Mises's Human Action in chapter 14.) It was the centerpiece of Ludwig von Mises's praxeological economics. Bill claims this procedure disregards dynamics and that, as a result, it is not scientific. Regarding the latter, he writes: "The scientific approach is to relate the elements statistically against time, so that every observable process becomes the function of their singular commonality, time. Time is the one reality that ties everything in the ponderable world together, and makes them comprehensible." This is indeed what science appears to mean to the typical mainstream economist today. The fact that Clive Granger was a co-winner of this years Nobel prize in economics is a partial confirmation of this view. This does not make it right, however. I would make two points about this argument: 1. Up to now, I have not seen Bill refer to econometrics studies to confirm his hypothesis that the organization of society in which firms produce goods leads to a situation where consumers receive insufficient income to buy those goods. The question, then, is why he would introduce this point here. Perhaps I misunderstand. 2. The isolating method that I described does not inherently abstract from time. Quite the contrary. The method of isolating one element from the panoply of elements that influence the data in which one is interested is just as relevant to comprehending the "dynamic process" as it is to comprehending any other phenomena or process. It is more relevant to the task of comprehending economic elements or variables than for comprehending strictly physical elements. This is because of the variability of human action over time and because it is virtually impossible to carry out experiments that control for all of the variables that one would wish to control for. Nevertheless, the method is also used in physics, biology and other natural sciences. Specifically, it is used as a means (1) of thinking up experiments to do and (2) of comprehending phenomena when doing experiments is especially costly or impossible (as in astronomy and evolutionary biology).     Consider what he writes: "It is not scientific to arbitrarily choose any single element from a dynamic process as a starting point, for that starting point becomes the axiom to the exclusion of everything else that determines the conclusion." I contend that it is meaningless to even speak of an "element" in a dynamic process until one has chosen to isolate that element mentally from the rest. Thus, in my view, Bill has already used the method to which I refer, albeit without realizing it. The issue is not whether the method "should" be used. In fact, it is used and must be used. The only question is whether it is used properly to deal with the questions or problems one faces. Of course, one should never forget that the elements of a process, are in fact not isolated. I wrote that I have no idea what Bill means by the banking sector or the consuming sector. My point is directly relevant to the point I made in the last paragraph. He wants to describe the dynamic process by dividing it into elements, which include the "banking sector" and the "consuming sector." Yet he did not tell us how he formed an image of these sectors. Part of my claim is that it is necessary to use the isolating method to do this. One cannot meaningfully use the term "banking sector" or "consuming sector" without conducting the mental experiment of isolating the element to which he wants such a term to refer. When I said that these terms had no meaning, I meant that Bill had not provided one. That is, he had not defined these terms. Thus his statement was not meaningful. I can express these ideas using the forest-tree metaphor. Trees and forests are co-defined. It is not possible to define either of these without using the isolating method. <**>You seem to be saying that an increase in saving relative to consuming would cause a deepening of the structure of production.<**> That would assume that saving is a cause. It is true that there is saving, investment, development, production and consumption. They are elements of a continuous dynamic process that is creditary, not monetary. That is to say it is contractual in that it contemplates future performance. No one element can be considered to the "cause" of any other. Human beings may intervene at any point to achieve what they want to achieve. That intervention becomes the cause of the change. I have trouble with the terms "creditary" and "monetary" and with some of the other terminology in your statement. But the main point I would make here is that the user of the A + B theorem chooses a starting point. He assumes (1) that the firm is a going concern and (2) that revenue must first be received by the firm before incomes can be paid out. Regarding #1, firms were surely not created by God. Nor did they arise through some natural selection process. Someone consciously chose to form one. When she did this, she most likely financed it by foregoing more immediate consumption -- i.e., by saving. I believe that the proponents of the A + B theorem have chosen a starting point that is inappropriate for comprehending the dynamic processes of incomes being produced and spent.  Regarding #2, this assumption is unrealistic for most businesses. The product that a worker in a manufacturing process helps to produce is not sold until some future date. The money used to pay his wages or salary must come from somewhere else. -- <**>More resources would be devoted to the production of capital goods and less to the production of consumer goods.<**> Implicit is the false assumption that there is no improvement to process, discovery or innovation and there is only a fixed quantity of resources available for exploitation. Absolutely correct. If one aims to discuss innovation, one must use a different starting point. The A + B theorem also disregards discovery and innovation. Otherwise, it would address itself to the possibility that these actions would reduce prices and enable consumers to buy all that producers have produced, even though consumers save some of their income. Bill should apply the same critical analysis to his own reasoning (and that of Major Douglas) that he applies to mine. Let me give you a just two dramatic examples of technological innovation that enabled the structure of production to be lengthened without diversion from existing resource utilization. Three field crop rotation, which effectively increased the quantity of arable land by leaving only a third of it fallow, as opposed to two field rotation, which always left half of it fallow. The horse harness, which enabled the man behind the plow to cultivate twice as much land per day than was possible behind an ox. Neither had anything to do with "prior" saving in any real sense. Both were introduced after the fall of Rome, during the so-called Middle Ages before the development of the scientific method and Industrial Revolution, which accelerated the process. I beg to differ. Crop rotation meant sacrificing a more preferred crop for a less preferred one. Thus, people sacrificed the more immediate satisfaction in order to raise the productivity of their land in the future. The person who invented and produced the horse harness could have continued to use the ox in order to get more immediate satisfaction. But he chose to foregos that in order to increase the productivity of his work and of the land. Douglas said in 1925: "If I have an income of £500 per annum and I save, as the phrase goes, £100 per annum of this sum, either by the simple process of putting it in a bank, or by the investment of it in an insurance policy, I decrease my expenditure by 20 per cent., and I certainly provide myself with money for use at some future time. But there is no physical saving corresponding to this money saving. In fact, owing to the interconnection of the financial system with the producing system, there is probably an actual destruction of wealth due to the fact that I do not spend the whole of my income. More goods would have been drawn from the shops, more orders would have been given to the manufacturers to replace those goods, and consequently a real ability to produce more goods per unit of time would have been created, probably by an extension of manufacturing facilities, had I spent my income. But if I save my money, only one of two things can possibly happen in the world of actualities: either goods which have been produced will not be bought and will therefore be wasted, or in anticipation of the fact that I should not buy them they will never have been produced..." The choice of the wrong starting point results in a muddling of the point that Douglas wants to make. He wants to support the thesis that consumers will not have enough money to buy the goods that producers produce. Yet he completely disregards the possibility that the initial saving would be used, either directly or indirectly, to finance the hiring of workers to produce goods. If it is used in this way, producers will pay part of the incomes received by future consumers out of the consumers' past savings. I agree that in the complex financial system that exists in a modern capitalist economy, an increase in consumer saving (or, more correctly, a change in consumer time preference) may not result in greater investment by firms. But this possibility should not be disregarded, especially if one's aim is to produce an airtight underconsumptionist theory as Douglas aimed to do. On the contrary, one has the obligation to show why the investment would not occur. -- <**>I can think of no reason why "labor," in the usual definition, would be demanded less as a result of a shift from consumer goods production to capital goods production. <**> All production is production for consumption, and is charged against sales into final consumption as a matter of accounting. There is not a meaningful dichotomy between consumer goods production and capital goods production. There is no trade-off between one and the other. Labor and resources are not shifted from one to the other. It isn't so much that labor is being "demanded" less but is being decreasingly compensated in respect to the accounted for costs of production they are expected to pay. This is perhaps true as a "matter of accounting." But you are purporting to present an economic theory, not a classroom lesson in accounting. There is no trade off between using resources to produce consumer goods and using resources to produce capital goods? Are you serious? Do you believe that consumers face tradoffs in their purchases of goods -- for example, trad offs between renting a home and buying a home? -- <**>Where does the money come from? The simple answer, assuming that it is not financed by newly-created money, is past money savings.<**> Only in hypothetical steady state. If you truly believe that this criticism is applicable here, you should also apply it to the A + B theorem. What proposal do you suggest in order to deal with the problem of falling consumer incomes, assuming that you believe that this is in fact a characteristic of U.S. capitalism? Can you answer this question? -- Pat Gunning, Feng Chia University, Taiwan; Web pages on Praxeological Economics, Democracy, Taiwan, Ludwig von Mises, Austrian Economics, and my University Classes; http://www.constitution.org/pd/gunning/welcome.htm and http://knight.fcu.edu.tw/~gunning/welcome.htm --^^--------------------------------------------------------------- This email was sent to: [EMAIL PROTECTED] 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 --^^---------------------------------------------------------------