It is obvious that pat gunning does not understand the basis on which any reimbursement to retailers who discounted their prices to consumers would be based. May I suggest that a lot more homework be done before expressing opinions such as the nonsense suggested below. A government could not possibly reimburse 100% because the ratio of Consumption to Production to allow such a position could never occur. Please "Social Crediters NOT Social Creditors". Incidentally, I do not accept these exchanges are on Social Credit. They are discussions on anything but! Vic Bridger
----- Original Message ----- From: "K Q Elahi" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Thursday, November 13, 2003 2:40 PM Subject: Re: [SOCIAL CREDIT] Social creditors and the Ponzi game I hope Professor Gunning and others are enjoying these exchanges on Social Credit. However, they should also consider what other members of the e-group feel about these exchanges. Academic criticism ordinarily involves comments indicating logical gaps in the author's argument and the author is given a chance to rebut. But this is not the case here. Here the debaters are trying to convince one another. And this not certainly the norm of academic debate. It is the responsibility of the list moderator to ensure that members of the group get involved in constructive criticism, not in crucifying one another. Khandakar Elahi Guelph, Ontario. ----- Original Message ----- From: "Pat Gunning" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Wednesday, November 12, 2003 9:48 PM Subject: [SOCIAL CREDIT] Social creditors and the Ponzi game What would happen if the government adopted and successfully implemented the following policy of subsidizing retailers. It compensates them completely – 100% – for their costs. In other words, if it costs $1 to supply a product, it gives retailers a $1 subsidy. It pays the subsidy with newly-created national government currency. In the usual microeconomic model of competition, firms would tend to sell each product at a zero price. How much new money would be needed? At first, it might seem that it would be necessary to create enough money during a year to pay for the annual output of the economy at before-policy prices, that is, at the prices that exist today. But this seems wrong. First, at a zero price, the quantities of all goods demanded would be substantial higher than at the current prices. If the government based its subsidy on before-policy prices, it would have to pay quite a bit more than that. To know how much more, we must ask the question: how many more units of each good would people want to buy if the price was zero. For the basic necessities of food, clothing and housing the answer is: “not too much more.” But for other goods, the answer might be: “an infinite amount.” How many mansions would you demand if the price was zero? How many diamonds? And so on. Second, no sensible speculator on prices would expect the market price to stay at zero. A sensible strategy would be to borrow as much money as possible in order to buy durable goods at the zero price in the expectation that all of the new money, in light of the limited capacity to supply goods, would cause future prices to soar. Assuming that speculators do, in fact, try to borrow as much money as possible, the result would be much higher market prices of durable consumer goods and a much greater subsidy than we would expect if we disregard speculation. In addition, the increased borrowing would lead to extremely high interest rates, which would choke off private investment. Another way to look as this is to say that investors would shift from investing in real production for the future and toward speculating on future prices of the durable goods they could buy today. Today’s producers would respond by shifting from the production of goods for the future to durable goods that people could buy today. For example, it would become more profitable to produce new houses and less profitable to maintain farm productivity. The disaster would come when consumers of the future try to buy goods that haven’t been produced. Even though many people may have wheelbarrows full of national government notes, the goods would simply not exist to supply their wants. Admittedly, the social creditors program does not entail a 100% subsidy. However, considering this extreme situation should indicate some of the pressures that social creditors appear to ignore when the advocate a subsidy to retailers based on sales. The pressures would be on consumer goods prices in the longer term (up much more than otherwise and than anticipated), on interest rates (up), and on investment in the supply of future consumer goods (down). The subsidy amounts to robbing Peter to pay Paul. In addition, because it is bound to cause a largely unpredictably inflation, it destabilizes markets and is likely to lead to greater entrepreneurial error. In my view, the policy of subsidizing creditors with newly created money is like a ponzi game. It benefits some people initially but all those who continue to play the game are harmed in the long run. I realize that the logic here is difficult for ordinary people to follow. But a good economist should be able to follow it. -- Pat Gunning, Feng Chia University, Taiwan; New book: UNDERSTANDING DEMOCRACY http://www.constitution.org/pd/gunning/votehtm/cove&buy.htm 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 --^----------------------------------------------------------------
