[EMAIL PROTECTED] wrote:
<**>Admittedly, the social [crediters'] program does not entail a 100% subsidy.<**> -------------------- In 1920s and 30s social credit propaganda the subsidy was generally portrayed as an anti-inflation measure, which it indeed is, because it effectively lowers prices that consumers would otherwise have to pay. The theoretical argument for the subsidy is more sophisticated and abstract analytically.
When the individual saves he is purchasing from his income something other than goods and services for his personal consumption. In the broad model he is purchasing "investments" which will prospectively bring him future income. That future income is income that is "unearned" as opposed to income that is "earned." He isn't saving in any physical sense nor is the community as a whole saving in any physical sense. The relationship is contractual between creditors and debtors. It is however true that much debt will masquerade as equity.
It is as true in a barter society as in a money economy that a person can "save" by accepting others' promises. So long as the lender expects the promises to be kept, those promises are equity to him. There is no masquerade. The borrower has agreed to give up her claim to future goods or work in exchange for the benefits she expects to receive from having the goods or purchasing power now. She may use her borrowings to buy consumer goods or to finance production of future goods. She may throw it in the ocean. It doesn't matter what she does with it. So long as the lender can expect to be paid back, it is equity. That is, it is part of his wealth. By contrast, the equity, or wealth, of the borrower has been reduced. I don't see the point in suggesting that there is a masquerade.
We live in a society in which promises are made on the basis of expectations that other promises will be kept. One might say that the entire structure of production and exchange is built on "the promises men live by," to use the title of Harry Scherman's book, which I recommended earlier. W. G. Langworthy Taylor called this the "credit system." He rightly pointed out that, without it, the steadily increasing standard of living that we have observe in the more capitalist countries of the world could not have occurred. J. A. Schumpeter concurred, as did Veblen. Moreover, it is just simple common sense.
Such a complex and intricate network can "break down," so to speak. The promises are made in terms of the common medium of exchange. The most important promises are made in terms of money. If someone -- usually a government or central bank -- messes with the money and causes unexpected inflation or deflation, he inevitably upsets the plans of borrowers, lenders, consumers, producers, workers -- in short, everyone. The "promises men live by" no longer become reliable guides for action. So "men" revert to an earlier, more primitive form of production and exchange. We call this a recession or a depression.
The scheme you have in mind messes with the money. That is why I regard it as dangerous.
Looking at the economy in statistical whole, the steady state condition is where the saving from current income (earned and unearned) by those who are saving equals the spending from past income by those who are spending. In such a condition effective demand equals income.
Furthermore, in steady state income equals the accounted for costs of production of goods flowing into final consumption at the point of retail.
Dropping money into such a situation would be purely inflationary and completely senseless.
But--
If spending from past income is falling in respect to saving from current income, effective demand is falling in respect to the costs of production flowing to the point of retail. --
Do you follow the argument so far? If you don't there's no point in continuing because step by step it becomes more elusive. I'm not asking that you agree with any aspect of the argument; I'm simply asking that you understand it. If you do not, I would welcome further discussion so that we might come to a consensus as to its meaning--not necessarily its validity. Until we reach that consensus, I would prefer to confine our discussion to the elements preceding the "but" above. We can take them sentence-by-sentence, point-by-point.
No, I don't follow you. You seem to want me to comprehend economic interaction as a "statistical whole" in accounting terms. Economic interaction consists of people deciding to cooperate with others in exchange and production, each party expecting to do better than he or she could do without cooperating.
We build images of a steady state in order to help us comprehend entrepreneurship. In those models, accounting identities prevail. But these images are not images of real human beings. They are images of robots. If everyone was a robot, we would not need to put ourselves in the shoes of actors in order to make judgments about what they would or would not do under particular circumstances. But people are not robots. Entrepreneurs try to earn wealth by capturing what they believe will be gains from exchange. If you cannot tell why your policy is likely to work by referring to how you think entrepreneurs will act after the proposed policy is adopted, then something is wrong either with the theory or with your ability to articulate 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
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