| Subject: | [socialcredit] Re: It's Not Interest, Jim: Wally responds | | Date: | Friday, July 23, 2004 21:50:35 (-0600) | | From: | Jim <jschroeder @....ca>
|
| In reply to: | Message 16 (written by Joe Thomson) |
Hi Joe:
I'll post some comments and respond in turn in
red.
A 'debt' is still a 'debt', whether it
has interest appended to it or not. It is a 'call' by the lender upon the
borrower for that borrower to 'do' something, and as such is an external means
of control over one individual by another.
But a bank loan isn't just a debt, it's also a
credit. Let's look at a mortgage. When you buy a house, the bank
loans you $100,000, say, and the house become collateral for that loan.
The "loan", or the money loaned, is owned by you and the bank. The bank
creates it as as debit (debt, or iou), and a credit (deposit). The actual
house is owned by you, and can only become the property of the bank if you fail
to meet your loan repayment schedule. Now the new money has value because
it's attached to some asset - the house. But as the house depreciates over
the course of it's existence, then the money for the loan should be paid back
over the "life" of the house, so that the money in existence has something
tangible to back it up. When the house ceases to exist, so should the
loan. However; more loans can be made to "spruce up" the house to
extend it's life span. However; as I've always stated, the loan
itself, or who owes who, is a question of ownership, and not a question of
balance. I agree that banks can exert alot of control via their power to
create money at will. Something that should be the exclusive control of
the government acting on behalf of the citizens within that
community.
This reminds me again of the type of deductive
reasoning expressed in 'Zeno's problem'. You may not have seen it, Jim, so
I'll reproduce it here. Maybe you can see the
similarities.
A classic example is the problem of Achilles
and the tortoise.
In its classical form, with the classical
pre-suppositions, the problem is insoluble.
As stated by William James, the
problem, or paradox as it is usually known, runs:
"Give that reptile ever so small an advance and the swift
runner Achilles can never overtake him, much less get ahead of him; for of space
and time are infinitely divisible (as our intellects tell us they must be), by
the time Achilles reaches the tortoise's starting point, the tortoise has
already got ahead of that starting point, and so on ad infinitum, the interval
between the pursuer and the pursued growing endlessly minuter, but never
becoming wholly obliterated,"
The modern mind can "see through" the problem at once
because we are the possessors of new points of view to encompass such paradoxes;
the problem has in fact vanished, and we concern ourselves with the more
practical problem:
"Given
that the tortoise and Archilles have such and such speeds, and start with such
and such a distance between them, how long will it take Achilles to overtake the
tortoise?"
Actually I'll respond as I did to Bill. It's a non-sequitur
in regards to what I'm saying. I'm saying that because of usury, the debt
is achilles, and the credit is the tortoise. Because of interest, the only
way to pay back loans is by access to more loans, but those other loans also
have interest, and it is because of this that the rate of growth of the debt is
greater than the rate of growth of the money supply. Douglas himself saw
this, although perhaps he did not see the logical conclusion when he states,
" The debt differs in nature from the debt created by
private finance in exactly the same way that a debt to foreigners differs from
an internal debt-its repayment actually takes money out of the country. If a
rise of prices has occurred, it is repaid twice over, once in increased prices
and again on redemption. Secondly, there is no provision in this method of
financing for the money required to pay the interest on the debentures, which,
in fact, can only be paid, if it is paid, by the issue of fresh money to
pay it, which, under existing circumstances, comes from the same source, that is
to say, the financial system." The facts
speak for themselves Joe, because of usury, the debt is 2.5 times the money
supply, and as time goes on, this figure will get worse because debt is growing
faster than credit, and this is a result of usury.
Since it's Bill Ryan's 'accounting proof' you
take such exception to, would it not be better to at least allow him a chance to
respond, too?
Two points Joe. 1) It's actually not Bill Ryan's proof,
it's a "proof" offered up by the banks, and I've seen it long before I met
Bill Ryan. 2) I've had this debate with Bill before, but instead of
debating me, he resorted to ad hominem attacks, and I have no interest to engage
in any discussion about anything with Bill Ryan.
You, on the other hand, I like and respect very much. And
will debate anything with you, or any of the others on this list.
Take care,
Jim
----- Original Message -----
Sent: Friday, July 23, 2004 9:26 AM
Subject: Re: It's Not Interest, Jim:
Wally responds
Hi Jim,
I've only got a few minutes, (as usual), to
reply this morning, and I'd like to pay particular attention to the section of
your post immediately below. It is my contention that if you had, (if it
were possible to have, which I believe it is not), 'interest-free' money,
there would still be an imbalance.
This is very clearly revealed in a
simplified form in "The Veil of Finance", which is an excellent 'exposition'
of the REAL problem.
A 'debt' is still a 'debt', whether it
has interest appended to it or not. It is a 'call' by the lender upon
the borrower for that borrower to 'do' something, and as such is an external
means of control over one individual by another. To say that this
'doesn't matter', as long as another 'debt' can be incurred to meet the first
one, and that there's no problem unless there's interest on it , doesn't
strike me as being the sound basis for either a very good social or
economic system.
But anyway, for the time being, I'll just
deal with the piece immediately below.
[Jim wrote:-] (And this has been
my criticism of the accounting proof offered by the banks and a member of the
Social Credit group that states that the loans (debt) and credits (money) are
in balance, and interest has no affect on this balance because it's bank
equity. But as I've always stated, by the TIME that bank equity has been
spent back in the system, more interest has accrued, because interest is a
function of time)
This reminds me again of the type of
deductive reasoning expressed in 'Zeno's problem'. You may not have seen
it, Jim, so I'll reproduce it here. Maybe you can see the
similarities.
A classic example is the problem of Achilles and the tortoise.
In its
classical form, with the classical pre-suppositions, the problem is insoluble.
As stated by William James, the problem, or paradox as it is usually
known, runs:
"Give that reptile ever so small an advance and the swift
runner Achilles can never overtake him, much less get ahead of him; for of
space and time are infinitely divisible (as our intellects tell us they must
be), by the time Achilles reaches the tortoise's starting point, the tortoise
has already got ahead of that starting point, and so on ad infinitum, the
interval between the pursuer and the pursued growing endlessly minuter, but
never becoming wholly obliterated,"
The modern mind can "see through"
the problem at once because we are the possessors of new points of view to
encompass such paradoxes; the problem has in fact vanished, and we concern
ourselves with the more practical problem:
"Given that the tortoise and
Archilles have such and such speeds, and start with such and such a distance
between them, how long will it take Achilles to overtake the
tortoise?"
And now I must be off. In the meantime
I hope others will give you a more detailed reply to the rest of the
points you've raised. Since it's Bill Ryan's 'accounting proof' you take
such exception to, would it not be better to at least allow him a chance to
respond, too? So we may all know just exactly where the differences
lie? I reallly do think we should broaden the discussion to a more
public forum, and have all points of view considered. In that regard,
I've posted this to 'socialcredit@elistas.com ,
too. Talk to you later, Jim.
Take care,
Joe
----- Original Message -----
Sent: Thursday, July 22, 2004 11:32
PM
Subject: Re: It's Not Interest, Jim:
Wally responds
I'm going to copy a section that Douglas wrote
on A+B and add comments in red:
The A plus B Theorem, Saving, and the
Repetition of Payments Increasing Prices.
For the convenience of readers who have not Professor Copland's paper, or
the book in which this theorem is contained.
It is reprinted herewith:-"A factory or other productive organization
has, besides its economic function as a producer of goods, a financial
aspect-it may be regarded on the one hand as a device for the distribution
of purchasing power to individuals, ,through the media of wages, salaries,
and dividends; and on the other hand, as a manufactory of prices- financial
values. From this standpoint, its payments may be divided into two
groups:-
"Group A-All payments made to individuals
(wages, salaries, and dividends).
"Group B-All payments made to other organisations
(raw materials, bank charges and other external costs).
"Now, the rate of flow of purchasing power to individualsis represented
by A, but since all payments go into prices, the rate of. flow of prices
cannot be less than A plus B. Since A will not purchase A plus B a
proportion of the product at least equivalent to B must be distributed by a
form of purchasing power which is not comprised in the description grouped
under A." (And my criticism of A+B is what
Douglas thinks comprises B, not that B does not exist. I argue that
the only factor that causes B is interest on debt created money, or what
Douglas calls usury. I will elaborate further
below.)
It is fortunate that the criticism of Professor Copland is practically
contemporaneous with a criticism of the same theorem by Professor Robbins,
as it is possible to use either of them to confute the other. It is,
however, obvious that, at any rate, Professor Copland has not understood,
what seems to me to be, its fairly simple language, and what are the
consequences which might be expected as a result of its truth.
The A plus B theorem, then, may be said to be first, an assertion that,
under certain circumstances, almost universal in modern industry, which will
subsequently be specified, purchasing power cannot be equal to prices, if
purchasing power and prices are both considered as a flow, which is the
commonly accepted and correct method of regarding the matter. The second
aspect of the theorem is that it puts forward an explanation as to the
mechanism through which this disparity is produced. Obviously, the correct
method of approaching the subject, although not that commonly employed by
professional economists, is first ofall to ascertain if the situation does,
in fact, confirm the theorem. Now, fortunately, or unfortunately, it is not
necessary to seek very far for this confirmation. I do not suppose that
Professor Copland, or any responsible student of the economic situation
would deny that it is concerned with a problem of glut, still less would he
contend that it was a problem of scarcity. It is admitted that we can
produce all we want, but cannot buy or sell to the extent of our
productive capacity. (Agreed!)Without going over the well-known
ground covered by the literature of sabotage, such as the burning of wheat
as fuel because it cannot be sold or to keep up the price, the destruction
of millions of bags of coffee, the shooting of calves an the Argentine
plains, the restriction of rubber tapping, and merely emphasising that this
glut of actual consumable products does not take into account the immense
unused productivity represented by half-idle factories, large bodies of
unemployed, decreasing cultivation of farm lands, and unused processes far
increasing the productivity of agriculture, to name only a few of these
aspects of the matter, it is quite certain that the introduction of
mechanical power into the economic service of man has at least multiplied
his productive capacity by the ratio of his muscular energy to the power at
his disposal, that is to say, at least fifty times. It is highly probable
that the multiplying factor is considerably greater than this. An
association of American engineers and technologists at Columbia University
remarks:
"The advent of technology makes all findings based an human labour
irrelevant, because the rate of energy conversion of the modern machine is
many thousand times that of man.
The total capacity of U.S. industrial equipment is one billion horsepower
which does the work of ten billion men or five ,times the earth's total
population." Both from observation, therefore, and by scientific deduction,
we are justified in regarding it as beyond all reasonable doubt that, from
the realistic or physical point of view, the world actually is rich and
could be much richer in real goods and services, and that economic want is
an anachronism.(Again, agreed so
far) On the other hand, we may regard Governments as
being spokesmen of the financial system, since it is by the sanction of
Governments that the existing system is maintained. It is claimed by these
governmental spokesmen that we are living in a period of great stringency,
that financial economy is necessary, both of the voluntary or saving
description and of the involuntary description, which may be for the present
purpose described as taxation. Obviously, these two pictures cannot be at
one and the same time true. We cannot be rich and poor, in an economic
sense, simultaneously. That is to say, the financial system does not reflect
the facts of the physical, economic, and production system. (Absolutely) Since fact and logic both
demonstrate that we are rich, while the financial system says that we are
poor, it seems beyond dispute that it is purchasing power which is lacking,
and not goods, or, in other words, that the collective prices of the goods
for sale are in excess of the purchasing power available to buy them.
(With all this I absolutely agree with Douglas,
I just disagree with the factors that cause this except one.)
Professor Copland seems to have some inkling of this in his
first paragraph, in which he remarks that: "With many others, Major Douglas
finds a disparity between consumers' spending power and production."
(sic). I am not specially concerned with any claims to priority, and
am, therefore, quite content to agree that I have an increasing body of
acquiescence on this point, although I do not gather that Professor Copland
admits it.
Turning to the specific criticism of the theorem, Professor Copland
begins by remarking as follows: "Taking the first part of this argument, it
is assumed that the so-called B payments are not distributed to consumers.
This I believe to be the fundamental fallacy of the Douglas Credit
Analysis." (And so do I with the exception of
interest or debt retired).
I think I am justified in retorting to the second sentence just quoted
that I think the first sentence is conclusive evidence that Professor
Copland does not understand the Douglas Credit Analysis. The B payments to
which he refers are specifically stated in the enunciation of it, to be
payments made from one producing organisation to another, and are,beyond
dispute, the completion of a cycle of cost accountancy. (Yes they are)
I trust Professor Copland will not consider me unduly elementary if I
explain that a cost is created either by the application of paid
labour to production or by the allocation of book costs in respect of
previously-incurred expense, or by both together. Payments to labour
distribute purchasing power to consumers, who supply the labour as workers,
and create costs which go into prices of the goods that they produce.
The allocation of book costs does not distribute purchasing
power,(This is where I absolutely disagree with
Douglas, and will elaborate on why below.) but is the
presentation of a claim an purchasing power already distributed, and
is met, if it is met,by the inclusion of the sum claimed, in: price. B
payments area settlement of the combined claim produced in this way
at every separated stage of production.
(This is true, but when a book cost, or overhead is paid to an outside
manufacturer, that money used to pay him does not disappear. It still
exists in that manufacturer's bank account, and that money can still be used
as purchasing power to clear the product that the second manufacturer is
producing. This seems to me to be a major - no pun intended - point of
confusion on behalf of Douglas. I will elaborate further
below.)
Fortunately, Professor Copland, while ignoring the diagram on page 31 of
The Monopoly of Credit, the book from which he is at the moment
quoting, includes a diagram of his own, which confirms my belief. It will be
noticed that in this diagram time is non-existent, (And this has been my criticism of the accounting
proof offered by the banks and a member of the Social Credit group that
states that the loans (debt) and credits (money) are in balance, and
interest has no affect on this balance because it's bank equity. But
as I've always stated, by the TIME that bank equity has been spent back in
the system, more interest has accrued, because interest is a function of
time)and apparently, to Professor
Copland, is of no importance. (Apparently, to
some people who use accounting proofs it's of no importance
either) That I am not misrepresenting him is, I think,
proved by his remark, on page 16 of his pamphlet, that it is "not relevant
to the point at issue" that "spending power distributed two years ago is not
available for consumption today. The several stages of production are in
progress at the same time."
Let us suppose that production is divided into five processes, all of
them in progress at the same time. Each of these five processes pays its
workmen weekly, and each pays £ lO in wages. Each one of the factories
carrying out the five processes allocates 100 per cent onto its direct
labour in the form of book charges, which is a very moderate average
overhead charge. For the moment we will leave out payments for materials.
The total amount of wages distributed in the week is £50. It seems to me to
be merely perverse, to deny that the price values or claims on the public
created in that week are £ 100 while the purchasing power distributed is
only £50. (Actually, the purchasing power
distributed that week is $100 because the money that went to "overhead" went
to another manufacturer, and is in his bank account which is still
purchasing power to be used.)When
factory No. 4 sells its weekly output to factory No. 5, it sells it
for £80, and factory No. 5, if it can sell at all, sells for £ 100. If
Professor Copland cannot show me a week in which, in the normal operation of
the cost system, this process is not going on, the only question at issue is
whether the £50 of overhead charges still exist in the form of purchasing
power. It is not merely relevant; it is the major portion of the
problem.(It absolutely is the major problem I
have with Douglas' A+B as presented) I might remark
that if he can show me a factory which does not allocate book charges, I
will show him a factory which is heading straight for bankruptcy.
In order to decide this question, we have to examine the nature of the
overhead charges, how they were created, and what financial processes have
been associated with them.(Yep)
To make the matter as simple as possible, I shall, for the
moment, assume that overhead charges are nothing but charges for the use of
buildings and plant, and at a later stage explain how this definition can be
extended.
Before, then, each of the factories in the above illustration could
commence operation, it had to be built and equipped with machinery. There
are two methods by which this operation could have been financed. The first
is that it could have been financed out of savings, the method commonly
suggested by orthodox financial authorities as that by which capital
expenditure is financed. It is very questionable whether much modern finance
is done this way.(Absolutely)Assuming this course to be
pursued, the money to buy the plant must have appeared in the cost of some
previous product, and therefore its mere saving causes a deficiency of
purchasing power to that extent.(That is true,
but the labour used to build the new factory, which was being used to
produce consumer goods, is now making the economy produce less consumer
goods, because it's building a capital good, so purchasing power
should come out of the system to reflect this decrease in the production of
consumer goods) If it is now applied to pay the wages,
etc., necessary to produce the new buildings and plant, quite obviously
these new buildings and plant are produced without the creation or
distribution of any fresh purchasing power.
In other words, the money creates a second price value, but does not
produce any fresh money. (Fresh money is not
needed to cancel costs if it is circulated more than once, and I think
Douglas is confused in this matter) This is the simplest,
but by no means the only, example of a sum of money appearing more than once
in series or chain production, and producinga cost on each occasion without
creating fresh purchasing power.
From the ordinary point of view, the people who put up the money are
legitimately entitled not only to a profit on this money, but also to get it
back again in full, since in their case the money may be assumed to
represent past effort, so that the factories in question must make a charge
on each article turned out which will provide the money to meet these
claims. (Absolutely, and I have always stated
that I agree that it's fair to charge interest on pre-existing money saved
or invested)The only objection to this perfectly fair
assumption is that, in the aggregate, the public have not got the money.
The second method, and probably the method by which most modern financing
is done, under cover of a smoke screen provided by comparatively small
subscriptions from the public, is that some financial institution actually
creates the money, taking debentures on the new factories as security.
Ethically, there is every difference between money created by a stroke of
the pen and money acquired as the result of years of effort, but I am not at
the moment concerned with ethics. (Absolutely,
and that is why when people learn that bank loans are just created money,
they are appalled, but I agree with Douglas in that I'm not concerned with
the ethical implications of this at the moment.) At first sight it is a better method, considered as an
isolated operation. When the new factories come into existence, new
money is distributed to the men who built the factories. But there are two
practical objections, leaving aside any question of ethics. The new money or
credit is claimed by the financial institution as its property, and
therefore when it is lent creates a debt against the public.(Not true, the debt is also a credit. The "property" of
the money belongs to both the bank and the loanee. This is double
entry bookeeping, as the loan is entered as a debt (iou) and a credit
(deposit)). At the same time, being distributed in
advance of consumable goods, it tends towards true inflation. (I concur, and is the problem with debt created
investment as opposed to real savings). The debt
differs in nature from the debt created by private finance in exactly the
same way that a debt to foreigners differs from an internal debt-its
repayment actually takes money out of the country. If a rise of prices has
occurred, it is repaid twice over, once in increased prices and again on
redemption. Secondly, there is no provision in this method of financing for
the money required to pay the interest on the debentures, which, in fact,
can only be paid, if it is paid, by the issue of fresh money to pay
it, which, under existing circumstances, comes from the same source, that is
to say, the financial system. (Douglas is right
at the precipice here. He has found his inbalancing factor, and the
factor which forces us to produce more debt, but watch as he steps away from
this revelation)From this point of view, it is the
difference between usury and profit-a difference clearly drawn in the Middle
Ages. (And a difference I've pointed out on many
occasion, so from now on when I speak of interest, I'm going to use the word
usury which Douglas coins here to maintain clarity, because there is a
difference between interest charged on pre-existing money, and interest
charged on debt created money.)There is
an additional factor, perhaps more important than any of these, and
that is that, either by directly calling in the debentures or by selling the
debentures to the public and calling in public overdrafts, financial
institutions can, and most unquestionably do, recall the money equivalent to
the plant value at a greater rate than this plant depreciates. (Yes, and this is mostly caused by the charging of interest,
instead of repaying the loan over the active life of the asset as it
depreciates, the loanee pays back that amout +
interest.)
It is therefore, I think, incontestable that, either wholly or in part,
the purchasing power to pay overhead charges on a scale which is legitimate
from the plant owner's point of view does not exist, except in times of
wholly excessive capital production or quite abnormal exportation. (Yes, but the only "overhead" charge which can't be
paid back without access to more loans is interest based on
usury.)It is now necessary to see to
what extent this conception of overhead charges can be extended, and I think
that a little consideration will make it clear that in ,this sense an
overhead charge is any charge in respect of which the actual distributed
purchasing power does not still exist, (Yes, but
it appears that Douglas thinks that when a cost is cancelled, the money, or
credit, that cancelled that cost ceases to exist, or is cancelled
itself. This is not true, and that credit exists to cancel more costs
as it is circulated, until such a time as it is used to pay back a
debt.) and that practically
this means any charge created at a further distance in the past than
the period of the cyclic rate of the circulation of money. There is no
fundamental difference between tools and intermediate products, and the
latter may therefore be included. Admittedly, at this point we get into a
certain difficulty, both to ascertain the average rate of circulation of
money, and the antiquity of the various charges made, but the disparity is
so great that, qualitatively, there is no difficulty in proving the
point.
In Great Britain, for instance, the deposits in the Joint Stock Banks are
roughly £2,000,000,000. In rough figures the annual clearings of the
clearing banks amount to £40,000,000,000. It seems obvious that
£2,000,000,000 of deposits must circulate twenty times in a year to produce
these clearing-house figures, and that therefore the average rate of
circulation is a little over two and a half weeks. (Douglas seems to acknowledge the circulation, or
velocity of money, here)At this
point it may be desirable to deal with the common error that the circulation
of money increases its purchasing power, an error which seems implicit on
page 19 of Professor Copland's pamphlet, where he remarks: "A given unit of
money will circulate many times in a unit of time. It will make many
payments, because it has what economists call velocity of circulation." I
think that what Professor Copland means by this is that, if I pay £ 1 to the
butcher for meat and the butcher pays the £ 1 to the baker for bread which
the baker has supplied to the butcher, then two debts are liquidated. This
is a complete and major fallacy. The butcher incurred costs, perhaps from a
farmer in respect of cattle supplied, who in his turn possibly borrowed the
£1 from a bank. In any case, if the butcher uses my £ 1 to pay the baker, he
has broken the chain of repayment from me to the farmer and ultimately to
the banker, and the costs which were created when the farmer sold his cattle
to the butcher are not liquidated. (But the
baker could buy meat from the butcher, who then has $1 to pay the farmer,
who then can use the one dollar to cancel the debt. The credit doesn't
disappear because it's given to the baker, the baker can then use the dollar
to buy meat in exchange for the bread which he sold to the butcher, and then
the butcher can use this same dollar to cancel other costs. Like I
stated previously, I can clear the market of $1,000,000 dollars in costs
with one dollar so long as I circulate it $1,000,000 times. Now if the
cost of the meat the butcher supplies, is exacly equal to the cost of the
cattle which the farmer supplies to the butcher (i.e. one dollar), and when
receiving the dollar spends it on bread, instead of spending it on clearing
his debt to the farmer, THEN THE BUTCHER SHOULD GO IN DEBT. He has
just spent money on something for which he has made no profit. So the
butcher should go in debt, to pay back the farmer, who in turn pays off his
debt to the bank. So now the farmer is out of debt, and the butcher is
in debt. $1 of debt was created to cancel a $1 of debt, and the
aggregate debt did not change. It only change as to who has the
debt)The clearing-house figures just
quoted contain a large number of. "butcher-baker" transactions, and these
must be deducted in estimating circulation rates. The vital fact is, of
course, that one unit of money can circulate an indefinite number of times
through the costing system, in each case creating a fresh cost or, if it be
preferred, a fresh debt charge, but not fresh purchasing power. It is,
perhaps, unnecessary to contend that the average antiquity of the
debt charges against the population is more than two and a half weeks. It is
certainly a considerable number of years, but it would be difficult to say
exactly what it is.
Categorically, there are at least the following five causes of a
deficiency of purchasing power as compared with collective prices of goods
for sale:-
1. Money profits collected from the public (interest is profit on an
intangible). (Interest is what drives profit,
because it is the rate of return of capital - i.e. the opportunity cost of
capital. It is more than just profit on an intangible, it is profit
that is guaranteed to grow continuously over time, it guarantees that the
rate of growth of debt is greater than the rate of growth of credits to
cancel that debt, and that forces more debt into the system, and causes an
inbalance in prices.)
2. Savings, i.e., mere abstentation from buying.
3. Investment of savings in new works, which create a new cost without
fresh purchasing power.
4. Difference of circuit velocity between cost liquidation and price
creation which results in charges being carried over into prices from a
previous cost accountancy cycle. Practically all plant charges are of this
nature, and all payments for material brought in from a previous wage cycle
are of the same nature.
S. Deflation, i.e., sale of securities by banks and recall of
loans.
There are other causes of, at the moment, less importance.
Excluding taxation, which is a separate although allied subject, all
distributed purchasing power is recovered from the public through the agency
of prices. This is just as true in connection with the recall of trade loans
as in any other form of expense. It seems obvious, therefore, that, with the
exception of savings, the whole of the above causes of the difference
between purchasing power and prices can be found in B payments, which are
money ultimately on its way back to the bank, (Yes, money back to the bank creates less credit in the system
as money is cancelled, but either new capital projects are created to create
more consumer goods, and hence, the money supply remains constant or
growing, or less and less capital investments are made, and the amount of
consumer goods produced slows with depreciation, and therefore, less and
less money is needed to clear the market. In either event, there is no
inbalance. The inbalance comes from the fact that the debt can never
be paid off, and access to more loans is made necessary because of
usury.)and none of them, with the exception of savings, are
found in A payments, and if we subtract the A payments distributed in a
given week, minus savings from the total prices claimed in a given week, we
shall get B payments as a measure of the net debt claims against the public
for the week in question.
As bearing upon this, the Association of American
Engineers at Columbia University, previously referred to, remarks that
"the total debt claim against the physical equipment of all American
industry has risen to the fantastic figure of 218,000,000,000 dollars-a debt
claim on posterity." They correctly remark that a temporary revival to
"prosperity levels" is possible by increasing the debt claim through a
policy of inflation, but that a downward oscillation will result from this
that is likely to end in the utter collapse of the price system under which
industry has operated.
The foregoing is sufficient answer to the quotation from Mr. J. Keynes,
which begins: "Let X be equal to the cost of production of all producers.
Then X will also be equal to the incomes of the public." This is the
well-known logical fallacy known as the petitio princil, which
consists in assuming the truth of the fact which you have set out to prove
and then proving the assumption from the logical conclusion.
The cost of production is not equal to the incomes of the public,
and therefore the rest of the argument merely indicates what would happen if
it were equal.(This is true, but the only
thing that causes this inbalance is the cost of interest on debt created
money).
Professor Copland then goes on to argue that the whole system of
production would have broken down had my analysis been correct, and mentions
the interesting fact that A payments in Australian industry are about
one-fourth of the total value of the output of goods in factories. It is
well understood how it has been possible for industry to carry on up to the
present time under the faulty financial system we have examined, and the two
more important causes are: firstly, the excess of exports over imports,
resulting in taking goods out of the country and receiving purchasing power
in return for them, thus at one and the same time decreasing the amount of
goods in the country and increasing the amount of purchasing power in
respect of the remaining goods; and secondly, by a progressively excessive
production of capital goods, the A payments of which become available to buy
the consumable goods, the method to which reference is made by the American
authorities quoted previously. Both of these latter processes have now
become, in practice, impossible to any considerable extent, and the present
crisis is the result.
Take
care,
Jim
----- Original Message -----
Sent: Sunday, July 18, 2004 11:20
AM
Subject: Re: It's Not Interest, Jim:
Wally responds
I'll reply in
'italics bold green' to the parts below.
~Joe
(Joe) Why is interest any different from any other 'B'
cost?
(Jim) And that's maybe a point
of confusion on my behalf? I'm not absolutely certain, as I don't
profess to know everything about social credit. But my suspicion
is that the only time credit is really "cancelled" or taken out of the
system, like a drain, is when an actual bank loan is paid.
It's from whence the money originated, and the imbalance comes from the
pump. And my arguement is that the actual inbalance, when you
trace it all the way back, comes from the fact that bank expect you to
pay back more than they create. Not at the exact moment of the
loan, because that balances, but over time, because interest
grows.
I think what you're missing, Jim, is that there has
to be a relationship that's accurate between ' physical reality' and the
'financial' reflection of it. It is true, or at least it certainly
seems to me to be, that the banker does indeed expect you to pay back
more than he's initially created when he credits your account with a sum
of 'money'. And it is easy to say this is the 'cause' of the
imbalance, and the source of all our problems, since he didn't create
this 'interest' at the time of the loan. But it is not.
Because that is not how the system works. He creates many loans, as
'debt', and these loans can be measured overall as 'flows', since
in reality we are dealing with a whole dynamic process, not one solitary
part of it at a time in isolation. In that imaginary solitary
instance, what could be said of 'interest' could also be said
of a 'service charge' to replace interest. The banker, in
the ficticious one loan situation didn't create the money for
that either. Nor also the money for anyone else's
'profit'. So how could any of these things be
paid? The 'real' problem ISN'T 'interest,' nor
'profit', to any extent. Only what happens to both of them in the
sense of where do they go ~ whether they are distributed or
not. The problem IS what happens when there is a
difference in the rate between the 'physical' realities of production
and consumption, and the inaccurate 'financial' reflection of that
rate.
(Jim) Debts and costs are not the same
thing. Costs can be cancelled without cancelling the credit
(money) in circulation. Money (credit) is cancelled when a debt is
repaid. This isn't really cancelling a cost, it's cancelling a
debt, and this is why I said it seems Douglas was confused in this
matter.
(Joe) I won't presume to speak for Douglas,
but I know I'm confused in this matter the way you've phrased the
preceding. I have no problem with your saying 'money'
as bank-created credit is cancelled when the debt is paid
off. I also have no problem with your saying, "This isn't
really cancelling a 'cost', it's cancelling a 'debt'..." Is this
not one of the reasons why we call for Social Credit?
(Jim)
Actually, I want to address this fully Joe, for I actually believe it's
the genius of Douglas. Douglas saw that we benefit from our
association together via trade. And being the engineer, saw that
technology increased our productivity, and could provide us with more
goods, or more leisure. He also believed that as people were
"richer" they would choose to seek more leisure. We no longer
needed an economics of scarcity, but an economics of abundance. As
it stands now, the people who benefit from our mutual association
is the banks. How? By establishing credit with a cost (debt)
that is grows over time. In reality, all of us should
benefit from association and technology, because the discoveries of
Einstein depended on Newton....... Have we not just
established a disparity between 'costs' and 'purchasing power' available
to meet them in the community at large when the 'debt', which is in
'money' is paid off, but the 'cost' of the asset it created is an
'accrued cost', still on the books of the borrower and yet to be
liquidated? We have created a disparity, if we
pay off debt. But I have a question? Why would you pay off
debt if there were no interest accuring on the
loan?
Because we could not all just continue to run
up 'debt' that would never be repaid, or your entire money system would
be as worthless as 'green dollars'. And if you try to 'make' the
'debt' under such a situation in any way 'callable' to correct that
little problem, you have established an external control over the
individual. Social Credit seeks to remove external controls over
the individual and allow the benefits of association to be fully
realized by him. You do not do that by putting people further into
'debt', nor pretending a system of money can function where 'debt'
doesn't have to be repaid. We want, or at least I do, Social
'Credit' , not Social 'Debit'.
Again, I contend that the bank loan not
only creates a loan, it creates a credit (deposit), so there is no
"cost" associated with debt at this
point.
The bank loan also gives rise to a physical
asset, and the money in existence should accurately 'reflect' what is
happening to that physical asset. That is, I believe, what we
have a money system for.
The
cost of debt is interest, which IS the drains the money supply,
because it all comes back to the banks, and they "settle the score"
+ interest. Which can usually only be done by charging
the public a price they've now not the money to pay? Unless
there's a further dispensation of credit from the banks. Yes, once money is drained, more money must be replaced to
clear the market because the velocity of credit is set within a certain
amount of time by physical
constraints.
I'll leave this one for somebody with a
superior knowledge of economics to comment
on.
But
again, it's important to distinguish between the cancelling of a cost
with credit, because the credit still exists, and cancelling the
original debit from whence the credit originated. But again, what
need would I have to cancel a debit, if the debits were not
accruing. Then I would not be obligated to retire that
"cost". That "cost" should actually be a "benefit" as you, and
Douglas so rightly point out. Paid to all of us as a dividend for
our "cultural heritage". Which, if it's
in respect of some addition to further productive capacity, creates
another set of 'costs' carried forward into future prices. Do you
not agree with Douglas's 'three demands', Jim? The three
statements about 'collective cash-credits', 'loan credits', and the
'dividend' progressively replacing the wage? Victor listed them in
a recent post you replied to. He did? I'm going
to have to revisit that because I don't remember off hand, and it's
not because I didn't read it. I appreciate everything Victor,
yourself and Wally all have to say. If you could explain it to me
better, or provide a link, I'd love to see it
Joe.
I'll post it here, without further
comment:-
1. The
cash-credits of the population of any country shall at any moment be
collectively equal to the collective cash prices for consumable
goods for sale in that country, and such cash credits shall be cancelled
on purchase of goods for consumption.
2. That
the credits required to finance production shall be supplied, not from
savings, but be new credits relating to new
production.
3. That
the distribution of cash credits to individuals shall be progressively
less dependent upon employment. That is to say, that the dividend
shall progressively replace the wage and the salary. ~ Swanwick address,
1924
Regards to
all,
Joe
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Re: It's Not Inter
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