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I have been trying to get a grip on Social Credit,
and in particular on A+B. I wonder if someone could help
me?
In his paper 'A + B and the Bankers - January
1925', Douglas describes a capitalist production scenario lasting six
years:
- In year 1, £100 of wages produce £100 of
production goods and £0 of consumer goods. Thus, there is an
£100 excess of 'purchasing power' (the £100 of wages)
when compared to the £0 of consumer goods available. In effect, the
citizens are forced to 'save' their £100 wages by investing in the £100 of
production goods (via the banks and the enterprises). The citizens have
a net cashflow of plus £100, and the enterprises have a net cashflow of minus
£100.
- In each of years 2-6 , £100 of wages plus £20 of
production goods (depreciation) produce £120 of consumer goods.
Thus, there is an £20 shortfall of
'new purchasing power' (the £100 of wages paid that
year) when compared to the £120 of consumer goods available. In effect,
the workers are forced to 'un-save' £20 of their first-year wages in
order to purchase the £120 of consumer goods available. The citizens
have a net cashflow of minus £20 (£100 wages minus £120 spending), and the
enterprises have a net cashflow of plus £20 (£120 sales minus £100
wages).
Thus, during the course of the six
years:
- The workers earn £600 in total.
- The workers save/lend £100 in year 1, and
unsave/unlend £20 in each of years 2-6 (net zero).
- The enterprises borrow/invest £100 in year 1,
and unborrow/uninvest £20 in each of years 2-6 (net zero - corresponding to
the value of the now-knackered production goods).
- The enterprises make £600 consumer goods in
total.
- The enterprises sell £600 consumer goods in total.
- The workers purchase £600 consumer goods in
total.
What's the problem?????????
It seems to me that Douglas's A+B argument is based
on a myopic perspective which includes only the production phase of a
capitalist proposition (as per years 2-6 above), and ignores the
precisely-equal and opposite impact of the investment
phase of that same capitalist proposition (as per year 1 above). In fact,
at all times, there is a cumulative excess of
'purchasing power' (the value of total production) when compared to the total
value of consumer goods produced. That excess corresponds to the current
depreciated value of production goods, which rises to £100 during the
investment phase (as per year 1 above), and which reduces to zero
during the production phase (as per years 2-6 above).
In practice, of course, there is no reason to
believe that citizens would actually use their available 'spending power' to
purchase consumer godds as described above. In each year they may well
try to spend more (resulting in inflation) or less
(leaving enterprises with unsold consumer goods, and possibly deflation).
In practice, of course, the overall economy
comprises a multitude of such capitalist propositions at every given time, some
in their investment phase (as per year 1 above), and some in their production
phase (as per years 2-6 above). Thus, the net
impact on the overall economy at any given time depends on the
net balance of investment/production at that time.
Nevertheless, at every given time, there will be
a de-facto cumulative net value
of borrowing/investment by enterprises, which corresponds to the current
depreciated value of production goods. This de-facto net value was
determined by enterprises when they made/witheld historic borrowing/investment
decisions.
Fortunately,
citizens/workers/investors/savers have their own life cycles. They
tend to save whilst working, and unsave in old age (by cashing pensions,
dissipating savings, and purchasing annuities). Again, in practice, the
overall economy comprises a multitude of such citizens at every given
time, some in their saving phase, and some in their unsaving phase.
Nevertheless, at every given time, there will be a
de-facto cumulative net value of saving/lending by
citizens. This de-facto net value was determined by citizens when
they made/witheld historic employment and retail purchase decisions.
Of course, the de-facto net
value of saving/lending by citizens is mathematically equal and
opposite to the de-facto net value
of borrowing/investing by enterprises (banks, bond markets and stock
markets simply intermediate the lending/borrowing; in the form of a
zero-sum network of debts).
However, that does not mean
that the propensity of citizens to save/lend
is equal and opposite to the propensity of enterprises
to borrow/invest. In fact, quite the opposite is
true:
- If a boom is anticipated, citizens try to
unsave/un-lend and enterprises try to borrow/invest. All economic agents
(citizens and enterprises) simultaneously try to move negatively in their net
debt positions. Given that debt is a zero-sum game, this can only end in
tears (in a self-fulfilling boom).
- If a bust is anticipated, citizens try to save/lend and enterprises try to
un-borrow/un-invest. All economic agents (citizens and enterprises)
simultaneously try to move positively in their net debt positions. Given
that debt is a zero-sum game, this can only end in tears (in a self-fulfilling
bust).
Hence the business cycles.
Have I missed something? I would very much
appreciate your help here.
Best Wishes
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Douglas - A + B an
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