| Subject: | [socialcredit] Re: the "zero sum" fallacy | | Date: | Wednesday, May 4, 2005 12:11:15 (-0700) | | From: | William B. Ryan <w_b_ryan @.....com>
|
| In reply to: | Message 1215 (written by Tim Knight) |
"I believe you are moderator of this forum. If you
feel that my contributions/questions are unwelcome
and/or disruptive, please say so, and I will drop
out."
--------------------
---------------------
I am the moderator and have so far approved your
messages, or many of them, for posting. I have done
so because I have deemed them useful to us as a
sounding board (or sparing partner) to develop the
case for Social Credit, for your posts express the
extreme, though poorly informed, opposite case.
-
"I repeat my suggestion that perhaps the main reason
why social credit and money reform have been
struggling for universal credibility for so long is
that most of the advocates simply shout louder when
challenged, in language which so many wishful-
believers find completely impenetrable, and with
which they are unable to 'engage'."
--------------------
---------------------
One of the reasons for establishing this list is to
change that approach. The "thirty items" sent to you
immerse you in detail--making it difficult for you
see the forest for the trees. They are also, for the
most part, from three-quarters of a century ago. The
language has changed. There are allusions to then
current events of which we have little memory. There
is much internal argot, meaningless to the
uninitiated.
Sound interpretation requires footnotes or
annotations to the historic material, absent in the
material sent to you, though it was sent to you with
good intentions.
It is therefore counterproductive, in my opinion, to
immerse the new student in the mass of such material
at the beginning, except through selected excerpts by
way of illustration. Although the material should be
freely available in the "library," for reference, as
needed.
The immersion should come later, in the "post
graduate" stage of his education, so to speak, if he
is desirous to further his education, when he sees
the big picture. It is a matter of how to most
effectively structure the curriculum to attain that
end.
-
"I think I agree with you that payment transactions
(i.e. using the banking system to intermediate debts
which require paying) are independent from the trade
and employment transactions which give rise to the
debts which require paying."
--------------------
---------------------
The role that banking plays is not mere
intermediation, so you start from a patently false
premise. Banking plays an assertive (not passive)
role in the process.
Its essential function is that it makes
individualized creditary instruments fungible, by
transforming them (through discounting) into its own
creditary instruments (deposits), which generally are
accepted throughout the community in payment for
goods and services.
Without that general acceptability, we would be
limited to the company store, the one place where our
income, given to us in our employer's pay vouchers,
or otherwise, could be spent. The competitive
market, where you may spend your income in any store,
not only your employer's store, would be impossible,
or at any rate, inconceivable. The exemplary company
store on a grand scale was the old Soviet Union.
That means that banks have to cooperate (conspire?)
together in virtual unison, making banking a natural
monopoly, in order to supply the necessary
fungibility to the nation's money.
But being a monopoly, it can be abused--requiring
public oversight. Laissez-faire in banking is a
contradiction in terms.
-
"However, with conventional best-practice banking and
accounting practice, I believe that 'the
accommodation' is automatic."
--------------------
---------------------
It is not automatic, as demonstrable through A+B,
buttressed by empirical observation.
-
"Zero-sum sets of debit and credits..."
--------------------
---------------------
The "zero-sum" concept is complete nonsense, nor does
it reflect the rules and procedures of double-entry
accounting. You most certainly won't find the term
"zero-sum" in any ordinary accounting text.
There is indeed equality between debits and credits
within a COHERENT set of accounts, but the result is
something quite different than "zero-sum," for the
debits and credits are posted into three
fundamentally different kinds of accounts (Assets,
Liabilities, Capital) reflecting gains and losses to
the firm, in real time.
Without the capital account, it's impossible to
objectively account for increasing wealth. Nor to
allocate it into consumption, efficiently.
Social Credit would merely extend this most basic
principle to the economy as a whole, through the
establishment of the National Credit (or Capital)
Account, enabling the circuit of production and
consumption to close in the financial sense.
-
"Of course, 'changes in (economic and) banking POLICY
have profound effects on the real economy'. However,
none of my comments/questions relate to economic or
banking policy. They relate only to the book-keeping
which records whatever results from the policy.
--------------------
---------------------
And you have quite erroneous concepts of accounting.
You could not have graduated from any standard
accounting curriculum, in my estimation.
-
"I have never suggested that the economic process was
'zero sum'. I have merely asserted that (my quirky
definition of) owed-wealth is zero-sum."
--------------------
---------------------
It's not only "quirky," it's fallacious. It has no
relationship whatsoever to conventional accounting
theory, or reality.
-
"I assert that (my quirky definition of) owned-wealth
is synonymous with the 'wealth of nations', as is (my
quirky definition of) net-wealth."
--------------------
---------------------
But accounting is not merely the accounting for the
TRANSFER of existing tangible wealth, one party in
transfer to another; it is the accounting for
increasing wealth. And within the category of
increasing wealth is productive capacity. And within
the category of productive capacity is production
that is unrealized, because of financial policy that
is inappropriate. And within the category of
production that is realized, is much waste, also due
to financial policy that is inappropriate.
It is this inappropriate policy that Social Credit
would rationalize.
-
"Double-entry accounting is zero-sum by design,
simply because the non-equity net-wealth of every
enterprise is assigned as an equity (owed-wealth)
liability to the owners of that enterprise."
--------------------
---------------------
Is it not possible for you to see, that within this
one sentence, you have multiple contradictions?
-
"In such a situation, the firm has made a profit at
the time of the purchase, and ought to book it
explicitly."
--------------------
---------------------
How is it possible to make a profit at time of
purchase, unless the "purchase" is really theft.
Profit is accrued upon sale. Whatever you think it
"ought" to be, it has not been the practice to book
profit before sale since the time of Pacioli. The
exceptions prove the general rule. Your claims as to
what is "normal" are quite mistaken, and reflect a
profound ignorance of the rules of accounting.
-
"Presumably, from your point of view, if an
enterprise bought two identical assets at different
prices, you would record them in asset accounts at
different values. I'm sorry, but that's absurd."
--------------------
---------------------
I'm sorry, but you are quite mistaken. The profit on
either is not realized until either is sold. At the
point of sale, there may in fact be a loss on each.
It seems "absurd" to you because you are completely
ignorant of accounting, or the purpose for its
procedures, which have been practiced in the same
general form since the time of Pacioli, and before.
-
"In practice, enterprises either revalue existing
stock to the latest price on a rolling basis (which
effectively results in booking profits when prices
are rising, and losses when prices are falling), or
revalue all identical assets to a rolling average
(which is an administrative convenience, and, if done
correctly, an acceptable compromise on best
practice)."
--------------------
---------------------
You use the term "in practice" as if you know what
you are talking about. What is your authoritative
source for this absurd claim. Please cite it.
-
"Strictly speaking, the value of an asset should be
increased as it moves through the supply chain (to
reflect the value presumably added by the purchasing
department, the warehouse system, the manufacturing
processes, the sales processes, the distribution
processes, etc...)"
--------------------
---------------------
But cost accounting does not fraudulently add "value"
by including profit that has not been realized.
-
"This would be an advanced version of activity-based
accounting which allows enterprises to run each of
those departments as profit centres, and to weigh up
the relative merits of out-sourcing etc."
--------------------
---------------------
No, you set up a coherent set of books for each
separate department, where transactions are recorded
according to the rules of accounting.
Where do you get this term, "activity-based
accounting"? It has the appearance of being the name
alliteratively tagged to a set of non-standard
concepts. Did you get your "quirky" ideas from some
book entitled, "Activity-Based Accounting,"
perchance?
There are a number of such tracts floating about,
teaching "creative financing" techniques for
"leveraging" buyouts, etc. There are seminars you
can attend that will teach you how to do this, for a
fee.
-
"In practice, many enterprises use rather primitive
accounting techniques such as you (appear to)
advocate, in which all purchases are held at cost
price, all operational costs are held in a 'costs
slush fund, all profits are recorded at sale time,
and the management haven't the faintest idea where to
look for improvements."
--------------------
---------------------
Now I'm quite sure you're pushing the party line of
certain financial scammers, whether you realize it or
not.
The "improvements" you speak of are ways to increase
"cash flow" to insiders, to the detriment of the
firm's stockholders, employees, and community at
large.
-
"By the way, what would you do accounting-wise for
production, in which input assets 'disappear and
output assets 'appear'. However, this latter
practice is an accounting device to reduce admin, but
is acceptable only for assets which are moving
through the supply chain rapidly without
manufacturing or repackaging, and for which all
profits can be 'held' until disposal (as you have
suggested below). However, this practice would be a
gross misrepresentation when applied to longer-term
assets, whose value varies up and down over time."
--------------------
---------------------
Blah, blah, blah. Your double-talk becomes less and
less meaningful, if that is possible.
-
"The 'best practice' principles of book-keeping
require that 'the books' of an enterprise reflect the
best business judgment as to the value of the assets
and liabilities of that enterprise on a rolling
basis."
--------------------
---------------------
What is your authority for this so-called "best
practice." What standard text will you cite? The
Balance Sheet, not the Profit and Loss Statement, is
where you reflect the value of assets and
liabilities, as valued in the firm's books, with
proper notation.
Your "rolling basis" leaves the door open for fraud.
If you can book profit without a sale, you can book
any profit you want, to get what you want.
The Balance Sheet, deriving from a coherent set of
books accounting for profit and loss, is something
quite different from the Balance Sheet appraisal
created for other purposes, such as the sale of the
firm, or its securities to prospective purchasers.
The difference between the two should be clearly
noted in the respective Balance Sheet. The source
for the numbers should be clearly stated. Mark-ups
to present value should be clearly stated as
appraisals or mark-ups, not profit earned
operationally. Anything else is fraud, pure and
simple.
You seem to be a graduate of the Enron School of
Accounting.
-
"If the value of an asset (such as a machine) falls
over time, then the books should record that
depreciation explicitly as a loss."
--------------------
---------------------
If the machine is a tool of production used within
the firm, the present resale value of the machine is
irrelevant to the firm's profit or loss. The firm
did not purchase the machine to resell, but to use.
Its acquisition cost is expensed against sales
according to the machine's depreciation schedule.
-
"Conversely, if the value of an asset (such as real
estate) rises, then the books should record that
appreciation explicitly as a profit."
--------------------
---------------------
If the firm prefers to sell the machine, rather than
to use it in production, then the profit is realized
when the machine is sold, if and when it is sold.
Again, you keep using the word "should," as if you
know what you are talking about.
In respect to firms primarily engaged in transactions
in real estate, or stocks, or bonds, derivatives or
other marketable securities, we are dealing with
firms engaged in financial speculation, rather than
production for consumption.
The ordinary rules of profit-loss accounting do not
apply to such firms.
Anyone who is not aware of that fact is a person
easily snookered out of his money. He is raw meat to
the con men.
-
"Fraudsters find it very difficult to cook the books
with regard to purchases and sales, because there is
a counter-party to every transaction who could blow
the whistle."
--------------------
---------------------
Complete and utter nonsense. Fraud can and has gone
on for years, with "counter-parties" all over the
place, blissfully ignorant that they are being
fleeced.
-
"Fraud is hidden by misuse of best practice book-
keeping principles."
--------------------
---------------------
No. Fraud is accomplished by utilizing what you call
"best practice bookkeeping principles." The
"principles" to which you refer are the financial con
man's tools of his trade.
Again, I will insist that you cite a specific text
where what you call "best practice" is elaborated.
And you must quote, not paraphrase, specific
passages, at sufficient length for us to discern the
meaning intended by their author.
Your next posting, in order for me, as moderator, to
approve it for distribution to the full list, will
have to have that citation, in support of your
assertions. Otherwise, the posting will be rejected,
I regret to inform you. I encourage you to spend
some time in research.
It's simply that we don't want to waste our time with
your personal "quirky" opinions, or theories. If you
are expressing some body of thought other than your
own, however "quirky," we are willing to listen. But
the burden is on you to establish that fact. I
believe there is such a body of thought, but it
exists outside the community of accountants, except
for the minority of renegades, employed by the
Enrons, et al.
The stated purpose of this list is to discuss the
theories of C. H. Douglas, and their relationship to
competing bodies of thought.
To the extent you are willing to do that, your
continued presence in this forum is welcomed.
-
--- Tim Knight <Tim_Knight@NTLWorld.Com> wrote:
> Tim Knight wrote:
>
> If you mean 'banks processing a zero-sum
> debit-credit pair to intermediate a
> debt created by trade or employment', I would argue
> again that nothing of
> any economic significance has happened.
>
> William B. Ryan wrote:
>
> Tim, I've suffered through your postings, reading
> some of them, and
> suggested previously that you read the materials at
> http://www.geocities.com/socredus/compendium for
> introduction to the subject
> heading of this list. It does not appear that you
> have done so.
>
> Tim Knight now writes:
>
> I have followed that link, and can't make any sense
> of it. However, Wallace Klink was kind enough to
> send me over 30 documents, and others have offered
> me constructive comments and suggestions on and off
> the forum. I am slowly working my way through that
> material. Indeed, all of my recent
> contributions/questions arose from my understanding
> of that material.
>
> I believe you are moderator of this forum. If you
> feel that my contributions/questions are unwelcome
> and/or disruptive, please say so, and I will drop
> out. However, I am not alone in having reservations
> in spite of wanting to believe. I repeat my
> suggestion that perhaps the main reason why social
> credit and money reform have been struggling for
> universal credibility for so long is that most of
> the advocates simply shout louder when challenged,
> in language which so many wishful-believers find
> completely impenetrable, and with which they are
> unable to 'engage'. For example, when I ask people
> to restate their assertions and arguments without
> using the expression 'money', I do not intend to be
> destructive or push my own agenda. I am merely
> asking advocates to express their assertions and
> arguments in language with which wishful-believers
> could engage.
>
> If you wish to restrict this forum to the insider
> faithful, and to exclude the wishful-believers,
> please say so and I will willingly drop out. I have
> no desire to gatecrash a party at which I am not
> welcome. If any forum members then wish to continue
> a dialog with me, perhaps they could contact me
> directly (I always include my e-mail address in
> e-mails).
>
> William B. Ryan wrote:
>
> Your statement above is what is called the "neutral
> money" hypothesis. We do not agree with that
> hypothesis, simply because it doesn't fit the
> observable facts. It ignores the theorem that loans
> create deposits; the repayment of loans cancel
> deposits.
>
> Tim Knight now writes:
>
> I am not familiar with the 'neutral money theory'.
> However, my statements come from conventional
> wisdom, and reflect conventional best-practice
> banking and accounting practice. Conventional
> wisdom does not ignore the theorem that 'loans
> create deposits; the repayment of loans cancel
> deposits'. Conventional wisdom disagrees with it.
> Conventional wisdom may well be wrong, but it will
> not change without convincing arguments.
>
> William B. Ryan wrote:
>
> The "debit-credit pair" created by the loan process
> is quite independent of actual trade and commerce,
> though its purpose is presumably to accommodate it.
> The accommodation is not however automatic, as the
> historical record demonstrates.
>
> Tim Knight now writes:
>
> I think I agree with you that payment transactions
> (i.e. using the banking system to intermediate debts
> which require paying) are independent from the trade
> and employment transactions which give rise to the
> debts which require paying. However, with
> conventional best-practice banking and accounting
> practice, I believe that 'the accommodation' is
> automatic. Zero-sum sets of debit and credits are
> the only payment transactions a bank allows itself
> to process (I am ignoring interest and charges
> transactions here).
>
> William B. Ryan wrote:
>
> Changes in banking POLICY have profound effects on
> the real economy.
>
>
> Tim Knight now writes:
>
> Of course, 'changes in (economic and) banking POLICY
> have profound effects on the real economy'.
> However, none of my comments/questions relate to
> economic or banking policy. They relate only to the
> book-keeping which records whatever results from the
> policy. Don't shoot the messenger. Conventional
> wisdom believes that conventional best-practice
> banking and accounting practice would reflect the
> underlying reality if followed correctly. Fraud,
> like Enron etc., comes from abuse of conventional
> best-practice banking and accounting practice (like
> failing to record appreciation and depreciation
> realistically, failing to record 'off-balance-sheet
> liabilities', etc.). When the abuses are exposed
> (belatedly), some of the crooks get locked up.
> Conventional wisdom may well be deluded, and you may
> well be right, but I believe you must criticise
> conventional wisdom using conventional-wisdom
> language and perspective if social credit and money
> reform are to progress.
>
> William B. Ryan wrote:
>
>
> > The economic process is not "zero sum," nor is
> double
> > entry accounting a "zero sum" accounting system,
> > despite your quirky protestations to the contrary.
>
>
> Tim Knight now writes:
>
> I have never suggested that the economic process was
> "zero sum'. I have merely asserted that (my quirky
> definition of) owed-wealth is zero-sum. However,
> the 'wealth of nations' is most certainly not
> zero-sum. I assert that (my quirky definition of)
> owned-wealth is synonymous with the 'wealth of
> nations', as is (my quirky definition of)
> net-wealth.
>
> Double-entry accounting is zero-sum by design,
> simply because the non-equity net-wealth of every
> enterprise is assigned as an equity (owed-wealth)
> liability to the owners of that enterprise.
>
> William B. Ryan wrote:
>
> > From your earlier posting (April 28):-
> >
> > "Do bear in mind that:
> >
> > "1. If an enterprise acquired an asset at a
> price
> > 'below market value', it would normally record an
> > appreciation to 'market value' immediately after
> > acquisition.
> > "2. If an enterprise acquired an asset at a
> price
> > 'above market value', it would normally record a
> > depreciation to 'market value' immediately after
> > acquisition.
> > "3. If an asset gained value for whatever
> reason,
> > it would normally record an appreciation to
> 'market
> > value' at that time.
> > "4. If an asset lost value for whatever reason,
> > the enterprise would normally record a
> depreciation
> > to 'market value' at that time.
> > "5. If an enterprise disposed-of an asset at a
> > price 'below market value', it would normally
> record
> > a depreciation to disposal-price immediately prior
> to
> > the disposal.
> > "6. If an enterprise disposed-of an asset at a
> > price 'above market value', it would normally
> record
> > an appreciation to disposal-price immediately
> prior
> > to the disposal."
> > ---------------------------
> > ----------------------------
> >
> > Now, Tim, not any of this is true in double entry
> > accounting. Double entry accounting is the
> > accounting system for profit and loss. In double
> > entry accounting, profit is recorded only as the
> > result of sales, although certain expenses accrue
> in
> > the absence of sales--like rent, utility bills,
>
=== message truncated ===
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