| Subject: | [socialcredit] The A+B theorem is false | | Date: | Sunday, September 12, 2004 09:17:10 (+0200) | | From: | Per Almgren <info @........se>
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My name is Per Almgren and I have among other things worked with the
establishing of interest-free savings-loans in Sweden since 1966. There
now is a cooperative bank (JAK) here, owned by 26,000 members using this
principle and also some other organisations using similar principles. For
the time being I am also taking part in the development of a project
named “Basic Income and Public Sector Expenses Completely Financed by
Taxation on Liquid Funds”. Because of this one of my friends sent me the
following text (I have translated part of it from Swedish into English,
my comments are in
blue):
“For all of you that haven’t joined the Social-Credit-thread, which
probably are the majority, I will tell you something about the A+B
theorem. The idea is as follows:
Businesses have different types of costs. One is payments to individuals
(i.e. wages, salaries, dividends). This part we call A. Another part is
interest, amortizations, payments for raw material and goods and services
from subcontractors. This part we call B. A business must charge A+B for
what it sells, but only A generates purchasing power.
This is not true. The money business
X pays to businesses Y, Z … generates purchasing power to these
businesses.
Where does the rest of the money come from? From Bank credits of
course, i.e. debt growing is built into the economic system.
It is correct that debt creating is
built into the system but this is due to the fact that interest incomes
and dividends are only partially used for purchasing goods and services.
The other part of these incomes which are “invested”, together with the
part of incomes from work that are used in the same way, is the source of
the necessity to borrow from the “investors” or savers.
Without them a growing unbalance is created between the prices on
goods and services on one side and purchasing power on the other side. So
runs the economy of today, but it isn’t necessary so it has to run.
Major Douglas expressed it the following way:
"A factory or other productive organisation 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 manufactury of prices and financial values.
From this standpoint its payments may be divided into two groups:
A. All payments made to individuals (wage, salaries and dividends)
B. All payments made to other organisations (raw material, plant,
repayment of bank loans and other non-personal costs)"
An argument against the A+B theorem is that B transforms into A.
This counterargument is quite
correct.
In the words of Major Douglas:
"Cost is the accumulation of past spendings over an indefinite
period, whereas cash price requires a purchasing power effective at the
moment of purchase"
What is wrong with this description
is that every business in the producing chain that receives B money will
use part of this money to pay its employees wages and salaries and its
owners dividends and sometimes interest. This means that the total sum of
B payments will transform completely into A payments and contribute to
the consumers total purchasing power. So the consumers do actually have
the possibility to buy everything produced without any growing debt. But
since some of them prefer to lend their money in order to get interest or
invest them in order to earn dividends, they force other to borrow or to
be unemployed.
Major Douglas has unfortunately not got this correct, at least not
according to your summary.
According to the author there is not only the interest on money that
causes the problem, even if it is a part of it.
There the author (Major Douglas ?)
is substantially wrong.
"Primarily Social Credit is concerned that sufficient
purchasing-power is in the hands of consumers to claim all goods and
services flowing from the economy in each production cycle--and to
liquidate all the financial costs of production in that same cycle.
This takes into account the total flow of costs generated and incomes
distributed in each cycle of production. Interest is considered to
be of significance only inasmuch as it is ONE of the costs of
production--one of the "B" costs (i.e., payments of a firm to
other organizations) of industry. "A" payments are
incomes paid to individuals within the firm, i.e., wage, salaries,
dividends, etc. Like profits, interest can be made a distributed
cost.
Social Credit does not regard exploitative aspects of interest as the
central economic problem but rather a result of a much more fundamental
cause. To regard it as central would be to beat the bushes while
ignoring the root of the problem, i.e., the charging of the consumer with
capital depreciation while failing to credit the consumer with capital
appreciation.
This is wrong, se my arguments
above. Interest income and dividends that not are used completely for
purchasing goods and services is the fundamental problem.
Consumer prices cancel credit prematurely inasmuch that they call in
credit in respect of capital far before capital has been physically
depreciated or consumed. Social Credit policy is to provide the
individual citizen with an increasing beneficial (not administrative)
share in the communal capital.
This is to be done with an injection of consumption credits (the Consumer
Dividend and Price Compensation to retailers) in order to provide
the means of access to total production (the cost of capital is included
in consumer prices) and the means to liquidate the entire financial costs
of each production cycle. The deficiency of purchasing power grows
exponentially because of the increase of B costs due to the
increase of capital as a factor of production relative to labour--and
this would occur quite independently of the practice of charging
interest.
This is a false description since
all B costs will transform into A costs through the chain of retailer,
wholesaler, manufacturer, subcontractor, subcontractors subcontactor and
so on. All of them are using part of their B income to pay A costs.
We have here been discussing costs and incomes in industry. If,
because of sufficiency of income, the consumer has no need to contract
debt--obviously the whole question of interest on consumer debt is
effectively eliminated. According to Social Credit policy credit
must always be available for any desired and physically possible project
and the consumer must always be able to liquidate all costs of production
generated within the same cycle.
All production loans would be credited to a National Credit Account which
would form a fund from which money could be drawn for the Dividend and
Price Compensation--which together comprise what Douglas called the Just
Price. The Just Price is determined by multiplying the Financial Price
(as presently calculated) by the ratio of national consumption to
national
production--a ratio which always under normal circumstances tends toward
less and less than a value of one. The true (physical cost of
production) normally falls and so should the financial price. The
present bias toward rising prices should be reversed. Inflation is
a violation of the natural law of cost."
If we eliminate the interest and
other types of owner’s income (i.e. dividends etc.) the cost of
production will successively fall down to the total costs for work. If we
keep the principle of interest the prices will increase proportionally to
the re-lended part of the interest costs, adjusted for more effective
production means and increase of the amount of goods and services
sold.
This growth is of course not sustainable since we are now approaching
biological, physical and time limits that we are not able to move. Still
keeping the interest principle will turn the money economy into a
depression with growing unemployment.
Per Almgren, MSc
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The A+B theorem is
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