| Subject: | Re: [socialcredit] The A+B theorem is false | | Date: | Sunday, September 12, 2004 20:54:57 (-0600) | | From: | martinh <martinh @....net>
|
Two points about your submission -
(1) The question of *timing* is essential to understanding what Douglas is
talking about. In the long run, of course, there is no imbalance. But in
the short run, particularly when new capital is being financed by bank
credit, a situation is being created where new incomes are being
distributed to those working on the capital goods, without any new goods
being placed on the consumer market. The result is short term inflation.
When the capital goods are completed and start producing value, the
reverse situation takes place, and incomes are insufficient to purchase
the consumer goods coming on sale. Hence unsold surpluses, or industry
forced to sell below cost, leading to bankruptcy.
To prevent this, we have the continual search for new capital projects in
order to stop the economy from collapsing in depression, and continual
manipulation of interest rates to try and achieve the right amount of
capital development to do this. When this fails to work as planned, we
have the "boom and bust" trade cycle.
For instance, there is a boom in constructing new housing in Edmonton at
the moment, which gives jobs to my two grandsons. Almost all new houses
are financed by Bank credit on a 25 year amortization. House prices here
are rising rapidly. However, as soon as the pace of construction slows, my
two grandsons will lose their jobs, and who will have the incomes to
repay the mortgages on all those houses which are now available for people
to live in?
(2) I believe that the charging of interest is a completely separate
matter, and it is not part of the Douglas analysis. Nevertheless, the fact
that th egreatest part of every bank deposit is matched by debt means that
our economy carries an enormous burden of debt and interest, including
interest on the National Debt reflected in taxes, which reward the
speculator and burden the producer of wealth.
I hope this makes things clearer. I'm certainly interested in your work
with low interest cooperative lending.
I have some more detailed work on this subject on my website at
www.edmc.net/~martinh/roycom1.htm
Martin Hattersley: 1970-10123-99 St.
Edmonton, Alberta, Canada T5J 3H1
Phone:(780)423-4081 Fax:(780)425-5247
Website:http://www.edmc.net/~martinh
e-mail: "martinh@edmc.net"
On Sun, 12 Sep 2004, Per Almgren wrote:
> 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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