| Subject: | [socialcredit] Putting it all together | | Date: | Wednesday, December 28, 2005 13:37:21 (-0700) | | From: | Martin Hattersley <hattersleyjm @.........com>
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Ken -
I'm afraid our discussions on this list cover such a wide range that we are
likely to get confused over exactly what we are talking about. I thought
therefore that I'd put together my thoughts on the economic situation that
Douglas described, as I see it from today's viewpoint. So here goes:
1. Say's law states that the level of prices will be set by a balance of the
quantity of goods on the market for sale, with the money available in the
hands of consumers to purchase them.
2. This proposition has erroneously been used to "prove" that there can
never be a deficiency of purchasing power in the hands of consumers - the
price level will always adjust to match the purchasing power that is
available.
3. The catch in that argument is that producers cannot in the long run sell
below cost. Rather than do this, goods are withheld from the market, cartels
and monopolies (and sometimes wars) are used to raise prices through
artificial scarcity, and the overall effect is one of poverty in the midst
of potential plenty.
4. C.H.Douglas made the observation that, as a matter of cost accounting,
such a deficiency of purchasing power does exist in the modern economy.
Initially, his A+B theorem was used to show that, while certain business
costs (wages in particular) were distributed at the same time as incomes to
those who will buy the products of industry ("A" costs), certain others ("B"
and especially capital costs) had to be charged into prices without an
equivalent amount of purchasing power being distributed to potential
purchasers at the same time. There was a substantial deficiency, which
should be covered by a National Dividend payable to consumers, or a Just
Price - a discount paid to producers from a State agency - that would
"close the gap".
5. What this initial expression of the theorem omitted was the fact that
certain industries distribute wages to their workers, while not putting
goods on the market for immediate sale to consumers. These are the factories
that make the tools that workers will later use to turn out actual products.
While this new capital formation is taking place, its distribution of funds
to consumers in wages and dividends, particularly when financed by newly
created bank credit, serves as a form of National Dividend that makes it
possible for the consuming public to buy all that is on the market for sale,
without producers being forced to sell below cost.
6. The "new orthodoxy", initiated by Lord Keynes, is therefore to promote
"full employment" and "economic growth", by encouraging investment through
lower interest rates, so that projects that would otherwise be uneconomic,
are financed with new, low interest, bank credit and so proceed,
distributing wage incomes to workers in the process.
7. This "new orthodoxy", however, has serious defects.
(a) Promoting exponential economic development in a finite world is a
recipe for the exploitation and exhaustion of resources, and the destruction
of the environment.
(b) Making employment the requirement before consumers can receive adequate
incomes deprives the unemployed of the value of a "dividend income" that
would otherwise be theirs as their share of the "cultural heritage" (the
resources provided by nature and the investments of previous generations)
that are the inheritance of all.
(c) Financing economic growth from lending by the commercial banks gives
immense and unwarranted profit and power to those who in this way have a
"license to print money". This power includes the power to influence the
political process by appropriate donations to political parties, receiving
appropriate government policies and appointments in return.
(d) Private investment, ownership and savings, and the incomes to be
received therefrom, are discouraged in favour of the acquisition of assets
by borrowing from the commercial banking system.
(e) Every dollar created by the commercial banking system is matched by a
dollar of debt owed either by persons, business or governments. The interest
burden of this debt, particularly on third world countries and on the poorer
classes everywhere, is ruinous.
(f) The system runs "on a wing and a prayer", swinging uncontrollably from
boom to depression depending on the amount of bank financed capital
development taking place. This leaves openings for speculation and fraud
that in no way increase the real wealth of the community.
(g) Inflation, (the loss of purchasing power by the unit of currency) is a
built in consequence of the arrangement.
(h) The efficiency of the economy is reduced, because of immense costs in
advertising and sales, overgrowth of the "financial sector", restricted
production to maintain prices, and lack of consumer effective demand.
(i) There is an ever growing gap between the "haves", who have some
control of the system, and the "have nots", forced by the "iron laws of
economics" to work for the minimum wage that will keep body and soul
together. Cut throat competition (led by Wal-Mart) leads the whole economy,
producers and consumers alike, into a frantic "race to the bottom".
8. To deal with this situation, the following would appear necessary:
(a) Management by government of the quantity of purchasing power in
circulation on a statistical basis, to balance goods for sale at a
reasonable margin of profit with available purchasing power in the hands of
consumers.
(b) Supplementing incomes from employment with a universal unearned
"dividend" income, paid either from new credit, or if necessary, taxation,
which could easily replace many of our chaotic current systems of welfare.
(c) Balancing consumer demand with potential supply, by a "retail price
discount" (inverse sales tax) paid to producers on the price of their
products when these are sold.
(d) Creating the nation's money supply by a process that does not involve
the creation of debt to private interests.
(e) Control of private entities (banks in particular) producing substitutes
for legal tender money, either by requiring 100% legal tender backing for
bank promises to pay, or some form of taxation that will give the community
the benefit of the profit that comes from their creating units of purchasing
power.
9. Some other matters that may need to be discussed:
(a) Abolition of lending at fixed interest.
I am strongly in favour of equity investment, where the investor, not the
borrower, takes the risk of loss if his project does not pay off. Just the
same, I do not consider it essential to a working economy that fixed
interest lending be outlawed.
(b) Interest free lending for public works.
I regard the "public credit" as an asset of the community as a whole. I have
no objection to using it to pay for government infrastructure projects, so
long as the community itself makes the political decision that this is how
it wants its "dividend" income to be spent. Otherwise, not.
(c) Abolition of taxation.
Government costs money, and taxes pay for government. I believe it is
dangerous to allow a government to avoid responsibility for how it draws on
the resources of the community by spending money, by allowing it to either
borrow or create new credit to finance itself. Remember that in Canada, some
30% of federal spending is now to make payments on the National Debt -
something that makes the Government a tax collector for the commercial
banks, an avoidable expense.
(d) "New Credits for New Production". (Swanwick principle #2)
I find it difficult even to understand what is meant by this, and I believe
it is a matter of policy adopted before the A+B theorem was fully developed.
My own view is that new production nowadays depends on investing labour and
resources in capital assets well ahead of products reaching the market. To
finance such investment with new credit increases consumer effective demand,
without any increase in product while such investment is taking place,
causing inflation. This is balanced by a shortage of effective demand when
products come on sale, the workers creating the investment have been laid
off, and depression. Using new credit, rather than private savings, to
finance capital development is a primary cause of this cycle between boom
and depression, and is unsound.
(e) Henry George's "Single Tax" on land and natural resources.
I regard this as an important issue, particularly since the current banking
system makes it easy for the rich to accumulate the resources, leaving those
without property to pay for their homes in rents and mortgages out of their
meager earnings from employment. Nevertheless, it does not deal with the
problems caused by the defects in our current financial system, and
therefore is not a complete answer to current problems.
Lots to discuss!
And a happy new year to all on the list!
Martin Hattersley
1970-10123-99 St.,
EDMONTON AB CANADA
Phone (780)423-4081;Fax(780)425-5247
e-mail: hattersleyjm@interbaun.com
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Putting it all tog
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