(Dan Morin wrote:-)) By the way,
declining prices is good for everyone because the poor can now afford things
that were too expensive before. Think of the price of computers which
have been going down every year - it is good for all of us. Now imagine
if prices of houses, cars, food and tuition would go down every year. You
could now afford a bigger house, better car, eat higher quality food and
get bonus education for the same money.
(Joe replies:-) ‘Declining prices’, while ‘good’
for everyone as ‘Consumers’, are currently a disaster for ‘Producers’,
taken as a whole. The ‘lower limit’
of ‘price’ is determined by financial cost, while only the ‘upper
limit’ is governed roughly by the ‘quantity’ of money
available. When a producer cannot
recover his previously incurred financial ‘costs’, plus the minimum
amount of ‘profit’ necessary to provide an incentive for him to
produce, he ceases to produce.
for his product keep falling, he goes out of business. It is not necessarily a case that he, as a
producer considered ‘individually’, has done anything wrong. His plant and product may be excellent, the
product may be something that’s needed, but the contraction of credit has
been disastrous to him.
It is a delusion that producers
can all can effect manufacturing efficiencies that
will overcome this simply by ‘stepping-up production’, and thereby trying
to lower ‘unit cost’. While they
may be able to do that ‘individually’ for a time, and indeed lower their per item ‘unit-costs’ and consequent
selling price, it is the TOTAL costs of this production that must be recovered
from the sale of ALL the units produced.
If this extra production doesn’t ALL sell, the ‘costs’
of the unsold inventory are carried forward into the next cost-accountancy
cycle, increasing them. Do this enough
times, and you’re out of business. The effect on the overall
economy, and ‘producers’ as a whole, will be disastrous. As it has been, in each ‘recession’
or ‘depression’ we’ve witnessed. With a tremendous ‘waste’ in
scrapped plants, abandoned farms, ‘destroyed’ product, and broken
lives~ the cost of which has been borne by consumers in the needlessly high
prices of everything we buy.
This is one of the reasons why Social Credit calls for ‘compensated
prices’. With them, we can lower ‘consumer
prices’ to reflect the ‘true’, or ‘actual, physical’
costs of production. (Think about
it. The ‘true’ cost of production,
of anything, is ‘consumption’ ~ what was actually ‘used up’
in the whole process ~ and this is what the final ‘financial cost’ or
‘price’ to the consumer should be.)
With a continual increase in ‘efficiency’, the ‘true’
cost of production is continually falling.
But for consumers to gain full benefit from this currently all too often
involves the ‘producer’ taking a ‘financial’ loss. Social Credit can correct that. An inefficient producer or inept businessman
could still ‘go broke’ ~ as he probably should. But the greatest cause of individual business
failure~ a ‘flawed’ money system ~ would be removed.
(Dan continues:-) If you
increase the money supply, prices will increase according to the increase of
money supply and the interest rates will raise to
adjust too. For instance, let say I lend you $100K for a house and
ask you to pay me later.
(Joe replies:-) How has this’ increased’ the
money supply? You didn’t ‘create’
any MORE ‘money’ in doing this, you
already HAD the $100K to lend me. Only the ‘banking sector’ can INCREASE or DECREASE the
(Dan continues:-) It is obvious that I expect
to get $100K back plus an extra for the risk and trouble. If in the
next 10 years the price of houses has doubled, then I will have to ask at
least $200K so I preserve my original purchasing power (buy a house).
(Joe replies:-) But you are recovering your $ 100K OVER the
ten-year period, not in one lump sum, plus interest, at the end of that period. By way of monthly payments, if the loan is
structured like most mortgages. So you
are receiving ‘interest’ income you can spend or invest throughout
that whole period, and do. And likely the
greater proportion of it in the first years after the mortgage has been
made. When the
principal re-payment portion is the smallest. So the decline in your purchasing power,
while still possibly present from other factors, is not nearly so dramatic as illustrated.
Another important factor driving down the
interest rate is high savings.
(Joe replies:-) Interest rates are currently way lower than
they were in the 1970’s and 1980’s, yet the personal ‘savings
rate’ in the USA is supposed to be in ‘negative’ territory
nowadays. How do you explain that?
(Dan continues:-) If I
have extra money that I don't need, I will be willing to loan my
money at a lower interest rate. If on the other hand I
really want (or need) to spend my $100K, then I may not be willing to
loan it for 10 years for a mere $20K profit. A low interest rate is good
for the borrower, but most importantly it is beneficial to the society.
The entrepreneur may use that money to invest in production tools
and create additional jobs. Pumping money is not good for exports either. The conclusion
is a stable money supply is best for everyone, that
is consumers, borrowers and lenders.
(Joe replies:-) Most mortgages are not made by private
individuals such as yourself lending their savings to a would-be
home buyer. They are made by the banking
sector, which does not ‘lend’ YOUR ‘money’ at all, but
creates ‘new credit’. If we
were totally dependent on the lending of ‘savings’ to finance the
economy, most of us wouldn’t be here today. Which would undoubtedly
suit some people, (the ‘‘Earth First!” Crowd, and
other assorted ‘nuts-and-berries’ ditz-brains), just fine. Fortunately, for those of us who are rational
individuals, the modern economy is ‘creditary’. Correct the ‘flaw’, which is
relatively simple to do compared with the massive economic dislocation the ‘single-tax’
ideas, or other communist-style economic prescriptions would engender, and ‘free-enterprise’
and individual initiative can finally come into full flower.