| Subject: | [socialcredit] Major Douglas replies | | Date: | Saturday, September 23, 2006 07:12:13 (-0700) | | From: | MODERATOR <socredus @.....com>
|
*The New Age*
November 13, 1919
LETTERS TO THE EDITOR.
COSTS AND PRICES.
Sir, -- Major Douglas implies, if he does not directly
say so, that the modern system of cost accounting is
in some unexplained way responsible for, or at least
closely related to, the alleged discrepancy between
the selling price of articles and the purchasing power
that is distributed in respect of them in the form of
wages, salaries, and dividends. Now cost accounting is
not essential to the conduct of a factory; it is
primarily a system designed to enable the management
of a factory so to price the articles manufactured as
to ensure that there will be a profit (excess of
receipts over expenditure -- dividends) when it comes
to the next periodic compilation of the general
accounts. The factory cost of an article is divided,
for convenience, into two classes: one, direct charges
-- i.e., direct labour and materials; two, indirect
charges, which include such items as supervision,
management, and rent. The direct charges in respect of
a particular article can be accurately determined, but
the indirect charges, which have to be apportioned
among all the articles manufactured, can only be
estimated; and the more accurate the estimate the
nearer to the actual will be the forecasted profit,
based on the cost accounting, to the actual profit as
disclosed by the general accounts. Unless I am
mistaken, I can see no reason why, according to the
foregoing, the purchasing power distributed in respect
of the manufacture of articles in the form of wages,
salaries, and dividends should not equal the sum of
the prices, received for the articles manufactured.
Will Major Douglas, therefore, kindly explain why the
total output of the world’s factory system must
inevitably be priced at a figure greatly in excess of
wages, salaries, and dividends distributed in respect
of it? Or, if the proposition is already an axiom, as
“National Guildsmen” suggest, will he tell me where I
may find the proof?
ENGINEER.
[Major Douglas replies: The simplest general statement
of the case is that originally given that as the
factory cost of the articles produced in a year
exceeds greatly the direct disbursements to those
employed in the factory, and that this is a general
statement true of any factory, and that dividends are
not included in factory cost, then it must be true
that over any given period the total wages and
salaries distributed in all factories are less than
the cost of all the articles produced by the amount of
that portion of the indirect or overhead charges which
represent payments made to other firms, etc., such
payments not representing the distribution of
purchasing power to the consumer in that period, but
merely reconcentration of a previous distribution.
Your correspondent may possibly be assisted by a
partial illustration. Imagine a country where the cost
of living at an agreed standard is £50 per head per
annum, and consider the case of two men, A and B, the
first of whom has a capital of £100. A hires B at a
living wage of £50 for a year, paid weekly, to assist
him, the employer, to produce certain articles from a
waste material which he gets for nothing and which
requires no plant. A himself works equal hours and
with equal skill as compared to B, and during the year
lives on the second £50 of his £100. He charges his
own and B’s time to the job, the “direct cost” of
which is £100. For the purpose of our illustration A,
at the end of the year, sells his -- i.e., the firm’s
-- production at cost, £100, making no profit. Now,
both A and B have spent £50 in living during the year,
both have worked equal hours with equal skill, but in
return for having guaranteed B £50 the whole
production belongs to A -- not half to A and half to B
-- and A collects his own £50 and B’s £50 back from
the public in price. Having obtained control
of the produce and price fixing, A goes a step
farther. He says, “My cost of living is incurred by
the exigences of my business and forms an overhead
charge to be spread over cost of production.” Next
year the produc- tion collects £150 froin the public.
A then decides to build a factory with the £150, does
so, mortgages it for £100 at 5 per cent., lives on
£50, pays B £50, charges the interest on the mortgage
as an establishment (indirect) charge to production,
and collects £155 from the public, possibly for a
greater output. A now controls the product, controls a
factory, and lives, but has not made a penny of profit
since he began business. The illustration can be
elaborated indefinitely.
The only requirements of the process are that A shall
sell his production at not less than cost, and thus be
able to obtain credit. Consequently as we are assuming
that the production is sold at the end of each year,
there are in this extreme case no wages, salaries, or
dividends remaining distributed to form an effective
demand against A’s production, and it must be exported
or sold on credit.
The answer to the specific question follows from this
theorem.
As your correspondent is an engineer, he may grasp the
fundamental facts more easily by considering the
breakdown of energy from a potential (useful) to a
static (useless) condition which is involved -- eg.,
in power used to drive a factory. This breakdown of
energy is financially represented as increased value
by being charged as indirect cost and so reappearing
as increased price.
The argument is elaborated in my articles on “Economic
Democracy,” which you have recently published.
Your correspondent is, of course, correct in
suggesting that cost accounting is merely an
increasingly accurate process of allocating charges.
It is the assumptions behind the process which are at
fault.]
__________________________________________________
Do You Yahoo!?
Tired of spam? Yahoo! Mail has the best spam protection around
http://mail.yahoo.com
|
Major Douglas repl
Reply to this message