| Subject: | Re: [socialcredit] Douglas: 1923 Ottawa - Part 1 | | Date: | Monday, January 1, 2007 15:38:51 (-0800) | | From: | William B. Ryan <w_b_ryan @.....com>
|
| In reply to: | Message 4421 (written by Jim) |
The text appended at the end below is from the 1932
pamphlet from C. G. M., courtesy as always to Wally
Klinck. So now I have Joseph's and C. G. M's A1, B1,
A2, B2 argument, which Douglas endorsed through his
foreward to Joseph's 1934 pamphlet. It is in
refinement if not improvement to Douglas' original
formulation. Might we call it the A1, B1, A2, B2
theorem? But very contemporaneously was Hayek's
counter-argument published in his 1931 book, "Prices
and Production," which so far as I know, was never
answered from the Social Credit camp. And that was
three quarters of a century ago. It was the very same
counter-argument repeated by Heilbroner in each of his
macro textbooks until he stopped publishing textbooks
in the late 1990s. The theoretical development of
Social Credit apparently ended by the mid-1930s. To
the extent Social Credit was a science, it ceased
being so at that point.
"1) Can you explain precisely how in a "quasi-steady
state", the reflux from A will fully amortize A+B?"
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--------------------------------------------
Take a look at the appended diagram, which I post once
again. The first three curves, from left to right,
represent actual flows in terms of "cash flow" for the
economy as a whole. The fourth, "expense," is an
accounting fiction. It is merely the A + B curve
delayed in time through the conventions of accounting.
It is delayed sufficiently so that it either equals
"sales" or is less than "sales." If it is less than
"sales" at every "point in time," there is continuous
accounting "profit" in accordance with the definition,
Sales - Expense = Profit. But if A is falling in
respect to A + B, then sales must be falling in
respect to A + B, then profit must be falling
continuously--an impossible condition.
"2) Are you claiming that income will always be less
than retail prices?"
-------------------------------------------
--------------------------------------------
If by "retail prices" you mean the cost basis of
retail prices, it is probably never actually less than
retail prices except in the midst of a significant
credit contraction--such as after the 1929 crash
leading into the Great Depression. I say that because
normally the spending from personal income from all
sources is the control variable that determines the
cost basis of retail prices. I know that this must
sound like a circular argument at this stage in the
discussion. But I'll say that the cost basis of
retail prices brought forward as expense charged
against sales is always equal or less than personal
income in the hypothetical condition of quasi-steady
state. The real world is characterized by labor
displacement, however.
-
From C. G. M's pamphlet:-
1. Imagine industry to be one gigantic concern which
produces all goods and services. All incomes (wages,
salaries and dividends) are derived directly or
indirectly from industry.
2. The goods and services produced by industry can be
divided into two classes:
(a) Consumer goods, i.e., the goods and services
which are bought by individuals for their own
consumption, e.g., a loaf of bread, a suit of clothes,
a theatre ticket.
(b) Capital goods, i.e., the goods and services not
bought by individuals, but used for producing future
consumers' goods: e.g., railways, docks, roads,
factories, etc.
3. Take any factory or productive organization. The
prices of all the goods produced by this firm during a
given period can be analyzed under two headings:
(A) Personal Incomes, i.e., the wages, salaries and
dividends drawn by the employees and shareholders of
the firm.
(B) Payments to other firms for raw materials,
machinery, plant, etc.; plus overhead charges.
4. The price of the goods produced by this firm
cannot be less than A + B. But only the A incomes are
available to buy these goods. The money representing
the B payments was wages, etc., spent in the past by
the recipients in order to live. It has long ago gone
back to the banks in repayment of loans and has been
cancelled.
5. As A is less than A + B, it is obvious that the
joint income of employees and shareholders cannot buy
all the goods they have produced. This is true to say
of the whole nation, and of all nations, that its
total income cannot buy the total product.
6. But can the nation's total income buy all the
consumers' goods available? In amplification of
paragraph 3 above, let:
A1 = all payments made to individuals (wages,
salaries, dividends) by producers of consumers' goods
and services.
A2 = all similar payments by producers of capital
goods and services.
B1 = all payments to other organizations by
producers of consumers' goods.
B2 = similar payments by producers of capital goods.
7. As we have seen, incomes represented by A1 cannot
possibly buy goods priced at A1 + B1; neither can
incomes represented by A2 buy goods priced at A2 + B2.
In the latter case it is usually objected that they
do not need to.
8. The question is: can A1 + A2 = A1 + B1? i.e., can
the joint income from consumers' and capital goods buy
all the available consumers' goods? They can, if A2 =
B1. If A2 is greater than B1, prices of consumers'
goods will rise; if A2 is less than B1, prices of
these will fall; and if the fall continues, bankruptcy
and restriction of output will ensue, since producers
cannot continue to sell their goods below cost.
9. Theoretically it is possible to make A2 = B1. But
practically it is impossible to do so continuously,
since it means that capital goods must always be
produced in quantities sufficient to provide a fixed
purchasing power (i.e. A2 = B1), irrespective of
whether this volume of capital goods is required or
not. The result would be a surplus of capital goods,
which must either be exported, in the face of severe
competition with other nations, or must be bought by
home producers, in which case they become B1 costs in
future consumers' goods.
10. Add to this problem the activities of the
scientist and the engineer. Their inventions result
in reducing labour costs and increasing plant charges.
As a result B costs are always increasing relatively
to A costs. In a primitive community B costs are very
small compared to A costs, but in a modern
industrialized nation B costs are not only large
relatively to A costs, but are continuously growing.
11. If B2 is expanding relatively to A2, and A2 = B1,
which is expanding relatively to A1, it follows that
B2 is expanding rapidly relatively to A1. By adding
A2 to each side of the latter statement we see that A2
+ B2 is expanding rapidly relatively to A2 + A1.
Therefore, loans to finance capital development (A2
+B2) cannot possibly come out of savings from A2 + A1,
the total national income. They can only be found by
creations of bank credit.
-
--- Jim <jschroeder@shaw.ca> wrote:
[snipped]
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