| Subject: | [socialcredit] ADDITIONAL COMMENTS Re: Comments on Richard C. Cook's concept of "credit" | | Date: | Monday, August 27, 2007 08:10:16 (-0700) | | From: | william_b_ryan <william_b_ryan @.....com>
|
I have inserted some additional comments [Additional
Comments] plus some commentary from Douglas.
-----------------------------------------------
I have inserted some brief comments [Comment].
Bill Ryan
From: Richard Cook [mailto: rickycook21@hotmail.com]
Sent: 20. ágúst 2007 13:41
To: gunnar.tomasson@verizon.net
Subject: RE: FW: [gang8] Comments on Richard C. Cook's
concept of "credit"
I need to know a lot more about what you mean by
Entrepreneurial Production and Factor Services to be
able to comment. What is critical is that it's been
noted for a very long time that the distribution of
purchasing power by a firm does not equate to the
prices they charge for goods and services.
They key is to figure out why and what to do about it.
One of the key factors is certainly retained earnings
by the firm which is used for future growth.
------------------------------------------------
From: GUNNAR TOMASSON [mailto:gunnar. tomasson@
verizon.net]
Sent: 20. ágúst 2007 14:29
To: 'Richard Cook'
Subject: RE: FW: [gang8] Comments on Richard C. Cook's
concept of "credit"
Dear Mr. Cook.
The vocabulary is essentially that of Joseph A.
Schumpeter and John Maynard Keynes in 'A Theory of
Economic Development' (1911 in German and English
translation in 1934) and 'The General Theory etc.'
(1936), respectively.
The economy's production of goods and services is
envisaged as taking place at the initiative of
Entrepreneurs, who buy Factor Services (labor and
non-labor 'inputs') for the production process in
exchange for money/tickets as eventual claims on Final
Goods and Services.
-------------------------------------------------
--------------------------------------------------
[Additional Comments] Which is facilitated by banking,
which transforms or exchanges the credit instruments
of individual entrepreneurs for the fungible credit
instruments of banks, in the form of bank deposits or
notes, which are generally acceptable throughout the
community for goods and services, making the
competitive market possible.
-
The payments by Entrepreneurs to Suppliers of Factor
Services represent the Factor Supply Cost of a market
economy's output of Final Goods and Services.
In the hands of Suppliers of Factor Services, the
payments by Entrepreneurs represent the Factor Income
generated by the production process in question.
-------------------------------------------------
--------------------------------------------------
[Comment] In the modern analysis, firms are demarcated
from consumers. Spendable income to the owners of
factor services are salaries, wages and dividends.
Factor income as you define it is not fully
distributed as salaries, wages and dividends to final
consumers in a normally expanding economy, but,
because of labor displacement, accumulates
increasingly into working account balances held by
firms.
-
For Entrepreneurs to make a Net Profit (Sales Proceeds
of Final Output - Factor Supply Cost of Final Output)
- and this is of the essence in Entrepreneurial Market
Economies where the profit motive drives production -
Nominal Aggregate Demand for Final Output must exceed
the Factor Supply Cost of Final Output by some amount
X, where X is Aggregate Entrepreneurial Profit. At the
end of my comments on your work, this X is referred to
as Final Demand Inflation.
-------------------------------------------------
--------------------------------------------------
[Comment] This completely misconstrues profit in
double entry accounting. In double entry accounting
Net Profit is Sales minus Expense, where expense is
determined by the rules of double entry accounting.
See the first attached diagram also archived at
http://geocities.com/socredus/compendium/accounting_profit.gif
In (the hypothetical condition of) a normally
expanding economy, disbursements by firms are always
exceeding sales receipts by firms, yet firms are
always recording a profit.
-
In turn, Final Demand Inflation can only come about
through new credit creation/monetary expansion whereby
the sum total of the economy's demand for final output
of goods and services is made to exceed its factor
supply cost.
Gunnar
-------------------------------------------------
--------------------------------------------------
[Comment] Because of labor displacement (meaning
lengthening and broadening to the structure of
production resulting from improving technology and
organization), salaries, wages and dividends are
always falling in respect to the costs of production
being impressed to the point of retail, which would
result in a falling rate of profit which would induce
entrepreneurs to continually choke off production
short of potential, if it were not for the continuing
expansion of consumer credit.
The stimulating effect of increasing consumer credit
is transient in nature, and must come to an end at
some point, because of the increasing difficulty of
amortizing that increasing credit from income which is
falling in respect to the costs of production.
Consumer credit has become extremely important in
today's economy. See the second attached diagram
(from Bud Conrad) also archived at
http://www.geocities.com/new_economics/conrad-borrowing-2005.gif
Notice that credit extended to Households exceeds that
to any other sector, in significant reversal from a
half-century earlier.
[Additional Comments] Attached is the four-curve
quasi steady state model from 1918, in modification to
the standard three-curve accounting model of the
Scottish Accounting Debating Societies, from the late
nineteenth century, that Douglas would have been
familiar with, also archived at
http://www.geocities.com/socredus/compendium/steady-state.gif
Whereas the standard three-curve model has a single
aggregate accumulating account, the four-curve model
more realistically includes an accumulating account
for the firms sector. If the ratio of A is falling in
respect to A + B with labor displacement, then the
reflux from A is falling in respect to the costs of
production being impressed to the point of retail
through the "expense" curve, reporting generally a
falling rate of profit to entrepreneurs and their
financiers. It is also the case that the reflux from
A is falling in respect to A with increasing wealth,
exacerbating the error in accounting.
-
Below is some interesting commentary about the proper
interpretation of the ticket metaphor by Douglas from
his 1934 testimony to the Alberta Legislature:
-
"Q. Take the farmer. His wealth is, to a large extent,
in this province, wheat?
"A. From his point of view, wheat is nothing whatever
except something for which he exchanges purchasing
power. He doesn't grow, from his point of view, any
wealth at all. From the world's point of view he does,
but, from his point of view, if he is left with the
whole of his wheat on hand, he has no wealth.
"Q. In other words, if the exchange possibility for
his wheat for other things remains constant? That is
what you are aiming at?
"A. No. We are looking at the problem from a
diametrically different point of view. The point of
view that I have is that the function of money is no
longer that of a medium of exchange.
"Q. I agree with you in that entirely, that money is
simply the means of transferring real wealth from one
person to another.
"A. No, that is exactly what it is not.
"Q. You state it is like a ticket on the railway that
enables you to get transportation from one place to
another. I will take that view, that money is a means
of transfer for that transportation.
"A. That is not the correct interpretation of money.
The only correct one is, I believe, that all wealth at
the present time is produced by synthetic purposes:
that the wheat that the farmer grows does not produce
any wealth at all; that the manufacturer of motor cars
does not produce any wealth at all. Those things only
become wealth by reason of the fact that somebody else
produces roads, and somebody else bakes the farmer's
wheat, and a number of such things. So it is
impossible to say that anyone, at the present time,
produces wealth, except considered in the light of
what everybody else is doing at the present time.
Under those conditions, wealth is a central pool into
which everybody is contributing, and the proper
function of money is not to interchange between those
separate producers of wealth, but to give the general
community, by whom the wealth is produced, the
necessary power to draw from the central pool of
wealth."
-
____________________________________________________________________________________
Park yourself in front of a world of choices in alternative vehicles. Visit the
Yahoo! Auto Green Center.
http://autos.yahoo.com/green_center/
|
ADDITIONAL COMMENT
Reply to this message