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Subject:[socialcredit] Re: [gang8] More re Say's law
Date:Wednesday, January 30, 2008  10:03:02 (-0800)
From:william_b_ryan <william_b_ryan @.....com>

Geoffrey, my replies are inserted [Reply].

Bill
--------------------------------------------------------

January 25, 2008

Bill,
 
My 'Gap' is the one Douglas ought to have seen but of
course didn't.
--------------------------------------------------------

[Reply] Then how do you respond to this from Douglas
given at an address in Westminster, February, 1926?:

"If I have an income of £500 per annum and I save, as
the phrase goes, £100 per annum of this sum, either by
the simple process of putting it in a bank, or by the
investment of it in an insurance policy, I decrease my
expenditure by 20 per cent., and I certainly provide
myself with money for use at some future time. But
there is no physical saving corresponding to this
money saving. In fact, owing to the interconnection of
the financial system with the producing system, there
is probably an actual destruction of wealth due to the
fact that I do not spend the whole of my income. More
goods would have been drawn from the shops, more
orders would have been given to the manufacturers to
replace those goods, and consequently a real ability
to produce more goods per unit of time would have been
created, probably by an extension of manufacturing
facilities, had I spent my income. But if I save my
money, only one of two things can possibly happen in
the world of actualities: either goods which have been
produced will not be bought and will therefore be
wasted, or in anticipation of the fact that I should
not buy them they will never have been produced."

Your "gap," at least in the form you state it,
contains a simple and naive fallacy: "Douglas's
'Gap'," which you now term "My 'Gap'," "...is when a
worker is paid (with borrowed money) for his work and
does not spend his pay."

All income is spent after a delay, for the simple fact
that every transaction takes time to accomplish.  The
delay may extend several years, even to the saver's
death, at which point his heirs will quickly dissipate
it.  The fact that there is a delay does not mean it
is "not spent."  It is always spent at some future
time.  The delay is easily handled by the conventions
of double entry accounting if the delay is constant. 
But macroeconomic adjustment is required if the delay
is increasing, for example, with increasing wealth.

Douglas attention was more focused on the fact that
consumer incomes are tending to fall in respect to the
costs of production being impressed to the point of
retail, which means that spending in reflux to income
is tending to fall in respect to the costs of
production. [End]
-
 
We are mixing accounting procedures to calculate
realised profit with the theoretical source of profit.
I fully accept Gunnar's contention that the latter
must come from credit creation. It needs perhaps a
much longer explanation than his algebraic one. 
--------------------------------------------------------

[Reply] His algebraic explanation is however
fallacious, and I think his term is "final demand
inflation" that enables profit.  I've followed his
argument since I first encountered him on the Post
Keynesian Thought list, and later on Gang8.  It goes
something like this:  M'-C-M", where profit is M"
minus M', which can only come about if there is "final
demand inflation."  My point is that it has been known
since the discussions by the Scottish accounting
debating societies of the late nineteenth century that
final demand inflation is not required to enable
profit because profit is not calculated by M'-C-M",
where profit is M" minus M', but Sales minus Expense,
where Expense is the cash disbursements curve, delayed
in time such that it is matched against prospectively
greater sales.  If the economists had talked to the
accountants, then perhaps we could have avoided many
of the troubles of the past century. [End]
-

But there are oodles of models one can dream up. An
example is when two people have exchanged two objects
and each believes he has the better of the deal, so
both consider they have a 'profit'. Thus if both
calculate their net worth at the end of an accounting
period each will value what they hold so as to show a
profit, proving that everything is relative. One could
call this the Protagorean approach.
--------------------------------------------------------

[Reply] Models are simplifications that are judged by
their usefulness, as aids to understanding.  In this
respect, Gunnar's "final demand inflation" model is
not very useful.  I say this even though I support a
certain amount of "final demand inflation" to be
introduced continuously to the point of retail in
compensation (or macroeconomic accounting adjustment)
to the falling rate of profit from "labor
displacement" (and of course an increasing rate of
saving with increasing wealth).  If we take the rate
of profit to be informational feedback from consumers,
the falling rate of profit from the above causes, if
not adjusted and compensated, is distortion to that
information, influencing the entrepreneurs to make
poor decisions in squelching production based on
erroneous information, mitigating the ability of the
free market to match productive capacity to real
demand. [End]
-
 
Geoff



--- Geoffrey Gardiner
<geoffrey.gardiner@btinternet.com> wrote:

> Bill, 
> 
> My 'Gap' is the one Douglas ought to have seen but
> of course didn't.
> 
> We are mixing accounting procedures to calculate
> realised profit with the theoretical source of
> profit. I fully accept Gunnar's contention that the
> latter must come from credit creation. It needs
> perhaps a much longer explanation than his algebraic
> one. But there are oodles of models one can dream
> up. An example is when two people have exchanged two
> objects and each believes he has the better of the
> deal, so both consider they have a 'profit'. Thus if
> both calculate their net worth at the end of an
> accounting period each will value what they hold so
> as to show a profit, proving that everything is
> relative. One could call this the Protagorean
> approach.
> 
> Geoff
> 
> ----- Original Message ----- 
>   From: william_b_ryan@yahoo.com 
>   To: socialcredit@elistas.com 
>   Sent: Monday, January 21, 2008 8:43 PM
>   Subject: Re: [gang8] More re Say's law
> 
> 
>   [Gardiner] "The idea that just by paying workers
> to
>   produce goods puts into circulation the
> wherewithal to
>   buy them is of course wrong. Say made it clear
> that
>   the goods must be saleable. If they are produced
> with
>   borrowed money, and sold, they put into
> circulation
>   the money to recoup the costs of production but
> not to
>   provide a profit. That, as Gunnar has explained,
> has
>   to come from new credit creation. (Final demand
>   inflation.)"
>  
>
------------------------------------------------------
> 
>   Not by the rules of double entry accounting,
> Geoffrey.
>    Please see the attached diagram derived from the
>   knowledge acquired by the Scottish accounting
> debating
>   societies by the end of the nineteenth century,
> the
>   archives of which being available in the better
>   research libraries.
> 
>   In an expanding economy that is accommodated
> through
>   credit creation, the entrepreneurial spending
> curve is
>   leading the sales curve in reflux.  This means
> that
>   the entrepreneurs, as a collective group, are
> always
>   spending more than they are simultaneously
> receiving
>   back through sales, yet are continuously recording
> a
>   profit.  Entrepreneurial profit is obtained by
>   delaying the *expensing* of the disbursements
> curve
>   such that it is charged against future sales,
> which
>   are prospectively greater than today's
> disbursements. 
>   The method results in an increasing "equity"
> rather
>   than "cash" in the hands of the entrepreneurs and
>   their financial backers.* [see note below]
>   -
> 
>   [Gardiner] "Douglas's 'Gap' is when a worker is
> paid
>   (with borrowed money) for his work and does not
> spend
>   his pay. His pay therefore finances the production
> of
>   his own work, but does not put into circulation
> the
>   money to buy it. Other new credit creation can
> make up
>   the deficit."
>  
>
------------------------------------------------------
> 
>   This is closer to Keynes than it is to Douglas. 
>   Douglas assumed that every dollar received in pay
> is
>   always spent after a delay, which was accommodated
> to
>   some extent through double entry accounting as
>   utilized by the entrepreneurs.  With increasing
> wealth
>   an increasing percentage of income is spent on
>   securities and similar investments rather than
>   immediate consumption, increasing the delay in
>   spending income on consumption, causing a falling
> rate
>   of profit as is reported through double entry
>   accounting from the point of retail.  This
> decreasing
>   "propensity to consume" is in principle easily
>   accommodated through macroeconomic accounting
>   adjustment, such as the consumers' dividend and
> retail
>   discount.
> 
>   Douglas was more concerned however with increasing
>   balances held in the entrepreneurial sector as
>   compared to the consuming sector, expressed
> through
>   his A + B theorem.  These increasing balances,
>   required for the daily operations of the firms,
> are
>   concomitant to the lengthening and broadening of
> the
>   structure of production through improving
> technology
>   and systems of management, which are in subtrahend
> to
>   system flow.  Through the rules of double entry
>   accounting, these increasing balances are charged
>   against sales without commensurate income being
> paid
>   to final consumers, causing a falling rate of
> profit
>   in reflux, which is also in principle easily
> handled
>   through macroeconomic accounting adjustment.
> 
>   Without appropriate macroeconomic accounting
>   adjustment to the point of retail, the falling
> rate of
>   profit greatly inhibits the realization of
> productive
>   capacity in satisfying real demand.
>   -
> 
>   Bill
> 
>   * [Note] Evidence Submitted to the Macmillan
> Committee
>   of Finance and Industry by C. H. Douglas,
> M.I.E.E.,
>   M.I.M.E., M.I.Mech.E. 
>   (Reprinted from the Official Minutes of Evidence) 
>   TWENTY-FOURTH DAY Thursday, 1st May, 1930 
> 
>   Major CLIFFORD HUGH DOUGLAS, M.I.Mech.E., M.I.E.E.
>   called and examined... 
>   -
> 
>   An excerpt:
> 
>   4488. [Mr. KEYNES] Do you mean that the receipts
> of
>   capital are greater than the amount it pays out in
>   dividends?-- 
>   [Major DOUGLAS] Yes; that is an obvious statement
> of
>   fact; the accounts of any company will show that. 
> 
>   4489. PROFESSOR GREGORY: What happens to the
>   difference?-- 
>   [Major DOUGLAS] It is represented by the fixed
> assets
>   in the company which it cannot distribute in the
> form
>   of money... 
> 
> 
>   --------------------original
>   message-------------------
> 
>   Re: [gang8] More re Say's law
>   January 15, 2008
> 
>   Dirk,
>    
>   We discussed Say very thoroughly some years ago.
> The
>   idea that just by paying workers to produce goods
> puts
>   into circulation the wherewithal to buy them is of
>   course wrong. Say made it clear that the goods
> must be
>   saleable. If they are produced with borrowed
> money,
>   and sold, they put into circulation the money to
> 
=== message truncated ===



     
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