| Subject: | [socialcredit] Re: [A draft reply] IF GLOBAL CAPITALISM DOES NOT CHANGE? | | Date: | Sunday, February 13, 2005 19:16:39 (-0500) | | From: | W. Curtiss Priest <bmslib @...edu>
|
John Gelles wrote [Cyberspace Society <cyber-soc@topica.com>]:
...
> Of course, an economy cannot afford more or better things than they
> produce. So, if they want higher quality or greater quantity, they
> must know what know how to produce them.
...
Dear John,
As I have mentally reviewed several years of various
discussions, I have focussed my thoughts on exactly what
you raise here.
And, in some of your earlier postings I didn't sense you
felt this particular constraint, and sometimes wished
to produce something out of nothing -- i.e., print the
money and the goods will be there that correspond in
value.
And, in thinking about capitalism, (and you also mention
profit), the difference between the actual costs of
producing goods and the actual monies paid for them
constitute an "allocative rent."
In communism, that rent is the salaries paid to persons
who direct the production of goods and services, say,
via "five year plans."
In capitalism, that rent is a combination of profit and
costs of capital. I.e., we have folk who direct (say
a CEO) or own (say a stock holder) an "interest in the
business or service."
These folk are all in a race to vie for a limited amount
of money that can be spent (consumer earnings+debt) and
at the same time attempt to maximize the difference between
total sales and total costs of production, i.e., profit.
In about 1975 I worked several doors down from Bolt,
Beranek and Neuman (BBN). There was a luncheon seminar
and I believe it was Leo Beranek who addressed the group.
As President of BBN, he explained quite succinctly that
one must understand that a firm's profits is the difference
between two very large numbers. His point was that it
does not take much (unexpected) on either side to make
a huge difference in profit, or result in a loss.
So, returning to folk "with an interest" in the results
of that difference, there are costs associated with
the entire array of people (owners, directors, banks,
stock exchanges, financial advisors to those activites, etc.)
It is this overhead (both internal to the firm and external
to the financial markets) that represents the "allocative
rent" I refer to above. They try very hard to make sure
the "number" doesn't go to a loss.
Any economist would nod in agreement and say this is how
our economy assures that "scarce resources" are
allocated to their best uses. Period. Pareto optimality.
However, no matter how efficient all these folk are, and
no matter how competitive the market place, the allocative
rent must be collected and paid out. I do not have a
precise number, but believe it to be around 10% of the
of sales revenue. (if anyone has a better number, do say)
Now, we let this "economy" grind along. We find that there
are both short cycles and longer cycles. These are attributed
to both exogenous variables (say the price of oil) and
endogenous variables (the amount of inventory a firm decides
to maintain). And, as an example, JIT (Just in Time) reduced
carrying costs and reduced inventory effects -- except during
times of serious disruptions.
Around 1920, C.H. Douglas (an engineer), recognizes that
there is a gap between what workers earn and the total
costs of goods and services. He publishes "Economic
Democracy." He witnesses the "allocative rent" as
a shortfall to consumer earnings. He, if I understand
him fully, later devises the "social dividend."
He argues that if there is a gap, then goods and services
go unsold. Others, including myself, argue that this
pressure to sell goods and services that cannot be afforded,
results in the accumulation of debts amongst consumers.
So, Douglas proposed a transfer of money from the
production side (from firms, and their taxations) to
the consumer side.
But, I hope everyone sees the circularity here. We
cannot both pay the allocative rent AND pay the same
amount to consumers as a social dividend. That would
amount to paying the same amount, twice.
Meanwhile, Kelso proposed that it be the workers who
own the firm, rather than outside interests. Thus was
born the AESOP.
Robert Ashford worked in the employ of Kelso, and, with
Rodney Shakespeare wrote a seminal book, "Binary Economics"
published in 1999.
The "binary" was this. What produces goods and services
are labor and capital. Capital is meant in its fullest
sense as "productive capacity" (not in the sense of
"financial capital").
Then Ashford and Shakespeare make the (simple) argument
that as long as the consumers do not own the capital,
there will always be a shortfall between goods and services
and the purchasing ability of consumers.
This should sound familiar by now. They identify, I
believe, the same gap that Douglas identified. However,
as they have Kelso roots, their proposal is not
a social dividend, but, to have workers aka consumers
own the capital. For, indeed, if someone else owns it,
then the allocative rent goes to that owner. If the
worker owns it, then that cost goes away, and the gap
closes.
At MIT, Prof. Robert Ashford (from Syracuse University) was
invited by his brother Nick, to make a presentation to
the Technology and Public Policy program (Fall, 2005). And,
in that presentation, Prof. Ashford drew several boxes
on the chalkboard, and these related to mechanisms of
employee ownership and access to monetary capital and
and insurers to cover risks.
Further, Prof. Ashford pushed me to consider another
serious consequence to the current system. While I
kept coming back to "the symptom" -- mounting consumer
debt, Robert said the real serious consequence was the
underutilization of capital.
For, indeed, if consumers cannot buy all the products
and services that capital is capable of, then, our
current system has the effect of producing "idle capacity."
And, the more we can place capital into the hands of
the worker aka consumer, the amount of idle capacity
will decrease. And, we will get more goods and services
from the consumption increase.
***
Now, I, having worked with Nick, learned to ask the question
"whose ox is gored?"
For, the extent to which Ashford and Shakespeare are able
to have the workers own the capital, then this piece of
the allocative rent "pie" is made smaller for very vested
interests. I.e., a whole, often lucrative, part of the
economy goes away. For example, there are fewer shares
of stock on the stock exchanges, if the "ownership" that
stock represents has been transferred to the worker.
Summary:
1. There is always some allocative rent
2. Douglas proposes the Social Credit
3. Ashford/Shakespeare/Kelso propose capital
ownership
4. Priest notes the instabilities of capitalism-
based economies in terms of debt accumulation,
finally resulting in catastrophic economic
failures
5. Just printing money doesn't change much, except
to produce inflations -- i.e., if a
government buys more than it takes in by
taxes, the entire pie of money grows, and
anyone with a "fixed amount of money" has
their ox gored
6. Transfer of ownership gores the ox of the
incumbent financial and ownership community
7. Pain and crisis tend to be the only times when
large changes in entitlements occur. For
example, Social Security was a product, not
only of Roosevelt, but of the depression
8. Rawls argues that despite the faults of our
capitalistic system, and the enormous
inequities in the distributions of wealth,
that "every one is better off" and so, the
"social contract" is acceptable to all
parties (see his work on the making of
contracts when in the primal state).
9. To what extent can ownership really be transferred
to workers? I.e., can Ashford/Shakespear/Kelso
truly devise viable ways in which allocative
rents can be truly shared with workers? Or,
are workers always to be at the subjugation
of the owners capital (e.g. Marxism)
A similar question arises today with
S.S. Can the "average investor" do
better "in the stock market." Data show
that the average investor loses to the
rest of the players in the ratio of
11:10 (from memory, no ready citation).
So, in general, the stock market is best
left to the professional "gamblers" --
and, meanwhile, that grafting still helps
in paying allocative rents (despite huge
amounts of churning).
10. And, if major changes occur only during crisis,
when?, and, do we have our proposals on
the table for when that occurs? Will we
even be at the table?
11. Finally, is dividing up capitalism in these
ways useful? Surely even those involved
in receiving allocative rents buy things.
Are they not just higher paid workers?
I.e., where is this discussion if we
"internalize" those rent costs to the firm?
Ah, but, is it that these folk, on average,
net lenders, rather than net borrowers? And,
if that is the crux of the problem, then
should we not go back and divide up the world
in those terms? And, then have we turned
full circle back to condemning usury?
[a draft for comment]
Sincerely,
W. Curtiss Priest, Ph.D.
Director, CITS
--
W. Curtiss Priest, Director, CITS
Research Affiliate, Comparative Media Studies, MIT
Center for Information, Technology & Society
466 Pleasant St., Melrose, MA 02176
781-662-4044 BMSLIB@MIT.EDU http://Cybertrails.org
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