| Subject: | RE: [socialcredit] the non-neutrality of money | | Date: | Saturday, July 26, 2008 22:50:30 (+0000) | | From: | John G Rawson <johngrawson @.......com>
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| In reply to: | Message 5469 (written by william_b_ryan) |
I sugggest this argument needs to go back and resolve the definition of inflation, because it has assumed that it is necessarily caused by increase of the money supply.
Inflation these days is determined by measuring increased prices, with no reference whatever to the money supply. Therefore its only practical definition can be "Rising prices".
Orthodox economists recognise both demand-pull inflation caused by undue increase in purchasing power and cost-push inflation caused by, for example, rising oil prices which may generate no immediate increase in retail buying ability. A corollary of the A+B model is that cost-push inflation is endemic to the system.
It is a pity to see Social Crediters "suckered into" the prime argument of the finance industry against monetary reform, i.e. the supposed inflationary effects of any change.
Regards.
John R.
> Date: Sat, 26 Jul 2008 09:59:29 -0700
> From: william_b_ryan@yahoo.com
> To: socialcredit@elistas.com
> Subject: [socialcredit] the non-neutrality of money
>
> "...from a financial point of view, the money supply has been inflated, and the community as a whole has therefore paid for the new capital through the loss in value of their monetary holdings. While the capital is being created (say the many years spent constructing a new oilsands plant), no new wealth is available for consumers."
> ---------------------------------------------------------
>
> Quite obviously no new wealth is created by the particular plant until it is completed and in production. But this statement of yours falsely assumes that money is neutral, that the only thing an increasing money supply causes is increasing prices.
>
> In reality, while the construction of the plant is being financed with new credit, the rate of profit by other firms is increasing with the increasing spending, inducing the increasing production of real goods and services into final consumption. The problem of inflation has more to do with the way new credit is introduced than the fact that it is introduced.
>
> In Social Credit theory, the ratio of A is naturally falling to B with labor displacement, so the ratio of A to A + B, the costs of production in double entry accounting, is falling, causing a continual long-term fall to the rate of profit, continually suppressing production in terms of productive potential and real demand.
>
> The rate of investment is A + B. If A + B is accommodated through new loans, the ratio of A to A + B is increased (rather than decreased) if the flow of A + B is accelerating, and therefore the rate of profit is increased, since A + B is expensed against sales after a delay, while A refluxes into retail sales rather quickly. So the stimulus of an increasing A takes effect before the consequent expensing of an increasing A + B. But this stimulative effect continues only so long as the flow of A + B is accelerating. This means that prices are exponentially increasing eventually into hyperinflation, if not stopped. But while it lasts the stimulating effect is very real, in terms of real production and consumption. Look at Douglas's 1923 testimony in Ottawa on the Austrian inflation.
> http://www.geocities.com/socredus/Douglas_1923_second_day_Part_3.txt
>
> Far less inflationary are the Social Credit dividend and retail discount programs, where new credit is rationally introduced at the point of retail rather than directly as loans for investment. In the Social Credit program, more and more investment is financed from retained profits rather than loans. Prices are therefore ameliorated rather than exacerbated.
>
> Some statements from Douglas regarding the non-neutrality of money:
>
> "...the true assets of banks collectively consist of the difference between the total amount of legal tender, or Government money, which exists, and the total amount of bank credit money, not only which does exist, but which might exist, and which is kept out of existence by the fiat of the banking executive."
> Swanwick, 1924.
> http://geocities.com/socredus/compendium/swanwick1924.txt
>
> "The business of a modern and effective financial system is to issue credit to the consumer, up to the limit of the productive capacity of the producer, so that either the consumer's real demand is satiated, or the producers' capacity is exhausted, whichever happens first."
> Chapter X, *Credit-Power and Democracy*, 1920.
> http://geocities.com/socredus/compendium/chapter10.txt
>
>
>
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