| Subject: | Re: [socialcredit] Re: The MacMillan Presentation follow up | | Date: | Sunday, February 13, 2005 06:59:42 (-0800) | | From: | Radu Seserman <radudelona @.....com>
|
| In reply to: | Message 551 (written by Jim) |
Jim and the list,
I it is even more clear from this excerpt the
limitation in Douglas point of view and that 'Savings'
are real root of the problem, not capitalized costs.
"4498. Chairman: If it is not too long.
Douglas: It is not long. It is the shortest form in
which this statement can be put, I think. Suppose
first that I have $1000, and I pay that $1000 away for
the purpose of having a house built. We will imagine
that the whole of the $1000 goes in nothing but wages,
which does not in anyway affect the argument, and we
will also suppose that by doing work on something else
the workmen could live and save all that they earned
by house building. Suppose now that the workmen who
built the house, who collectively would have my $1000,
decided to buy my house, and I agree to sell them for
$1000. Notice that no question of profit arises. The
workmen now have the house, and I have my $1000 back
again. In other words, the workmen have got the house
merely by working for it. But these workmen would
express it by saying they had paid $1000 for the
house. I am now out of the transaction altogether, and
we will suppose I and my money removed to another
planet, or we can suppose that I tore up the money
when it was returned to me (which is the equivalent of
the repayment of a bank loan)."
Radu' comment: Where do the money come in the first
place? Maybe from the other planet. There is no
problem here, we can take the money back to the other
planet. The economic cycle is closed and there is no
imbalance, the workmen worked for $1000 and purchased
goods for $1000. No 'Savings' involved, everything
balances out.
excerpt continued:
"Suppose now that the workmen decide to use the house
to make and sell shoes. If they carry on the business
on orthodox business lines the cost of the shoes will
consist of at least three items: (i) Wages (ii) Raw
Materials and (iii) rent of factory i.e house. We will
suppose for the moment that the “rent” of the house is
nothing but an appropriation of money of such amount
that when the house eventually falls down they will
have got back their $1000. It is technically called
depreciation. Since the public gets the shoes, clearly
they ought to pay “depreciation”. Notice, therefore,
that neither interest i.e. usury , nor dividends, nor
land monopoly are imported into the question. But the
simple and vital fact remains that wages paid during
the production of the shoes are less than the price of
the shoes by an amount, large or small, which is added
to the cost of the shoes before the shoes are sold,
representing, at least, “depreciation”. "
Radu's comment: The problem exist only if the workmen
decides to save the depreciation as he recuperates it.
That means he is saving! If he spends the monetary
portion of the price corresponding to depreciation
immediately there is no imbalance. The price of the
shoes equal the wages plus 'depreciation' amount spent
on whatever. All it matters is that it is spent.
When enough shoes were made to fully depreciate the
building, technically the building should collapse
because was 'worn out'. The fact the building will not
collapse will allow the workmen to make cheaper shoes
or have more disposable income.
Douglas excerpt continued:
"At every stage of the process there exists three
"assets". A debt owing to the bank, a purchasing power
that will either liquidate the bank debt, or it will
transfer the goods. It will clearly not do both. It is
impossible for the repayment of a loan to it bank to
take place other than through the purchase of goods
(deflation) without dislocating the financial system.
Consider the nature of these assets:
The bank debt, which is shown in the bank's accounts
as an asset has one attribute which distinguishes it
from the other two. The initiative of a liquidation of
it probably rests with the bank and not with anyone
else, because it is a "loan".
The goods produced, which may be regarded as a second
asset, require the consent of a purchaser before they
can be transferred.
The third asset, the purchasing power distributed will
either transfer goods or liquidate the bank debt.
Assets No. 1 and No. 3 cancel each other on
cross-transfer. Asset No. 2 does not so cancel.
Now suppose at any stage of the proceedings asset No.
3 is used to buy or cancel asset No. 1; then clearly
there is a disparity between the figure value of asset
No. 2, which is not affected by this transaction and
the figure value of the other two assets, i.e.,the
bank debt and the purchasing power.
This is exactly what happens when any portion of the
loans concerned in any stage of the production of an
article is repaid to a bank before the articles, into
the cost of which they enter, has finally and
irrevocably been sold to its ultimate consumer. In
order either to resell it (in addition to normal trade
in new articles) or to use it in such a way that it
forms a cost in production, a fresh loan has to be
granted upon it."
Radu's comments: This is plain wrong! Asset 3
(purchasing power) will never ever directly offset
asset 1 (bank loan). Neither the workers (wage
recipients) or the dividend recipients would go and
pay off the loan with their own funds! It is
business's responsibility's to do that. Asset 3 will
ALWAYS transfer asset 2 (goods produced) and create
the conditions to offset the loan. In this three party
scenario the bank loan can be satisfied only if the
goods are transferred.
I do not know how more clearer then this it can be
that not capitalized costs but retained earnings &
savings produce the imbalance between prices and
purchasing power.
My best wished,
Radu Seserman
--- Jim <jschroeder@shaw.ca> wrote:
> Hi Bill:
>
> I will respond in red. And thank you very much by
> the way for the PDF file on the MacMillan
> Presentation.
> ----- Original Message -----
> From: William B. Ryan
> To: ownership@cog.kent.edu ;
> austrianschoolofeconomics@yahoogroups.com ;
> socialcredit@elistas.com
> Sent: Friday, February 11, 2005 10:44 AM
> Subject: [socialcredit] Re: The MacMillan
> Presentation
>
>
> "Again, this is why I disagree with your assertion
>
> that labour displacement forms the crux of A+B. I
>
> believe this dissertation by Douglas forms the
> crux
> of A+B. Simply, the receipts of capital are
> greater
> than they pay out in dividends, and the difference
>
> represents the fixed assets of the company which
> it
> cannot distribute in the form of money."
> -----------------------------------
> -------------------------------------
> The answer to this dilemma becomes clearer once
> you
> realize that Douglas was operating from the
> assumption that the economy is a dynamic, living
> organism--that in its ordinary state is growing
> and
> expanding. It is implicit in everything he wrote.
>
>
> But I'm not denying that Douglas' economic
> analysis is dynamic, and much of orthodox economics
> is static. I agree. My statement was that A+B
> really has nothing to do with "labour displacement",
> and really has to do with capitalized costs
> re-appearing in another production cycle. I'll
> admit, as Douglas states, "labour displacement is an
> irritating factor" to this process, but the problems
> outlined in A+B would still exist even if there
> wasn't the problem of labour displacement.
>
>
> Orthodoxy assumes steady-state. "Labor
> displacement"
> is a parametric departure from steady-state that
> is a
> long-term trend. It is an element of qualitative
> growth in which inputs are continually being
> displaced from the productive process in respect
> of
> outputs. Otherwise, continuous growth and
> expansion
> would be impossible--for resources would soon
> become
> exhausted. Labor displacement differs
> significantly
> from the displacement of the other inputs in that
> labor is also the channel for the distribution of
> the
> purchasing power needed for the consumption of
> those
> outputs in a system where the purpose of
> production
> is consumption (rather than war, etc.) So there
> is
> an inherent contradiction in the system in which
> labor is being continually displaced but where
> labor
> is also required for the distribution of the
> purchasing power necessary for enabling the
> consumption required for production to proceed.
>
> Again, I don't disagree with you on the point, I
> just disagree with you that it's the essence of A+B.
>
> The receipts of capital could equal corporate
> dividends only in the hypothetical condition of
> perfect steady state. But perfect steady state is
>
> the implicit assumption of orthodox mindset as
> here
> expressed by Keynes. Douglas counters with the
> challenge to look at "the accounts of any
> company."
> Yes, I agree, and this is the crux of A+B as I see
> it. It's not labour displacement. It is the fact
> that capital expenditures are always greater than
> dividends paid out; hence, the price which includes
> all of these expenditure will always be greater than
> the income which only includes the dividend portion
> of these expenditures. I'll use the exact example
> that Douglas gives in his presentation explaining
> A+B before the MacMillan Commission:
>
> 4498. Chairman: If it is not too long.
>
> Douglas: It is not long. It is the shortest form
> in which this statement can be put, I think. Suppose
> first that I have $1000, and I pay that $1000 away
> for the purpose of having a house built. We will
> imagine that the whole of the $1000 goes in nothing
> but wages, which does not in anyway affect the
> argument, and we will also suppose that by doing
> work on something else the workmen could live and
> save all that they earned by house building. Suppose
> now that the workmen who built the house, who
> collectively would have my $1000, decided to buy my
> house, and I agree to sell them for $1000. Notice
> that no question of profit arises. The workmen now
> have the house, and I have my $1000 back again. In
> other words, the workmen have got the house merely
> by working for it. But these workmen would express
> it by saying they had paid $1000 for the house. I am
> now out of the transaction altogether, and we will
> suppose I and my money removed to another planet, or
> we can suppose that I tore up the money when it was
> returned to me (which is the equivalent of the
> repayment of a bank loan). (Douglas is the banker in
> his simple scenario, and once the workers pay him
> the loan, the money is taken out of
> circulation)Suppose now that the workmen decide to
> use the house to make and sell shoes. If they carry
> on the business on orthodox business lines the cost
> of the shoes will consist of at least three items:
> (i) Wages (ii) Raw Materials and (iii) rent of
> factory i.e house. We will suppose for the moment
> that the "rent" of the house is nothing but an
> appropriation of money of such amount that when the
> house eventually falls down they will have got back
> their $1000. It is technically called depreciation.
> Since the public gets the shoes, clearly they ought
> to pay "depreciation". Notice, therefore, that
> neither interest i.e. usury , nor dividends, nor
> land monopoly are imported into the question. But
> the simple and vital fact remains that wages paid
> during the production of the shoes are less than the
> price of the shoes by an amount, large or small,
> which is added to the cost of the shoes before the
> shoes are sold, representing, at least,
> "depreciation". (This is the crux of A+B, the
> simple fact that costs are "capitalized" and
> depreciated over a period of time. Whether that
> time be 30 years as is the case in a building, or
> merely in it's use in production, which is the case
> with raw materials)This amount which is added to the
> cost of the shoes represents overhead charges in
> their simplest form, and in many modern productions
> overhead charges are between 200 and 300 percent of
> the direct cost of the product. It is not profit.
>
> The main problem is not labour displacement,
> although I suppose that is an irritating factor in
> all this. The problem is that the money which was
> paid to the workers has made it's way back to the
> bank, and was then taken out of circulation as it
> cancelled the debt from which it originated.
> However; the cost of the house which was then
> "capitalized" and depreciated over time still exists
> in the cost of the shoes, but the money necessary to
> cover this cost is gone. It was destroyed by the
> bank when it cancelled the loan. So in order to
> obtain the funds necessary to consume the cost which
> has been capitalized (i.e. the depreciation of the
> house), it is necessary to take out new loans, but
> these new loans, unless they are consumer loans,
> generally create a fresh set of costs. And if the
> loan is used to cancel previous capitalized costs,
> then it is no longer available to cancel the costs
> which are associated with its creation. That is A+B
> as I understand it, and as far as I see it has
> nothing to do with labour displacement. I will
> quote from Douglas once again:
> At every stage of the process there exists three
> "assets". A debt owing to the bank, a purchasing
> power that will either liquidate thebank debt, or it
> will transfer the goods. It will clearly not do
> both. It is impossible for the repayment of a loan
> to it bank to takeplace other than through the
> purchase of goods (deflation) without dislocating
> the financial system.
>
> Consider the nature of these assets:
>
> The bank debt, which is shown in the bank's
> accounts as an asset has one attribute which
> distinguishes it from the other two. Theinitiative
> of a liquidation of it probably rests with the bank
> and not with anyone else, because it is a "loan".
>
> The goods produced, which may be regarded as a
> second asset, require the consent of a purchaser
> before they can be transferred.
>
> The third asset, the purchasing power distributed
> will either transfer goods or liquidate the bank
> debt.
>
> Assets No. 1 and No. 3 cancel each other on
> cross-transfer. Asset No. 2 does not so cancel.
>
> Now suppose at any stage of the proceedings asset
> No. 3 is used to buy or cancel asset No. 1; then
> clearly there is a disparity between the figure
> value of asset No. 2, which is not affected by this
> transaction and the figure value of the other two
> assets, i.e.,the bank debt and the purchasing power.
>
> This is exactly what happens when any portion of
> the loans concerned in any stage of the production
> of an article is repaid to abank before the
> articles, into the cost of which they enter, has
> finally and irrevocably been sold to its ultimate
> consumer. In ordereither to resell it (in addition
> to normal trade in new articles) or to use it in
> such a way that it forms a cost in production, a
> fresh loan has to be granted upon it.
>
>
>
http://www.capitalownership.org/lib/DouglasBankers.pdf
>
> This last paragraph explains the essence of A+B,
> and it is in Douglas' own words. It is not "labour
> displacement" that is the problem, it is the loan
> being repaid before the final consumer article makes
> it's way to the consumer. Labour displacement may
> be "irritating", but A+B would be true even if
> labour displacement were not true.
>
> Take care,
>
> Jim
> Douglas's thought is bewildering, especially when
> taken out of context, without the realization of
> his
> underlying premises, which are far from obvious.
> Some of those premises are just now entering
> economic
> discussion--for example, the creditary nature of
> modern money. Moreover, even when you have read
> all
> of it (and only some of it has become available to
> me
> at this point--I have not seen any of the
> parliamentary presentations) it is almost still
> out
> of context, for his written words must have been a
>
> small fraction of the totality of his thinking
> (some
> of it was probably expressed in spoken
> conversations
> with his more intelligent colleagues--for example
> Orage, who took a year to become converted to
> Douglas's way of thinking), and even that must
> have
> been somewhat in the form of "baby talk" in the
> attempt to make it understandable to others.
> -
> From the previously supplied excerpt:
>
> 4477. [Mr. KEYNES] Its working capital is required
> to
> meet its expenditure under Group A during the
> period
> of production just as much as under Group B, so
> what
> you are saying now does not seem to me to
> distinguish
> between Group A and Group B?--
> [Major DOUGLAS] Yes, it does, because in Group A
> you
> paying out to the consumer; all the payments under
>
> Group B are purchasing power; which, if it was
> obtained by re-investment, was originally in the
> hands of the public and never gets back into the
> hands of the public at all.
> -
> Notice the qualifier, "if it was obtained by re-
> investment..." In such a condition firms are
> increasing the ratio of B to A, in this case
> funded
> by the reflux from A. It is becoming absorbed
> into
> the capital structure of production, the costs of
> which being impressed (as it depreciates) to the
> point of retail in conformance to the conventions
> of
> accounting without the disbursement of an
> equivalent
> purchasing power.
> -
>
>
>
> Jim <jschroeder@shaw.ca> wrote:
> Bill, I would like a copy of this presentation
> in PDF format if you wouldn't mind.
>
> In a previous email to Radu, you state:
>
>
> [REPLY] No. Capital costs are real costs that
> have
> to be expensed into the price of retail goods in
> any
> conceivable accounting system. It's just that
> with
> labor displacement (shorthand for lengthening
> and
> broadening to the structure of production with
> INCREASING capitalization in the broadest
> possible
> sense) the rate-of-flow of purchasing power
> being
> paid to final consumers is falling in respect to
> the
> rate-of-flow of costs being impressed (expensed)
> to
> the point of retail. It is nothing more than an
>
> accounting flaw amenable to conscious
> adjustment.
> Simply put, that adjustment requires the
> introduction
> of a national credit (or capital) account to the
>
> economy as a whole, from which dividends will be
> paid
> in supplement to the ordinary (corporate)
> sources of
> personal income. It will allow the books to
> balance
> for the economy as a whole.
>
>
> Now Major Douglas states in the presentation you
> just email us that:
>
>
> 4486. [Mr. KEYNES] And if in the interval you
> had to
> have new machines to replace old ones you would
> have
> to have individuals to produce them. How does
> that
> differ from any other form of consumption?--
> [Major DOUGLAS] Because you are not starting
> from
> zero. You are starting from a world as it is.
> 4487. [Mr. KEYNES] How does that bear on the
> matter?--
> [Major DOUGLAS] It bears on the matter that you
> have a tremendous amount of real capital which at
> the present time is creating prices and which has
> not contributed anything like that amount of
> purchasing
> power.
> 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...
>
> Again, this is why I disagree with your
> assertion that labour displacement forms the crux of
> A+B. I believe this dissertation by Douglas forms
> the crux of A+B. Simply, the receipts of capital
> are greater than they pay out in dividends, and the
> difference represents the fixed assets of the
> company which it cannot distribute in the form of
> money.
>
> Sincerely,
>
> Jim Schroeder
>
=====
Sincerely yours,
Radu Seserman
"You must be the change you wish to see in the world." Gandhi
"Life is meant to be fun!"
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