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Bill, I will respond in blue.
----- Original Message -----
Sent: Wednesday, March 09, 2005 11:53
PM
Subject: [socialcredit] Re: Replying to
Jim
Jim, I apologize for the curtness to my earlier
reply. I realize you spent some time on your
message, which does
deserve a considered response.
(reply) I accept your apology, but
it's just an extension of your debate "style", and it's not
debate.
I
Thank you for your continued participation in
our
forum.
The theorem is stated in its rudimentary form in
terms of cash flow; it is not conditioned on the
specific techniques
of double entry accounting. It's
a statistical concept that's
meaningful only when we
consider the economy as a whole. In the form
that
Douglas enunciated, it would apply to any conceivable
accounting
or monetary system.
(reply) I wouldn't go that
far Bill, because it's impossible to conceive that which has not yet been
conceived. However; it's systemic in this system of accounting and
credit. And Douglas' proposals were purposefully evolutionary as opposed
to revolutionary. He simply wanted to "tweak" the system to allow it to
work better.
Also, he did not want to throw the
baby out with the bath water, for in spite of the imperfections of the
accounting/monetary system, they had given rise to great advances in
man. And Douglas was aware of this fact.
In double entry (or accrual) accounting, the
expensing of certain costs are delayed through
depreciation--let's say
ten years when averaged with
costs that are not delayed.
In steady state, the expensing of a dollar cost that
is delayed today is exactly balanced by the expensing
of a dollar
today that was delayed ten years ago.
That is to say, when looking
at the economy as a
whole, the effect is exactly the same as if it were
utilizing cash accounting, where expense and cost are
conterminous.
(reply) Yes, if the building
was built at the same rate it depreciated there would be a steady state.
Douglas addressed this fallacy. I'll have to dig to find the exact
quote, but needless to say, this is not what goes on in reality. But as
a building depreciates over 30 years, it's not built over the 30 years at the
exact same rate it depreciates. If it was, then we'd have "steady state"
that you are referring to.
The next level of analysis is the hypothetical
condition of quasi-steady state, where everything is
changing but
everything is remaining proportional to
everything else through
time. A subset of quasi-
steady state is the condition of
steady-state growth
or expansion that more closely resembles conditions
in the real world.
(reply) I'm not sure what
"quasi-steady state" refers to, but you're right in asserting that it's not
steady state as you are implying in your previous paragraph.
In such a
condition every firm is statistically
disbursing more than it is
simultaneously receiving
in terms of cash flow, so the statistical
differential between disbursements and receipts is a
negative number,
making it impossible to account for
profit if we were limited to cash flow
accounting.
Marx's M->C->M', where profit is M' minus M, is a
complete and utter fallacy.
Depreciation, along with
other mechanisms in double
entry accounting, solves this dilemma by
shifting the
disbursements curve into the future where it is
matched
against receipts being received at a
definable point in the future, which
are presumably
greater than the rate of disbursements today,
yielding
a positive rate of profit. A negative
number has thereby been
transformed into a positive
number through this technique. But the
utility of
the technique is conditioned upon the rate of future
receipts changing proportionally to the rate of
change of today's
disbursements. [see note appended
below]
Illustrations:
http://www.geocities.com/socredus/compendium/accounting_profit.gifhttp://www.geocities.com/socredus/compendium/steady-state.gif
(reply) I have never stated
the need for accrual accounting in matching receipts with costs (one needs to
wonder why no governments use this form of accounting?). I understand
the necessity for using depreciation as an future expense in order to better
match receipts and costs.
The whole point of A+B is there's
all kinds of physical assets for which the purchasing power that created them
is GONE. Either used to pay off the debt from whence they came, or
reinvested back in the productive system. In either case, there are
price values being created from these physical assets that are represtented in
($) for which there is no equivalent purchasing power in ($). This is
expressed by Douglas himself at the MacMillan Commission:
4485. Mr. Keynes: If you raise the volume of credit to
whatever level may be required by your profit in relation to the volume of
production you have only to go on increasing in it in proportion as production
increases?
Douglas: No, there are all sorts of questions that
would still arise. The question of turnover, depreciation, and the fact
that the purchasing power of credit, or whatever you like to call it, which
has been transformed into price values of fixed assets in the industrial
system would in existing circumstances have to enter into the cost of goods -
and cost items of that type would always raise the price of the
articles above the amount of purchasing power.
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?
Douglas: Because you are not starting from zero. You
are starting from a world as is.
4487. Mr. Keynes: How does that bear on the
matter?
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.
What the technique of accounting at the level of
individual firms cannot handle is the condition where
receipts are
falling in respect to disbursements--
exactly the parametric shift that
would occur if the
ratio of the reflux from A is falling in respect to
B, made inevitable if A is falling in respect to B,
in which case
double entry accounting would report a
falling rate of profit
(corresponding to an
accelerating rate of debt accumulation). But
real
profit is presumably increasing with improvement to
process.
In short, double entry accounting reports reasonably
correct information in the hypothetical condition of
quasi-steady
state, but increasingly inaccurate
information when there is continuous
labor
displacement that most completely represents
conditions in the
real world.
-
(reply) I think it is reporting reasonably
accurate information regardless. It's reporting there is not enough
purchasing power to cover costs. And Douglas knew exactly how to resolve
this problem.
You seem to be focusing on the fact that I mention
accrual accounting in my analysis of A+B. By doing so, I'm not stating
that accrual accounting is "flawed", any more than my mention of debt created
money is "flawed". But taken TOGETHER, there is a flaw.
There are two types of money with regard to
credit. There's a (+) side represented by A payments going out to the
customer, and a (-) side represented by B payments which are going back to the
bank.
The A payments (+) are creating costs, and the B
payments (-) are cancelling them. And although at one time B
payments may have been A payments (which is usually the contention of most
detractors of A+B), they are no longer A payments. And unless the A
payment they represented in the past were put in a sock and saved as
purchasing power, that purchasing power no longer exists. And any
attempt to create more puchasing power via A payments is only inflationary
because A payments are creating costs (+).
This is why Douglas always
states:
"Since A will not purchase A+B, a portion of
the product at least equivalent to B must be distributed by a form of
purchasing power which is not comprised in the description grouped
under A."
Note: The Post Keynesians, following Professor Paul
Davidson,
in deriving conclusions similar to those
from A+B, have introduced the
concept of uncertainty
to explain why there could be a shortfall when
expense is matched against demand. But they fail to
explain why
uncertainty should not manifest in random
variation about a mean.
Labor displacement is the
correct explanation, being an empirically
observable
parametric shift in long-term trend. It is
predictable and compensatable, if recognized.
-
(reply) Sounds to me like the
professor, and perhaps yourself?, are trying to understand Douglas in terms of
orthodox economics using some econometric model of the economy.
Like I stated to you
previously. I better understood Douglas when I shed off any preconcieved
notions that my education may have taught me about economics, and tried to
understand Douglas in his own right.
If I may use an analogy, it's like
trying to understand Einstein and his theory of relativity using Newtonian
mechanics.
Econometric models are only as good
as the assumptions that went into making them. You understand the term
GIGO?
I have stated on several occasions
Bill that B will grow relative to A due to labour displacement. You are
correct in that assertion. But A+B as a theory does not depend on B
growing relative to A. The simple fact that B exists makes
prices>income.
We don't disagree that labour
displacement causes B to grow relative to A. Where the disagreement lies
is in the fact that it's ESSENTIAL to A+B. Labour displacement may be a
fact, and it's necessary for a dividend to replace the wage as a source of
income due to this phenomenon.
But A+B, and the price rebate that
Douglas spoke on, is true irregardless of labour displacement.
The simple fact is that the economy
has all sorts of fixed assets which are creating price values in ($) for which
there is no equivalent purchasing power being generated, and this brings about
the pheonomenon of rising debt, exports>imports, businesses selling below
cost..........
That is A+B in my
opinion.
Take care,
Jim
Jim <jschroeder@shaw.ca> wrote:
Hi Bill:
I will respond in green.
Jim, please answer the question I posed to you earlier
under the heading, Question for Schroeder:
...My question to you: If B=A2, the condition of
steady state, then A1+B=A1+A2. So where's the gap between prices and
purchasing power?
(reply) You state:
"Once a definable retail sector begins to develop, the
concept of B enters the picture. The retail sector purchases goods
from what we might call the supplier sector--B, and pays its workers,
managers and owners--A1.
The supplier sector receives B payments from the
retail sector for the goods it supplies, and pays its workers, managers
and owners--A2."
You have time moving backwards Bill
[snipped]
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