----- Original Message -----
Sent: Thursday, March 10, 2005 1:35
PM
Subject: [socialcredit] Re: Replying to
Jim
[Schroeder] 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.
-------------------
[Ryan in reply] We are not observing a single
building but statistically the economy as a whole,
which is our field
of vision.
(reply) But let's see what
Douglas states about this concept in "The Monopoly of Credit":
"It is irrelevent in the modern
world that all these five processes are taking place simultaneously and that
the product may be found in any of the five stages at any moment. It is
still true that you cannot bake bread with corn which you are simultaneously
grinding."
In other words, it's irrelevent
whether you're looking at "the economy as a whole" or on part of
it.
The conception of
steady state is not a fallacy but a
false assumption
when applied to the real economy. It is
nevertheless
a necessary conceptual element in constructing the
more
complete model (no model can be constructed that
is both complete and
non-contradictory: see Goedel's
theorem).
(reply) Of course,
all language/logic begins in contradicition, and Godel's theorem
merely demonstrates it. Godel's theorem states that for any logical
system there is always some proposition which can't be proven true or false
within the axioms of the system itself, and that it is necessary to construct
a new system to prove the other system true, but then this system has the same
problem ad infinitum.
To quote Kierkegaard:
"Immediacy is reality; language is
ideality, consciousness is a contradiction. The moment I make a
statement about reality, contradiction is present, for what I say is
ideality."
(Philosophical Fragments pge.
168)
No "model" of reality is going to
be without contradiction. The economy is reality, the model is
ideality.
When you read orthodox economists you
have to read that
assumption into everything they
write, for seldom is it explicit.
Mostly they are
not even conscious of it. By the same token, when
you read Douglas you have to read into it the
assumption of continuous
deviation from steady state.
Otherwise, it is
incomprehensible.
(reply) Of course it's
incomprehensible if there is no deviation of steady state. I've never
denied that fact. I've never even denied that labour displacement causes
B to rise relative to A. What I've claimed is that B does not NEED to
rise relative to A for A+B to be true. The fact that it is rising
relative to A is merely an "irritating factor", and the price adjustment ratio
would still be necessary without it.
Usually with
Douglas it is implicit, also, as the
quotations taken
out of context demonstrate. It is easy to fall into
the trap of thinking that A+B demonstrates something
significant in
the absence of that underlying
assumption. And when you allow
deviation from steady
state into your analysis, you have to find some real
world mechanism that can explain it other than random
fluctuation
about a mean (the Post Keynesian's
uncertainty).
(reply) Random fluctuations about
what mean? Are you assuming the economy is in steady state, and that
"variations around the mean" are deviations from steady state? Is that
your assumption? I'd have to actually see the econometric model itself
to determine what it's assuming. If the assumption is what I think it is
from what you've told me, then I'd state your assumption is WRONG.
Douglas informed us on several
occasions that the
mechanism was labor displacement.
(reply) No he did not. I've quoted
him a hundred times. It has nothing to do with labour displacement, and
I'll quote from the Monopoly of Credit again:
"This proposition may be generalized as
follows: Where any payment in money appears twice or more in seies
production, then the ultimate price of the product is increased by the amount
of that payment mulitiplied by the number of times of its appearance, without
any equivalent increase of purchasing power.
With this fundamental
proposition in mind we are in a position to take a more generalized view of
the defect in the price system which is cnocerned with the double circuit of
money in industry, and which has become known as the A plus B
theorem. The statment of this is as follows: In any
manufacturing undertaking the payments made may be divided into two
groups: Group A: Payments made to individuals as wages, salaries,
and dividends; Group B: Payments made to other organizations for raw
materials, bank charges, and toher external costs. The rate of
distribution of purchasing power to individuals is represented by A, but since
all payments go into prices, the rate of generation of prices cannot be less
that A plus B. Since A will not purchase A plus B, a proportion 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.
Now the first objection which
is commonly raised to this sttement is that the payments in wages which are
made to the public for intermediate products which the public does not want to
buy and could not use, when added together, make up the necessary sum to
balance the B payments, so that the population can buy all the consumable
products. But an examination of the diagram on page 37 will show
that this is not a satisfactory explanation. If we imagine consumable
products to be produced in five stages, each stage taking one month, a product
begun in January will be finished in May. We can regard the first four
stages as capital production. It is irrelevant that in the
modern world all of these five processes are taking place simultaneously and
that the product may be found in any of the five stages at any moment.
it is still true that you cannot bake bread with corn which you are
simultaneously grinding.
Consider the nature of these B
payments. They are repayments collected from the public of purchasing
power in respect of production not yet delivered to the public. If the
wage earners in process "I" use their current month's, i.e May's, wages to buy
their share fo one current month's production of consumable goods, they are
using their money distributed in respect of production which will not appear
as consumable goods till October. They are in fact involuntarily
reinvesting their money in industry, with the result previously
explained."
Again Bill, there is no mention of
labour displacement, and it's pretty straightforward what Douglas thinks the
problem revolves around, and it's not labour displacement.
[Schroeder] 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.
-------------------
[Ryan in reply] There are some real world
manifestations of processes that exist in the normal
condition of
steady state growth. For example, a
colony of pond scum multiplying
exponentially until
it reaches the limits of the surface of its pond, at
which point equilibrium is obtained. Or, economies
growing
quantitatively rather than qualitatively: at
some point in time twice as
many people, twice as
many houses, twice as many machines, twice as much
land under cultivation--expanding in constant ratio.
Such an
economy will quickly reach its limits to
growth. There are many
historical examples of
economies that reached the point of collapse in
such
a scenario. But in principle there are no limits to
growth
for an economy expanding qualitatively--in
discovery, innovation and
knowledge, allowing
improvement in process to be continuous. In such
economies there is continuous displacement of
resources, including
labor, in terms of the ratio of
inputs to consumable output--that will
concatenate
into perpetuity.
(reply) And what does this
have to do with the price of tea in China?
[Schroeder] If I may use an analogy, it's like
trying to understand Einstein and his theory of
relativity using
Newtonian mechanics.
-------------------
[Ryan in reply] But it's a false analogy.
Relativity
does not repudiate Newtonian mechanics, but refines
it
theoretically.
(reply) And Douglas does not
repudiate all of economics, but "refines it theoretically".
The relativistic transformation
equations for moving
bodies (an adaptation of
Pythagoras' theorem) give exactly the same
results as
Newtonian mechanics when infinity is substituted for
c (the
finite speed of light) in the equations.
(reply) The speed of light is an
absolute upon which space and time are relavite. Infinity itself is not
a number.
You cannot understand understand
Einstein's universe of relativity in Newton's paradigm of the universe.
Yes, Newtons physics explained alot of things, but it could not explain alot
of things either, and Einstein's theories explain things better.
The
matter is purely theoretical: Relativistic
adjustments were not required to go to the moon, or
construct the
atomic bomb. The practical application
is in the domain of
sub-atomic particles spinning at
close to the speed of light, like
electrons traveling
along a wire from the negative to the positive pole
of a battery creating magnetic fields. Or muons
falling from the
sky. Or atomic as opposed to
mechanical clocks. The equations
for that were
already worked out nearly a half-century before
Einstein. Einstein merely adapted them. Whether or
not
they hold true for complete bodies composed of
atoms propelling through
space, as Einstein
conjectured, remains an open question. Count me
among the skeptics, though I do admit the
possibility. Certainly
in terms of practical reality
they are irrelevant at the speeds
encountered in
normal human existence.
-
[Schroeder] But A+B as a theory does not depend on
B
growing relative to A. The simple fact that B exists
makes
prices>income.
-------------------
[Ryan in reply] And you are profoundly mistaken, I
regret to inform you. It is a mistake made by most
social
crediters over the years, as well as their
critics.
-
(reply) I think it is you who are
profoundly mistaken Bill, but it seems we will be going around the mulberry
bush on this issue for some time. I believe you have tried to re-invent
A+B in your own image. And that is why you can't use Douglas' quotes in
regards to A+B to demonstrate your points. And instead rely on all your
own points about Douglas.
Regards,
Jim
Jim <jschroeder@shaw.ca> wrote:
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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