Joe, if, and only if, the tractor was purchased through new credits, not savings, the investment in its purchase put new money into circulation.
That has absolutely nothing whatever to do with the costing of its purchase into prices later, which process raises costs, not purchasing power.
Regards.
John R.
From: thomsonhiyu@shaw.ca
To: socialcredit@elistas.com
Date: Wed, 25 Mar 2009 08:32:49 -0800
Subject: Re: [socialcredit] Re: depreciation
(John Rawson wrote:-) (from Bill Ryan) "... the gap is eliminated by the process of depreciation." Depreciation charges are not part of the cost of general production? They are in my case, and I don't see how this becomes reversed when put into the economy as a whole.
(Joe replies:-) Let's say you buy a new tractor for your farm. Whether you pay for it from 'savings' or from 'borrowing' we'll leave aside for the moment. The tractor costs you $ 10,000, say. And we'll say you expect it will last 10 years. You're going to run it until the wheels fall off.
You don't recover the FULL cost of the tractor in the year you've purchased it.
You can't raise the price of your tropicals that much, your competitors will undersell you. Nor does it allow you to produce that many more of them to put on the market in that year to get the full $ 10,000 you've spent back. In that year.
So you 'expense' the tractor over it's expected lifespan. To do so you have to recover $ 1,000 per year in depreciation costs from the sale of your tropicals over each of the next 10 years.
Now however you have paid for the tractor, whether from 'savings', or from 'borrowing', you have spent
$ 10,000 into the economy in 'costs' the year you purchased the tractor. That's "economic expansion", is it not? The purchase of the tractor is going to hopefully allow you to improve your business.
But you are only going to have to recover $ 1,000 of that in 'prices' in that year to cover your 'depreciation'. And every other year, for the next 9 years.
Now do you see how 'depreciation' allowances INCREASE purchasing power in a period (the year you bought the tractor, in this case) of economic expansion? Expand that to the WHOLE economy in a period, probably extending over several years, of economic expansion. More is being spent in total 'costs' than is simultaneously being recovered in 'prices', yet through accounting conventions Firms can still book profits.
Regards,
Joe
----- Original Message -----
Sent: Tuesday, March 24, 2009 12:24 PM
Subject: RE: [socialcredit] Re: depreciation
Thanks Bill.
I think it is reasonable to deal in normal English rather then accounting jargon.
However, yes, I was imprecise. Under true old capitalism, with capital created out of savings, items paid for by that method would tend to cause a "gap". However, they would do it by reducing purchasing power paid out rather than increasing the price of goods.
"... the gap is eliminated by the process of depreciation." Depreciation charges are not part of the cost of general production? They are in my case, and I don't see how this becomes reversed when put into the economy as a whole.
Regards.
John R.
> Date: Tue, 24 Mar 2009 07:36:30 -0700
> From: william_b_ryan@yahoo.com
> To: socialcredit@elistas.com
> Subject: [socialcredit] Re: depreciation
>
>
> "...instead of the cost of a new machine being costed (by saving method) into prices in one year, it is spread of over succeeding ones. It is still the cause of a potential "gap". I fail to see how something that causes it can reduce it in any year."
> -----------------------------------------------------
> ------------------------------------------------------
>
> I don't know what the "saving method" is. It's not a term from accounting. How is it the cause of a potential gap? If the new machine is not depreciated but expensed immediately, there is indeed a gap between disbursements and receipts in an expanding economy. Cash flow accounting would report a continuous loss. By delaying the expensing of the disbursement utilized to purchase the machine, it is expensed against future income that is prospectively greater than today's disbursements. So the gap is eliminated through the process of depreciation. And it isn't entirely through depreciation, although depreciation is the larger part of it. Dividends are never expensed. The purchase of land is never expensed, although there are capital gains and losses when it is sold.
>
> --------------------original message------------------
>
> Subject: RE: [socialcredit] depreciation
> Date: Sunday, March 22, 2009 07:50:04 (+0000) From: John G Rawson <johngrawson @.......com>
> In reply to: Message 6471 (written by william_b_ryan)
>
> Thanks, Bill. I don't see where I am confused when your major paragraphs tell me exactly what I understand. To cut the bull out of it, instead of the cost of a new machine being costed (by saving method) into prices in one year, it is spread of over succeeding ones. It is still the cause of a potential "gap". I fail to see how something that causes it can reduce it in any year. The only way it could do that would be by injecting purchasing power in some way, and any such effect must be secondary to the main process. Diagrams or not, how this can directly reduce the gap in any year is beyond me. And if you can not explain it without them, I believe they must be "loaded", to say the least.
> Regards.
> John R.
>
> Date: Sat, 21 Mar 2009 14:36:03 -0700
> From: william_b_ryan@yahoo.com
> To: socialcredit@elistas.com
> Subject: [socialcredit] depreciation
>
> "...tell me how depreciation allowances can inject purchasing power into the economy except through saving taxation, therefore increasing profit to make dividends possible."
> --------------------------------------------------------
> ---------------------------------------------------------
>
> You're simply confused as to what depreciation is and what depreciation does.
>
> Depreciation is the delaying of the expensing of a disbursement. At some point in time a disbursement is made; at a later point in time the disbursement is expensed. Usually it is expensed over a series of points in time through a schedule. The theory being that an asset purchased becomes an expense only as the asset wears out through time. The effect for the economy as a whole, where there are many firms depreciating assets, is that the disbursements curve for the economy as a whole is delayed through time in becoming the expense curve that is charged against the sales curve into final consumption.
>
> Actual disbursements are delayed before they reflux back into sales. Think of a pipeline that contains a volume within the pipeline that is analogous to account balances. The input into the pipeline is analogous to disbursements; the output is analogous to the reflux into sales. It takes time for any molecule entering the pipeline to traverse the pipeline and exit. This is true whether the rate of input is increasing, decreasing, or remaining constant. This is an actual physical delay. The delay caused by depreciation, on the other hand, is dependent on the rules and conventions of accounting, which are quite arbitrary.
>
> I refer you once again to the two attached drawings, one in PDF, the other in GIF.
>
> They are stylized with straight lines, indicating quasi-steady state, where everything is changing, but everything is changing proportionately to everything else.
>
> Look at where the curves are sloping upward. This would be during a period of normal expansion. The disbursements curve leads the receipts curve. The differential between the curves indicates accumulation into account balances. The receipts curve is the disbursements curve delayed in time. For the purposes of this illustration the delay is assumed to be constant.
>
> Also notice that at any point in time, the rate of disbursements is always exceeding the simultaneous rate of receipts. That is to say there is always a negative cash flow on the part of the firms.
>
> This would seem to indicate a "gap" between "prices" and "purchasing power" if that were all there was to it.
>
> But double entry accounting delays the disbursements curve more than the corresponding physical delay, such that it when it is expensed against sales, sales is greater than expense. This yields a positive rate of profit according to the rules and conventions of accounting.
>
> Note that during the period of expansion, firms have a negative cash flow, but a positive rate of profit. During the period of expansion, account balances are accumulating.
>
> During the period of contraction, firms have a positive cash flow, but a negative rate of profit. During the period of contraction, account balances are depleting.
>
> So during the period of expansion, because of the delay in expensing caused by depreciation, there is no actual "gap" between "prices" and "purchasing power."
>
> During the period of contraction, again caused by depreciation, there is indeed a "gap" between "prices" and "purchasing power."
>
> The A + B theorem itself relates to something different than this actual "gap" during the period of contraction. It relates to the continuous fall in the rate of profit that results from labor displacement, which operates equally during periods of expansion, stasis, and contraction. The fall is the result of a flow in double entry accounting that reports a falling rate of profit even though productive capacity is increasing, and real demand remains to be satiated. If anything, double entry accounting should ideally be reporting an increasing rate of profit. The flaw reports misinformation to the entrepreneurs and their financiers causing them to be always pulling back from existing projects, and shifting their resources into newer projects, that has nothing to do with actual changes in physical conditions or real demand. This misinformation is very wasteful of productive capacity.
>
> Social Credit is about applying macroeconomic accounting adjustments to correct for this flaw. The desired result is truth in accounting. It is analogous to applying leap year adjustments to the calendar to adjust for the fact that the Earth does not rotate about the Sun in exactly 365 days.
>
>
> ----------------original message---------------------
>
> Subject: RE: [socialcredit] Time and Social Credit--replying to Rawson
> Date: Saturday, March 7, 2009 21:35:20 (+0000) From: John G Rawson <johngrawson @.......com>
> In reply to: Message 6402 (written by Joe Thomson)
>
> Joe, I think I know all that. But tell me how depreciation allowances can inject purchasing power into the economy except through saving taxation, therefore increasing profit to make dividends possible. And please, stop using "macroeconomy" as a magic word that excuses illogic. It means the total economy, which is what Social Credit studies all the time. I have never got away from it; I don't think any other correspondents have either.
> Regards.
> John R.
>
>
>
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