Re: [SOCIAL CREDIT] National dividend?

["William B. Ryan" <william_b_ryan@xxxxxxxxx>]

First, many thanks to Professor Gunning for this
interesting discussion.  I hope he will indulge us
for a bit longer, for I would like to clarify a few
additional matters.

For those who are interested, I've archived some
background material at
http://istorage.iomega.com/

Login:  socialcredit
Password:  creditsocial

I will leave this password current through Sunday.

Open the folder "gunningthread."

There you will see the Northridge document, as well
as some pages from a near contemporaneous Hayek paper
that was included in his book, *Prices and
Production*, and some pages from Gary North's 1993
anti-social credit polemic, *Salvation through
Inflation*.  North is a prominent "Austrian" with a
Ph.D. in economics though he is in a non-academic
position.
--

Some of the professor's comments may seem bewildering
to those of us more familiar with standard economic
terminology.  The bewildering aspect derives from the
peculiar jargon of his "Austrian" background.
However, it's mostly a difference in emphasis and
language.  All-in-all, it doesn't really differ too
much from what we would call nineteenth century neo-
classicism or marginalism.  The "Austrians" are what
the followers of Mises and Hayek call themselves.
They call their method "praxeology" spelled with an
"e," not an "i."
--

This is a typical "Austrian" statement:

<**>The proper starting point for considering the
effects of a firm's existence is an imaginary
economic equilibrium with no firm.<**>

The fallacy here that underlies their entire
methodology (as opposed to our methodology) is that
it ignores the scientific concept of dynamic process.
The question I should put to the generic praxeologist
is this:  Which came first, the chicken or the egg?
The practitioner of the scientific method would
answer, "Neither, for life is a continuum that is an
evolving dynamic process."

Conceptually, a dynamic process has no beginning or
end.  It is continuous, though historically there may
in fact have been a beginning and may well at some
point end.  God may well have said something like,
"Zap, here is an elephant" and from then on there
were elephants.  That is purely a matter of fact from
the historical past, not the logical past.  There is
no contradiction so long as we realize they both
might be perspectives of the same reality--one
poetic--one material.  Both can be simultaneously
true on their own terms.  I am quite aware that
"praxeology" rejects such "positivism."

It is not scientific to arbitrarily choose any single
element from a dynamic process as a starting point,
for that starting point becomes the axiom to the
exclusion of everything else that determines the
conclusion.  You can come to an infinite number of
conclusions by assuming an infinite number of
starting points.  The scientific approach is to
relate the elements statistically against time, so
that every observable process becomes the function of
their singular commonality, time.  Time is the one
reality that ties everything in the ponderable world
together, and makes them comprehensible.

Therefore, there are no employment functions; there
are no meaningful production functions.  And there
are no functions of functions, like the "bastard"
Keynesian ISLM, that are meaningful in the scientific
sense, because time is abstracted from their
equation.
--

The corollary to the above statement is this:

<**>I have no idea what you mean by a consuming
sector or a banking sector.  There are consumers and
there are bankers.<**>

Translation:  "I have no idea what you mean by a
forest.  There are trees and there are bushes and
there are weeds."  Which ignores the reality there
are also birds and insects and animals bordering the
homes of human families--tens of thousands of them--
and fires that occur in devastating effect only in
the reality we call forests, that can consume them
all.
--

Having made these general points, let me address more
specifically some of the professor's earlier
comments:

<**>You seem to be saying that an increase in saving
relative to consuming would cause a deepening of the
structure of production.<**>

That would assume that saving is a cause.  It is true
that there is saving, investment, development,
production and consumption.  They are elements of a
continuous dynamic process that is creditary, not
monetary.  That is to say it is contractual in that it
contemplates future performance.  No one element can
be considered to the "cause" of any other.  Human
beings may intervene at any point to achieve what
they want to achieve.  That intervention becomes the
cause of the change.
--

<**>More resources would be devoted to the production
of capital goods and less to the production of
consumer goods.<**>

Implicit is the false assumption that there is no
improvement to process, discovery or innovation and
there is only a fixed quantity of resources available
for exploitation.

Let me give you a just two dramatic examples of
technological innovation that enabled the structure
of production to be lengthened without diversion from
existing resource utilization. Three field crop
rotation, which effectively increased the quantity of
arable land by leaving only a third of it fallow, as
opposed to two field rotation, which always left half
of it fallow.  The horse harness, which enabled the
man behind the plow to cultivate twice as much land
per day than was possible behind an ox.

Neither had anything to do with "prior" saving in any
real sense.  Both were introduced after the fall of
Rome, during the so-called Middle Ages before the
development of the scientific method and Industrial
Revolution, which accelerated the process.
--

<**>The term "purchasing power," however, is
confusing here. <**>

Tickets against mass production enabling consumption
as a matter of generalized contract, rather than
money as medium of exchange between atomized
producer/consumers.
--

<**> I agree that if people decide to consume less
and save more, producers will respond by producing
fewer consumer goods and more capital goods than
otherwise. <**>

What actually happens by that decision is that there
may well be collapse of production of all types, so
there is no agreement here whatsoever.  People should
indeed have the right to save.  The financial system
shouldn't penalize them as it now does.  This is what
Douglas said in 1925:

"If I have an income of £500 per annum and I save, as
the phrase goes, £100 per annum of this sum, either
by the simple process of putting it in a bank, or by
the investment of it in an insurance policy, I
decrease my expenditure by 20 per cent., and I
certainly provide myself with money for use at some
future time.  But there is no physical saving
corresponding to this money saving.  In fact, owing
to the interconnection of the financial system with
the producing system, there is probably an actual
destruction of wealth due to the fact that I do not
spend the whole of my income.  More goods would have
been drawn from the shops, more orders would have
been given to the manufacturers to replace those
goods, and consequently a real ability to produce
more goods per unit of time would have been created,
probably by an extension of manufacturing facilities,
had I spent my income.  But if I save my money, only
one of two things can possibly happen in the world of
actualities: either goods which have been produced
will not be bought and will therefore be wasted, or
in anticipation of the fact that I should not buy
them they will never have been produced..."

C. H. Douglas, *Warning Democracy: Addresses and
Articles, 1920-1931*, (London: C. M. Grieve, 1931),
pp. 56-57.
--

<**>I can think of no reason why "labor," in the
usual definition, would be demanded less as a result
of a shift from consumer goods production to capital
goods production. <**>

All production is production for consumption, and is
charged against sales into final consumption as a
matter of accounting.  There is not a meaningful
dichotomy between consumer goods production and
capital goods production.  There is no trade-off
between one and the other.  Labor and resources are
not shifted from one to the other.  It isn't so much
that labor is being "demanded" less but is being
decreasingly compensated in respect to the accounted
for costs of production they are expected to pay.
--

<**>Second, the class of consumers includes not only
people who supply "labor" but also recipients of
interest income, rents, and profit.<**>

The theorem defines "A" as being "salaries, wages and
dividends" actually being paid by firms to consumers.
But how do you define "profit" including "interest"
and "rent" paid to firms?  It might surprise you to
learn that it has no objective reality apart from the
definitions of accounting.  It represents operational
accrual to the statistical firm's equity account, not
its cash account.  As a matter of accounting, profit
in its totality does indeed enter costs that must be
recovered through sales into final consumption.
There is no necessary correspondence to dividends
that firms pay to people.  Typically, management
regards dividends as a kind of tax that they have to
pay to keep the shareholders off their backs.  They
pay the least amount they can get away with.  The
problem wouldn't be solved even if they tried to pay
it all, because they couldn't, even if they tried.
The viability of the firm is degraded to the extent
they succeed.  Forcing them to do so is like throwing
a monkey wrench into the mechanism of the market.
--

<**>Where does the money come from? The simple
answer, assuming that it is not financed by
newly-created money, is past money savings.<**>

Only in hypothetical steady state.
--

<**>In a system where production takes time, that
means that the wages and salary incomes of today come
from money that was saved yesterday, not from the
sale of today's product.<**>

There is no necessary connection between today's
incomes and yesterday's savings.  Nor is there
necessary connection between today's spending and
yesterday's income.  Indeed, there cannot be if there
is to be market based growth.  The reason for this is
very simple:  It is impossible to construct an
accounting system that accommodates a fixed quantity
of money in an economy that is growing.  If the value
of that fixed quantity of money in respect of real
production is automatically increasing, then why
invest the money in productive enterprise?   Just
hold on to it and it will increase in value and you
can live off its proceeds as if by magic.  It is the
very definition of usury.  That is to say, a falling
price level is incompatible with free enterprise.
The mass production market economy did not become
possible until the invention of fractional reserve
banking and other modern creditary institutions.  We
spend from our current incomes, our savings from past
incomes, and our credit.  This describes the stream
of increasing spending:

"The totality of bank deposits plus currency, M3, is
approximately 10% greater than bank credit, C1. M3 -
C1 devolves from Fed open market operations funding a
portion of government spending, and the small
residual from the era of gold and silver
monetization, and greenbacks. Checking deposits plus
currency, M1, is approximately 20% of M3. M1 derives
from the composite of Fed open market operations and
bank credit expansion. M3 - M1 devolves in the first
instance from M1.  M3 - M1 constitutes a revolving
fund of finance that is a continuing source of
loanable funds. Loanable funds in the aggregate
derive from the composite of bank credit expansion
and the revolving M3 - M1. In a growing economy, M3 -
M1 is an expanding nodality with inputs that exceed
outputs. But the outputs are funds that are being
invested or spent. The stream of increasing spending
is therefore financed by bank credit expansion, Fed
open market operations, and disbursements from M3 -
M1."
--

This is submitted so that we might know each other
better.  I invite Professor Gunning to reply.

Bill Ryan



--------- Original Message ---------

DATE: Fri, 31 Oct 2003 10:40:12
From: Pat Gunning <gunning@xxxxxxxxxx>
To: socialcredit@xxxxxxxxxx
Cc:

>william_b_ryan@xxxxxxxxx wrote:
>
>>In continuing reply to Pat Gunning:
>>
>><*>Here is one specific comment to elaborate on my
>>last post. All of the materials you have transmitted
>>to me about social credit theory refer to "the rate
>>of flow of prices" and "the rate of flow of
>>purchasing power." They claim that the rate of flow
>>of purchasing power from firms to consumers will
>>ordinarily be lower than the rate of flow of prices
>>of consumer goods. More simply, they claim that
>>consumers will not earn enough money to buy the
>>consumer goods that producers produce at the prices
>>they charge. The result -- underconsumption...<*>
>>--------------------
>>
>>This is not "underconsumption," strictly speaking.
>>Underconsumption theories generally have it that, for
>>some reason or another, consumers don't spend all of
>>their income.  Douglas's theory has it that consumer
>>incomes are themselves falling in respect to the
>>costs of production.  Crude interpretations of the
>>theorem, such as from "binary economist" Louis Kelso
>>(who vainly claimed originality while demonstrating
>>his ignorance), would require firms to "fully" pay
>>out "profits" through dividends--closing the "gap."
>>That is fully analogous to Silvio Gesell's fallacious
>>theory that consumers should be induced to spend
>>their money by taxing money or monetary deposits,
>>making it something of a hot potato that you can't
>>hold on to, increasing it's "velocity."
>>
>>
>Bill, although I do not agree that this is a problem, let us move on.
>What proposal do you suggest in order to deal with the problem of
>falling consumer incomes, assuming that you believe that this is in fact
>a characteristic of U.S. capitalism?
>
>>--
>>
>><*>...To show why this is so, they build a model of a
>>single firm that is a going concern. In this model,
>>money flows from the firm to consumers in the form of
>>incomes and to other resource suppliers...<*>
>>--------------------
>>
>>That is missing the forest for the trees.  It is not
>>a model of a single firm but the firms sector in
>>respect to the consuming sector and the banking
>>sector.
>>
>>
>I'm not much of a woodsman, William. The principle I described is not
>dependent on the assumption that they model a single firm as opposed to
>a group of firms. However, it seems to me that this is what you have
>done and what Douglas did, probably in order to simplify the
>presentation of your theories.
>
>In any case, I have no idea what you mean by a consuming sector or a
>banking sector. There are consumers and there are bankers. In most
>economic models, or images, of an economy, economists create these roles
>in order to help us elucidate functions. What purpose does it serve to
>call them "sectors?"
>
>--
>Pat Gunning, Feng Chia University, Taiwan;
>Web pages on Praxeological Economics, Democracy, Taiwan, Ludwig von Mises, Austrian
>Economics, and my University Classes;
>http://www.constitution.org/pd/gunning/welcome.htm
>and
>http://knight.fcu.edu.tw/~gunning/welcome.htm



____________________________________________________________
FREE ADHD DVD or CD-Rom (your choice) - click here!
http://ad.doubleclick.net/clk;6413623;3807821;f?http://mocda2.com/1/c/563632/131726/311392/311392
AOL users go here: http://ad.doubleclick.net/clk;6413623;3807821;f?http://mocda2.com/1/c/563632/131726/311392/311392
This offer applies to U.S. Residents Only