Re: National dividend?

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

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."
--

<*>...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.
--

<*>...It is implicit that only money available to
firms to pay consumers and resource suppliers is the
past or concurrent sales revenue of the firm...<*>
--------------------

The focus is the firms sector as a sector, not
individual firms.  The theorem is in the logical form
of reductio ad absurdum.  It does start with that
assumption for the economy as a whole conceptually as
a closed system, which leads to the contradiction--A
does not equal A+B--thereby demonstrating that the
assumption cannot be correct.
--

<*>...The first decision that must be made by someone
who envisions earning profit from production and sale
of goods by means of a firm is how to cause output to
be produced. More accurately, the first decision
concerns raising the money needed to finance the
purchase of raw materials, machines, work, and so on.
This money is part of the flow...<*>
--------------------

To the individual firm, that is correct.  But social
credit theory uses the concept of the "statistical
firm."  Unlike any specific actual individual firm,
the statistical firm behaves like the firms sector as
a whole.  The whole is not necessarily equal to the
sum of its parts, so the statistical firm does not
necessarily behave like the mean of individual firms.
--

<*>...All of the social credit models I have seen up
to now disregard the money that comes into the firm
as a result of this decision about finance...<*>
--------------------

Referring to the statistical firm, not necessarily
the individual firm, there is the element of
*credit*, which means the entrepreneur can spend from
something other than his current income or past
savings.  The specific individual entrepreneur may or
may not have access to credit.  Those savings can be
the entrepreneur's own, or from his stockholders or
investors.  Credit may be granted directly by
suppliers or indirectly through banks to those deemed
"credit worthy" respectively by suppliers and banks.
Incidentally, it is not possible to understand the
concept of credit without understanding double entry
accounting.  They are intimately related.
--

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

DATE: Thu, 30 Oct 2003 12:12:33
From: Pat Gunning <gunning@xxxxxxxxxx>
To: socialcredit@xxxxxxxxxx
Cc:

>Gentlemen, I have read the materials you sent and your posts. I regard
>them as obscure. I have an open mind, but they do not, I'm afraid, get
>to core issues.
>
>The most basic issue is this: What is the problem you are aiming to
>solve? What do you think is wrong that needs to be fixed. If you can
>answer these questions in plain English, perhaps we can make some
>headway. The second issue is: what means do you propose to solve the
>problem? The third issue is: is there some reasonable probability that
>these means will indeed solve the problem you say exists?
>
> [Let me try to answer the first question for you: the problem, as you
>see it, is underconsumption (or overproduction). But does such a problem
>exist in general? Is it chronic? Underconsumption theories have a long
>history in economic thought. The errors made by non-economists in
>thinking about this issue, and even by some major writers like Marx and
>Keynes, are well known and have been exposed in the literature. In any
>case, if you wish to get to the core issue, this is the place to begin
>-- namely, with the hypothesis that there will be underconsumption. The
>A + B theory is an inadequate tool to prove chronic underconsumption, as
>I point out below.]
>
>You are criticizing economics and economists without defining these
>terms or referring to economist's goals. To me, this is anti-rational.
>It is not reasoned argument; it is more akin to propaganda.
>
>
>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. 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. It is implicit that only money available to
>firms to pay consumers and resource suppliers is the past or concurrent
>sales revenue of the firm.
>
>If one aims to generalize about the economy "as a whole," this is the
>wrong way to go about it. One must begin with a system that contains no
>firms in order to understand all of the decisions that are required by a
>firm's manager.
>
>The first decision that must be made by someone who envisions earning
>profit from production and sale of goods by means of a firm is how to
>cause output to be produced. More accurately, the first decision
>concerns raising the money needed to finance the purchase of raw
>materials, machines, work, and so on. This money is part of the flow.
>All of the social credit models I have seen up to now disregard the
>money that comes into the firm as a result of this decision about
>finance. For this reason (and others that I will not discuss here), the
>methodology is flawed. Simply put, to use the A + B theorem to deduce
>underconsumption in an economy is like using a hammer to saw wood.
>
>--
>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



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