Re: Frank Ramsey

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

This is how Young put it as quoted by Ramsey:

*Ultimate goods...will be sold at less than cost, at
the same fraction of cost (which is to include all
dividends and bonuses) as the Total Consumption of
all Commodities bears to the Total Production of Real
Credit over a selected period of time.  By this
method, prices today would be reduced to about
quarter total cost...*
http://www.geocities.com/socredus/ramsey/

The first sentence is straight from Douglas and I
have no problem with it whatsoever.  The second
represents Young's confused interpretation.  Ramsey
further confused the matter with squiggly lines in
the guise of mathematical formulae that were
unintelligible to economists of the time.  Calculus
was not part of their curriculum.  Economists who did
know calculus were too lazy to work through the
argument or the counter-argument from Douglas.  They
therefore took on "faith" that Douglas was
"disproved."

Goods today are already sold below cost in the sense
Douglas used the term.  What he proposed was
rationalization of the process.  I refer you to the
appended diagram also archived at
http://www.geocities.com/socredus/compendium/costs-flow.gif
which is the conceptual model of cost accounting as I
am confident Douglas understood it.  R is the point
of retail; M represents accumulating account balances
in the firms sector; C represents accumulating
balances in the consumers sector.

In steady state B equals A2 so costs must equal the
flow of purchasing power to final consumers.  Steady
state is the implied premise of most of the
"disproofs."

Quasi steady state is the hypothetical condition that
allows for dynamic change but where every parameter
including population is remaining in constant ratio
with each other parameter through time.  If there is
expansion - B must be greater than A2 but in constant
ratio to A2 and A1, so costs must exceed the flow of
purchasing power measured instantaneously.  Pure cash
flow accounting in such a condition would report a
negative rate of profit whereas in real (economic)
terms the rate of profit would be zero.  Double entry
(accrual) accounting handles the dilemma by delaying
the *expensing* of costs against sales (through
depreciation, etc.) so that they become expensed
against future sales that are prospectively greater
than sales today.  Goods and services today and
tomorrow are therefore sold below cost.  This yields
a positive rate of accounting profit which translates
into a zero rate of economic profit.  Accounting in
such a situation reports a constant rate in terms of
dollars per unit time against an increasing quantity
of capital.  In the "fullness of time" the rate is
zero (as understood through the concepts of calculus)
in respect of capital.  In this special condition
accounting theory and economic theory would seem to
coincide.

But if there is to be economic (real or
entrepreneurial) profit there must be parametric
shift such that there is "labor displacement" or
"lengthening" in the structure of production with
introduction of improving technology and better
organization.  In terms of the Douglas theorem this
would be reflected in an increasing ratio of B to A2
and also A1+B to A1+A2, such that the ratio of costs
to purchasing power being disbursed is increasing
(the ratio of purchasing power to costs is
decreasing).  This would report a falling rate of
accounting profit whereas the real (economic) rate of
profit is constant or increasing - reductio ad
absurdum.  There is no resolution to this dilemma
conceivable (at any rate I can't conceive of what it
would be) at the level of individual firms.  The
delay in the expensing of costs against sales is
approaching a limit (say, ten years or thirty years
or whatever it might be) whereas continuous labor
displacement would require continuously and
proportionately increasing delay in perpetuity.  The
period of depreciation for example would have to be
increasing continuously.

Douglas proposed to apply accounting adjustment at
the level of the macro-economy - through rationally
applied mechanisms like the dividend and discount.

This would greatly increase the utility of markets as
compared to the alternative.  Entrepreneurs and their
financiers would be receiving better information from
their accountants so they may better serve the real
demand of consumers.
-


---original message---
Date:  Wed, 31 Mar 2004 15:19:07 +0200
From:  sutton@xxxxxxxxxxxxxx
Subject:  Re: [SOCIAL CREDIT] Fwd: Frank Ramsey and
the A+B Theorem

Walter writes in his e-mail to you: In other words,
he proceeds as if he wants to rescue the Douglas
Proposal by attempting to determine mathematically
"the ratio, which selling price must bear to cost
price if the purchasing power distributed is to be
capable of buying all consumable goods" - a ratio,
which according to Douglas' theory, must be less than
unity.

A question to you: At the point of retail, what
constitutes 'cost price'? I assume it must be
everything EXCEPT retailer's after-tax-profit margin?
In that case would Price Compensation that is exactly
equal to retailer's profit not always result in a 1:1
ratio? In our case, we would also have to compensate
for (ie., remove) VAT at 14% which eats into
purchasing power.

But, if 'cost price' means something else, then
conceivably a higher level of Compensation would
result in a ratio of less than unity -- ie., more
real demand than Price?

Jessop.
-


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