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 <[EMAIL PROTECTED]> To: [EMAIL PROTECTED] Cc: >[EMAIL PROTECTED] 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 --^---------------------------------------------------------------- This email was sent to: [EMAIL PROTECTED] EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. 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