Thank you for the citations to the three books in your concluding paragraph. They are new to me. I'll definitely look them up.
-- <**>Regarding the exogenous-endogenous distinction, unless I missed something, you proposed to add exogenous money through the "national dividend" or "national credit office." Obviously, you cannot add endogenous money. And you deny that this addition will displace endogenous money. Logically, this means that the total amount of money used to buy and sell things will rise. If you want to substitute the term "credit" or "credit money," you may. But the result is the same. There is more of the stuff and people will want to use it to buy things. Other things equal -- that is, if there is no rise in production of goods -- prices would rise (subject to the usual caveats of the quantity theory of money). The program will be inflationary.<**> -------------------- The common sense assumption is that the costs of production (defining them in the way accountants define them not the way economists define them) are equal to A, and correspond to the flow of goods into consumption. So it would seem if you increase A *endogenously* in respect to the flow of goods, that is inflation in terms of prices charged and ultimately paid for the goods. Similarly, if you augment A *exogenously* by printing it and giving it directly to consumers or more typically, government spends it and covers that spending later from taxation or just spends it, that too would result in inflation, by increasing the quantity of money currently being paid for the goods that are being produced, except in this second case firms will record "fictitious" profits, in contrast to the first case where there are merely increasing costs offset proportionately by increasing sales. In this second case the economy is most unstable though brisk. (costs of production = A) is proportional to the flow of goods defines *zero* inflation; costs of production that are increasing in respect to the flow of goods defines inflation that is *positive*. and also: A that is augmented *exogenously* also defines inflation that is *positive*. ---but It is our contention that double entry accounting defines the costs of production as A + B; not merely A, such that the recorded costs of production and the flow of purchasing power to consumers have different determinants that do not automatically coincide. The validity of this contention stands or falls within the manifold of accounting, not pure economics. So, given the validity of that contention - we've gotten nowhere discussing it so for the moment I'll move on in the train of logic - what has to be coordinated is not only the flow of the costs of production with the flow of goods in order to have price stability, but also the flow of purchasing power to consumers. That is to say, there are two ratios, not only one that we must analyze to see the big picture. The ratio of costs to goods; and the ratio of costs to purchasing power flowing into final consumption. They do not automatically coincide. The ratio that Douglas was most concerned with is this: A + B/A with A in both numerator and denominator which defines the coincidence of production and consumption. If the ratio of B is increasing to A, as a matter of pure mathematics, A is falling *exponentially* in respect to the costs of production A + B. This is a conclusion exactly opposite to the common sense view that A must always remain proportional to the accounted for costs of production because they are the same thing. A + B may or may not be increasing proportionately to the flow of goods. That is an entirely different matter that was discussed in *Social Credit* part 2 chapter 2 published in 1924. If, as a matter of policy, the authorities control the situation such that A + B is increasing proportionately to the flow of goods, A must be falling in respect the flow of goods (assuming there is "labor displacement" changing the ratio of B to A with lengthening in the structure of production), preventing consumers from purchasing all of them. But there is zero inflation. All the goods being produced are being sold but at a financial loss to the producers, who respond by decreasing production or scaling back their prospects for future production, scrapping endeavors that do not appear to be profitable. That scaling back is the result of falling financial demand, not real demand. It is an artificial limit on the realization of productive capacity. A quasi-equilibrium may be reached that we might call the condition of the permanently under performing economy. If, however, A is forced up by pressure from organized labor, facilitated by a banker policy of "easy money" or whatever, the ratio A + B/A comes closer but never completely to unity (because A is in both numerator and denominator), closing the "gap" somewhat between prices and purchasing power. Consumers can purchase a greater percentage of the goods being produced at a profit to producers, but at the expense of increasing instability and chaos in the structure of production. Inflation is accelerating. If, however, the "gap" is closed by printing money and giving it directly to consumers as a dividend or whatever you want to call it (exogenous to A as an accounting adjustment) - at the same time keeping A + B proportional to the flow of goods as a matter of policy, price stability can be achieved up to the limit of productive capacity. Bill ---original message--- Date: Thu, 06 Nov 2003 12:23:12 +0800 From: Pat Gunning <[EMAIL PROTECTED]> Subject: Final comment on A + B theorem? Thanks, Bill, I think that I understand enough now to make a brief analysis. I might be persuaded to change my mind upon learning more. But I doubt it. [EMAIL PROTECTED] wrote: ><**>One further question, Bill: Do you expect that >the new money that is used to finance the national >dividend or national credit office, or whatever, will >cause an ultimate increase in consumer goods prices >by raising consumer demand and costs of production? >Have you neglected the time honored quantity theory >of money which holds that, other things equal, an >increase in the quantity of money tends to cause a >nearly equivalent percent increase in consumer goods >prices in the long run?<**> >-------------------- > >We specifically deny the quantity theory of money. >It is meaningful only within the fungible commodity >"medium of exchange" model where money is an >independent variable. That money would be >"exogenous" in Post Keynesian terminology. > >Modern economies are mostly "creditary" or >contractual where prices are determined within the >nexus of contracts where money is financially the >dependent variable of those contracts. > >The process "endogenously" converts - meaning through >market transactions - the individualized credit >instruments of producers into credit instruments that >are generally fungible - checking account money - >which serve as the means of final settlement of >contracts. > >Douglas used the "ticket" metaphor to describe the >process. There is the flow of "prices" (A + B) to >the point of retail in parallel to the flow of goods. >Also in parallel is the flow of "tickets" (A) to >consumers that allow them to claim those goods. The >"tickets" are "fungible," which means they are >redeemable not only at the "company" store but any >store, making the competitive mass production >possible, enabling mass consumption. > >Most credit is therefore "endogenous" to the market >and would remain so with social credit. > >The proposal >is that a certain amount of credit be introduced >"exogenously" (consumers' dividends and retail >discounts that do not displace but supplement the >"endogenous" credit) as an adjustment mechanism >(control variable) to compensate for deficiencies in >accounting. > I suppose that what this really means is that if I accepted the A + B theorem, I would realize that such a question is unthinkable. Since I think the A + B theorem does not provide a sound starting point for economic reasoning, the question seems reasonable to me, however. I can't imagine anyone "denying" the quantity theory of money, since it is a simple logical proposition. One may deny the relevance of the theory but not the theory itself. So you must mean that you believe that the theory is not relevant. Regarding the exogenous-endogeneous distinction, unless I missed something, you proposed to add exogeneous money through the "national dividend" or "national credit office." Obviously, you cannot add endogeneous money. And you deny that this addition will displace endogeneous money. Logically, this means that the total amount of money used to buy and sell things will rise. If you want to substitute the term "credit" or "credit money," you may. But the result is the same. There is more of the stuff and people will want to use it to buy things. Other things equal -- that is, if there is no rise in production of goods -- prices would rise (subject to the usual caveats of the quantity theory of money). The program will be inflationary. If the A + B theorem is as powerful as you claim, then you should be able to use it to show what you claim to be the fallacy of the quantity theory on its own terms. I don't know what else to say at this stage. I have already pointed out, in a more relevant context, that the A + B theorem is not a relevant starting point. What Douglas wanted to do was to discuss finance and credit within the context of producing goods for consumers in a money economy. The proper starting point is to build an image of a barter economy containing farmers who produce all goods for trade without help from others. The next step is to introduce finance, credit, money, and production by firms in one fell swoop. When one approaches the subject in this way, one can easily show that there would be sufficient money, or credit, or whatever to enable people who become consumers to buy the goods produced by the people who become producers. There would be no labor displacement or underconsumption (overproduction). Although such a procedure would not realistically describe the evolution of finance, credit, and production by firms for consumers occurs in every case; it contains all the elements needed to show that it is logically possible for production by firms to occur in a credit economy without a chronic insufficiency of consumer purchasing power. Douglas's claim that insufficiency of purchasing power is a necessary characteristic of a credit economy simply does not stand up to close scrutiny. If you are looking for a reason why there are business cycles (that is, why, at times large numbers of workers are laid off because producers don't believe they can profit by using them to produce goods), the best starting point -- though not the only one -- is the policies of central banks. Central banks try to guide an economy as if they are pilots of a ship. But, as you seem to realize, they can only do so by changing the quantity of money or through direct market intervention. Because money is a veil for real purchasing power, such policies cause disturbances and introduce uncertainty that would otherwise not exist. They also create opportunities for people to gain in financial markets (at the expense of others), thereby diverting resources away from other activities like producing goods for consumers. I am not certain that free competition in banking would be any better. But I am pretty confident that creating another massive government agency to pick and choose who should and should not receive new exogenous money would worsen things from the standpoint of the typical citizen. --- My last comment concerns the term "social credit." There are many writers ( I know mainly of the economists) who have observed that the basic reason for the success of modern capitalism is its credit system. The credit system is built not only on a foundation of contracts, which, in their most sophisticated form require the rule of law. It is also built upon a foundation of personal relationships involving trust and trustworthiness. I spent quite a bit of energy over the years looking both for a recognition of this fact and for good explanations of it. So let me end by recommending three books that I believe represent the best there is on the subject. I would bet that 99% of modern economists would not be aware of these books. 1. Scherman, Harry.(1938) _The Promises Men Live By_ New York: Random House. This, in my view, is the best book for non-economists to read on the subject. I would skip the last chapter, however, where I think Harry goes a bit astray. 2. Taylor, W. G. Langworthy.(1913) _The Credit System_. New York: Macmillan. A very difficult book to read but well worth the patience it takes to deal with Taylor's nuanced use of language. 3. Davenport, H. (1914) _Economics of Enterprise_. New York: Macmillan. Sound economic thinking not only about credit but about all aspects of a capitalist economy. Davenport wrote several books and numerous articles. You can find selected quotations and interpretations of the latter two books at the following internet address: http://www.constitution.org/pd/gunning/welcsubj.htm#Selected_Quotations -- 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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