If not all the income is distributed, then that is net savings, and of course if there is net savings there is a need to finance the shortfall in order to maintain the same level of income. But if all wages, salaries and profits were distributed, they would be adequate to meet the prices that have been generated in the same period. ------------------------------
This points to the difference between the Douglas and Keynes approaches to analysis. Douglas aggregates salaries, wages and dividends. Keynes aggregates salaries, wages and profits. The following exchange between Douglas and Keyenes is from the Macmillan Committee hearings of 1930: Mr. Keynes: "Do you mean that the receipts of capital are greater than the amount it pays out in dividends?" Major Douglas: "Yes; that is an obvious statement of fact; the accounts of any company will show that." Professor Gregory: "What happens to the difference?" Major Douglas: "It is represented by the fixed assets in the company which it cannot distribute in the form of money." Douglas' observation is this: Salaries, wages and dividends are spendable purchasing power. Profit is an intangible deriving from the arbitrary assumptions of double entry accounting. It is not possible to distribute profit in its entirety because profit is not in the form of money. Firms maintain profit accounts and cash accounts. They are not the same thing. Douglas' further observation is this: Assets are charged into the product through depreciation, also deriving from the arbitrary definitions of double entry accounting. The conclusion is this: The expense curve from double entry accounting has different determinates than does the spendable income curve. In steady state, of course, that's not a problem--they increase in perfect tandem. But the real world is not steady state; there is continuous labor displacement, in which case the expense and income curves necessarily diverge. Moreover, if there is at some point overt credit contraction, that reduces the nominal value of current costs but does nothing to mitigate past costs, which are charged into current production, making bankruptcy inevitable. -- On Tue, 18 Feb 2003 21:04:13 Dr. Bruce R. McFarling wrote: >At 02:46 PM 18/02/03 +1000, Victor Bridger wrote: > >>Dr. Bruce R. McFarling says further: >>"Keynes argues that the income generated by effective demand is equal to >>that effective demand, but that only a portion of income finances effective >>demand, so that the shortfall that must be made up comes from the gap >>between income and effective demand" > >>V.B. I find this putting the cart before the horse. Effective demand can >>only be exercised if there is sufficient income. It is the income that comes >>first, not the effective demand. The shortfall that must be made up is not >>between income and effective demand, but between income and the prices that >>have to be met. If income equals price then there is effective demand. > >Well, no, in a monetary-production economy there is no difficulty in >generating effective demand that does not arise from income. And >it is an obvious observation that the effective demand that does arise >from income is not equal to that income, and without effective demand >financed by other means, there would be a shortfall. Only an extended >period of training in mainstream economics could blind someone to >that basis fact. > >The conflict between the Social Credit reasoning and the General >Theory reasoning, as nearly as I can tell, regards explaining that >shortfall. Since they do not disagree on the existence of that >shortfall in the real monetary-production economy, I came up with >an artificial scenario where it appeared that they would disagree, >to probe the difference. > >>Dr. Bruce R. McFarling wrote: > >>"That is, Douglas argues that there is necessarily a shortfall >>of income to provide the effective demand to maintain that income" > >>VB. It would be more correct to say that there is necessarily a >>shortfall in purchasing power that has been distributed as income >>in the form of wages, salaries and dividends, to meet the PRICES >>that have been generated in the same period as the income >>distributed. > >If not all the income is distributed, then that is net savings, >and of course if there is net savings there is a need to finance >the shortfall in order to maintain the same level of income. >But if all wages, salaries and profits were distributed, they >would be adequate to meet the prices that have been generated >in the same period. > >And discrepency in terms of timing ... "A is selling product >today, the last day of the period, and there is not enough >time to distribute the profit that will result, so where does >the effective demand come from that will pay the price" ... > >Well, suppose that it is available somehow. On the argument, >that profit will be distributed in the next period. Well >then, there we have it ... it came from the equivalent profit >that was generated in the previous period and distributed in >this. An short term finance, including a stock of purchasing >power that is drawn on and then refunded, solves the problem >for a static economy. It is only in the case of growth that >longer term finance, government spending, or export income >is required to provide the new increment in effective demand >that will then generate an equal amount of income. > >>This may sound like a play on words but it is important that the >>correct meaning is applied. Contrary to the suggestion that "as >>I am reading Douglas, under his argument such a dynamic stasis >>will wind down of its own accord, incomes progressively being >>too small to refund costs of production, requiring production to >>be shut down and prices to drop, cutting income, and so on down >>in a death spiral", Douglas' solutions would offer precisely >>the opposite. > >In the quote, I am strictly referring to Douglas' critique of >the system, not the reform that Douglas proposes to resolve >the problem he argues exists with the system. > _____________________________________________________________ Get 25MB, POP3, Spam Filtering with LYCOS MAIL PLUS for $19.95/year. http://login.mail.lycos.com/brandPage.shtml?pageId=plus&ref=lmtplus ==^================================================================ 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. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^================================================================
