Appended below is Vic's post from earlier today that came garbled through the Topica server.
I will be responding more fully in the coming days as we proceed in this project to understand Douglas.
Vic writes:
->I suggest that your model in which you state, 'So if R includes interest, which it most certainly will, L includes not only principal but the disbursement of financial sector expenses, such that the expenses disbursed by the financial sector to the rest of the economy exactly equals the receipt of interest-- ALWAYS', is contrary to what Douglas stipulated. It appears to me, and I could be wrong, to resemble Keynes theory of equilibrium which is demonstrably wrong. <-
It is an analytical model that derives from Douglas' theory of the double circuit. Incidentally, Douglas was, among other things, an electrical engineer. The term "double circuit" derives from telegraphic circuit theory.
We start with a "steady state" condition where there is no net saving, profit nor interest. Spending from account balances exactly equals input to account balances considered as rates that are instantaneously measured. Even though interest is collected it is exactly balanced by spending from interest income. Profit is collected but it is exactly balanced by dividend payments. Some are saving but that saving is exactly balanced by the spending from the savings of others, etc.
We next adjust the model so it reflects growth that is steady state, the postulated condition that is sometimes termed quasi-steady state by economists. It becomes apparent that L always exceeds R and W always exceeds P, yet firms continue to book profits, consumers continue to save, and bankers book net interest income--yet each of them are always disbursing more than they are receiving in terms of cash flow. The answer to the paradox introduces us to the concept of credit.
Finally, we adjust the model so it more accurately resembles the real world by introducing to it the condition of labor displacement--and examine the results.
Step by step we thereby reconstruct the Douglas thought process. --
P.S. As used here, steady state is simply postulated for the purposes of analysis. Economists tend to use the term "equilibrium" to represent a real (though in reality non-existent) phenomenon. To physicists, equilibrium is a condition in which a system will tend to stay until it is altered by the interjection of some extraneous force. *Stable* equilibrium is where the system will return to its initial condition once the extraneous force is removed. *Unstable* equilibrium is where the system will continue to move away from its initial condition once the extraneous force is removed.
Economists had assumed there is stable equilibrium at "full employment" of labor and capital and that it is stable only at full employment.
Keynes said there was potentially stable equilibrium at many levels of employment. That is the sum and substance of his "revolution."
To the extent Douglas had a theory of equilibrium it was that at best any equilibrium was unstable and that the economy can always be elevated to higher levels of productivity through conscious intervention.
---
From : Victor Bridger <[EMAIL PROTECTED]>
Reply-To : [EMAIL PROTECTED] To : Social Credit <[EMAIL PROTECTED]> Subject : Re: [SOCIAL CREDIT] to Victor Date : Sat, 19 Jul 2003 16:08:21 +1000
Hi Bill,
Thanks for your comments below. There are a couple of things that I will respond to and commence with the final three paragraphs. I am fully aware of Douglas's approach to Interest, Profit and Saving, and I have never contradicted his view and have never said that he was against Interest, Profit and Saving. I am also aware that many who think they have the answer to the problem of debt etc. zone in on interest charges and which they sometimes refer to usury. It may well be that some interest charges are too high and may be classified as usurious but this is an entirely different subject which has nothing to do with this discussion. Thus those paragraphs are superfluous in answer to my earlier comments.
If I may move to the opening paragraph I believe you have digressed from the original statement re interest.
The "arbitrarily concocted discrete transactions", were very simple examples which I would have though were self evident in that it demonstrated that unless a further borrowing occurred and if such further borrowing incurred an interest charge then it is absolutely that further borrowing must occur etc. with the corollary of increased debt.
To answer your specific questions.
1. "Where is the 'rate' that Douglas talked about?" The rate of flow of money out of and into the banking system in my simple example could be whatever you wish it to be. In this particular case we could say the time between the original loan to Trader A and the repayment to the bank was one year. In the sense of 'rate of flow' as Douglas used it, it (the rate) is a statement of numerical proportion prevailing or to prevail between two sets of things both of which may be unspecified, but in this case an amount of money. The 'rate of flow' of money in my example is one year.
2. 'You allow only the banker to make a profit'. I could have added a profit to the sale by Trader [A], which would have only increased the amount that he would have had to borrow. Whether it is one transaction between two people or transactions between two million the same situation would apply.
If you take my example and add 10 more transactions adding a profit to each transaction it simply means that more lending must occur to meet the final price, which would involve greater interest charges because greater amounts have to be borrowed.
3. 'Where are the consumers?' I would have thought it obvious that the consumer in my example was Trader B.
4. 'Where is the flow of time?'. I have answered this under (1) above.
You are correct in stating 'there are many overlapping transactions that are occurring CONTINUOUSLY'. Extending my example to take in many transactions, overlapping and occurring continuously does not negate my example. It just adds to the problem and at an increasing rate, because the one year that I stipulated would be split into many time periods with increased lending and borrowing with an exponential growth of debt. The fact that banks may spend all of their profits (which they do not) may add to the money supply but not at the same time as the borrowing occurs and certainly not at the same rate.
I feel that this discussion can achieve nothing unless there is an agreement with what you stated in quoting Douglas, "Douglas's point about "B" was that it is on the way back to the banks; it is not available for the payment of interest or principal without furthering borrowing."
I agree entirely with Douglas and stated this in my first comment, 'I have stated that interest can only come from subsequent creations of credit (i.e. bank lending)'.
I suggest that your model in which you state, 'So if R includes interest, which it most certainly will, L includes not only principal but the disbursement of financial sector expenses, such that the expenses disbursed by the financial sector to the rest of the economy exactly equals the receipt of interest-- ALWAYS', is contrary to what Douglas stipulated. It appears to me, and I could be wrong, to resemble Keynes theory of equilibrium which is demonstrably wrong.
Finally, either one agrees with the proposition that incomes generated in any given period of production are less that prices generated in the same period, or one does not. Interest is the Price of Money and that Price is established immediately the loan is established, and that price cannot be met UNTIL Trader A has received an income which cannot occur UNTIL after he has sold his product, which cannot occur UNTIL Trader B borrows the money to purchase. The interest may be recorded in bookkeeping as a profit to the bank but profit is not synonymous with income and certainly even if it was in the case of my example, the bank could not spend it because it has not been received. Whilst it can be recognized that in commercial operations businesses may spend before money is received on the basis of the debtors they have. However these debts must eventually be received or the bubble will burst and they will find themselves in trouble. The Price (the interest charge) established is greater than the income in that period. It certainly cannot be income to the borrower who does not have it to pay, even if he tried to repay his loan the next week. There would still be a proportion of his interest to repay which he would not have.
Vic
_________________________________________________________________
Help STOP SPAM with the new MSN 8 and get 2 months FREE* http://join.msn.com/?page=features/junkmail
--^---------------------------------------------------------------- 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 --^----------------------------------------------------------------
