<**>Crop rotation meant sacrificing a more preferred
crop for a less preferred one. Thus, people
sacrificed the more immediate satisfaction in order
to raise the productivity of their land in the
future.<**>
--------------------
No "immediate" satisfaction was sacrificed. With
seasonal planting they simply substituted three field
for two field. Farmers so doing increased the
productivity of their land immediately. It is said
that Charlemagne came up with the idea himself, and
several historians say he actually did. Certainly,
edicts from the emperor helped speed the process
along. Nevertheless, it took two centuries for the
technology to diffuse throughout Europe.
"Under the two field system, if one has a total of
600 fertile acres of land, one would only plant 300
acres. Under the new three-field rotation system, one
would plant (and thereby harvest) 400 acres. But, the
additional crops had a more significant effect than
mere productivity. Since the Spring crops were mostly
legumes, they increased the overall nutrition of the
people of Northern Europe."
--
<**>The person who invented and produced the horse
harness could have continued to use the ox in order
to get more immediate satisfaction. But he chose to
forego that in order to increase the productivity of
his work and of the land.<**>
--------------------
Oxen naturally die and you have to replace them
anyway. So where is the "sacrifice" when you replace
your dead ox with a horse?
"Western Europe was largely a primitive wilderness
until three centuries after the Roman Empire's last
gasp. When it emerged as a new civilization, it did
so with the help of the new technologies of water and
wind power. Europe ultimately did far more with those
power sources than the Romans ever had.
"But water and wind power had to wait until European
agriculture became productive enough to support towns
with masons and artisans -- people free to do more
than just labor for food. That, in turn, meant we
needed a more powerful beast than the plodding ox to
pull plows through the heavy, wet Northern European
soil. Horses had to be woven into farming before a
civilization could emerge.
"In the mid 8th century the Frankish kings began
breeding horses for military use. But three things
kept people from using those horses in farming: Their
hooves softened and cracked in damp soil. When they
were harnessed in an ox yoke, any heavy load cut off
their wind. And horses needed a better diet than
oxen. They couldn't just graze grass; they also
needed crude protein.
"The nailed horseshoe and then the horse collar had
solved two of these problems by the 9th century. It
was also in the 9th century that people found a
solution to the problem of feeding horses. But it
takes more than a solution to remove a problem. And
that's where the plot thickens.
"The solution went like this: Ninth-century farmers
used two fields with one active and the other one
idle (or fallow.) That kept them from robbing the
soil of nutrients and making it unproductive. Then
someone discovered they could use a field two years
out of three if they planted it with one crop in the
fall and a different crop in the spring, a year and a
half later.
"That meant farmers could break their holdings into
three fields. They could plant one with wheat or rye
in the fall for human consumption. A second could be
used in the spring to raise peas, beans, and lentils
for human use and oats and barley for the horses. The
third field lay fallow. Each year they rotated the
use among the three fields. We remember the spring
planting in a nursery rhyme which you may've heard,
'Do you, do I, does anyone know,
How oats, peas, beans, and barley grow?'"
--
<**>But the main point I would make here is that the
user of the A + B theorem chooses a starting point.
He assumes (1) that the firm is a going concern and
(2) that revenue must first be received by the firm
before incomes can be paid out.<**>
--------------------
(1) The theorem is structured in the form of reductio
ad absurdum. It does start with the assumption that
the rate of flow of cash disbursements by the
statistical firm (as a going concern) equals the rate
of flow of its receipts per accounting period that
encompasses the totality of the structure of
production. In symbolic form that assumption is
expressed: A + B = A. It thereby demonstrates that
this assumption is not possible if there is an
increasing ratio of B to A since that must
necessarily lead to the contradiction: A does not
equal A. The changing ratio is accommodated by the
missing element: credit, such that A + B = A +
credit.
The method of praxeology does not seem to contemplate
the technique of reductio ad absurdum.
It was through reductio that Goedel demonstrated his
famous incompleteness theorem. The theorem concludes
that any - repeat - any formally mathematical or
logical system that starts from a finite set of
axioms or rules must be either *incomplete* or
internally *contradictory*. The theorem (meaning
Goedel's) should someday be recognized as the most
important discovery of the twentieth century. There
are lots of reasons for this I won't get into now.
>From the theorem, Goedel tells us that starting from
our finite set of arbitrarily chosen axioms; we will
at some point in our extrapolation necessarily deduce
facts that are contrary to reality. We will see the
existence of things that do not exist, or be blind to
the existence of things that do exist.
The method of science is to not only test the
conclusions from axioms, but the very axioms
themselves and the rules that lead from one to the
other.
--
(2) There is no "first." The assumption is that the
rate of flow inputted equals the rate of flow
outputted.
--
<**>The product that a worker in a manufacturing
process helps to produce is not sold until some
future date. The money used to pay his wages or
salary must come from somewhere else.<**>
--------------------
The manufacturing process we are considering is the
firms sector in respect of consumers. We might as
well say that the money they use to purchase the
products of industry must come from somewhere else.
The money they spend comes from firms. The money
firms spend comes from consumers. That would be
mistaken because our statement would be incomplete in
the Goedelian sense.
Think of a pipeline in continuous flow from wellhead
to refinery. The pipeline contains a volume that is
forever in subtrahend to system flow. At any point
in time, the volume inputted into the pipeline will
have exceeded the volume outputted. For any ordinary
pipeline, however, that volume is a fixed constant
that is becoming a smaller and smaller percentage of
total flow as time progresses, so that it effectively
becomes inconsequential in the fullness of time.
dV/dt = 0. We may legitimately say that the rate of
flow of inputs equal the rate of flow of outputs.
But if the dimensions of that pipeline are expanding
in terms of length and diameter - this does require
some abstract thinking - the volume contained within
the pipeline is always increasing. So the rate of
flow inputted is always exceeding the rate of flow
outputted. dV/dt > 0. If the rate of increase to
the pipeline's volume remains proportional to the
rate of increase to the pipeline's inputs, the
pipeline's outputs through time remain proportional
the pipeline's inputs. But if that rate of increase
to the pipeline's volume is not proportional to its
inputs, its outputs are something other than
proportional to its inputs.
We submit that account balances held by firms and
consumers are analogous to the pipeline's volume, and
that the ordinary methods of double entry accounting
can accommodate outputs that are proportional to
inputs, but are quite incapable of accommodating
disproportionality.
That requires either scrapping the present system and
substituting something better, or consciously
adjusting for its deficiencies as they occur. The
first is flight to utopia; the second is mere
engineering. It is through engineering that we most
easily achieve technical efficiency in a market
economy.
--
<**>...firms were surely not created by God. Nor did
they arise through some natural selection process.
Someone consciously chose to form one. When she did
this, she most likely financed it by foregoing more
immediate consumption -- i.e., by saving.<**>
--------------------
This can occur as a matter of statistics only in a
system with mechanisms of credit. It cannot occur in
a system with a fixed quantity of money with no
credit. I'll elaborate on this later.
--
<**>The A + B theorem also disregards discovery and
innovation. Otherwise, it would address itself to the
possibility that these actions would reduce prices
and enable consumers to buy all that producers have
produced, even though consumers save some of their
income.<**>
--------------------
The Douglas quotation from 1925 refers to the effects
from a *change* in behavior. The income that she has
received has already been costed into goods that
exist. It means that they cannot be sold for their
costs of production. They can only be sold at a
loss. As a matter of accounting for the economy as a
whole, a continually falling price level means
continual loss to the entrepreneur, so he responds by
spiraling down production.
Of much more concern is the change of behavior by
firms and their bankers, which has a lot to do with
psychology and superstition that we can't nor should
attempt to control.
An increasing ratio of B to A is effectively
perpetual credit contraction, which results in the
permanently under performing economy. We rectify
that by seizing control of the control variable.
--
<**>I wrote that I have no idea what Bill means by
the banking sector or the consuming sector. My point
is directly relevant to the point I made in the last
paragraph. He wants to describe the dynamic process
by dividing it into elements, which include the
"banking sector" and the "consuming sector." Yet he
did not tell us how he formed an image of these
sectors.<**>
--------------------
The difference is like the difference between the
newer heliocentric view and the earlier geocentric
view. Each is as technically correct as the other as
a matter of pure physics. In fact, the sun and earth
revolve about each other in a complex system of
ellipses. But one model allows us to reach
conclusions that are impossible in the other.
--
---original message---
Date: Sun, 02 Nov 2003 13:26:37 +0800
From: Pat Gunning <[EMAIL PROTECTED]>
Subject: Re: [SOCIAL CREDIT] National dividend?
To: [EMAIL PROTECTED]
Reply To: [EMAIL PROTECTED]
Bill, it seems to me that you are using your critical powers to dispute my claims
while exempting Douglas from the same kind of criticism. My assessment is that Douglas
tried to use the same method I used to comprehend the phenomena of the occasional
boom-bust cycle. However, he chose a different starting point. I believe that that was
a mistake. You seem to argue on the one hand that this method is incorrect yet that
Douglas's A + B theorem is also correct. This seems a contradiction, even from your
own perspective.
Two minor points before continuing. I would not call Gary North a prominent Austrian
economist. In any case, there is not much similarity between his work and my own.
Also, your lumping neoclassical with Austrian economics would be very much disputed by
today's American Austrians, although not by me. The American Austrians tend to equate
neoclassical economics with the use of econometrics and mathematical modeling.
Now on to the chase:
In my earlier message, I wrote about the method used in economics to understand a
phenomenon. This method consists of contrasting a situation in which an item is
present with a situation in which it is absent. This is also the method economics uses
to define phenomena. It has been called the isolating method and may have first been
described in economics by the Austrian economist Frederick Weiser. (It is discussed in
Mises's Human Action in chapter 14.) It was the centerpiece of Ludwig von Mises's
praxeological economics. Bill claims this procedure disregards dynamics and that, as a
result, it is not scientific. Regarding the latter, he writes:
"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."
This is indeed what science appears to mean to the typical mainstream economist today.
The fact that Clive Granger was a co-winner of this years Nobel prize in economics is
a partial confirmation of this view. This does not make it right, however.
I would make two points about this argument:
1. Up to now, I have not seen Bill refer to econometrics studies to confirm his
hypothesis that the organization of society in which firms produce goods leads to a
situation where consumers receive insufficient income to buy those goods. The
question, then, is why he would introduce this point here. Perhaps I misunderstand.
2. The isolating method that I described does not inherently abstract from time. Quite
the contrary. The method of isolating one element from the panoply of elements that
influence the data in which one is interested is just as relevant to comprehending the
"dynamic process" as it is to comprehending any other phenomena or process. It is more
relevant to the task of comprehending economic elements or variables than for
comprehending strictly physical elements. This is because of the variability of human
action over time and because it is virtually impossible to carry out experiments that
control for all of the variables that one would wish to control for. Nevertheless, the
method is also used in physics, biology and other natural sciences. Specifically, it
is used as a means (1) of thinking up experiments to do and (2) of comprehending
phenomena when doing experiments is especially costly or impossible (as in astronomy
and evolutionary biology).
Consider what he writes:
"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."
I contend that it is meaningless to even speak of an "element" in a dynamic process
until one has chosen to isolate that element mentally from the rest. Thus, in my view,
Bill has already used the method to which I refer, albeit without realizing it. The
issue is not whether the method "should" be used. In fact, it is used and must be
used. The only question is whether it is used properly to deal with the questions or
problems one faces. Of course, one should never forget that the elements of a process,
are in fact not isolated.
I wrote that I have no idea what Bill means by the banking sector or the consuming
sector. My point is directly relevant to the point I made in the last paragraph. He
wants to describe the dynamic process by dividing it into elements, which include the
"banking sector" and the "consuming sector." Yet he did not tell us how he formed an
image of these sectors. Part of my claim is that it is necessary to use the isolating
method to do this. One cannot meaningfully use the term "banking sector" or "consuming
sector" without conducting the mental experiment of isolating the element to which he
wants such a term to refer. When I said that these terms had no meaning, I meant that
Bill had not provided one. That is, he had not defined these terms. Thus his statement
was not meaningful.
I can express these ideas using the forest-tree metaphor. Trees and forests are
co-defined. It is not possible to define either of these without using the isolating
method.
<**>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.
I have trouble with the terms "creditary" and "monetary" and with some of the other
terminology in your statement. But the main point I would make here is that the user
of the A + B theorem chooses a starting point. He assumes (1) that the firm is a going
concern and (2) that revenue must first be received by the firm before incomes can be
paid out. Regarding #1, firms were surely not created by God. Nor did they arise
through some natural selection process. Someone consciously chose to form one. When
she did this, she most likely financed it by foregoing more immediate consumption --
i.e., by saving. I believe that the proponents of the A + B theorem have chosen a
starting point that is inappropriate for comprehending the dynamic processes of
incomes being produced and spent. Regarding #2, this assumption is unrealistic for
most businesses. The product that a worker in a manufacturing process helps to produce
is not sold until some future date. The money used to pay his wages
or salary must come from somewhere else.
--
<**>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.
Absolutely correct. If one aims to discuss innovation, one must use a different
starting point. The A + B theorem also disregards discovery and innovation. Otherwise,
it would address itself to the possibility that these actions would reduce prices and
enable consumers to buy all that producers have produced, even though consumers save
some of their income. Bill should apply the same critical analysis to his own
reasoning (and that of Major Douglas) that he applies to mine.
--
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.
--
I beg to differ. Crop rotation meant sacrificing a more preferred crop for a less
preferred one. Thus, people sacrificed the more immediate satisfaction in order to
raise the productivity of their land in the future. The person who invented and
produced the horse harness could have continued to use the ox in order to get more
immediate satisfaction. But he chose to forego that in order to increase the
productivity of his work and of the land.
--
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..."
--
The choice of the wrong starting point results in a muddling of the point that Douglas
wants to make. He wants to support the thesis that consumers will not have enough
money to buy the goods that producers produce. Yet he completely disregards the
possibility that the initial saving would be used, either directly or indirectly, to
finance the hiring of workers to produce goods. If it is used in this way, producers
will pay part of the incomes received by future consumers out of the consumers' past
savings.
I agree that in the complex financial system that exists in a modern capitalist
economy, an increase in consumer saving (or, more correctly, a change in consumer time
preference) may not result in greater investment by firms. But this possibility should
not be disregarded, especially if one's aim is to produce an airtight
underconsumptionist theory as Douglas aimed to do. On the contrary, one has the
obligation to show why the investment would not occur.
--
<**>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.
This is perhaps true as a "matter of accounting." But you are purporting to present an
economic theory, not a classroom lesson in accounting.
There is no trade off between using resources to produce consumer goods and using
resources to produce capital goods? Are you serious? Do you believe that consumers
face tradoffs in their purchases of goods -- for example, trad offs between renting a
home and buying a home?
--
<**>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.
--
If you truly believe that this criticism is applicable here, you should also apply it
to the A + B theorem.
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?
Can you answer this question?
--
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
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