<**>What the A + B theorem does is to carve out a cross section of the market economy at a point in time, stop all the movement, and form theorems as if the said static cross section represents the steadily evolving market economy.<**> -------------------- This assumption about social credit theory is patently false. Very little you say after this point therefore is relevant to social credit. The theorem concerns itself with the divergence between A and A + B through time -- that is to say, A and A + B are analyzed as functions of time in a continuous dynamic process.
All that we may conclude is that you still don't have the foggiest idea what social credit is about. --
<**>I am convinced that in order to defend your belief properly, you must begin at a point where the idea to produce by means of a firm is first conceived. Under modern financial conditions, this is the point at which the idea in the mind of financing and producing entrepreneurs becomes actualized through the transfer of funds. These people must combine their knowledge and money in order to get a production process by means of a firm started.<**> -------------------- This ignores the historical record since at least from the inception of fractional reserve banking in the seventeenth century. You refer to a "transfer of funds." The banker in concert with the entrepreneur are able with the stroke of their pens to create funds that are generalized claims against the entire community. Without that ability modern capitalism would be non-existent. --
<**>I mean a person who saves by trying to earn an income on his savings. These two kinds of entrepreneurs are roles. It is possible that a single individual would finance his own firm. Since you are concerned with financing, however, it is appropriate to separate the roles.<**> -------------------- The person who merely saves from his income is not an entrepreneur. Nor is the person who deposits his money in a savings account or purchases a bond or stock.
There are indeed people who save and are able to later use those savings to start small businesses, at which point they become entrepreneurs. But it is mathematically impossible for that to be the norm in a modern growing economy considered in statistical whole. --
<**>To begin with an accounting identity that refers to a process that is already started and ongoing is a major conceptual shortcoming.<**> -------------------- What accounting identity are you referring to? --
<**>It makes no sense to me to claim that slave wages are an inherent characteristic of the current capitalist system without examining the conditions under which those wages are determined.<**> -------------------- Which is exactly what social credit does. --
<**>And it makes no sense to me to discuss those conditions without conceiving of the entire production process from start to finish -- i.e., from the point where the idea to produce occurs and financing is provided to the point where the product is sold and the proceeds of the sale distributed.<** -------------------- That's fine. That's what social credit does. But you start from the proposition that extrapolating from the cave man economy tells us all we need to know about modern capitalism. It is Zeno's fallacy of Hercules and the Tortoise, another example of reductio ad absurdum that is missing from your toolbag. --
<**>On the one hand, you have not satisfactorily explained how it is possible to increase the quantity of money without causing inflation.<**> -------------------- It has been satisfactorily explained. You do not understand the explanation. Your mind is clouded with prejudice. I've offered to go through the argument step by step, without requiring you to accept whatsoever any of the premises. The only thing I do expect is for you to understand how the conclusions logically flow from the premises. You refuse to do that but continue to repeat the same stock phrases, like a parrot. Step No. 1: Understand the argument. Step No. 2: Argue about the premises. I have already agreed that starting from the classical premises Austrian economics is perfectly reasonable. But your premises are by no means self-evident. Moreover, a great number of self-evident "truths" have been demonstrated to be false through the scientific method. The most dramatic example I can think of at the moment is Galileo's demonstration that the speed of a falling object is proportional to the time it has fallen, not the distance it has fallen. There are educated people today do not comprehend the distinction. Do you? --
<**>you want to introduce new money into the system. The main long term effect of this is inflation.<**> -------------------- But money is already being introduced into the system and the system of free enterprise could not exist unless money is introduced into the system. All we want to do is rationalize the process. --
<**>However, even the program was financed by existing taxes by means of reducing government spending, I have not been persuaded that the program will work.<**> -------------------- You say that because you are against redistribution. So are we. Redistribution is completely contrary to social credit. You may be confusing social credit with the "basic income" proposal that funds its program from taxes and cost cutting. --
<**>I'm sorry, Wally, but I regard this as incorrect. Money existed long before the banking system. Moreover, until the gold standard was arbitrarily abandoned, gold money existed and was used widely in exchange independently of the banking system.<**> -------------------- When was this actually the case? You've just made an assertion that is refutable historically. After the invention of double entry accounting in the twelfth century, most transactions were conducted with creditary instruments--such as letters of credit, not gold or any precious metal. From the seventeenth century onward (with the development of fractional reserve banking) most transactions in final settlement were consummated in something other than gold. Your assertion is mere gold bug article of faith without historical foundation. --
<**>If I understand the basis of Bill's message to Ken today, he agrees with me. So here's a subject you can work on privately.<**> -------------------- I do not. Douglas's theorem from his book *Social Credit* that "loans create deposits; the repayment of loans cancel deposits" pertains to the banking system as a whole not any single bank acting independently. It is a statistical concept which of course you abjure. --
<**>I agree that when a business pays off a loan, money is destroyed. In the modern banking system, however, new money is almost immediately created to replace it.<**> -------------------- The keyword is "almost" which according to my dictionary means something other than necessarily "equal." If banks change their policy and "tighten" credit sufficiently, the economy collapses. It is as simple as that. --
<**>The process of equating lending with paying off is regulated by the rate of interest in the federal funds market. If for some reason, there is excess money in the system, the rate falls, encouraging businesses to borrow more.<**> -------------------- The Federal Funds market as such did not exist before the mid-1950s, though it is certainly true that banks did lend between themselves before then. The Federal Funds rate does not control the rate of interest charged on commercial loans to the public, which can range to whatever the law allows. The rate of interest charged to any business is not mere "markup" to the Federal Funds rate.
The Federal Reserve simply uses the Federal Funds rate as a marker to judge the effectiveness of its policy. Over the years they have used various markers, like the rate of employment.
They "officially" believe (there is actually debate within their ranks) that there is "supply and demand" for reserves. If they want to "warm" the economy they inject reserves through "open market" operations to attain the targeted "Federal Funds rate" that is lower than today's rate. If they want to "cool" the economy they target a rate that is higher than today's rate.
Whether lowering the rate actually encourages businesses to borrow more is highly questionable.
There are a great number of factors that the simplistic orthodox argument ignores. If credit standards are raised the interest rate that firms pay is effectively increased, not decreased. Lowering the Federal Funds rate does not automatically lower credit standards. Moreover, businesses become reluctant to borrow if the general prospect of profitability is falling due to misguided financial policy or whatever.
Which brings me to John Hermann's question from the other day. Yes, the Federal Funds rate in the United States is one percent, the lowest in half a century. But this is the disclosure statement to a loan agreement I picked up just to see how high rates have actually climbed: "The fee is $17.64 per $100 borrowed for 14 days. This equates to a 459.90% APR (Annual Percentage Rate). Note the amount authorized will be based upon an assessment of your ability to repay the loan." This is of course not an ordinary commercial loan but what is called a "payday" loan.
In Japan the interbank rate is zero, yet commercial loans are hard to obtain. If you can get them they are available only at a high rate of interest. Consumer credit practically does not exist at any reasonable rate. The Japanese people are forced to work for years to finance their rice-paper hutches, or to purchase cars that are "obsoleted" in three years due to stringent "safety" regulations, so their cars may be broken down into parts for sale in America by the boatload, cheap "low mileage" engines to replace Japanese "interference" engines that blow at 80,000 miles when their timing belts break, for example, or as intact cars that flood Asia.
<**>If you expect any economist familiar with money markets to accept your claim, you must show that you know how banking and the money markets work to equilibrate the aggregate demand for loan money with the aggregate supply of it.<**> -------------------- You use and withhold the term "economist" rather recklessly. Are you not aware that there are "credentialed" economists who do not accept your theory? The Post Keynesian school, for example. My problem with the Post Keynesians is that many of them are from a socialist background that is disdainful of free markets and limited government. I've already referred you to Steve Keen's recent book, *Debunking Economics*. I'll also refer you to Paul Davidson's *Understanding Money*. The matter is debated even within the confines of the Federal Reserve itself. I could refer you to a number of staff papers that the Fed has published. --
<**>My meaning is simple. Businesses are financed by savings. Imagine that there are no firms. <**> -------------------- Let us imagine the cave man in his relationship to his neighbors. --
<**>My meaning is simple. Businesses are financed by savings.<**> -------------------- Not true as a general matter for the past 450 years. --
<**>Marx and the Marxists are the major proponents of the claim that financiers do not contribute to production.<**> -------------------- C. H. Douglas never claimed that financiers do not contribute to production. Indeed, he often said exactly the opposite.
Wally's statement is true literally. It is however conditioned by years of demagogic anti-banker rhetoric that we are trying to get away from as being counter-productive.
With adequate checks and balances the private contract between entrepreneur and banker that places a lien on real wealth benefits the community as a whole. --
<**>Why, how? "Subsidy" is the word traditionally used in the field that deals with problems of the sort you are discussing -- economics. If you look in economics textbooks for "compensated price," you will find an entirely different meaning from the one you have in mind. Thus, not only have "social creditors" chosen not to use the traditional terminology, they have chosen terminology with an entirely different meaning. It is little wonder that they have trouble communicating with economists.<**> -------------------- I personally don't have a problem with the word and often use it when referring to the social credit proposal, but I do see where Vic is coming from. It is not funded from taxation and applies across the board against all retail goods, not just tortillas in Mexico subsidized by the government. For this reason social crediters have objected to the use of the term "subsidy" going back to the early 1920s. The "compensated price" found in textbooks is something quite different than the retail discount that social crediters talk about. --
<**>True enough. It is physically possible to feed all the people in the world, including those of North Korea and Sudan. And it is financially possible. But the "social credit" policy will not help those people. My point is that both what is /physically/ possible and what is /financially/ possible depend on what is /politically/ and /economically/ possible. Socialism failed because the policies advocated and adopted by socialists could not be achieved in light of the political and economic reality.<**> -------------------- Socialism didn't fail because of political reality. It has always been politically appealing. Even now it is politically appealing. It failed because it didn't work economically, as Douglas predicted eighty years ago.
The social credit agenda has great political appeal, as was demonstrated in Alberta and British Columbia, where social credit parties were elected for several decades, all the while striving to obtain power nationally, so its reforms could be implemented. A great number of federal parliamentarians were elected over the years, though never a majority. A repackaged agenda will no doubt have great appeal in the future throughout the world.
I am confident it will work economically. --
<**>The assumption of scarcity in economics is a recognition that real people make choices and that the choices they make depend on the economic institutions and policies that prevail.<**> -------------------- But we are not limited to the choices presented to us. We are limited only by our imaginations. But a great leap of logic is made from this simple "economist" conception of "scarcity" which can hardly be argued with because it seems so true. You presume that it means we have to save and can only produce something new from what we have saved. It takes the existing level of technological knowledge and exploitable resources as a given fixed in time that can be merely reordered between "higher order" production and consumption. You furthermore translate this literally into finance. I once read on the editorial page of a major financial magazine - It may have been Forbes - this firmly put assertion: "You can only invest what you have saved or have borrowed from someone who has saved." I remember the exact words though I didn't note it down at the time. The statement is utter and complete nonsense, as thousands of historical examples will attest. I've shown you only two or three. If that puts me beyond the domain of the economists' definition of economics, so be it. In any case the economists will ultimately be left in the dustbin of pseudo-science, with their antiquated thinking processes, as were the alchemists and astrologers and promoters of polywater before them. If not in our time, I do have great faith in the future. --
<**>Well, some people believe that new money is likely to cause inflation. And everyone knows that if a very large amount of new money was created, people would shift to barter.<**> -------------------- Where from the historical record can you demonstrate that has occurred? I think in every historical case where great quantities of fiat money has been introduced, that money has continued to circulate as money so long has the issuing institution has continued to exist. The general economy has most definitely not reverted to barter though there is definitely inflation. But of course the "isolating method" disallows consulting the actual historical record.
But if you wish, we may examine the Civil War "greenbacks" issued by the winning and losing sides, the "continentals" during the Revolution, or the post-WWI German mark during the "hyperinflation" period. The actual historical experiences may surprise you. --
<**>Modern accounting uses statistics. My assumption is that in order to properly account in the way that "social creditors" want them to do when calculating the "compensated price" subsidy, they would use statistics. Not so?<**> -------------------- Yes. But Vic wasn't referring to statistics per se, but the so-called system of "national accounts" that are little more than a compilations of single-entry tabulations. They demonstrate merely that their "economist" formulators know little about accounting as it has been practiced for more than 800 years. --
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