A synopsis of Social Credit thought

[Pliny]

Before we go any further, I want to ensure that there is an understanding of where money comes from.

Central Banks create cash and coin. Commerical banks create the majority of the assets used as money. Cash and coin only represent 10% of the money supply. Commercial banks create money through loans. Everytime a bank loans somone money, they are creating money. Everytime the principle of the loan is paid back, banks are destroying money. That is how money is created and destroyed.

All money is created as a debt. Whether it's commercial banks creating a deposit through a loan (debt), or the Central Bank creating cash through open market operations, or commercial banks borrowing reserves from the Central bank. All money is borrowed into existence, and hence; is created as a debt.

This has to be fully understood before we can continue to discuss this subject.

When the world was on a gold standard, the majority of money was created by commercial banks. Gold, the reserve at the time, only represented approximately 10% of the money supply. Commercial banks create money by keeping only a fraction of it in reserve relative to their deposits. Consequently, when the world was operating on a supposed "gold standard", the majority of money was simply a number in a bank account.

The process by which banks create money is described in the following worksheet from the Federal Reserve:

MODERN MONEY MECHANICS

I understand that. Thank you.

The creation and destruction of money as described was evolved by central bankers. I have no argument with that explanation of how the system works and, correct me if I am wrong, but I don't believe that you, as a proponent of Social credit economic theory, have any argument with how the system of the creation and destruction of money has been implemented by these central bankers, your only argument is in what is perceived as an error in accounting. Is that correct?

When the world was on a gold standard, the majority of money was created by commercial banks. Gold, the reserve at the time, only represented approximately 10% of the money supply. Commercial banks create money by keeping only a fraction of it in reserve relative to their deposits. Consequently, when the world was operating on a supposed "gold standard", the majority of money was simply a number in a bank account.

In the above paragraph, I would like to make a technical differentiation. When the world was on a "gold standard" gold itself was considered "money" all currencies were "promises to pay" in gold and specifically said so, that or silver. That banks created "promises to pay" or currencies in excess of their reserves defines what fractional reserve banking was at the time. Here is how I would rewrite your paragraph.

"When the world was on a gold standard, "money substitutes" in the form of notes, bills and currencies was created by commercial banks. Gold, the reserve at the time, only represented about 10% of what the banks had on deposit in relation to the notes they issued. Commercial banks create currency dependent upon a fraction of their reserves on deposit. Consequently, when the world was operating on a supposed gold standard, what existed in the banks vaults was about 10% against the notes they issued thus ninety percent of the 'money' existed only as paper and, in reality, wasn't much more than simply a number in a bank account."

Edited March 12, 2008 by Pliny

[Pliny]

Well...am I just not worthy of a reply or are you still ruminating on what I have said?

[Pliny]

So in conclusion....

I will have to prepare final arguments.

[socred]

Hi Pliny:

I apologize for the tardiness of my reply, but I've been extremely busy over the last month, and haven't spent much time on the computer

The creation and destruction of money as described was evolved by central bankers.

This is factually incorrect. The process of the creation and destrution of money as described was evolved by private commercial banks before there existed any central banks. Fractional reserve banking came into existence prior to central banking.

I have no argument with that explanation of how the system works and, correct me if I am wrong, but I don't believe that you, as a proponent of Social credit economic theory, have any argument with how the system of the creation and destruction of money has been implemented by these central bankers, your only argument is in what is perceived as an error in accounting. Is that correct?

As a proponent of Social Credit I do have a problem with Central Banking policy because of a factual, not merely "perceived", accounting error.

"When the world was on a gold standard, "money substitutes" in the form of notes, bills and currencies was created by commercial banks. Gold, the reserve at the time, only represented about 10% of what the banks had on deposit in relation to the notes they issued. Commercial banks create currency dependent upon a fraction of their reserves on deposit. Consequently, when the world was operating on a supposed gold standard, what existed in the banks vaults was about 10% against the notes they issued thus ninety percent of the 'money' existed only as paper and, in reality, wasn't much more than simply a number in a bank account."

This again is factually incorrect. Until the advent of central banks, commercial banks did issue bills of currency, but even when they did, these bills, only represented a fraction of the money in existence. Most money simply existed as a number in a bank account, and transactions were mostly carried on by cheques, which merely involve the debiting and crediting of accounts (i.e. no bills, or gold, changes hands). Once a country had a central bank, commercial banks no longer issued bills, and ALL the money created by private commercial banks was simply numbers in bank accounts. At no time during the gold standard was all the money in existence "backed by gold".

Well...am I just not worthy of a reply or are you still ruminating on what I have said?

Again, I apologize for the tardiness of my reply.

[Pliny]

Hi Pliny:

The process of the creation and destrution of money as described was evolved by private commercial banks before there existed any central banks. Fractional reserve banking came into existence prior to central banking.

Agreed.

As a proponent of Social Credit I do have a problem with Central Banking policy because of a factual, not merely "perceived", accounting error.

Still, an accounting error seems to me to be the only difference and the Social Credit solution seems to be to add more money to the economy every year to correct the error. I am of the opinion that the error is not actual because value is determined only by the individual and an agency or body of pricing analysts cannot determine value. Entrepreneurs attempt this and that is what they do. It is very risky. When they miss the mark they suffer losses. How can an agency determine what prices and wages should be? And if they are wrong it is not themselves who will suffer any of the consequences.

This again is factually incorrect. Until the advent of central banks, commercial banks did issue bills of currency, but even when they did, these bills, only represented a fraction of the money in existence. Most money simply existed as a number in a bank account, and transactions were mostly carried on by cheques, which merely involve the debiting and crediting of accounts (i.e. no bills, or gold, changes hands). Once a country had a central bank, commercial banks no longer issued bills, and ALL the money created by private commercial banks was simply numbers in bank accounts. At no time during the gold standard was all the money in existence "backed by gold".

Correct.

Again, I apologize for the tardiness of my reply.

I understand.

[socred]

the Social Credit solution seems to be to add more money to the economy every year to correct the error.

Yes, distributed to individuals as a price rebate and a dividend.

I am of the opinion that the error is not actual because value is determined only by the individual and an agency or body of pricing analysts cannot determine value.

Who's talking about "value"? Accountants determine costs, and hence, the lower limit of prices everyday. I know when I'm talking to a libertarian, and the Austrian School of Economics is based on so many fallacies that I don't have the time to describe them all. I would suggest that more economists, like Ludwig, take at least an introductory course in cost accounting to see how prices are actually determined in the business world.

I will give you a quote by Douglas on "values":

"But when asked to define the various defects in the money system, it is remarkable to notice with what monotonous regularity these ideas of "justice" and "value" are paraded. It is claimed that money is defective because it is not an accurate measure of value, or that it results in an unjust "reward" for labour, but when such critics are asked to suggest a method by which the relative value of a sunset, and say, the Venus di Milo might be assessed, on the one hand, or, on the other hand, what is the "just" return for a given amount or variety of labour, their answers are not usually helpful from a practical point of view. Reams of paper and many valuable years have been expended in endeavouring to define and standardise this thing called "Value," and with it, the methods of relating goods and services to the standard when obtained. The line of thought which is usually followed, is something after this fashion.

"Money is a standard or measure of value. The first requisite of a standard or measure is that it shall be invariable. The money system is not giving satisfaction, money is not invariable, therefore, the problem is to standardise the unit of money." As a consequence of this line of argument, a dazed world is confronted with proposals for compensated dollars varying from time to time in the amount of gold they contain in accordance with the price index, or even with card money out of which holes are punched to represent its adjustment to the physical realities of economics. Nor is the misdirection of thought confined to professional economists. Almost the first idea which seems to present itself to physical scientists whose attention is directed to this problem, is in the nature of a search for some adaptation to finance of the centimetre-gramme-second system of units. Yet perhaps the most important fundamental idea which can be conveyed at this time, in regard to the money problem - an idea on the validity of which certainly stands or falls, anything I have to say on the subject - is that it is not a problem of value-measurement. The proper function of a money system is to furnish the information necessary to direct the production and distribution of goods and services. It is, or should be, an "order" system, not a "reward" system."

THE NATURE OF MONEY

Entrepreneurs attempt this and that is what they do. It is very risky. When they miss the mark they suffer losses. How can an agency determine what prices and wages should be?

The National Credit Office would not determine prices. You are confusing microeconomics with macroeconomics. Individual firms would still determine what price they sold their product at in the same way they do now. And they would receive from the consumer the price they charged if the consumer decided to buy their product. The consumer would pay less than the full amount based upon the ratio of consumption/production, and the difference would be given to the consumer by the National Credit Authority. The ratio would simply be mulitiplied by the price the firm is attempting to sell their good at. It's simply a ratio. If one company sells their goods for less than another, it will still be less when the ratio is applied.

The Credit Authority doesn't dictate what price any company charges for their product, that is up to each company. It simply determines a price rebate ratio which it applies to all prices of those companies who choose to register with the authority. Even registration is optional.

[Pliny]

Yes, distributed to individuals as a price rebate and a dividend.

Ok. It means the money supply has been increased. I can see an advantage in this approach over current methods of increasing the supply of money. The advantage is in the method of distribution. Currently, financial institutions receive the benefit of new money first and the consumer last. With Social credit the consumer would have the first use of new money.

Who's talking about "value"? Accountants determine costs, and hence, the lower limit of prices everyday. I know when I'm talking to a libertarian, and the Austrian School of Economics is based on so many fallacies that I don't have the time to describe them all. I would suggest that more economists, like Ludwig, take at least an introductory course in cost accounting to see how prices are actually determined in the business world.

I have mentioned I lean toward libertarianism and the whole philosophy is based upon the freedom of the individual. Of course, that involves an individual sense of responsibility and duty which is lacking in society today and has been replaced by the modern liberal concept of entitlement which, in passing comment, is probably a result of a transference from the sense of entitlement abused by upper classes extant in social democracies or whatever societies that have or develop an inflexible class structure.

Economic theory employed today is mainly based upon Keynes's general theory and centre's around the concept of a central bank entrusted with economic tools to keep an economy stabilized in conjunction with government to minimize "hoarding" or wealth concentration through a scheme of redistribution of wealth. I believe you can agree with this summarization of current practices. There are of course problems with it. "Fallacies that you hardly have time to describe", I'm sure. You cannot plug Austrian Economic theory into the existing Economic framework and fundamental structure because it's fundamentals are entirely at odds with current practices and economic thought. I can understand your concept of it as being full of fallacies. It isn't concerned with problems of the current economic structure, it does perceive there are problems, of which I think we can both agree there are. In the Austrian view this is mostly due to fundamental concepts, and they consider the whole system to be an authoritative and contrived centralized balancing act entirely dependent upon confidence in government and the trustworthiness and ability of Bankers to make correct and right decisions for the common good.

Now I have said it before but, from my understanding, the fundamental structure of Social Credit economic theory is, perhaps with some modification, almost identical to the current structure. Although I see Social Credit differences as attempts at improvement upon the current system I only see them as patchwork on what is an already unstable foundation. So, in my view, Social Credit accepts most of the basic theory of Keynes, it's fundamental concepts of the monopolization of money and banking in the interests of stability.

Social Credit must view the current system as being somewhat unfair, with the general consuming public being shorted, and it believes the problems are founded in an accounting oversight and rectifying this oversight will result in a more equitable distribution of wealth and prosperity. I can't say it is not an hounourable objective however, I have misgivings about it's efficacy due to what I believe are grosser fundamental problems with Keynesian economics.

Who's talking "Values"? When you mention "costs" they have a value. I think that is simple enough.

I will give you a quote by Douglas on "values":

"But when asked to define the various defects in the money system, it is remarkable to notice with what monotonous regularity these ideas of "justice" and "value" are paraded. It is claimed that money is defective because it is not an accurate measure of value, or that it results in an unjust "reward" for labour, but when such critics are asked to suggest a method by which the relative value of a sunset, and say, the Venus di Milo might be assessed, on the one hand, or, on the other hand, what is the "just" return for a given amount or variety of labour, their answers are not usually helpful from a practical point of view. Reams of paper and many valuable years have been expended in endeavouring to define and standardise this thing called "Value," and with it, the methods of relating goods and services to the standard when obtained. The line of thought which is usually followed, is something after this fashion.

"Money is a standard or measure of value. The first requisite of a standard or measure is that it shall be invariable. The money system is not giving satisfaction, money is not invariable, therefore, the problem is to standardise the unit of money." As a consequence of this line of argument, a dazed world is confronted with proposals for compensated dollars varying from time to time in the amount of gold they contain in accordance with the price index, or even with card money out of which holes are punched to represent its adjustment to the physical realities of economics. Nor is the misdirection of thought confined to professional economists. Almost the first idea which seems to present itself to physical scientists whose attention is directed to this problem, is in the nature of a search for some adaptation to finance of the centimetre-gramme-second system of units. Yet perhaps the most important fundamental idea which can be conveyed at this time, in regard to the money problem - an idea on the validity of which certainly stands or falls, anything I have to say on the subject - is that it is not a problem of value-measurement. The proper function of a money system is to furnish the information necessary to direct the production and distribution of goods and services. It is, or should be, an "order" system, not a "reward" system."

Interesting. Of course, the basic problem of money described above is that there is a shortage and proposals for "compensated dollars or card money out of which holes are punched" are attempts to ease the shortage.

It may come as a surprise to you but there will always be a shortage of money. This is why I don't see that balancing production with a quantity of money will satiate the demand. I may be wrong in my understanding that Social Credit is attempting to do that but it seems to me to be the objective. I know you will probably say that it never intends to satisfy the demand but to only equalize a shortage to cover production, you do however feel that it will result in prosperity and leisure time which I don't.

Is money a "reward system" now? I suppose looking at from the point of view of labour it could be considered to be a reward system but I would consider that kind of thought to be a rather Statist view of Economics, whereas labor is a commodity of trade not a reward for behavior.

In short, there are all manner of attempts to compensate for a shortage of money. I would have to say they are all fraudulent, making them legal does not change the fact. There are benefits to society in the short term in doing so but they will not provide any longevity of general social economic stability.

The National Credit Office would not determine prices. You are confusing microeconomics with macroeconomics. Individual firms would still determine what price they sold their product at in the same way they do now. And they would receive from the consumer the price they charged if the consumer decided to buy their product. The consumer would pay less than the full amount based upon the ratio of consumption/production, and the difference would be given to the consumer by the National Credit Authority. The ratio would simply be mulitiplied by the price the firm is attempting to sell their good at. It's simply a ratio. If one company sells their goods for less than another, it will still be less when the ratio is applied.

The Credit Authority doesn't dictate what price any company charges for their product, that is up to each company. It simply determines a price rebate ratio which it applies to all prices of those companies who choose to register with the authority. Even registration is optional.

Does that mean that goods sold at a loss, perhaps out of business failure or bankruptcy, would be calculated in the ratio? Would the consumer have to make up the difference? Would the ratio be based upon the lowest price in the market, the highest price in the market or an average?

Money is of course a yardstick we all use to compare value. It is a facilitator to understanding value solely and entirely from an individual perspective. To the accountant and the economist, many of them at least, money is seen as merely a means of calculation with no connection to value and hence know the price of everything and the value of nothing. Sadly, as government expects everyone to make account of their money, people have bought that understanding of money.

As an example, I will argue with an accountant that a 3 cent difference in the cost of a product means a 3 cent difference in quality. That three cent difference in quality may result in increased costs elsewhere. The three cent difference in costs will not then be realized in profit. The accountant sees it as a three cent "loss". I psychologically realize I have lowered a standard of quality and feel I am not doing right by my customer. Doing cost analysis is necessary to pricing the final product and if the costs are too high you have to know that. You also have to know what the market will bear regarding prices so your costs do not exceed wha the market will bear.

So I would rather raise my price three cents to recover that loss than sacrifice my quality. It may not be considered smart business but I don't consider the bottom line as the dictator of business policy.

Edited April 13, 2008 by Pliny

[socred]

Hi Pliny:

Again, sorry for the tardiness of my reply, but I did try to respond once before, and spent a half an hour composing a response only to lose it when I hit send, and have not had the time to deliver a proper response since.

Ok. It means the money supply has been increased. I can see an advantage in this approach over current methods of increasing the supply of money. The advantage is in the method of distribution. Currently, financial institutions receive the benefit of new money first and the consumer last. With Social credit the consumer would have the first use of new money.

Yes.

have mentioned I lean toward libertarianism and the whole philosophy is based upon the freedom of the individual. Of course, that involves an individual sense of responsibility and duty which is lacking in society today and has been replaced by the modern liberal concept of entitlement which, in passing comment, is probably a result of a transference from the sense of entitlement abused by upper classes extant in social democracies or whatever societies that have or develop an inflexible class structure.

With freedom comes responsibility. There are similarities between Social Credit thought and libertarianism. This would be one.

Economic theory employed today is mainly based upon Keynes's general theory and centre's around the concept of a central bank entrusted with economic tools to keep an economy stabilized in conjunction with government to minimize "hoarding" or wealth concentration through a scheme of redistribution of wealth.

Agree to a certain extent. Keynes still has an influence on modern macroeconomics, but I'd tend to argue that Milton Friedman and the Chicago school also have quite a bit of influence on the policies of central banks today.

cannot plug Austrian Economic theory into the existing Economic framework and fundamental structure because it's fundamentals are entirely at odds with current practices and economic thought.

Disagree. Pretty much everything in the Austrian theory is taught at universities today as "classicalism" or "neo-classicalism".

I can understand your concept of it as being full of fallacies. It isn't concerned with problems of the current economic structure, it does perceive there are problems, of which I think we can both agree there are.

Yes, the Austrians do not understand the gap between income and prices that Douglas identified.

Now I have said it before but, from my understanding, the fundamental structure of Social Credit economic theory is, perhaps with some modification, almost identical to the current structure.

While the techniques of Social Credit are not radical, the changes that they would bring to society would be completely radical and liberating for the individual. Social Credit is consumer control of production.

So, in my view, Social Credit accepts most of the basic theory of Keynes, it's fundamental concepts of the monopolization of money and banking in the interests of stability.

Keynes was the socialist attempt to silence Douglas. In fact, Douglas testified before Keynes at the MacMillan Committee on Industry and Finance. Social Credit does not endorse the monopolization of credit, in fact, one of Douglas's books is entitled "The Monopoly of Credit" and is quite critical of the monopoly of credit. The National Credit Authority is not a bank, and does not control the money supply. Banks would operate as they do now, and would create money in accordance with loans and their assessments of risks. The National Credit Authority would merely augment the current system by giving consumers money which did not derive from the productive system.

Social Credit must view the current system as being somewhat unfair, with the general consuming public being shorted, and it believes the problems are founded in an accounting oversight and rectifying this oversight will result in a more equitable distribution of wealth and prosperity.

Social Credit does not seek a more "equitable" distribution of wealth. The dividend would be paid to everyone equally regardless of income, and the price rebate would be given to everyone based upon what they spend in an equal ratio.

I can't say it is not an hounourable objective however, I have misgivings about it's efficacy due to what I believe are grosser fundamental problems with Keynesian economics.

There are no similarities between Douglas and Keynes other than the fact that Keynes recognized the gap that Douglas identified; however, he came up with a socialist response to it.

It may come as a surprise to you but there will always be a shortage of money.

I disagree. In pre-WWII Germany, there wasn't a shortage of money.

This is why I don't see that balancing production with a quantity of money will satiate the demand. I may be wrong in my understanding that Social Credit is attempting to do that but it seems to me to be the objective.

Social Credit makes no claim to satiate demand. It simply rectifies an accounting flaw that Douglas identified in his A+B theorem.

I know you will probably say that it never intends to satisfy the demand but to only equalize a shortage to cover production, you do however feel that it will result in prosperity and leisure time which I don't.

There's no feelings involved. I am certain that once the flaw is rectified that it will lead to increased prosperity and leisure time. That is the only possible outcome from the methods of rectification.

Is money a "reward system" now? I suppose looking at from the point of view of labour it could be considered to be a reward system but I would consider that kind of thought to be a rather Statist view of Economics, whereas labor is a commodity of trade not a reward for behavior.

Labour is a commodity? If people are forced to engage in the productive process in order to receive an income, even though technology is constantly displacing the need for labour, then income via wages becomes a "reward system". This is one thing the so called "capitalists" and "socialists" have in common - the call for full employment.

In short, there are all manner of attempts to compensate for a shortage of money. I would have to say they are all fraudulent

Why is it fraudulent to rectify an accounting flaw and give consumers adequate income to purchase all of production?

Does that mean that goods sold at a loss, perhaps out of business failure or bankruptcy, would be calculated in the ratio?

The ratio is determined by measuring aggregate production and consumption. Individual businesses only affect the relation as a part of the whole. If consumption is x and production is y, then the ratio is x/y.

Would the consumer have to make up the difference?

No, the difference between the price paid by the consumer, and the price received by the producer is made up by the National Credit Authority through the issuance of new credits.

Would the ratio be based upon the lowest price in the market, the highest price in the market or an average?

Prices have no bearing on the ratio itself except to measure the total money value of production and consumption. You take the amount of consumption in dollars and divide by the amount of production in dollars over an equivalent period of time, and then you have the ratio.

Money is of course a yardstick we all use to compare value.

what is" the relative value of a sunset, and say, the Venus di Milo might be assessed, on the one hand"

As an example, I will argue with an accountant that a 3 cent difference in the cost of a product means a 3 cent difference in quality. That three cent difference in quality may result in increased costs elsewhere. The three cent difference in costs will not then be realized in profit. The accountant sees it as a three cent "loss". I psychologically realize I have lowered a standard of quality and feel I am not doing right by my customer. Doing cost analysis is necessary to pricing the final product and if the costs are too high you have to know that. You also have to know what the market will bear regarding prices so your costs do not exceed wha the market will bear

If charge less in prices than your cost of production, you won't be in business very long, because you will be unable to pay your creditors.

So I would rather raise my price three cents to recover that loss than sacrifice my quality. It may not be considered smart business but I don't consider the bottom line as the dictator of business policy.

It can be a smart business policy if the consumer will pay the extra 3 cents in price. If he won't, then your company will fail to earn a profit and operate in the long run.

Edited April 24, 2008 by socred

[Pliny]

Hi Pliny:

Again, sorry for the tardiness of my reply, but I did try to respond once before, and spent a half an hour composing a response only to lose it when I hit send, and have not had the time to deliver a proper response since.

Must be tax season

Agree to a certain extent. Keynes still has an influence on modern macroeconomics, but I'd tend to argue that Milton Friedman and the Chicago school also have quite a bit of influence on the policies of central banks today.

Yes, Friedman has been influential. He brought us the withholding income tax. The central bank concept has been around since the seventeenth century and evolved over time. Keynes managed to be an apologist for faulty banking practices for the most part and basically entrenched them as standard practice.

Disagree. Pretty much everything in the Austrian theory is taught at universities today as "classicalism" or "neo-classicalism".

Yes. The argument of Classicalism revolves around the fundamental concept of money, differences in banking philosophy and that the economy of a nation or society should not engineered by a monopolistic central authority.

The fundamental differences I have noted between our views are that I believe money is a commodity, you do not. I believe the "quantity of money", and in this respect money is considered to be credit not just currency, affects wages and prices, i.e. increased money supply = inflation, decreased money supply = deflation, and you feel (you can correct me if I am wrong here) wages and prices are controlled by costs? Wages and prices? When I have argued the point in the past you have said that wages and prices, with tools such as the the CPI, determine the amount of money the central bank injects into the economy, as though the CPI is the controlling factor in the equation. One need only look to the fact that the central bank has control over the money supply to see it is a tool to avoid deflation and limit inflation. It does not control the CPI directly. Controlling the CPI directly would be by the introduction of wage and price controls, which they, I hope by now, know is a disastrous policy. The CPI is the measurement, the yardstick, to determine the amount of money to inject into the economy. The amount of money is the controlling element, the effect is measured by the CPI.

Yes, the Austrians do not understand the gap between income and prices that Douglas identified.

While the techniques of Social Credit are not radical, the changes that they would bring to society would be completely radical and liberating for the individual. Social Credit is consumer control of production.

Keynes was the socialist attempt to silence Douglas. In fact, Douglas testified before Keynes at the MacMillan Committee on Industry and Finance. Social Credit does not endorse the monopolization of credit, in fact, one of Douglas's books is entitled "The Monopoly of Credit" and is quite critical of the monopoly of credit. The National Credit Authority is not a bank, and does not control the money supply. Banks would operate as they do now, and would create money in accordance with loans and their assessments of risks. The National Credit Authority would merely augment the current system by giving consumers money which did not derive from the productive system.

The theory is there is a gap between income and prices. In a nutshell, this is the source of poverty and the solution is to augment incomes?

Social Credit does not seek a more "equitable" distribution of wealth. The dividend would be paid to everyone equally regardless of income, and the price rebate would be given to everyone based upon what they spend in an equal ratio.

OK, Social Credit does not have the goal of redistribution of wealth. A good point.

However, until cause and effect is determined it cannot be established augmenting the money supply is a beneficial solution to minimizing or eliminating a gap between income and prices. Augmenting the money supply will increase incomes. What will increased incomes do to prices? It is fantastical to think they will remain stagnant and they definitely will not drop.

There are no similarities between Douglas and Keynes other than the fact that Keynes recognized the gap that Douglas identified; however, he came up with a socialist response to it.

The similarities lie in the concept of money and a macro-engineering of the economy through banking practices and economic tools, such as, with Social Credit, a national credit authority. I understand Social Credit attempts to appear transparent and non-interventionist. So does the current Central Bank.

I disagree. In pre-WWII Germany, there wasn't a shortage of money.

Did they have a national credit authority that eliminated the gap between incomes and prices then?

After WW I they had wheel barrels full of money. Zimbabwe, currently has no shortage of money, everyone is a millionaire. Problem is, it costs 50 million for three loaves of bread.

Social Credit makes no claim to satiate demand. It simply rectifies an accounting flaw that Douglas identified in his A+B theorem.

There's no feelings involved. I am certain that once the flaw is rectified that it will lead to increased prosperity and leisure time. That is the only possible outcome from the methods of rectification.

It will lead to increased prices which will result in legislation to freeze prices.

Labour is a commodity? If people are forced to engage in the productive process in order to receive an income, even though technology is constantly displacing the need for labour, then income via wages becomes a "reward system". This is one thing the so called "capitalists" and "socialists" have in common - the call for full employment.

Now you would be confusing "capitalists" with "socialists". Socialists call for full employment, Capitalists leave that to the market.

Is knowledge a commodity? If people are forced to use their knowledge is it a "reward system"? People engage in the productive process because they are sociable. I have the impression you believe the productive process is a form of slavery. People have different abilities and make different choices. I will say that public education does not encourage innovation and ingenuity but is limiting in that it believes it serves society first and shapes the individual to be useful to society instead of just enhancing the individuals inherent abilities and cognitive skills.

Why is it fraudulent to rectify an accounting flaw and give consumers adequate income to purchase all of production?

It will not provide adequate income unless prices are kept stagnant, and if prices are kept stagnant production will decrease or find other markets.

The ratio is determined by measuring aggregate production and consumption. Individual businesses only affect the relation as a part of the whole. If consumption is x and production is y, then the ratio is x/y.

No, the difference between the price paid by the consumer, and the price received by the producer is made up by the National Credit Authority through the issuance of new credits.

Prices have no bearing on the ratio itself except to measure the total money value of production and consumption. You take the amount of consumption in dollars and divide by the amount of production in dollars over an equivalent period of time, and then you have the ratio.

Do you agree the price of goods is dependent upon what the market will bear? You understand that people with money wish to spend it. They see in money, goods and services that they want at sometime in the near or distant future. They do not wish for others to buy all the stock or "production" of the goods they wish before they get theirs so they will be more concerned with buying now than in the future. They will not save money and will be willing to pay a higher price to ensure they get their necessities before the production is cleared. So prices will always rise. The only way to ensure prosperity is to produce what is needed and wanted in abundance. Adjusting incomes, money supplies, controlling wages and prices, none of these things will create prosperity.

what is" the relative value of a sunset, and say, the Venus di Milo might be assessed, on the one hand"

It is up to the individual.

If charge less in prices than your cost of production, you won't be in business very long, because you will be unable to pay your creditors.

It can be a smart business policy if the consumer will pay the extra 3 cents in price. If he won't, then your company will fail to earn a profit and operate in the long run.

The consumer must be aware of the quality. In my industry offshore product is not used by some businesses. They pay extra for North American or European products and advertise the fact as an incentive to contract services. Consumers, aware of inferior quality, will pay the difference. Consumers unaware of the difference will not contract their services because they are unwilling to pay a higher price. That is not to say that all offshore product is inferior or quality will not improve and it is foolish, as a business, to think it is.

I do not prefer to deal with "cheap" customers who do not recognize competitive differences in products and services and would rather not. They only want the lowest price. For the exact same product the lowest price is what anyone wants but in the service industry you are never getting the exact same product from competitors like you are when you are shopping at different stores with the same line of product.

Later!

[socred]

Must be tax season

The day that I lost the initial post was the same day my furnace and my hot water tank both went out. It was not a good day. I also had to shovel up a dead rabbit next door because there's no tenants, and something killed a rabbit by the gate, and I didn't want to look at it everyday.

Yes, Friedman has been influential. He brought us the withholding income tax. The central bank concept has been around since the seventeenth century and evolved over time. Keynes managed to be an apologist for faulty banking practices for the most part and basically entrenched them as standard practice.

Freidman was very influential on monetary policies in the 80's. You can thank the Chicago school for the high interest rate policies of the 80's. Keynes was a fabian socialist who attempted to solve the gap that Douglas identified by "priming the pump". Douglas told Keynes that this policy was unsustainable and inflationary.

Yes. The argument of Classicalism revolves around the fundamental concept of money, differences in banking philosophy and that the economy of a nation or society should not engineered by a monopolistic central authority.

Classicalists have a poor understanding of money and its role in the modern economy. Their analysis is heavily dependent on static supply and demand curves which are based upon relative prices, not monetary prices (i.e. they attempt to factor money out of the equation, so essentially they are based upon a "barter economy").

The fundamental differences I have noted between our views are that I believe money is a commodity, you do not.

I absolutely do not believe money is a commodity. Money's sole purpose is to facilitate production and consumption. People do not value money for its own sake (unless you're a collector). People value goods and services which they can purchase with money. Money is a means to an end.

I believe the "quantity of money", and in this respect money is considered to be credit not just currency, affects wages and prices, i.e. increased money supply = inflation, decreased money supply = deflation, and you feel (you can correct me if I am wrong here) wages and prices are controlled by costs?

I assume you believe in the quantity theory of money? I wrote a whole section refuting the quantity theory in my synopsis, but following is a link to a committee report to the Alberta government where Douglas refutes the quantity theory:

THE ALBERTA POST-WAR RECONSTRUCTION COMMITTEEREPORT OF THE SUBCOMMITTEE ON FINANCE (March, 1945)

Money is created as a debt. The quanity theory implicity assumes that money just "falls from the sky", and "circulates round and round". The reality is that money is created and destroyed through the process of loans and their repayment. As Douglas stated, "The fallacy in the theory lies in the incorrect assumption that money "circulates", whereas it is issued against production, and withdrawn as purchasing power as the

goods are bought for consumption."

This is another instance of economists having a poor understanding of the principles of accounting.

feel (you can correct me if I am wrong here) wages and prices are controlled by costs? Wages and prices?

The lower limit of prices are controlled by the cost of production. The upper limit is controlled by what it will fetch, or if you like, the laws of supply and demand. A firm cannot produce in the long run if their prices are below the cost of production, because it will be unable to repay its creditors.

When I have argued the point in the past you have said that wages and prices, with tools such as the the CPI, determine the amount of money the central bank injects into the economy, as though the CPI is the controlling factor in the equation.

Central Banks attempt to manipulate the CPI with monetary policies.

One need only look to the fact that the central bank has control over the money supply to see it is a tool to avoid deflation and limit inflation.

Central Banks do not have control over the money supply. They attempt to control the money supply through open market operations, but their "control" is very limited. The Bank of Canada admits this:

"SOME PEOPLE ASK WHY the Bank of Canada can't directly increase or decrease the money supply at will, since it regulates the supply of paper currency in circulation.

The answer is that the bank notes issued by the Bank represent only a small portion of all the money circulating in the economy at any one time."

Canada's Money Supply

It does not control the CPI directly.

I agree, and never meant to imply that it did. It also does not control the money supply directly. It's goal is "limited inflation".

The theory is there is a gap between income and prices. In a nutshell, this is the source of poverty and the solution is to augment incomes?

I wouldn't say this is THE source of poverty, because there will always be poverty. I would say this is A source of poverty, and probably the primary source in an industrialized economy.

However, until cause and effect is determined it cannot be established augmenting the money supply is a beneficial solution to minimizing or eliminating a gap between income and prices.

True, but I have yet to see anyone seriously refute Douglas's A+B theorem which is reproduced below:

“In any manufacturing undertaking the payments made may be divided into two groups: Group A: Payments made to individuals as wages, salaries, and dividends; Group B: Payments made to other organizations for raw materials, bank charges and other external costs. The rate of distribution of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of generation of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A.” (C.H. Douglas, “The Monopoly of Credit”)

Perhaps you would like to point out the error in reasoning in the theorem?

Augmenting the money supply will increase incomes. What will increased incomes do to prices? It is fantastical to think they will remain stagnant and they definitely will not drop.

They will drop, because a proportion of the new credits will go towards a price rebate, which lowers prices to consumers. The new money will cancel costs, so prices to consumers will drop. Use the example I gave in my previous post. Prior to the introduction of the price rebate, the good/service cost the consumer $100, after the price rebate the good/service cost the consumer $75. The price dropped by $25.

The similarities lie in the concept of money and a macro-engineering of the economy through banking practices and economic tools, such as, with Social Credit, a national credit authority. I understand Social Credit attempts to appear transparent and non-interventionist. So does the current Central Bank.

Social Credit is not an attempt to "macro-engineer" the economy. There's no picking of "winners" and "losers", or attempts to manipulate consumption habits through taxation. All Social Credit does is determine a national balance sheet, and pay individuals a dividend and price rebate. The size of the price rebate is determined by individual's consumption and production habits. They are merely added together. There is no attempt to manipulate those habits. Social Credit merely ensures that consumers have the income to buy back all of their production. If the community produces x amount of goods and services, with an average price of y, then the cost of all goods is xy, and Social Credit ensures that the total incomes of individuals within the community equals xy. That's it.

Did they have a national credit authority that eliminated the gap between incomes and prices then?

Absolutely not. They had a Central Bank who tried to make war reparations by monetizing that debt, which caused a fantastic inflation of prices.

After WW I they had wheel barrels full of money. Zimbabwe, currently has no shortage of money, everyone is a millionaire. Problem is, it costs 50 million for three loaves of bread.

Absolutely, there is no sense printing a ticket (money) for something that does not exist. This merely inflates the money supply. The increase in money in a Social Credit economy is based upon scientific factors which Douglas identified in his A+B theorem. It's an accounting flaw that sees a fantastic shortage of money.

You're argument will soon be, well, there's no shortage of money in Zimbabwe. That's true, but Douglas addressed this point in his testimony before the Alberta Agricultural Committee:

"What people who say that forget is that we were piling up debt at that time at the rate of ten millions sterling a day and if it can be shown, and it can be shown, that we are increasing debt continuously by normal operation of the banking system and the financial system at the present time, then that is proof that we are not distributing purchasing power sufficient to buy the goods for sale at that time; otherwise we should not be increasing debt, and that is the situation." (p. 90)

It will lead to increased prices which will result in legislation to freeze prices.

It will lead to decreased prices through the price rebate.

Now you would be confusing "capitalists" with "socialists". Socialists call for full employment, Capitalists leave that to the market.

Capitalists are always calling for a full employment economy - even classicalists. Capitalists know that a high unemployment rate with people unable to feed themselves will bring about revolution.

I have the impression you believe the productive process is a form of slavery.

Everyone gives up some liberty to engage in production. This is out of necessity. The ideal would be to have machines do all of production. However; if this ideal ever came into being under current the current system, we'd all die for lack of income. The goal is to free the individual from production to the greatest extent possible. Obviously, machines cannot do all the work now, but that is one of the main goals of technology: to increase the productivity of labour, which means it takes less labour to produce. People need to be given the opportunity to contract out of unsatisfactory associations, and the dividend gives people this freedom.

I will say that public education does not encourage innovation and ingenuity but is limiting in that it believes it serves society first and shapes the individual to be useful to society instead of just enhancing the individuals inherent abilities and cognitive skills.

I agree. I'm very much against mandatory public education, for many reasons, including the one you site.

It will not provide adequate income unless prices are kept stagnant, and if prices are kept stagnant production will decrease or find other markets.

Prices will decrease. Not only will this increase purchasing power, but it will protect people's savings.

Do you agree the price of goods is dependent upon what the market will bear?

I agree that the upper limit of prices is determined by what the market will bear. The lower limit is determined by the cost of production.

They will not save money and will be willing to pay a higher price to ensure they get their necessities before the production is cleared. So prices will always rise.

Your implicit assumption in this statement is that there is a 1:1 ratio between income an prices, so any increase in income automatically bears the same increase in prices. The whole Social Credit premise, based upon Douglas's A+B theorem, denies such a relationship.

It is up to the individual.

Exactly, so there can never be an "objective" measure of value.

The consumer must be aware of the quality.

Sure, and so long as the consumer percieves that the extra prices are more than compensated by the extra quality of the product you will remain in business. The point is that your revenues must exceed your costs, or you will not be in business very long.

Take care.

[Pliny]

Freidman was very influential on monetary policies in the 80's. You can thank the Chicago school for the high interest rate policies of the 80's. Keynes was a fabian socialist who attempted to solve the gap that Douglas identified by "priming the pump". Douglas told Keynes that this policy was unsustainable and inflationary.

And what's "priming the pump"? Adding money and credit to the economy? It certainly doesn't solve the gap. The gap will always be there. Douglas was right about Keynes.

Classicalists have a poor understanding of money and its role in the modern economy.

They have a different understanding of money. They don't consider fiat currencies or electronic entries as "money".

Their analysis is heavily dependent on static supply and demand curves which are based upon relative prices, not monetary prices (i.e. they attempt to factor money out of the equation, so essentially they are based upon a "barter economy").

I think fiat currencies and electronic entries have factored money out of the equation. It is just an accounting entry now.

I absolutely do not believe money is a commodity. Money's sole purpose is to facilitate production and consumption. People do not value money for its own sake (unless you're a collector). People value goods and services which they can purchase with money. Money is a means to an end.

You are right. In your terms, money, fiat currencies and electronic entries are not commodities they are accounting tools. Even at that, they are traded as though they were commodities in a world market.

I assume you believe in the quantity theory of money? I wrote a whole section refuting the quantity theory in my synopsis, but following is a link to a committee report to the Alberta government where Douglas refutes the quantity theory:

THE ALBERTA POST-WAR RECONSTRUCTION COMMITTEEREPORT OF THE SUBCOMMITTEE ON FINANCE (March, 1945)

Money is created as a debt. The quanity theory implicity assumes that money just "falls from the sky", and "circulates round and round". The reality is that money is created and destroyed through the process of loans and their repayment. As Douglas stated, "The fallacy in the theory lies in the incorrect assumption that money "circulates", whereas it is issued against production, and withdrawn as purchasing power as the

goods are bought for consumption."

We fall short of common understanding in that Douglas defines money in terms of fiat currencies and electronic entries. I do not consider those things money I think of them as merely accounting tools. So, no I do not believe in the quantity theory of money.

This is another instance of economists having a poor understanding of the principles of accounting.

The lower limit of prices are controlled by the cost of production. The upper limit is controlled by what it will fetch, or if you like, the laws of supply and demand. A firm cannot produce in the long run if their prices are below the cost of production, because it will be unable to repay its creditors.

I agree with these statements.

Central Banks attempt to manipulate the CPI with monetary policies.

Central Banks do not have control over the money supply. They attempt to control the money supply through open market operations, but their "control" is very limited. The Bank of Canada admits this:

"SOME PEOPLE ASK WHY the Bank of Canada can't directly increase or decrease the money supply at will, since it regulates the supply of paper currency in circulation.

The answer is that the bank notes issued by the Bank represent only a small portion of all the money circulating in the economy at any one time."

Well, this guy doesn't know that money doesn't circulate.

Perhaps I should have said "they attempt to control the money supply". What's the difference? I attempt to control my car and for the most part am successful. Their control is limited only by the tools they have.

Yes there are cheques and credit cards and loans and debit cards and these are the other portion of "money" circulating in the economy. Interest rates also increase or decrease the "money" supply.

The truth is it can increase or decrease the money supply at will but it invites economic chaos if it does not adhere to indicators in the economy that it uses in determining the money supply.

It's goal is "limited inflation".

Agreed.

I wouldn't say this is THE source of poverty, because there will always be poverty. I would say this is A source of poverty, and probably the primary source in an industrialized economy.

True, but I have yet to see anyone seriously refute Douglas's A+B theorem which is reproduced below:

“In any manufacturing undertaking the payments made may be divided into two groups: Group A: Payments made to individuals as wages, salaries, and dividends; Group B: Payments made to other organizations for raw materials, bank charges and other external costs. The rate of distribution of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of generation of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A.” (C.H. Douglas, “The Monopoly of Credit”)

Perhaps you would like to point out the error in reasoning in the theorem?

Ok. It is merely accounting.

Income augmentation, in the aggregate, simply devaluates the form of income. All manner of tinkering with, interest rates, the money supply, income augmentation, wage and price controls, does not bring prosperity. Prosperity is about abundance. Production is the only thing that brings about prosperity.

I believe, the gap is real as Douglas describes it, but I think it is the failure of business to determine the market when it's production is not cleared and not the inability of the consumer to purchase what he needs and wants. After all, if he needs and wants something and does not have or does not not wish to buy it with currency or credit, he can try to trade something he has for something he would prefer to have. If he really wants something he will sell what he has, to get currency, or barter or save until he can get it. It is only when there is a scarcity that he may have trouble. The stuff left on the shelf, the uncleared production, is simply what people don't want and what the business man has miscalculated in demand.

Ideally, if people had nothing, no savings, no capital, what Douglas says might hold water. But people do have savings and capital and they have time and if ALL production needed to be cleared every year (and it never will)it could be done from past investments and savings. The fact is all production will not clear and no attempt to clear it all will result in that. I do not see it as being a desirous goal. I see it as looking good on a balance sheet.

They will drop, because a proportion of the new credits will go towards a price rebate, which lowers prices to consumers. The new money will cancel costs, so prices to consumers will drop. Use the example I gave in my previous post. Prior to the introduction of the price rebate, the good/service cost the consumer $100, after the price rebate the good/service cost the consumer $75. The price dropped by $25.

What will happen is that sellers realizing consumers are calculating a rebate add it into the price. Psychologically, it would make people think things are cheaper than they really are.

Social Credit is not an attempt to "macro-engineer" the economy. There's no picking of "winners" and "losers", or attempts to manipulate consumption habits through taxation. All Social Credit does is determine a national balance sheet, and pay individuals a dividend and price rebate. The size of the price rebate is determined by individual's consumption and production habits. They are merely added together. There is no attempt to manipulate those habits. Social Credit merely ensures that consumers have the income to buy back all of their production. If the community produces x amount of goods and services, with an average price of y, then the cost of all goods is xy, and Social Credit ensures that the total incomes of individuals within the community equals xy. That's it.

If the community produces X the portion of production that is not wanted and will never be cleared or may be cleared at a loss must be deducted. It cannot be considered in the calculation. Once again Douglas's basic fallacy is that there is production that is not being consumed for the sole reason people cannot afford it. The truth is if people can't afford it it will not be produced. All production will be cleared that people want. Production that does not clear the people do not want or are not willing to purchase at a price above the cost of production.

Because some people can't afford very much is not the reason things remain on the shelf. They remain on the shelf because people either don't want them or are not willing to pay the price for them. Both are failures of the the producers not the inadequacies of the consumers. As you say, we will always have poverty and people who cannot afford everything they wish. I don't see income augmentation helping anything. It simply covers business losses on the books.

They had a Central Bank who tried to make war reparations by monetizing that debt, which caused a fantastic inflation of prices.

I think I know what you mean by monetized. Social credit monetizes all production.

Absolutely, there is no sense printing a ticket (money) for something that does not exist. This merely inflates the money supply. The increase in money in a Social Credit economy is based upon scientific factors which Douglas identified in his A+B theorem. It's an accounting flaw that sees a fantastic shortage of money.

What does inflating the money supply do but cause price inflation. It's not a fantastic shortage of money. It's the production that will not sell because of the short-sightedness of producers and entrepreneurs.

You're argument will soon be, well, there's no shortage of money in Zimbabwe. That's true, but Douglas addressed this point in his testimony before the Alberta Agricultural Committee:

"What people who say that forget is that we were piling up debt at that time at the rate of ten millions sterling a day and if it can be shown, and it can be shown, that we are increasing debt continuously by normal operation of the banking system and the financial system at the present time, then that is proof that we are not distributing purchasing power sufficient to buy the goods for sale at that time; otherwise we should not be increasing debt, and that is the situation." (p. 90)

True. No argument with what he says the Bankers are doing. Here's the crux of the matter. the whole system of fiat currencies, "money" produced by central banks and credit monitored by central banks was precisely to solve the concept of a money shortage from the point of view of Banks and governments. The same as Douglas is attempting to do for consumers. Solve the problem of a perception of a shortage of money. Douglas believes that there will be no shortage if x=y, the value of production is equal to the amount of "money" to clear the production and suggests augmenting incomes as a means to shore up this perceived shortage. The Banksters thought they could prevent runs on banks with paper currencies, prevent depressions, pay for emergencies, like wars. Certainly, governments attempted to stay out of debt but it was fairly easy, and sometimes necessary to run a deficit. Banksters didn't mind. They loaned the government money at a rate of interest. In their eyes they resolved their problem too they can create money out of thin air but they know it must be paid back in production so it is a debt.

Douglas says that if X=Y everything will be fine. The flaw in his concept is that all production is included, as all production must be cleared. In my view, some production must be considered worthless and it is that part that doesn't clear.

Here is what will happen under Social Credit.

If the value, let's assume it is the price the market will bear, of a good is $100 the seller knows the buyer will pay that price, it is what the market will bear, and will add $25 to the price knowing the consumer will calculate the price at less than $100 after his price rebate.

The buyer will not pay $125, that price is too high, but he will pay approximately $92 dollars, calculating in his price rebate, and he would be getting a deal. The income augmentation, the twenty five dollars, would be eaten up by the producers. It becomes just a shell game.

It will lead to decreased prices through the price rebate.

It's a shell game. Decreased prices are deflation and prices only go down in the aggregate if the money supply drops or is stagnant. Prices are going up so that means....the money supply is being inflated.

Capitalists are always calling for a full employment economy - even classicalists. Capitalists know that a high unemployment rate with people unable to feed themselves will bring about revolution.

What Capitalists? If they are calling for full employment they are not doing so from the point of view of a Capitalist. Weapons manufacturers would not be particularly averse to that scenario. Capitalists capitalize on any opportunity or attempt any advantage in any environment. They do not call for full employment, that is a socialist, union or humanitarian concept. Full employment is a nice humanitarian idea but there are people that prefer not to work. You have said yourself you think people should have more leisure time and work less. The goal is to free the individual from production.

Everyone gives up some liberty to engage in production. This is out of necessity. The ideal would be to have machines do all of production. However; if this ideal ever came into being under current the current system, we'd all die for lack of income. The goal is to free the individual from production to the greatest extent possible. Obviously, machines cannot do all the work now, but that is one of the main goals of technology: to increase the productivity of labour, which means it takes less labour to produce. People need to be given the opportunity to contract out of unsatisfactory associations, and the dividend gives people this freedom.

We would all die from boredom. What kind of goal is it to be free from production? That is why people have little self-esteem. They produce nothing or feel their activities are worthless.

I agree. I'm very much against mandatory public education, for many reasons, including the one you site.

Wow. I don't get much agreement from Canadians on that point.

Your implicit assumption in this statement is that there is a 1:1 ratio between income an prices, so any increase in income automatically bears the same increase in prices. The whole Social Credit premise, based upon Douglas's A+B theorem, denies such a relationship.

No. There is a ratio between prices and "quantity of 'money' " available. They are proportional. Increase the money supply and prices increase - it is called inflation.

Exactly, so there can never be an "objective" measure of value.

There is only guessing and risk. That is what business is about.

Two quick questions. You think there is a shortage of money in the economy. Why is the quantity of money important? Most people will always be short of money, as a matter of fact, anyone that is not independently wealthy thinks they suffer from a shortage of money. You say there will always be poverty so what are you trying to resolve? If it is that people are working too much and too hard those problems were also attempting to be resolved by the introduction of the central bank and fiat currencies. It did for awhile at least. Most of us no longer work twelve hour days and six day weeks. Capitalists are probably the only ones that do.

Edited April 27, 2008 by Pliny

[socred]

And what's "priming the pump"? Adding money and credit to the economy? It certainly doesn't solve the gap. The gap will always be there. Douglas was right about Keynes.

"Priming the pump" is an attempt to increase people's incomes by engaging in capital production or through increased government spending. It can eliminate the gap temporarily, because there is a time delay between the income disbursed for capital production and its cost showing up in the price of some consumer good.

There are two types of goods: 1) capital goods, and 2) consumer goods.

The difference between the two is that a capital goods cost is carried forward upon purchase, wheras; a consumer goods cost is defrayed upon purchase.

For instance, take a potato. If I purchase a potato to eat it, then it is a consumer good, because once I pay for the potato, it's cost ends, and I consume the potato. However; if a restaurant purchases the potato to make french fries, the potato is a capital good, and the french fries are a consumer good, because the cost of the potato is carried forward and form part of the cost of the french fries. The cost of the french fries are defrayed upon purchase.

Some capital projects may take years before their cost shows up in the cost of some consumer good as a depreciation expense. The income disbursed on these capital projects can be used to close the gap on consumer goods in this accounting cycle, but will only create a further gap down the road when the cost of the capital project does make its way into the cost of the consumer goods it helped create, but the income disbursed will be gone because it will have been used on previous consumer goods at a prior time.

They have a different understanding of money. They don't consider fiat currencies or electronic entries as "money".

They have a "fantasy" understanding of money, because money has never been those things (at least in the last several centuries). Even under a supposed "gold standard", the vast majority of money was bank created credit. Gold was simply a "reserve currency" acting as cash does now. Money's value is not determined by its composition. People don't want gold for its own sake (unless they're making jewellry or some electronics). They want to use the gold to purchase the things they do want (food, clothing, shelter, luxury items....)

I've heard some "gold bugs" call for an end to fractional reserve banking. These ideas are not well thought out. An end to fractional reserve banking would collapse the economy. One of the main reasons we have the prosperity that we do is through the advent of fractional reserve banking. I agree that it's not perfect, but eliminating it would force us back to the dark ages. One of the reasons that empires like Rome and Spain were forced to pillage other societies was their search for gold. The gold standard is archaic.

I think fiat currencies and electronic entries have factored money out of the equation. It is just an accounting entry now.

That's the only purpose of money. A means of acCOUNTING. It's a ticket. Money itself is not wealth. Consumer goods and services are wealth. The purpose of production is consumption.

Perhaps I should have said "they attempt to control the money supply". What's the difference? I attempt to control my car and for the most part am successful. Their control is limited only by the tools they have.

Absolutely; because the vast majority of money is created by private commercial banks through loans to individuals and businesses.

The truth is it can increase or decrease the money supply at will

The truth is that they can increase and decrease the amount of cash and coin at will. Cash and coin represent a small proportion of the money supply.

Income augmentation, in the aggregate, simply devaluates the form of income. All manner of tinkering with, interest rates, the money supply, income augmentation, wage and price controls, does not bring prosperity. Prosperity is about abundance. Production is the only thing that brings about prosperity.

Again, this is assuming a 1:1 correspondence between income and prices. Yes, if there was this correspondence, there would be no need to increase incomes, and doing so would only bring about inflation.

I see you avoided my question in a previous post, because the whole argument rests on it:

I have yet to see anyone seriously refute Douglas's A+B theorem which is reproduced below:

“In any manufacturing undertaking the payments made may be divided into two groups: Group A: Payments made to individuals as wages, salaries, and dividends; Group B: Payments made to other organizations for raw materials, bank charges and other external costs. The rate of distribution of purchasing power to individuals is represented by A, but since all payments go into prices, the rate of generation of prices cannot be less than A plus B. Since A will not purchase A plus B, a proportion of the product at least equivalent to B must be distributed by a form of purchasing power which is not comprised in the description grouped under A.” (C.H. Douglas, “The Monopoly of Credit”)

Perhaps you would like to point out the error in reasoning in the theorem?

Douglas says that if X=Y everything will be fine. The flaw in his concept is that all production is included, as all production must be cleared. In my view, some production must be considered worthless and it is that part that doesn't clear.

You're confusing psychological demand with effective demand. There's going to be production in a Social Credit society which is not purchased. However; that production is up to the individual consumption habits of consumers. The point is that they should have the ABILITY to purchase that product with sufficient effective demand (income). That does not mean they WILL purchase that product. By guaranteeing a shortage of income, your are guaranteeing that a percentage of production will go unconsumed even if the consumers acutally WANT IT. That's WASTE! In fact, Social Crediters would argue that society engages in all sorts of wasteful production in order to obtain incomes to purchase the products that they do want, with the resulting degradation to the environment. If people were actually given the freedom to consume leisure, I'm sure alot of goods and services would stop being produced, because there is very limited psychological demand for them (Chia pets come to mind).

Here is what will happen under Social Credit.

If the value, let's assume it is the price the market will bear, of a good is $100 the seller knows the buyer will pay that price, it is what the market will bear, and will add $25 to the price knowing the consumer will calculate the price at less than $100 after his price rebate.

What keeps the seller from charging $125 now? Or $200? Or $300?

I guess you don't believe in competition?

Decreased prices are deflation and prices only go down in the aggregate if the money supply drops or is stagnant. Prices are going up so that means....the money supply is being inflated.

I already demonstrated the fallacy of this argument. Money can be increased and prices can fall if the money is used to cancel costs (i.e. through a price rebate).

Full employment is a nice humanitarian idea but there are people that prefer not to work. You have said yourself you think people should have more leisure time and work less. The goal is to free the individual from production.

I don't think it's a nice idea at all. I think its a form of slavery. However; people need income if they are to choose not to work. Without a dividend, people are forced to engage in production.

We would all die from boredom. What kind of goal is it to be free from production? That is why people have little self-esteem. They produce nothing or feel their activities are worthless.

I don't gain my sense of self-worth from work. I gain it from all sorts of activities. I'm not saying I would choose to quit work entirely, but I would probably decrease the amount of hours I engage in that activity. However; that's an individual decision. The point is that as technology replaces physical effort with machine effort in the productive process, people should be able to consume more leisure. Technology and its effect on unemployment is a release, not a curse.

Pehaps you are a puritan and believe that "idle hands are the work of the devil"? I'm not a Puritan, and in fact find that ideology very dangerous. Read the quote by Soren Kierkegaard which forms my signature.

Wow. I don't get much agreement from Canadians on that point.

You will find that there are some similarities between libertarians and social crediters; however, one is not money.

I think that mandatory government education is a form of brain washing. Many Canadians are socialists, even some of the ones who consider themselves "conservative". Canadians in general are more socialistic than they American counterparts. You will find that Albertans, such as myself, are less socialistic. In large part due to the fact that we had 35 years of "Social Credit" government in this province (even if the government under Ernst Manning especially was more socialist than social credit).

Why is the quantity of money important?

I want to be specific here, because not all money is income, which is the basis of Douglas's A+B theorem, and the fallacy of the "quantity theory of money". I seek to increase incomes, because it is essential that people have sufficient incomes in the aggregate to be capable of clearing all of production. Otherwise, we're purposefully engaged in a wasteful and useless activity.

Most people will always be short of money,

We're discussing macro economics, not micro. If people choose to consume more than their income after the price rebate and dividend are given to them, then they will go in debt, and if they do so continuosly, they will have to declare bankruptcy.

I hope you are able to see the forest through the trees?

You say there will always be poverty so what are you trying to resolve?

An accounting flaw.

If it is that people are working too much and too hard those problems were also attempting to be resolved by the introduction of the central bank and fiat currencies. It did for awhile at least. Most of us no longer work twelve hour days and six day weeks. Capitalists are probably the only ones that do.

"Capitalism" died a long time ago. What remains is more aptly described as "creditism". Socialism will result from capitalism unless the Social Credit principles are applied. We see this trend everyday through increasing taxes and government spending, redistribution programs and the like. These will continue to get worse, not better, unless this fundamental accounting flaw is rectified. The socialists don't want to rectify it because it is used as a tool to further their power. The libertarians hide their head in the sand like an ostrich and claim it doesn't exist, but nobody seriously considers their economic proposals because they would result in revolution as the unemployment capitalism naturally creates would force people into starvation, and the return to a gold standard without fractional reserve banking would shut down the entire economy due to a shortage of money, and return us to a standard of living equivalent to the dark ages. We are at a turning point in time, and I hope it's not too late, because slowly but surely our freedoms are being eroded through socialists attempts to "solve" this problem. Their "solution" is worse than the disease.

Edited April 27, 2008 by socred

[Pliny]

Where do I start? It seems we are all over the map here.

Firstly, your understanding of the gold standard is accurate. I don't think introduction of the gold standard is possible at present. It would definitely cause an economic collapse. But, having said that, I think under the current structure economic collapse is an inevitability. I think you can agree with me there.

You said something that merits note.

"We are talking macro-economics not micro."

This is the heart of the matter. You are solving an accounting flaw. You reason that the amount of income consumers get is always short of the cost of production. It is obvious because the cost of labour, i.e., incomes, is only a portion of the cost of production. Incomes in the aggregate, could never purchase all the production in the aggregate. Simple.

So what needs to occur, as a solution, is all costs in aggregate production must be accounted for and the aggregate incomes subtracted from that total cost of production, the balance being issued in the form of a national dividend so that aggregate income equals aggregate production, that way there is always the right amount of "money" in the economy.

I have to leave this here as I have run out of time for now but do I have that correct so far?

The next question is what is considered "production"? Governments add nothing to the economy but are a cost. Is the cost of government then factored in on the income side?

[socred]

Where do I start? It seems we are all over the map here.

I undestand that these responses can get too choppy when presented in this format, so I'm glad you narrowed down to a brief discussion again.

Firstly, your understanding of the gold standard is accurate. I don't think introduction of the gold standard is possible at present. It would definitely cause an economic collapse. But, having said that, I think under the current structure economic collapse is an inevitability. I think you can agree with me there.

Yes, we seem to be in agreement on this point. This is usually a point of contention between Libertarians and I, but you seem to understand that gold is not a sound basis for money.

You said something that merits note.

"We are talking macro-economics not micro."

This is the heart of the matter. You are solving an accounting flaw. You reason that the amount of income consumers get is always short of the cost of production. It is obvious because the cost of labour, i.e., incomes, is only a portion of the cost of production. Incomes in the aggregate, could never purchase all the production in the aggregate. Simple.

So what needs to occur, as a solution, is all costs in aggregate production must be accounted for and the aggregate incomes subtracted from that total cost of production, the balance being issued in the form of a national dividend so that aggregate income equals aggregate production, that way there is always the right amount of "money" in the economy.

That's "essentially" correct. The means of calculation of the size of the rebate and dividend are dependent on certain other factors, but in essence, that's what I'm saying. I'd like to add that the balance is issued in the form of a national dividend and a price rebate.

I have to leave this here as I have run out of time for now but do I have that correct so far?

Essentially.

The next question is what is considered "production"?

All domestic production of goods and services, whether capital goods or consumer goods.

Governments add nothing to the economy but are a cost. Is the cost of government then factored in on the income side?

All production creates costs. Prices and taxes are the methods for recouping those costs. Governments are essential for the operation of any economy. They provide law and order, military protection, and infrastructure.

[Pliny]

I undestand that these responses can get too choppy when presented in this format, so I'm glad you narrowed down to a brief discussion again.

Yeah, Whew!.

Yes, we seem to be in agreement on this point. This is usually a point of contention between Libertarians and I, but you seem to understand that gold is not a sound basis for money.

Now I didn't say that it wasn't a sound basis of money. It shouldn't have been abandoned.

If we wish to not have unnecessary wars we must basically not allow governments to create money and credit for themselves at a whim to be paid by later generations.

I do understand that we would never have so quickly been able to improve our standard of living or develop technologically so fast without a fiat currency, credit and fractional reserve banking. I don't know what our growth would have been had we stayed on the gold standard but I believe it would have been a slower more stable growth.

All production creates costs. Prices and taxes are the methods for recouping those costs. Governments are essential for the operation of any economy. They provide law and order, military protection, and infrastructure.

Remember, we are talking about the macro economy. Government does not figure into the GNP. There is no added gain from government. They are entirely a cost to production just as incomes are. They do not provide law and order, military protection, infrastructure, healthcare or education. They collect taxes to pay themselves and distribute taxes to pay lawyers and judges to provide law and order, they pay the military to provide protection, they pay trades to maintain an infrastructure, they pay doctors to deliver medical services and they pay educators to provide education. They collect taxes and provide nothing that couldn't be done privately without the huge administrative cost, not even mentioning it's wastefulness and inefficiency.

That probably sounds more Libertarian.

[socred]

Yeah, Whew!.

Now I didn't say that it wasn't a sound basis of money. It shouldn't have been abandoned.

If we wish to not have unnecessary wars we must basically not allow governments to create money and credit for themselves at a whim to be paid by later generations.

Governments would still be able to create money for themselves at a whim the same way it's done now - through debt.

I do understand that we would never have so quickly been able to improve our standard of living or develop technologically so fast without a fiat currency, credit and fractional reserve banking. I don't know what our growth would have been had we stayed on the gold standard but I believe it would have been a slower more stable growth.

The monetary system acts as a drag on the productive system. We can have both stable and "fast" growth with an adjustment to an accounting flaw.

'By an accounting method of analysis, the conclusion is reached that the value, at the current retail price-level, of goods produced far exceeds the flow of purchasing-power from permanent sources. In other words, recurring periods of business depression are shown to be the result of present financial and business policies." (C.H. Douglas, "Social Credit")

Instability is the results from the fact that the value, at the current retail price-level, of goods produced far exceeds the flow of purchasing-power from permanent sources.

Remember, we are talking about the macro economy. Government does not figure into the GNP.

Government spending is a part of GDP (except transfers).

There is no added gain from government.

There's all kinds of gains from government, which I listed in my last post. That's why governments exist in every society.

They are entirely a cost to production just as incomes are. They do not provide law and order, military protection, infrastructure, healthcare or education. They collect taxes to pay themselves and distribute taxes to pay lawyers and judges to provide law and order, they pay the military to provide protection, they pay trades to maintain an infrastructure, they pay doctors to deliver medical services and they pay educators to provide education.

This would be equivalent to saying Walmart does not provide goods, they merely collect revenue in the form of prices and use that revenue to pay their employee's income.

Government and companies are both forms of organizations. They are organizations of individuals designed to provide goods and services. In the case of government, mostly the latter.

I hope you can see the forest through the trees.

They collect taxes and provide nothing that couldn't be done privately without the huge administrative cost, not even mentioning it's wastefulness and inefficiency.

I doubt that law and order and military protection could be provided by private organizations, or else you would have seen it done in some society somewhere in the world. I think there are real reasons why people would be suspect of a military or the police, or the judicial run by a company responsible to its shareholders of which some would not be a part.

That probably sounds more Libertarian.

Oh, in my years on the internet I've run into the "government doesn't create wealth argument".

This is easily refuted. If a private company builds a bridge, it is wealth. However; if the government builds a bridge it is not wealth. This is absurd, because the bridge is wealth, no matter who creates it. The Soviet Union created wealth.

I would argue that governments do not create wealth as EFFICIENTLY as most private organizations, because they are a large bureaucratic organization. And therefore government should not be engaged in the production of most goods and services. But there are many things that government pretty much can only do (i.e. law and order and military), and there are some things I think it does better (i.e. roads); however the latter I'm certainly prepared to concede.

Take care.

[Pliny]

Governments would still be able to create money for themselves at a whim the same way it's done now - through debt.

Most probably, but they would have to sell the debt first, as they did by selling war bonds. Lincoln to finance the civil war bypassed selling the debt by creating the greenback.

The monetary system acts as a drag on the productive system. We can have both stable and "fast" growth with an adjustment to an accounting flaw.

I agree that the monetary system acts as a drag on the productive system, in the same manner government does.

There is good reason it should. It culls both unnecessary production and dubiously beneficial enterprises and /or investment in such. That does not mean there would not be entrepreneurs or a stock market. All production would more carefully considered.

Is macro-engineering of the economy necessary? It definitely is if there is a fiat currency. Otherwise governments would not know how much money to print or when to ease or tighten credit. If they just gavei t away it would not hold any value.

Is wealth redistribution necessary? If monopolies can be granted to corporations, yes.

'By an accounting method of analysis, the conclusion is reached that the value, at the current retail price-level, of goods produced far exceeds the flow of purchasing-power from permanent sources. In other words, recurring periods of business depression are shown to be the result of present financial and business policies." (C.H. Douglas, "Social Credit")

Instability is the results from the fact that the value, at the current retail price-level, of goods produced far exceeds the flow of purchasing-power from permanent sources.

I agree with Douglas that at the period of the quote, the time he made the statement, that financial and business policies resulted in recurring periods of business depression. I believe also that financial and business policies today also result in recurring recessions and value-eating inflation.

I do not agree it is a simple accounting flaw. Would perhaps the term Purchasing power be the bug?

In any trade both parties need to see advantage or trade will not occur. Purchasing power is then, not static. Demand and supply determine it. I believe you do see that the value is in the goods traded and is also dependent upon demand and supply. In my understanding, you see money as a facilitator of trade and a means of accounting of trades. But money itself has no value and is not even a commodity. It is perhaps only an electronic entry in a set of books. It is a token, a ticket; not only that but it is also a token with an expiry date.

As I stated a trade must have advantage for both parties or it will not occur.. In ages past a piece of paper that said on it, "This is five dollars" would not have been traded if issued by a King or a State. It would never hold weight outside the kingdom and only be used internally if forced upon people to use it - an underground form of money would indubitably evolve out of that, such as did in the USSR. Only something with purchasing power could be used as "money".

Here is my conundrum. Money as a token does not fully satisfy the terms of a trade. It is only half a trade because the person receiving the token has not yet realized an advantage. He must trade his token for a good he wants before the full advantage of a trade has occurred.

So what is the difference between a token and an ounce of gold? You might consider using gold in a trade as onnly half a trade as well, and this would be true if the person were not a goldsmith, a banker, a manufacturer that uses gold, a miner or the owner of a mint. The fact is though that there are people that use gold and therefore future trade and it's value as a commodity is more assured than a token, especially a token with an expiry date or one subject to inflation that loses purchasing power over time.

Since proponents of the fiat and/or paperless debit and credit system see no value in "money" itself, it is merely a system of accounting. The odd part of that is that one agency is in charge of creating debits and credits and can if necessary do so. Using a commodity they can't create it out of thin air. Now you see that as a problem because "money" will always be short. The answer to that is that money then becomes more valuable and accrues purchasing power over time. But, as the argument usually goes, there is not enough gold to go around. Well money will evolve and gold if it becomes too valuable will be augmented with silver or platinum or some other commodity that will hold it's demand-value over time. Pouring tokens or just adding credits into the system to augment incomes only decreases it's purchasing power. So there will always be a shortage of money.

Government spending is a part of GDP (except transfers).

That's a crime.

There's all kinds of gains from government, which I listed in my last post. That's why governments exist in every society.

This would be equivalent to saying Walmart does not provide goods, they merely collect revenue in the form of prices and use that revenue to pay their employee's income.

Not the same thing. Wal-mart does not finance itself by extracting money from my wallet first, pay itself and then with what is left over provide me with what it feels is what I need or should have or what it thinks I want.

Government and companies are both forms of organizations. They are organizations of individuals designed to provide goods and services. In the case of government, mostly the latter.

I hope you can see the forest through the trees.

I doubt that law and order and military protection could be provided by private organizations, or else you would have seen it done in some society somewhere in the world. I think there are real reasons why people would be suspect of a military or the police, or the judicial run by a company responsible to its shareholders of which some would not be a part.

Armies were mercenary at one point.

I guess you don't believe in competition.

Oh, in my years on the internet I've run into the "government doesn't create wealth argument".

This is easily refuted. If a private company builds a bridge, it is wealth. However; if the government builds a bridge it is not wealth. This is absurd, because the bridge is wealth, no matter who creates it. The Soviet Union created wealth.

Not easily refuted. The government would not build a bridge except to justify it's own existence. The bridge would then fall into disrepair. It would be expensive and probably not where people wanted it built but close to the Governers mansion.

I would argue that governments do not create wealth as EFFICIENTLY as most private organizations, because they are a large bureaucratic organization. And therefore government should not be engaged in the production of most goods and services. But there are many things that government pretty much can only do (i.e. law and order and military), and there are some things I think it does better (i.e. roads); however the latter I'm certainly prepared to concede.

Take care.

Well, we will more than likely disagree with economics until end times but at least I think we agree on a limited government.

[socred]

Most probably, but they would have to sell the debt first, as they did by selling war bonds. Lincoln to finance the civil war bypassed selling the debt by creating the greenback.

They have to "sell" the debt now to the American public through the polls. How effective is that. The US is currently engaged in a war and running a deficit.

I agree that the monetary system acts as a drag on the productive system, in the same manner government does.

With changes to the monetary system the government would take on its role as provider of law and order and protector against foreign invader. The government would turn from a redistributive tax collector to a payer of dividends.

There is good reason it should. It culls both unnecessary production and dubiously beneficial enterprises and /or investment in such. That does not mean there would not be entrepreneurs or a stock market. All production would more carefully considered.

The monetary system should not determine which production should be culled. Consumers should determine that. The former is a form of government.

Is macro-engineering of the economy necessary? It definitely is if there is a fiat currency. Otherwise governments would not know how much money to print or when to ease or tighten credit. If they just gavei t away it would not hold any value.

Depends how you define "engineered". I would argue that you cannot escape some form of "engineering" unless you advocate anarchy? Laws are "engineering". They are designed to tell us what we cannot do. Liberty for the individual is of primary importance, but there's still need to associate together for security and efficiency. Once we choose to associate together, we give up a certain amount of liberty. I certainly cannot go next door and kill my neighbor because I don't like him. The law against murder limits my liberty to kill.

In terms of money, the system will always be "engineered" by someone, because the money has to be created. Whether that engineering is commercial banks or central banks, or the owners of gold.

Is wealth redistribution necessary? If monopolies can be granted to corporations, yes.

The monopolization of industry is a direct consequence of the monopolization of credit. Monopolies are an instance of economic sabotage, where a product is purposefully kept scarce in order to maximize profits. This type of sabotage in ever increasing in our society, and it's a result of the fact that money is kept scarce resulting in economic insecurity.

I agree with Douglas that at the period of the quote, the time he made the statement, that financial and business policies resulted in recurring periods of business depression. I believe also that financial and business policies today also result in recurring recessions and value-eating inflation.

It's getting worse, as the a result of a system that is not self-liquidating where all the costs of production can be cleared through the purchasing power issued in that production, we are witnessing ever increasing debt both public and private.

I do not agree it is a simple accounting flaw. Would perhaps the term Purchasing power be the bug?

You have yet to point out the error in reasoning in Douglas's A+B theorem.

In any trade both parties need to see advantage or trade will not occur. Purchasing power is then, not static. Demand and supply determine it.

Demand and supply do not determine purchasing power. Banks determine purchasing power through the issuance of money. Demand and supply curves measure relative prices, not monetary prices. We do not live in a barter economy. Demand and supply analysis also assumes stasis. I do posess a degree in economics, so I'm quite aware of its limiting assumptions.

I

believe you do see that the value is in the goods traded and is also dependent upon demand and supply.

I do not believe that prices measure "values". People do not exchange "values". They exchange goods and services. Supply and demand determine the upper limit of prices, the cost of production determines the lower limit.

In my understanding, you see money as a facilitator of trade and a means of accounting of trades. But money itself has no value and is not even a commodity. It is perhaps only an electronic entry in a set of books. It is a token, a ticket; not only that but it is also a token with an expiry date.

Money itself never has intrinsic value (unless you're a collector). Money is simply a means to an end, even if that money is made of gold. People do not value the gold for its own sake: they value the gold because of what it may purchase (i.e. food, shelter, clothing, luxury goods.....). Money has no intrinsic value. If there were no goods for money to purchase, and you had billions of dollars, or a ton of gold, it would be worthless if you could not acquire food with it. You cannot eat gold, or money.

As I stated a trade must have advantage for both parties or it will not occur.. In ages past a piece of paper that said on it, "This is five dollars" would not have been traded if issued by a King or a State. It would never hold weight outside the kingdom and only be used internally if forced upon people to use it - an underground form of money would indubitably evolve out of that, such as did in the USSR. Only something with purchasing power could be used as "money".

Most money is bank created credit which has no government fiat behind it whatsoever. Most trade takes place with credit that is not enforced to pay debts. The only money you must accept in payment of debts in a fiat system is cash and coin, yet trade takes place all the time without its use. In fact, very litte takes place with the use of fiat money.

"The best definition of money with which I am acquainted is that of Professor Walker, which is that "money is any medium which has reached such a degree of acceptablility that, no matter what it is made of, and no matter why people want it, no one will refuse it in exchange for his product." You will see that this definition rules out any physical properties in respect of money. The properties that are left, therefore, are not physical. They can be summed up in the word "credit," which is, of course, derived from "credere," to believe. The essential quality of money, therefore, is that a man shall believe that he can get what he wants by the aid of it. This is absolutely the only quality that it is required to possess, although, of course, certain minor attributes, such as convenience, have a bearing on the decision as to what particular description of money, if it fulfils the major requirements, is likely to come into the most general use. The cheque, no doubt, owes its popularity to this latter attribute." (C.H. Douglas, "Warning Democracy")

Here is my conundrum. Money as a token does not fully satisfy the terms of a trade. It is only half a trade because the person receiving the token has not yet realized an advantage. He must trade his token for a good he wants before the full advantage of a trade has occurred.

So what is the difference between a token and an ounce of gold? You might consider using gold in a trade as onnly half a trade as well, and this would be true if the person were not a goldsmith, a banker, a manufacturer that uses gold, a miner or the owner of a mint. The fact is though that there are people that use gold and therefore future trade and it's value as a commodity is more assured than a token, especially a token with an expiry date or one subject to inflation that loses purchasing power over time.

Very few people use gold. If there were no food, people would not be concerned with creating jewellry, or electronics. Why should the supply of any commodity be the limiting factor on production and consumption? Shouldn't our ability to produce, and our psychological demand to consume be the limiting factor?

Since proponents of the fiat and/or paperless debit and credit system see no value in "money" itself, it is merely a system of accounting. The odd part of that is that one agency is in charge of creating debits and credits and can if necessary do so. Using a commodity they can't create it out of thin air.

A gold standard does not prevent banks from creating money "out of thin air". Again, most money under a gold standard is bank created credit.

Now you see that as a problem because "money" will always be short. The answer to that is that money then becomes more valuable and accrues purchasing power over time. But, as the argument usually goes, there is not enough gold to go around. Well money will evolve and gold if it becomes too valuable will be augmented with silver or platinum or some other commodity that will hold it's demand-value over time. Pouring tokens or just adding credits into the system to augment incomes only decreases it's purchasing power. So there will always be a shortage of money.

I've refuted this statment several times. Increasing the money supply through a price rebate decreases prices, which means that a dollar will buy more, thus increasing money's purchasing power.

Not the same thing. Wal-mart does not finance itself by extracting money from my wallet first, pay itself and then with what is left over provide me with what it feels is what I need or should have or what it thinks I want.

Agreed. But the only difference between taxes and prices is that the latter are forced to be paid. I did not say that government was necessarily a good way to produce wealth, but it can produce wealth. The arguments contrary to that view are based upon a poor understanding of money and the use of misnomers such as "companies make money, but the government doesn't". Companies do not "make money", that would be counterfeiting. Companies earn a profit (if they are successful), which means they earn more in revenue than they pay in costs. Governments can "earn a profit" as well, simply be running a surplus and taking back more in tax revenue than they expend in a year. Canada is doing this right now. Should the government take more in taxes than it spends? If the government wanted to run a huge surplus, all they would have to do is tax everyone 100% of their income, and pay no expenses.

Armies were mercenary at one point.

I guess you don't believe in competition

.

Not when it comes to armies. I don't want bands of mercenaries fighting it out to determine which army is stronger and who controls my land.

Not easily refuted. The government would not build a bridge except to justify it's own existence. The bridge would then fall into disrepair.

Why would it fall into disrepair?

It would be expensive and probably not where people wanted it built but close to the Governers mansion.

Bridges are built all the time nowhere near to a "government mansion".

Well, we will more than likely disagree with economics until end times but at least I think we agree on a limited government.

I'm hoping that we won't always disagree on economics.

Take care.

Edited May 2, 2008 by socred

[Pliny]

"The best definition of money with which I am acquainted is that of Professor Walker, which is that "money is any medium which has reached such a degree of acceptablility that, no matter what it is made of, and no matter why people want it, no one will refuse it in exchange for his product." You will see that this definition rules out any physical properties in respect of money.

Take care.

Here is what I think about money. His defintion is actually better as a definition for currency.

First of all as you say there must be "belief" in it, confidence that tomorrow they will be able to trade it for goods they want and others will accept it. So money is dependent upon that confidence. This takes time to evolve and build the trust of the people and if they have confidence in their "money" they have some economic stability. Thus trade can and will occur with the use of "money" and it is a great facilitator. So there must be confidence in the "money".

A government and a central bank issuing the currency that is to be used places the confidence in money upon the issuer - The government. Now confidence in money is replaced with confidence in government. This confidence in government means that no confidence is necessary in money. As long as the government is stable the economy is stable but it is also as stable as the government wishes. Our economic welfare is now not in money but is entirely dependent upon government. In other words the government has gained the people's complete economic dependence upon it. If we lose confidence in government we lose economic stability.

The American dollar is not doing well and so it follows there is not a great deal of confidence in the Bush administration. I have never been to Europe but I know some of the people like their national currency. I know from this that they have some confidence in their government. The rest who prefer having a European currency do not have too much confidence in their government. They will settle for a European currency. There are some benefits to a common currency. Ease of trade is one. But to the degree there is not more confidence in the European alliance there will be a proportional lack of confidence in the Euro. It is stronger than the US dollar but there is internal turmoil in the US politically.

So basically there has been a transference of confidence in money to confidence in governments. This transference moves any dependence upon future economic stability in the control of government instead of in a trusted and evolutionary agreement of confidence in whatever is determined to be money by the people using it.

This economic dependence upon government means that in the interest of economic stability we must support the government. It is our master and we, the people are no longer it's master.

[socred]

Here is what I think about money. His defintion is actually better as a definition for currency.

First of all as you say there must be "belief" in it, confidence that tomorrow they will be able to trade it for goods they want and others will accept it. So money is dependent upon that confidence. This takes time to evolve and build the trust of the people and if they have confidence in their "money" they have some economic stability. Thus trade can and will occur with the use of "money" and it is a great facilitator. So there must be confidence in the "money".

There must be confidence in money, yes I agree. And I'll also agree that the confidence must evolve over time.

A government and a central bank issuing the currency that is to be used places the confidence in money upon the issuer - The government. Now confidence in money is replaced with confidence in government. This confidence in government means that no confidence is necessary in money. As long as the government is stable the economy is stable but it is also as stable as the government wishes. Our economic welfare is now not in money but is entirely dependent upon government. In other words the government has gained the people's complete economic dependence upon it. If we lose confidence in government we lose economic stability.

Currency only amounts to a very small percentage of the money supply. Most transactions take place with the use of commercial bank created credit. I disagree with your statement above. What people have confidence in is the fact that when they lay their money down to purchase a good or service, the seller will part with said good/service for that money. This implies "faith" in the monetary system as a whole, which is the entire banking system, not just the Central Bank.

The American dollar is not doing well and so it follows there is not a great deal of confidence in the Bush administration.

There's many reasons the American dollar is not doing well. One would be the large annual trade deficits, and also the federal government deficit.

So basically there has been a transference of confidence in money to confidence in governments.

I disagree. People do not need confidence in their government to have confidence in their money. However; I will concede that political turmoil and the resultant economic insecurity tends to give people less confidence in their money, not because they don't have confidence in their government, but because they don't have confidence in their productive system to deliver anything for their money.

This economic dependence upon government means that in the interest of economic stability we must support the government. It is our master and we, the people are no longer it's master.

Money can either be a form of government itself, or it can be an effective tool to facilitate trade.

[Pliny]

May I make this point clear beyond all doubt?

It is the claim to the ownership of money which is the core of the matter. Any person or any organization who can create practically at will sums of money equivalent to the price values of all the goods produced by the community is the virtual owner of those goods, and, therefore, the claim of the banking system to the ownership of the money which it creates is a claim to the ownership of the country." - CH Douglas

This is in fact the case. This is the role of "money" today. And is the reason that I make the statement that economic stability is dependent upon the stability of government.

"Money, when considered as the fruit of many years' industry, as the reward of labor, sweat and toil, as the widow's dowry and children's portion, and as the means of procuring the necessaries and alleviating the afflictions of life, and making old age a scene of rest, has something in it sacred that is not to be sported with, or trusted to the airy bubble of paper currency." -Thomas Paine

"There are a set of men who go about making purchases upon credit, and buying estates they have not wherewithal to pay for; and having done this, their next step is to fill the newspapers with paragraphs of the scarcity of money and the necessity of a paper emission, then to have a legal tender under the pretense of supporting its credit, and when out, to depreciate it as fast as they can, get a deal of it for a little price, and cheat their creditors; and this is the concise history of paper money schemes." - Thomas Paine

Currency only amounts to a very small percentage of the money supply. Most transactions take place with the use of commercial bank created credit. I disagree with your statement above. What people have confidence in is the fact that when they lay their money down to purchase a good or service, the seller will part with said good/service for that money. This implies "faith" in the monetary system as a whole, which is the entire banking system, not just the Central Bank.

Yes, currency only amounts to a small percentage of the money supply. You do consider bank created credit as a portion of the money supply, do you not? I include "Credit" then, to be considered as currency under your definition. It is not currency or money under my definition. It is credit and thus a debt. This to me is not money.

A fiat currency or credit issued by a central bank is not money. It is a debt. As CH Douglas says himself it is a claim on the goods of the country and in following - The issuer is the virtual owner of the goods.

Faith in the monetary system is then virtually dependent upon faith in the issuer of the "money". People see the issuer as being their government. They view the central bank as the printer of the governments "money". I put money in brackets because your definition includes currency and credit as money. My definition does not.

There's many reasons the American dollar is not doing well. One would be the large annual trade deficits, and also the federal government deficit.

The trade deficits and the federal government deficit would then best be handled by different policies of government, would they not? There is no confidence the Bush administration will change it's policies and there is the consideration that it's policies are the foremost contributor to those economic worries. Faith in the "money" is directly proportional to faith in the government and it's economic and monetary policies.

Thomas Paine described what the "concise history of paper money schemes" is as quoted above. This is what is occurring today with the American dollar internationally. Devalue it as fast as they can and cheat their creditors.

Please consider that the American dollar includes not just the physical currency but also the credit it represents which I believe you include in your definition of money as it is part of the "money supply".

Gotta go! Later!

[socred]

Have to run to work, but will try to answer more fully this evening.

Wanted to comment on your last statement:

Thomas Paine described what the "concise history of paper money schemes" is as quoted above. This is what is occurring today with the American dollar internationally. Devalue it as fast as they can and cheat their creditors.

Please consider that the American dollar includes not just the physical currency but also the credit it represents which I believe you include in your definition of money as it is part of the "money supply".

The word credit derives from the latin "credere", meaning "to believe". That is the essential quality of money - that people have faith in it.

You claim the American dollar is intentionally being devalued. How do you measure its "value"?

[socred]

Yes, currency only amounts to a small percentage of the money supply. You do consider bank created credit as a portion of the money supply, do you not? I include "Credit" then, to be considered as currency under your definition. It is not currency or money under my definition. It is credit and thus a debt. This to me is not money.

Point of clarification. ALL money is created as a debt, including currency. So if you don't consider credit money because it's created as a debt, then you must not include currency as money.

[Pliny]

Have to run to work, but will try to answer more fully this evening.

Wanted to comment on your last statement:

The word credit derives from the latin "credere", meaning "to believe". That is the essential quality of money - that people have faith in it.

Agreed. No other quality will convince a person to exchange something for something that is only a guarantee of future utility.

You claim the American dollar is intentionally being devalued. How do you measure its "value"?

It's value is currently the cost of the ink and paper of which it is made. It used to be a binding contract of a promise to pay so it had value in that promise. It is now only an accounting tool and much of the "money supply", is as you say no more than an entry on a balance sheet and all "money" today is debt. Not only debt as in an individual's claim upon future goods and services but a debt to the central bank and a claim upon all goods and services by the "owners of the banking system".

What faith do I have in it to trade it? As long as the government has a law that says everyone must accept it in trade and they can enforce that law then I have every confidence I can trade it for the things I need and want. My confidence lies in the stability of the government. The "value" of the dollar today is only as an accounting tool. It is a measure of the value of goods and services, the measurement of the value of those goods and services is determined by the supply and demand of those goods and services against the "money supply". The "money supply" is determined by the policies of the central bank and the taxing and spending policies of the government.

They attempt to keep the money supply slightly inflationary. They don't want deflation and they don't want hyper-inflation both are contrary to confidence in, credibility or "belief" in the "dollar".

[Pliny]

Point of clarification. ALL money is created as a debt, including currency. So if you don't consider credit money because it's created as a debt, then you must not include currency as money.

All "money" today is created as a debt. It is as CH Douglas says. The creators of the money supply are the owners of all goods and services.

The question is always one of confidence in future ability to acquire the goods and services I need and want.

Should I put my "faith" in something the government decrees I put my faith in and of which ownership is claimed by the owners of the banking system, and which, without government, has no value but is indeed claimed as a debt to the owners of the banking system even in the event of the collapse of it's acceptability as money? Or should I put my faith in something I believe will have more trading value in the future independent of what any government or the owners of the banking system decree, and does not further make any future claim upon me as debt if it should ever become unacceptable as money.

At the moment I have no choice. Knowledge of "money" is such that it is not even realized by people that it is today a debt. You know that fact for certain. Another question to ask is if all money is debt why would I ever wish to hold a debt and confuse it as wealth. Because it is a debt to me? That is simply laughable. If it becomes valueless I hold no claim upon anyone. It is true the same could be said of gold or silver should that become valueless. Good luck on that ever happening, but even if it did, no owner of the banking system could in that eventuality claim all I owned was theirs. Because it was not a "debt" to them. It is simply something I had that was now worthless. The owner of the banking system does today indeed claim he owns everything I think I own and if he does not receive rent upon my use of his property he will seize said property. Why do you not believe CH Douglas?

Edited May 7, 2008 by Pliny