Sunday 1 January 2012

Debt and Living beyond Our Means

By: Socred, B.A., SCMP


It is often said by supposed financial experts that the reason there is so much debt, both public and private, is that we are “living beyond our means”. Their argument is that if we all just “tightened our belts” and consumed a little less, then we would not be in this financial mess. On the surface, this argument seems to make sense. We all know that we have a certain household income and if we spend more than our household income, then we must go into debt in order to do so. If we continue to spend more than we earn, eventually the debt will become too large to pay off and we will have to default on our debts.

Does this argument hold true for the economy as a whole? If all agents in the economy balanced their budgets, would we be in a better situation? Let’s explore what it really means to “live beyond our means”, and the possibility of balancing all budgets in an economy.

First we must eliminate money from our analysis, because money is just (or should be) a symbolic representation of the ability to consume and produce. The purpose of any economy is consumption, and this is only limited by our ability to produce. Finance should merely be a mathematical representation of these activities.
Production not meant for consumption is waste. In other words, the purpose of production is not to provide work, but to provide goods and services to consumers with the least amount of effort. This may seem to be common sense, but when we add money back into our analysis, common sense seems to leave most people, including supposed financial experts.

Now, without a doubt, it is possible for any individual agent to “live beyond their means”. What this means in real terms is that someone consumes more than they produce. However, if one individual consumes more than they produce, another must consume less than they produce (you cannot consume what has not been produced). The second agent is engaging in “savings” in real terms. Of course, the second agent would only consume less than he produced if there were some incentive to do so, and this is why the first must pay back the amount of goods and services “borrowed” from the second with “interest”. However, consumer goods only have a limited shelf life. They depreciate over time. Therefore, savings in this form does not exist in the macro-economy because goods and services cannot be “saved” for any length of time in order to be consumed at a later date.

The ability to "live beyond our means" seems to make sense from a micro-economic point of view involving individual economic agents, but from a macro-economic point of view it is completely absurd. Is it possible for an entire economy to “live beyond its means”? Momentarily excluding foreign trade - any economy produces a certain amount of goods and services, let’s call that quantity X. Is it possible for all of the agents in that economy to consume X plus a certain amount more (A)? If the economy produces X, is it possible to consume X+A? Clearly this is impossible! You cannot consume something that does not exist. A has not been produced, so you cannot consume it. For the economy as a whole, it is impossible to “live beyond our means”. Consequently, the “financial experts” advice, which applies to individual economic agents, does not apply to the economy as a whole. If we all consumed less, this would mean that more and more production would be waste, because consumer goods have a limited shelf life, and cannot be saved in order to be consumed at a later date.

Hold on, some will argue, you have exluded foreign trade from your analysis. With foreign trade, it is possible for one country “to live beyond its means” by importing more than it exports in goods and services. So it is possible for individual nations to “live beyond their means”. This is true. However, all countries are attempting to pursue a favorable balance of trade simultaneously. A favorable balance of trade means that a country wants to export more than they import. In real terms, this means that all countries are trying to give more goods and services away to other countries than they receive from those countries in return. From a macro-economic perspective, the country that exports more than it imports engages in “savings”, and the country that imports more than it exports is “living beyond its means”. Nations are individual economic agents in this analysis, and the macro-economy is the world economy. As we discussed previously, this type of savings is not real, because consumer goods have a very limited shelf life. Further, it is impossible for all countries in the world to consume less than they produce without a huge amount of waste. Thus, we need to understand why all countries pursue a favorable balance of trade.

The main reason why a favorable balance of trade is pursued by all countries is that it leads to economic growth in terms of GDP accounting. China is a prime example of how this policy leads to this type of growth. China had a balance of trade surplus of 14.5 billion dollars in November of 2011, and its economic growth was 9.1% in terms of year over year increases in GDP. Exports represent almost 40% of their GDP, yet the Chinese people themselves have a GDP per capita of less than $6,000 per annum in U.S. dollars. Their balance of trade surplus represents approximately 3% of their GDP. (source: trading economics). In other words, the Chinese live in relative poverty in order to give away 3% of the goods and services they produce so that they can pursue a policy of a favorable balance of trade in order to have economic growth. What causes this seeming paradox? Why would the Chinese give away 3% of their GDP to other nations while their citizens live in poverty?

This paradox is the result of confusion in regards to the purpose of the economy. The real purpose of the economy should be to provide goods and services to consumers. It does not exist to provide employment. It is true that a certain amount of employment is necessary to provide goods and services, but the less amount of employment required to provide goods and services, the better off we are. This is the whole purpose of science and technology. Advances in technology reduce the amount of labour necessary to produce goods and services. If we adhere to the belief that the economy exists to provide employment, then we will account for a favourable balance of trade as an increase in prosperity because it provides employment to those who are producing the goods and services. This is exactly how GDP accounting accounts for a favourable balance of trade. In other words, the purpose of an economy, according to the way we account for economic prosperity currently (GDP accounting), is to provide employment .

There is nothing wrong with foreign trade so long as the purpose of that trade is to give one country something in return for something else. However, there is a problem with foreign trade when the objective is to give away more than you receive back. This policy of a favourable balance of trade inevitably leads to a trade war between nations, which often results in a real war. War is the ultimate favorable balance of trade in that a country “dumps” bombs and bullets on another country at no cost to the other country with the intended purpose of not receiving any bombs or bullets in return. In fact, if war was accounted as an “export”, which it truly is, the United States would not be running as large of trade deficits in times of war. This is why the US economy is so dependent on war for its proper functioning. A large amount of propaganda in the United States is aimed at creating enemies so that the country can dump large amounts of exports on the enemy. This activity leads to employment and allows for economic growth.

These policies are insane in the truest sense of the word because they are all linked to confusion in regards to the true purpose of an economy. This policy has at its basis a philosophy which is non-congruent with reality. All policy derives from philosophy. Work is a by-product of an economic system, not an ends in and of itself. Because money is created as a debt and prices increase faster than incomes, the result is ever increasing debt. This increase in debt does not mean that we are “living beyond our means”, which in macro-economic terms is a complete fallacy. It is due to a misguided philosophy that is wreaking havoc on our world’s economies. There is a statement in the bible that “if any will not work, neither should he eat” (Thessalonians 3:10). This was certainly true at the time and place it was written, but that does not mean that this is a universal truth that holds for all time and all places. Just as Jesus said, “go sell what thou hast, and give it to the poor” (Matthew 19:21), he did not mean that everyone has to sell all they have and give it to the poor. This statement was true for the intended recipient, who valued his material possessions above all else. It was not meant as a universal truth to applicable to everyone.

Technology is replacing labour in the production. As such, employment is becoming an ever decreasing factor of production. This fact is responsible for an accounting flaw, which in turn makes it impossible to balance all budgets within an economy simultaneously. In a letter to the Social Credit Premier of Alberta, Douglas wrote:

"This seems to be a suitable occasion on which to emphasise the proposition that a Balanced Budget is quite inconsistent with the use of Social Credit (i.e., Real Credit – the ability to deliver goods and services 'as, when and where required') in the modern world, and is simply a statement in accounting figures that the progress of the country is stationary, i.e., that it consumes exactly what it produces, including capital assets. The result of the acceptance of this proposition is that all capital appreciation becomes quite automatically the property of those who create and issue of money [i.e., the banking system] and the necessary unbalancing of the Budget is covered by Debts."

In other words, a policy of attempting to balance all budgets in an economy simultaneously implicitly assumes that technological progress is non-existent. It assumes that the economy consumes exactly what it produces, including its capital assets (factories, machinery, etc..). However, we know that capital assets can last for years, so they are not consumed at the same rate as consumer goods. As a result, all capital appreciation (increases in capital minus depreciation of capital) becomes the property of those who issue money (the banking system) due to the fact that they are the only ones who can monetize the use of that capital. Since the banking system only issues money as a debt, capital appreciation and the monetization of its use results in ever increasing debt. This means that as we advance technologically, we are forced into ever increasing debt. It is technological advances and the displacement of labour in production which causes increasing debt loads, not "living beyond our means".

How do we solve this dilemma?

Douglas demonstrated in his A+B theorem that prices increase faster than incomes as a result of technological progress and the replacement of labour by capital in production. If we give people the necessary purchasing power to buy back all of production through a compensated price mechanism and a national dividend given to all, then debts will not increase over time. Further, the ability for consumers to obtain purchasing power without employment will end the pursuit of a policy of full employment. This will stop the insane practices of war and a favourable balance of trade in order to make the economy function properly. Increasing debt is not a result of “living beyond our means”, but the result of technological progress and the inability to balance all budgets in an economy simultaneously with this parametric shift. The Anti-Christian philosophy of Salvation through work perceives technology as something that enables us to do more work (and as consequence, producing ever increasing goods and services, and falling further and further into debt). The Christian philosophy of Grace enables technology to become a positive factor for progress because as physical labour is replaced by machines, people's purchasing power can be increased without having to do more work or go into every increasing debt. Only by increasing our purchasing power in accordance with capital appreciation, can technological progress become evidence of God’s grace. God’s grace is imperative to our salvation.

"The most dangerous man at the present time, said Major Douglas in answer to another question, was the man who wanted to get everyone back to work, for he perverts means into ends. This is leading straight to the next war - which will provide plenty of work for everyone."(Tragedy of Human Effort)

43 comments:

Anonymous said...

Dear Socred - B.A.

Sorry for communicating with you this way, but I have read your excellent blog and note you obviously have co-operated with veteran social creditor Wally Klinck.

Two questions, if I may:

1. In social credit literature we are told banks do not lend savings from depositors. Therefore, when I place money in to my bank savings account, what happens to this money? (Orthodoxy tells us that banks lend such savings to business firms etc to help 'grow the economy'.)

2. You write that technology is replacing human labour. Why is it there is a constant call by business leaders for more human labour? There are always complaints about skills shortages and labour shortages throughout English speaking Western world countries. So, what is going on?

Eagerly awaiting your reply. Many thanks.

Anonymous said...

I do apologise for communicating through a comments page, but I would like to ask you two questions, please:

1. In Social Credit literature we are told money deposited in a bank savings account is not lend by that bank. So what happens to the money deposited in a bank savings account/ Orthodox economists tell us such money is lend to business firms etc to enable industrial expansion and thus 'grow' the economy.

2. You write that technology is replacing human labour. Yet business leaders make constant complaints of skills shortages and human labour shortages. There is a constant demand for human labour. Why? What's going on?

Thank you

Socred said...

Hi:

Sorry for the delayed response. I did not check the comments for a few days now. I had to moderate comments because if you don't, you get too much spam posted on the comments.

Money deposited in a bank is not lent to anyone else. That would be illegal. I'm not sure what you mean by "what happens to money deposited at a bank". Banks cannot lend your deposit to someone else. Ask yourself this question, when was the last time your bank decreased your deposit because they took the money from that account to lend it to someone else? Every loan creates a corresponding deposit. That is how money is created.

The reason why there is a constant call for labour, even though technology is replacing labour in production, is that all income is tied to wages, salaries and dividends. And of those three, the first two are the primary source of income. In other words, people have to come up with more creative ways to "create work" in order to secure an income. Social Crediters refer to this phenomenon as "economic sabotage". There is an essay on this subject on my blog.

http://social-credit.blogspot.com/2008/12/economic-sabotage_05.html

Anonymous said...

Now it is my turn to apologise for a much delayed response to your answers!

You say you're not sure what I mean by "what happens to money deposited at a bank". What I am getting at is this: We are told by politicians and economists that as an individual we must save as much money as possible for our retirement and to buy a house etc. These savings are generally placed in a bank deposit account. Once there, the experts tell us this money so saved is then redistributed by the banks into investments; that is, invested in to the economy i.e. loaned to business people to expand their activities or to home lenders to build a house which employs builders etc. The flow on effect is to "grow" the economy. But social credit tells us the money you transfer into your bank savings account is not loaned out to others. Therefore, I was trying to understand what happens to the money we 'save' at any commercial bank. If it is not loaned to others, is it, for example, used as a reserve to enable a bank to borrow from other banks including a central bank?

In respect of business people and their constant demand for(usually low cost) labour. Is this also because human labour is a cheaper option than the employment of labour saving technology? I ask this because the West is importing thirld world labour i.e. Mexicans to work farms in America, Asians to work many service industries (builders, old age carers etc)in Australia, Britain imports medical doctors and nurses from, say, Africa and so on. "We need more workers" is the constant catch-cry from business people and economists.

If the primary reason for the West to have a large pool of labour for an ever increasing number of jobs - especially in Australia and Canada(farmwork and mining) centres on aforementioned labour being a cheaper option than technology, does this not bring into play the Douglas A + B theorem? i.e. the reason for ever increasing financial costs etc. Thus it is cheaper and more flexible to employ human labour than modern technology. Plus, of course, this is linked to the problem of excessive industrial production (the understanding of which we once again go back to the A + B theorem). Sorry for the very long comments. I'm just trying to pin down a few things.

Socred said...

Hi again,

No worries about the delayed response. I don't check the comments every day either.

In regards to bank deposits, most economists should recognize the fact that banks create deposits. In the introductory economics course I took in university, the text states:

"In the normal course of their operations, banks create money" (Blomqvist, Wonnacott, and Wonnacott, "Economics First Canadian Edition"pge. 201)

Also, the Bank of Canada states in a backgrounder article about the Bank:

"Commercial banks and other financial institutions provide the greater part of assets used as money through loans made to individuals and businesses. In that sense, financial institutions are creating money. " (Bank of Canada, "Bank in Brief")

Many economists are confused about the role of "savings" in an economy. You will actually hear them state that savings increase deposits, which is ridiculous. Unless someone hoards their money under a mattress, or they have some cash in a register as a float, or in their wallet, money is kept in a bank account. Even when people spend money (not save it)that money is simply transferred from one account to another.

Loans create deposits and repayment of loans destroy deposits. This process has nothing to do with savings.

Banks do not take someone's deposit, and lend it to someone else. That would be illegal. A loan creates both an asset and a liability for the bank. That is how they "balance" on a balance sheet. The loan is recorded as an asset to the bank, and the deposit that the loan creates is recorded as a liability.

This is a very good site about the process of money creation and fraction reserve banking:

http://wfhummel.net/index.html#2

There are many reasons why labour costs are cheaper than capital in developed countries. Probably too many to go into detail on a comments page. But I'll start with one.

Capital is paid for at the time it's built, and once again as accountants depreciate it over time via depreciation expenses. These capital charges, which really represent past consumption, would be eliminated in a Social Credit price rebate mechanism.

In other words, prices in our current system are a false reflection of reality. Douglas demonstrated that the real cost of production is consumption over an equivalent period of time, and that financial costs, which include past consumption costs (capital cost), are greater than real costs of production.

If you want a more detailed response, please read the article "Costs and Time" which is posted on my blog.

Anonymous said...

Back again.

Thank you for the answers above to my questions.

But just to clarify one little thing. When, for example, I take my $100 into a bank and deposit that amount in my savings account, that $100 stays there as a bank record? The bank does not use it as a "reserve" to borrow money from the international money markets or central bank?

I have been through social credit writings etc on the internet (among other reference sources)and note a fair bit of opposition to the Douglas analysis. He seems to have hit a raw nerve.

One Swedish chap involved in establishing interest-free savings-loans was dismissive of the A+B theorem. One internet "example" of the theorem stated: 'Businesses have different type of costs. One is payment to individuals (i.e. wages, salaries, dividends). This part we call A. Another part is interst, amortizations, payments for raw material and goods and services from subcontractors. This part we call B. A business must charge A+B for what it sells, but only A generates purchasing power.' In response, the Swedish chap wrote: "This is not true. The money business X pays to businesses Y,Z etc generates purchasing power to these businesses." In other words, the Swedish commentator supports the counterargument that B payments tranforms into A payments.

Another website attacked social credit by citing a book authored by an American christian who apparently proved social credit is socialism and originated among occult believers in the early 20th century.

How does one deal with such opposition and, I suspect, misrepresentation of C H Douglas?

Finally, I must ask you about the China syndrome. Where I write, we are told China will save us all. Indeed, the Chinese economy will save the entire world. China is where there is unlimited financial prosperity; China has an economic model which actually works etc etc. Would the Douglas analysis apply to China? (A+B theorem etc) Or will China operate differently to the West, and thus not drown in debt and end up with a huge gulf between the 'haves' and the 'have-nots'?

My apology for this long comment.

Socred said...

Hi again:

When you deposit $100 into a bank, that is a liability to a bank. However, if you deposit $100 cash, that cash forms part of a bank's reserves, and can be used to create further loans (banks profit from interest on loans). If you take a cheque and deposit it in a bank (assuming that the person who issued the cheque had an account at the other bank), then the bank you deposited the cheque with will demand reserves (ie. cash or other reserves) from the bank that issued the cheque.

I know it sounds a little complicated, and at times it can be. The Central Bank is the "bankers' bank". They create cash and coin. These form part of commercial banks' reserves. Under a fractional reserve banking system, banks only hold a fraction of their deposits as reserves. In Canada, it's about 3%. In other words, if everyone in Canada went to their bank and tried to get cash for their deposit, the banks would only have 3% of it. If you google the term "deposit expansion" you will find a rudimentary explanation of the process by which banks create money.

The important thing to remember is that every loan creates a deposit (money), and every repayment of a loan destroys a deposit (money). That is how money is created and destroyed. Banks create deposits, they do not "lend" them, in the ordinary sense of the word.

You should ask your Swedish commentator if he understands the difference between revenues and income. Payments to other firms are that other firm's revenues, but only a fraction of those revenues exist as income to individuals. Most of those revenues will be used to repay bank loans, or replace working capital. They do not exist as income.

Gary North's book is filled with what is known as "the strawman fallacy". He presents something that is not Social Credit, and then goes about attacking it. Gary North would not know Social Credit if it hit him in the face. He is an advocate of Austrian Economics and the gold standard. These people have a poor understanding of money which is comprised mostly of bank credit. You deal with misrepresentations of Social Credit by pointing out that they are misrepresentations.

China is not going to be a saviour to anyone. In fact, China is a prime example of how countries are forced to export more than they import in order to make their economies function properly. This is a corollary of the A+B theorem.


I hope I answered your questions.

Take care.

Anonymous said...

Thank you for your answers to my questions. Very much appreciated.

I have read books by C H Douglas and material from other social crediters, including yourself. However, I find that one needs more detailed technical information as to the workings of the money system i.e. re the use of bank savings and information on the drive to export just about everything. People come back at you with "how do we pay for the importation of a Mercedes Benz motor car?" and such like. We are also told, debt is not really a problem. But as Douglas made clear, debt does represent a problem - with a very flawed accounting system.

Anyhow, once again, many thanks. I had better finish and stop pestering you with so many questions. (Even though I would love to know from social crediters, "where to now?" for the Douglas analysis and social credit - as the central bankers have pumped out vast amounts of new credit to keep "our" highly centralised economic system going for a while yet. And besides, the average person just doesn't want to know - they have a mortgage, a job, prosperity; they accept the system as it is.)

Socred said...

Hi:

You certainly aren't pestering me. I just wish that I could respond to you more fully.

You might want to become a member of this Social Credit discussion group.

http://groups.google.com/group/socialcredit/about

I'm not sure why you think savings has anything to do with deposits, or exports and imports?

If a country has a current account surplus (exports > imports), then it must have a capital account deficit.

"A surplus in the capital account means money is flowing into the country, but unlike a surplus in the current account, the inbound flows will effectively be borrowings or sales of assets rather than earnings. A deficit in the capital account means money is flowing out the country, but it also suggests the nation is increasing its claims on foreign assets."

http://en.wikipedia.org/wiki/Capital_account

Debt is a problem when the debt increases faster than our ability to repay it - which is what happens under current conditions without the Social Credit mechanism to compensate for the accounting flaw discovered in Douglas' A+B theorem.

I think that the "where to now" is using the internet to educate as many people as possible. While most people "don't care", it's not the majority of people we need to reach anyway. The majority just follow along. We need to reach the highly motivated and educated minority, and then open their eyes.

Anonymous said...

Greetings again, Socred:

Thank you for your patience.

First, sorry if I did not make it clear re savings. I was talking in terms of what is fed to the public by economists and politicians i.e. we must 'save' because this is the only source of money lend out by banks and investment funds; and we must export in order to get the money to 'save'. After all, this is why we must borrow from China because they mostly 'save' their export earnings etc etc.

I write from another Commonwealth country, and we are constantly fed economic half-truths, myths and fallacies by the media, business world, and politicians. One reads the Douglas analysis and even the Bible, and one can easily discern the nonsense of much conventional economic thinking. People don't understand that we have been down the road of the "free market", economic growth and globalisation etc before - as in, been there, done that. But we end up with the same problems. Nobody stops and thinks, maybe we need to think again; It may be that our economic model doesn't reflect economic reality. But no, we are told economic growth, long working hours, and free trade lift people out of poverty, and therefore we must 'lift our economic performance'. Amazing....I can understand why a Douglas speech was titled The New and the Old Economics!

Two or three further questions (I feel awkward asking so many questions):

1. One argument against Douglas is this: How is it only Douglas discovered this accounting flaw, but no economist or banker? The implication being, there is no flaw in the disparity between prices and purchasing power. How would you respond to such a question?

2. In Delusion of Super Production, Douglas wrote of an "economic dispersion". Quote, "A little reflection will make it clear that it represents depreciation, obsolescence...etc, all of which are charged to the consumer instead of being a charge against the value of the product." I take it this is the flaw in a nutshell? How come it is not obvious to accountants? Why are the experts so scared of changing the system so as to benefit the individual?

3. I presume you are in communication with other social crediters like Mr Klinck. So, when you and your colleagues survey today's world scene, and in particular that of the Western world - where do you think we are heading? Douglas talked in terms of, we must fix this (accounting/economic) problem, or we shall end up in a new Dark Age i.e. a global slave state (albeit highly materialistic).

Many thanks.

Socred said...

Hi again:

Certainly don't feel awkward asking questions. I like answering them.

Savings have nothing to do with bank deposits. For instance, if I buy groceries using a debit card, the amount of the bill is transferred from my bank deposit to the stores. The money never left being in some bank's deposit, yet it was used for spending - it wasn't being saved.

Let me answer your three questions:

1) Bankers and accountants are "technicians" similar to a mechanic. If you want someone to put all transactions in the right leger, go to an accountant. What is all means is beyond the scope of accounting for the most part. They don't even consider it. On the contrary, economists do look at the bigger picture, but have a poor understanding of accounting. You can get a PhD in economics without ever taking an accounting course. That is the primary reason why most accountants and economists do not recognize this flaw. Accountants are not concerned with overall economic issue, and economists have a poor understanding of accounting and its effect on income and prices.

2) Depreciation and like charges are part of the problem, but not the whole. There are many reasons why there's a gap between income and prices (see The New and the Old Economics). The important thing to consider is that there is this gap, and what are we going to do about it. Austrians and neo-classical economics fail to recognize the gap, because their models deal almost exclusively with barter economies. Keynesians recognize the gap, but their solution is not a permanent one, and involves greater government control over our lives.

3) I know Wally Klinck very well. He is a good man. I think it won't be too long before the US is engaged in another war (likely with Iran). I think we're headed towards the abyss. One of the prime consequences of failing to deal with this gap is the production of waste in order to distribute incomes. We are degrading our planet, killing our young men in wars, and causing unnecessary hardship and stress on people. I hope and pray that enough people can wake up to see what's really going on.

Unfortunately, powers that would like to stop us are well financed, and it's hard to get the message out. I consider "Libertarianism" and the "Austrian School of Economics" to be a cult. A well-financed cult that controls the minds of many Americans. I also think that Keynesianism and Fabian Socialism has penetrated universities and government employees and bureaucrats.

It's an uphill battle, but I think education is the key, and the internet is a wonderful tool.

Take care.

Anonymous said...

At last! Time to myself.

Thank you for your response to my questions. I was very interested in knowing where you personally think we (the West and indeed the World) are heading. (And, yes, I too think another military war is on the horizon. Syria? Iran? Falkland Islands?) Anyhow, I doubt if too many people would even stop and consider the general state of affairs. They are either too busy or they think like professional economists i.e. everything is rosy, China and India will save us by having billions of very rich consumers, and we can keep plundering the earth's resources for ever - because there are unlimited resources. Which, of course, may be true, but then again once a certain coal deposit is gone, it is gone.

Questions: 1. In his Delusion of Super-Production, Douglas seemed to criticize the "orgy of unlimited production", then wrote, "If such a policy can be combined with a large decentralization of initiative, high rates of production would follow naturally, and the individual...would begin to reap the solid benefits of the use of mechanism,". What is your understanding of all this? Was Douglas advocating excessive capital production, or just enough to satisfy individual needs rather than a constant artifically stimulated urge to produce and consume like a glutton?

2. In the same essay, Douglas also wrote, "...the first need is for a revision of material necessities...to produce to a programme framed to meet the ascertained demands..." Invariably, people will say, this sounds like socialism. Your take on what Douglas was saying?

3. In chapetr 6 of Economic Democracy, Douglas wrote of the avoidable waste which rise in "...the obsession of wealth defined in terms of money..." How do you answer such an obsession? I see this obsession everywhere, and even journalists keep harping about it. They refuse or can't see the difference between financial credit and real credit, for example. They won't acknowledge, money is just a means to an end, but 'making money' has, of course, become an end in itself, as money is without doubt a "licence to live" instead of being a useful ticket item.

4. In the same chapter Douglas criticized the capitalistic wage system (based on the current methods of finance). In part the very existence of this system depends on "..the stimulation of desire, and in keeping the articles desired in short supply". How are the articles desired kept in short supply? Social Credit tells us there is nothing wrong with the production system, it can produce many times more than the individuual could consume.

5. In the industrialised world, we have long been told the West could operate on a 25 hour working week. (What happened to that one!?) Nevertheless, there is no need for the average worker or small businessman to put in a 40 hour working week, or even a 50 to 60 hour working week. I take it, the A+B theorem mathematically explains why the hours worked are not being lowered further, and why there is a constant increase in the cost of living? This may seem obvious to any social crediter, but I am just reinforcing my own understanding, because people are constantly being told that they must work harder and longer to either maintain or have an "ever higher" standard of living.

Looking forward to your answers. Many thanks.

Socred said...

Hi again:

Those are great questions, and sorry for my delayed response. I do believe we are headed for war with Iran.

I will respond to your specific questions.

1) I think what Douglas is saying in the delusion of super production is that high rates of production can be achieved in industries and for goods that people actually need and desire. In the same article he also states, "There is no more dangerous delusion abroad in the world at this time than that production per se is
wealth--it is about as sensible as a statement that because food is necessary to man he should eat
continually and eat everything."

Social Credit seeks to put the consumer in control of production, and in this way, goods produced would increase our wealth. Wealth comes from the old English word "wela" or "well-being". By putting the consumer in control of production (instead of the banks and government), then production of goods that increase our wealth could be greatly increased.

2) You have to read the words right after your quote to understand what Douglas was saying:

"So far from the necessity of this
country and the world, being an orgy of unlimited production, the first need is for a revision of
material necessities, combined with sound scientific efforts, to produce to a programme framed to meet the ascertained demands; not artificially stimulated, but
individualistic in origin whenever possible."

The primary factor in production is our cultural heritage. In orthodox economics, economists claim that the factors of production are land, labour and capital - and people should receive "rent" on these factors (wages are "rent" on labour). However, Social Crediters argue that our cultural heritage is our primary factor of production, and this is bequeathed to us all. As such, everyone deserves a dividend as productive capacity is increased.

Further, the origins of demand should not be artificial (i.e. advertising), but based upon the real needs of the people. If people do not have enough food, shelter and clothing, then there is the likelihood of revolution. This does not mean that we take from the rich. Social Crediters need not take from anyone. It means that we increase the wealth of everyone, including the poor, through a proper increase in everyone's purchasing power. Read my article on economic sabotage.

3) You answer such an obsession by demonstrating how money is created, and when discussing economic issues, taking money out of the equation. The purpose of production is consumption, and if anyone argues differently, then they are mad! Production not meant for consumption is purposeful waste.

4) There is nothing wrong with the productive system in terms of its capability to produce. However, firms seek to obtain a "monopoly" or "monopolistic competition" or an "oligopoly", because it's very difficult under the current financial system for firms in a competitive industry to earn a profit. An example of firms trying to create "monopolistic competition" is the desire to differentiate their product based upon a name (label) - even if this differentiation is superficial. In this way, the company can limit production and artifically increase price. There are all sorts of ways that firms try to limit competition in order to artificially limit production (supply) and consequently increase price.

5) People are told to work harder to produce useless and wasteful products that they either can't buy (capital production or forced exports) or do not want (which then require huge amounts of advertising to sell - most of which end up in the garbage dump). All this "work" is done in order to obtain an income sufficient to purchase the goods and services that people actually do desire.


BTW, did you join the Social Credit email group?

Anonymous said...

Thank you for your reply, Socred. Alas, though, much to my frustration, right now I am laid low with the flu/common cold. So hopefully will correspond with you ASAP.

Anonymous said...

Right, let's go! I am feeling a little better, today, even though a raw throat is still with me.

Re your answers March 12th.

Q.1: "It means that we increase the wealth of everyone...through a proper increase in everyone's purchasing power". Granted; but politicians tell us the only way to do that is to produce more and more stuff, and to work harder and harder. How would you answer such political nonsense? (Politicians seem to fail to appreciate the factor of automation and advanced technology.)

Q.2: You mention exports. Douglas doesn't seem to say a great deal about exports. But under social credit conditions, I take it exports would simply be a matter of barter? For example, we have coal, you have an aircraft (i.e. Airbus A320), we do a swap. In other words, we export what we do have for things which we do not or are unable to produce domestically. The mania for exports, of course, is a direct result of domestic shortage of purchasing power. Correct?

Q.3: In my country, politicians continually harp on about being "more competitve", and "the market" and what's good for "the economy". What are your definitions of "the market" and "the economy"? I mean who really controls "the market" or "the economy"? Big business interests? Banks?

And the preoccupation with being more competitve is,I presume, just a reflection of flawed economic orthodoxy - am I right with this one? After all, Douglas made it clear co-operation was the key, not ruthless competition.

Q.4: You may love this one. The government of my country has merged a number of government departments into a 'Super' Ministry of Business, Innovation and Employment. This new ministry is to focus on "lifting overall productivity and supporting business growth, which would lead to more jobs and higher wages".

In light of the Douglas analysis, what would you make of the focus as descibed immediately above? We hear much about "productivity". How we must be "more productive" and the labour force must be "more flexible" - which usually means workers must work longer and harder. What do you think politicians and economists mean by "productivity"? We get told that if we are more productive, we will end up with higher wages. Is this true? In reality, are what politicians doing simply going round in circles? I would very much appreciate your thoughts on the matter.

Q.5; The concept of a national dividend, of an income financed in part by new credits, doesn't seem to register with most people. They insist that if we create new credits (money) it will increase inflation. Have you had much luck in discussions with people about a national dividend?

Q.6: Have you heard of Australian Social Crediter, Victor Bridger? Alas, the man passed away last year, but he wrote an excellent book 'Social Credit and Economics' (2008). In my opinion, his book should be compulsory reading on all tertiary economic courses. Anyhow, have you read this book?

In the meantime the mania for "growth" continues - and have you, Socred, noticed that "growth" is always peddled by those who are laughing all the way to the bank?

Many thanks.

BTW, no I haven't joined up with the SC email discussion group. Too many other things on my plate, of late.

Socred said...

Hi again,

I will try to answer your questions below, I have posted two responses, because I ran out of characters for 1.

1)I would answer these politicians by asking them what businesses go out of business because there aren’t enough products on the shelves. Which cities have a zero percent vacancy rate?

Businesses do not go out of business because they don’t have enough products to sell. They go out of business because they have too much product to sell.

Unplanned inventory increases are a major concern for businesses, and this is a direct result of people having inadequate purchasing power to buy back all of production. You often hear politicians say that we need to build more “affordable housing” for the poor. However; you never hear them say we have to make the existing housing that exists more affordable. There is no “lack of housing”. There is a lack of “affordable housing”. These two statements are not equivalent.

2)The mania for exports is a direct result of a shortage of purchasing power. The desire to export more than a country imports is a desire to give away products because there is a lack of effective demand in the domestic economy. Obviously, all countries cannot pursue this policy effectively – yet all countries do pursue this policy, even if not all of them are effective at it (nor can they all be).

It is a mathematical impossibility for all countries to export more than they import. And when one realizes that this policy is designed to give away goods and services, the insanity of it becomes apparent. This policy is the result of a flawed philosophy in regards to the purpose of an economic system. The economy exists to provide goods and services. It does not exist to provide employment. Obviously, some employment is necessary to provide goods and services, but the less employment needed to provide those goods and services, the better off we are. Technology is replacing labour in production.

3)Well, I would argue that the banks and government have a huge influence on “the market”. Social Credit seeks to put consumers in control of the market.

In my opinion, Social Credit is the only way to keep “the market” free from influence beyond the consumer. The true purpose of production is consumption. Production not meant for consumption is waste.

The dividend and price rebates are macro-economic adjustments which are necessary to account for an accounting flaw that Douglas discovered in his A+B theorem. They are not meant to interfere with individual markets, because they apply equally to all markets. The price rebate mechanism is often misunderstood. The ratio of price decrease is equal across all companies, so there is no effect on relative prices – or the micro economy. It is a macro-economic adjustment. Competition can reduce prices, but co-operation is also essential to a modern economy. No man is an island, and all wealth is produced in conjunction with other individuals. Very few individuals produce anything that can be called “wealth” by themself. We are all dependent on each other.

However, Social Credit seeks to free the individual as much as possible. Allowing individuals to contract out of the productive system gives them the greatest amount of freedom possible.

Socred said...

4)Increases in productivity can result in higher wages, but the philosophy of the politicians is flawed because it is based upon “full employment”. In other words, politicians and economists see increases in productivity solely as a basis for producing more goods and services.

In my introductory economics text, it makes two basic assumptions about the human psyche and our environment:

a)“Our material wants are virtually unlimited or insatiable.”

b)“Economic resources are limited or scarce.”

Blomqvist, Wonnacott and Wonnacott "Economics, First Canadian Edition"

In my opinion, both of these assumptions are false. The first is a very materialistic conception of humanity. Jesus said, “Man does not live by bread alone…”. I would argue the first assumption is “evil” in intent, and that our current economy almost forces humanity into this philosophy. I would also argue that goods and services are not “scarce”. The economist will argue that because they are “limited”, or less than infinity, that resources are “scarce”. However, is drinking water “scarce” for a man in a boat on Lake Superior? The quantity of water is less than infinity, but only an idiot would argue that it’s “scarce” in relation to his ability to drink the water.

Social Credit is the economics of abundance. Orthodox economics is the economics of scarcity. I would argue we live in an age of abundance, and unless we change the economic paradigm, a great deal of waste will result.

5)This reasoning is a result of the ingrained “quantity theory of money”. Even if people are not explicitly familiar with this theory, they have had it ingrained into their psyche since they were a child. The quantity theory of money is a “myth”. The main cause of inflation is the increase in overhead charges relative to income combined with a policy of full employment. Overhead charges (B costs) always increase relative to income (A costs) as technology replaces labour in production. Any attempt to stabilize income (A costs) results in an increase in prices (A+B).

Also, the price rebate mechanism is an important element of Social Credit. It should not be forgotten or dismissed. It is easy to demonstrate that prices could be driven down to zero by increasing the money supply (not that this is a desirable result), but this demonstrates the fact that increases in the money supply can actually decrease prices.
Money is a flow, not a stock. By increasing the money supply as a “reverse flow” designed to cancel costs at retail to consumers, the money supply can be increased, and prices can fall.

6)I knew Vic Bridger quite well through email correspondence. He was a giant in Social Credit, and his passing was quite sad. I have his book “Social Credit and Economics”, and have read it a few times. It is quite good. I was quite sad when I heard of his passing away.

Anonymous said...

Greetings.

Thank you for your replies to my questions.

This will be either my final or more probably my second to last set of questions. Like I have said before, I do feel awkward launching so many questions in your direction, but apart from yourself and Wally Klinck, I haven't come across too many social crediters out there who have much in the way of technical knowledge, both of economics and the Douglas analysis. (Victor Bridger was one, but, of course....)

Q1: Re productivity. I know Victor Bridger did tell me once that there is much nonsense spouted about productivity by economists and politicians. Anyhow, an increase in productivity can be the result of the application of advanced technology or automata than the employment of human labour? Is this a correct assumption on my part?

Q2: You write that it is incorrect to assume economic resources are scarce. Excuse my ignorance, but do these resources include natural resources? England, for example, plundered its vast coal resources for 200 years. Their coal reserves have now become much more scarce then they were in the year 1850. What I am getting at is the mania for hyper capital production and the increase in resource depletion. China, we are told, if it consumed resources at the rate of the USA, then man will need another planet Earth.

Q3: You also write "production not meant for consumption is waste". The businessman will come back at you and simply say, "very well, let's increase the population of consumers." In other words, Canada must have, not 35 million inhabitants, but 350 million happy little consumers. Your response?

Q4: Government bureaucrats in my country tell us that debt is not a problem. For example, local government debt is, they insist, an ACCEPTABLE way and standard international practice to spread financial costs over the generations rather than burdening one generation. What would your counter-argument be, if any?

To me, debt is a problem. It represents a deficiency in purchasing power, and thus we come back to the explanation in the A+B theorem. Am I right or wrong?

Q5: One social crediter reckons the financial system will become increasingly difficult to operate due to the lengthening of industrial lead times. I think I understand the argument centres on industrial costing, the accounting flaw in the disparity between incomes and prices etc. Anyhow, would you agree or disagree with the first sentence above?

Q6: Social Credit says that, for example, the Western world could easily operate on a 25 hour working week and give everyone material comfort(Douglas wrote something along this line, and I am sure you, yourself, would probably appreciate a 25 hour working week, thus more leisure time). Does this argument remain valid considering everyone is now told they must work until they are 70 and a 50 hour working week is more "productive" than a 25 hour working week?

Q7: You wrote previously that you think we are heading for the abyss. In other words I take it that economically and politically things are only going to worsen? (But never fear, we are told, China has all the money and will save the world.) But could you also be talking in theological terms? I mean, I have read the Christian New Testament and it seems to me the warnings by Douglas about increasing centralised control over both the individual and systems are going to continue until God himself says "enough!". In other words the power of those who control world banking is formidable. Your opinion?

I appreciate your time and effort in responding to my questons. Once again, many thanks.

Anonymous said...

Socred,

Greetings. On your main page, 19 comments are listed, however when one opens the comments,only 18 comments (the 18th being my questions) are actually published. Did something happen to the 19th comment? (Which I presume may be your answers.)

Socred said...

I'm not sure why it says there is one more comment than actually posted. Maybe one was spam that I deleted? I have not had the opportunity to answer you yet, but will now.

1)Increases in the productivity of labour means that it takes less labour to produce a unit output. Or put another way, the same amount of labour is capable of producing more output through increases in productivity. Productivity is generally increased through the use of technology.

2) I claim it’s incorrect to assume that natural resources are “scarce” relative to our psychological demand for them. This is a “tricky” subject, because while coal may have been depleted, the real “resource” that people were seeking is energy. Energy cannot be created nor destroyed, merely transformed.

Further, it’s important to note that while all resources are finite, that does not necessarily make them “scarce”. Look at my analogy of fresh drinking water for people floating on a boat on Lake Superior. The fresh water is less than infinite in supply, but it’s not scarce in terms of drinking water for people floating on a boat. One has to remember than a lot of our current production is “superfluous” and is designed to distribute income, not increase “wealth” in the true sense of the word.

3) You can increase the population to as large a number as you want, but this still does not deny the truth that production not meant for consumption is waste.

4) The physical cost of production is complete when that production is finished. The “real” cost of World War II was when the last bullet was fired. There is no such thing as a “debt” in nature.

Read my article on costs and time. The only time that exists is the present. You cannot defer real costs to the future. All real costs are current costs. The A+B theorem explains why there needs to be exponentially increasing debt to make the economy “function”.

5) I agree.

6) The statement about the 25 hour work week is more true now than it was when Douglas wrote it. We have been duped into believing we have to consume more and more products. And companies are producing more and more “shoddy” products in order to maintain a customer base. Read my article on economic sabotage. Much of our current production is designed to be wasteful.

7) I’m not so bold as to attempt to predict the future with absolute certainty. I do however see the situation getting worse. Look at what’s happening in the U.S. and Europe. These crises will be used to centralize the power of finance even further, and the power of the individual will become ever diminished. This policy derives from an Anti-Christian philosophy.

Anonymous said...

Greetings. Thank you very much for your answers. Truly most helpful.

Further questions:

1. Douglas wrote, :...that a continuous rise in the cost of living absolutely must take place, apart and above that represented by currency inflation..." In the English speaking world, we are told inflation has, since the 1990s been kept very low - for example in my country, since the year 2000, annual inflation has been 3.7% p.a. How can inflation be kept relatively low, yet living costs keep rising seemingly higher than official inflation? Are we being fed false data by governments, or is a low cost of living being maintained by cheap imports? Also, what is meant by "currency inflation"?

2. Douglas continues, "[cost of living] palliated by...more efficient productive methods, but leading along a path of cumulative fierce competition and harder toil to an absolutely inevitable breakdown." In this day and age, would those more efficient productive methods include the use of cheap labour countries? Do modern technologies employed in manufacturing also help reduce costs, to some degree? Would you say the term "inevitable breakdown" is something inferred to be a 'oncer' or do such breakdowns occur frequently and are known as recessions?

3. Do commercial banks lend money one to another? Do these commercial banks obtain funds from central banks? (In this part of the world, the banks are now fuelling another property bubble.) I often hear people say in this part of the world, we can only get money from borrowing overseas and banks get this money by borrowing on international money markets. So, who controls these international money markets? Social Credit says banks create money out of thin air. Therefore, what is the link between this money creation process and intl. money markets?

4. I understand you are a manager with a degree in economics. What was it that attracted you to the Douglas analysis and social credit? What was it that made social credit seem "right" in comparison to economic orthodoxy?

To me, unless someone can come up with a better explanation, C H Douglas seems to have hit the bullseye with his mathematically based analysis. Not only so, but the reaction he got from the powers that be is, to me, proof positive, Douglas was on the right track. Also, social credit fits in much more with the Bible and Christianity than this free market, excessive capital production, hyper economic growth philosophy we are forced to operate with.

5. Did the Austrian School of Economic Thought, feed or morph in to the Chicago School of Economics? (Which peddles 'free market', deregulation, privatisation etc.) Are they both conncted?

6. You mention the situation in Western Europe and the United States of America. Will such financial chaos eventually - sometime in the future - occur throughout Asia? We are told that this market is so big, it can keep the banking/financial system going for a very long time.

7. Headlines in our local newspaper, Socred. "Worker shortage may curb...growth". Apart from the fact there have always been complaints of labour shortages since the advent of the industrial revolution, this fixation on "growth" is a result of the disparity between incomes and prices? In other words, we are being forced to run ever faster on a treadmill? Incidentally, there are people who dismiss the accounting flaw as discovered by Douglas. How would you respond to such people?

Anonymous said...

cont...

In the meantime, the average person survives as best they can; and the economic system continues as before. Victor bridger once wrote that at the rate things are going, it may be the 22nd century before Douglas is discovered! After all, there has to be a reason why social credit policies are deliberately suppressed and mocked by academics, bankers and politicians. Personally, I link it to an Anti-Christian philosophy which rules the day.

Many thanks, Socred, for both your help and your patience with my many questions.

Socred said...

Hello again. Like I stated previously, I enjoy answering these intelligent questions.

1) I’ve had this discussion with a professional economist, and see it daily as a purchasing professional. Companies tend not to raise their prices; they decrease the quantity you receive for the same price. This is effectively a rise in prices, but is not recorded as inflation. For instance, assume that you once paid $1.00 for a 100ml shampoo, and they decrease the size of the shampoo from 100ml to 90ml for the same price. The price of the shampoo is still $1.00, but the size is 10% less. This is effectively a 10% increase in price, but is not recorded that way by government statisticians.

We are being fed false inflation data – not necessarily purposefully, but due to cost and time constraints. Further, prices are kept somewhat lower through the importation of goods and services from countries with low salaries.

Currency inflation is the rise in the quantity of currency coupled with a rise in prices. It is the “classic” definition of inflation by orthodox economists, but I would argue not the primary cause of inflation (see my article “Costs and Time”)

2) Cheap labour countries are using more and more technology, but technology replaces labour in production. This tends to increase the supply of labour relative to demand which, ceteris paribus, reduces the return on labour (wages) relative to capital. As long as people are reliant on work for income, this will result in fierce competition for fewer and fewer jobs. The government and the banks must then employ a full employment policy to maintain political stability, and this policy results in wasteful production and inflation.

Douglas stated "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."

Socred said...

3) Commercial banks lend money to one another. Central Banks are the “banker’s bank”, and commercial banks obtain reserves from them.

There is absolutely no necessity to acquire money “overseas”. Money is created by commercial banks every day. There is no limit to the amount of money that the banking industry can create. In other words, if someone tells you that money is scarce, they are either a liar or a banker.

4) I always had my doubts about debt and how we could be falling further into debt. I was also very interested in monetary economics, but found orthodox theories about money and its role in the economy lacking. Once I discovered Douglas and his ideas, I realized that someone had come upon a real solution to this dilemma. Further, his Christian philosophy also struck a chord since I am one myself. I believe that Social Credit is the incarnation of Christian principles in our economic life.

5) I’m not aware of any connection between the Chicago school of economics and the Austrian School. I have studies Milton Friedman when I was in university. Austrian economics is merely re-hashed classical economics, and really makes no distinction between macro-economics and micro-economics. At least Keynes recognized the distinction.

6) I assume that once Asia fully “capitalizes” it will have the same problems as the western world.

Most economists dismiss the accounting flaw discovered by Douglas because they claim that B payments (payments to other firms) are income to those firms. These economists do not understand the difference between revenue and income. B payments are revenues to other firms, but only a small portion of those payments are actually distributed as “income” to individuals. Most of that money is used to repay debts or replace working capital. Economists generally have a poor understanding of accrual accounting and how it relates to income and prices.
There are currently labour shortages because government and the banks pursue a policy of full employment. Sometimes this policy leads to “more than full” employment, because they do not have as much control as they would like to think. Much of this “production” is waste. I’m surprised Green Peace has not picked up on Social Credit. This production is designed to give consumers income so that they can purchase the goods and services they truly need and desire. It’s production for its own sake. Take oil and gasoline for example. Most of the gasoline I consume is going to and from work. Of course, this consumption creates more jobs for those producing oil and gasoline. It’s a viscous circle of ever increasing economic “growth” necessitated from an accounting flaw Douglas discovered almost a century ago.

Anonymous said...

Thank you for your answers, Socred.

Questions:

1. What is the situation with all the answers you have given me in regards to copyright. Are any readers allowed to use the information in your answers? (For example, writing public letters.)

2. Over in Western Europe, the bankers and politicians have apparently created a $1 trillion "firewall" - presumably to stop the Greek contagion, so called. Is this just a stop-gap measure, a last ditch attempt to 'save the day'? Or is it another "rip-off" by the banking system?

3. In 'Money and Banking' by Hoyle and Whitehead, we read, "Consider a deposit of $100, of which only $8 is likely to be required to meet the customer's needs, and the balance of $92 is available. The banks did not regard this as $92 available to lend to customers, but as the cash ratio for loans to a much greater sum. Of what sum is $92 eight per cent? [The answer being $1150.] In theory the bank could...$1150. The customer has borrowed the money to spend, so let us pretend that in the eighteenth century he bought the herd of cattle for $1150. The vendor of the cattle would not know that the money was a pure invention, and would pay the cheque for $1150 into his account, but the...probability was that he would only then ask for 8 per cent of it, i.e. $92 - the exact sum which the bank has available...The whole process is usually called the creation of credit..."

And yet, in chapter 1, the authors write, "Despite the risky nature of local banking in the eighteenth century bankers did much to foster the growth of industry...They collected funds from the prosperous agricultural aristocracy and lent it to the new industrialists in the North [of England]..."

In the words above, do we see the genesis of modern day credit creation? That is, a development from actual real commodity money i.e.gold, for example, to money being blips on a computer screen?
Do we also see in the words above an element of present day confusion as to why people think banks only lend what people deposit with the bank? i.e. they only lend other people's money, the example of money from the farming aristocracy being given.

Sorry for all this verbiage, but I'm trying to understand the gist of why people still think banks are merely intermediaries of money, and not manufactories of money as revealed by Hoyle and Whitehead.

4. If a country adopted social credit policies, how would it deal with what is described as international banking? For example, the American Federal Reserve; and the IMF; and foreign exchange rates?

5. We are told wealth and propsperity can only come by export/imports, in other words by global trading. Is the basis for prosperity international trade? or the invention and application of science and technology?

Anonymous said...

continue...

6. The accounting flaw discovered by Douglas. Essentially we consumers are charged with the likes of depreciation, but not credited with appreciation? In other words we are forced to operate with a financial accounting system which does not balance without incurring debt? Correct?

7. I often come across many people who glorify in "working hard". The insist if someone is not "working long and hard", they are not contributing to, say, national wealth. These people seem to think it is better for a person to work (for money) 60 to 70 hours per week, and , furthermore, they totally reject any thought of a country operating on a 30 hour working week as impractical and too idealistic. What would you say to such people?

Incidentally, I enjoyed your essay touching upon the subject of "leisure" and finishing with the quote by Kierkegaard. Do you have a reference source for that quote? (I presume Kierkegaard was a Christian?)

Once again, many thanks.

Socred said...

Hi again, I'll respond to your questions below.

1)You may repost any of my responses, or use any information that I have given. I’m not doing this for money. I’m hoping to reach enough people to affect change.

2) Probably both.

3) The theory of deposit expansion is a myth. Reserves do not create deposits. The causation is the exact opposite. Banks create deposits through loans, and then go about finding the reserves necessary to maintain liquidity. The essential point to remember in terms of money creation is that every loan creates a deposit, and every repayment of a loan destroys a deposit.

Most money has always been credit. The idea that money was at some time all gold or some other commodity is another myth. See Alfred Mitchell Inness’ book “What is money”

4) Could you elaborate?

5) Wealth can come from imports or domestic production. Exports are the export of wealth.

I would also like to add that the word wealth derives from the Old English word for well being (wela). I would argue that production that does not increase our personal well being is not wealth.

6) We are charged for capital depreciation, but not credited with capital appreciation. The financial system does not balance at all. Increasing debt is the proof that it does not balance.

In a letter to Aberhart, Douglas stated:

"This seems to be a suitable occasion on which to emphasise the proposition that a Balanced Budget is quite inconsistent with the use of Social Credit (i.e., Real Credit – the ability to deliver goods and services 'as, when and where required') in the modern world, and is simply a statement in accounting figures that the progress of the country is stationary, i.e., that it consumes exactly what it produces, including capital assets. The result of the acceptance of this proposition is that all capital appreciation becomes quite automatically the property of those who create and issue of money [i.e., the banking system] and the necessary unbalancing of the Budget is covered by Debts."

7) Tell them that we must then destroy all technology. This will get everyone working hard again.
Improvements in process reduce the need for labour in production

Soren Kierkegaard was a Christian. The reference for the quote is his book “Either/Or”

Anonymous said...

Greetings. My apology for this late response, but one has been busy with a number of things.

Re question 4 in the previous post:

Q1: If Canada, for example, adopted a social credit dispensation, how would it deal with the likes of foreign banks and the IMF? How would it deal with foreign currency exchange rates etc?

Q2: Under social credit, I take it exporting would not be a priority and that a social credit economy would only export what it could not produce i.e. a form of barter, as in coal for aeroplanes, or food for high tech equipment. Correct?

Q3: Previously, you mentioned that social crediters need to convince the 'educated class' as opposed to the 'majority'. In my country, we have a Minister for Finance who insists commercial banks only lend what people have saved with those commercial banks. Therefore people need to "save more" so that the banks can lend more money to producers, so that we can have "economic growth". Furthermore, we have a Prime Minister (a former foreign echange banker)who understands that the American Federal Reserve cranks out the printing press, so-called, and creates money out of thin air, but "we" shouldn't do that because it will lead to inflation. Our prime minister however seems not to understand the greater implications surrounding 'money creation' (e.g. any shortage of money is entirely artificial) or that inflation can be neutralised; and that a country neeed not "import" so-called capital as a debt from overseas banking entities.

The point I am getting at is this: the two examples cited above are part of the educated class. They would have IQs above the average. Now how would one penetrate the thinking of such individuals? Apart from the fact such individuals live in a world of their own. It is a bit difficult for the average person to even have a personal conversation with the "decision-makers". Besides, the educated class are doing very well for themselves, financially speaking. The system serves them very well; in other words, they don't want to know about any accounting flaw or genuine freedom for the individual (except themselves). I don't mean to sound negative. I am just pointing out a few realities of how things stand - at least in my country. No wonder Douglas talked in terms of the people needing to be de-hypnotized.

Anonymous said...

continue...

Q4: Another example of the thinking of the political leaders from my country.

Our politicians now ""...want more two way investment with China, Foreign Affairs Minister...says.

"We believe there is room for an increase [in Chinese investment] to match our growing trade relationship."

The article continued on about bringing together political, business and cultural leaders etc. The usual thing. Anyhow, Socred, what exactly is foreign investment all about? What is foreign investment from a social credit perspective?

(I remember you once stating China won't save anyone. Alas, we are here dealing with politicians!)

Q5: I have been told by some of the well-to-do that social credit proposals are "too idealistic", or simply not "viable". How would you answer such criticism?

Q^: Have you heard of Australian economist Professor Steve Keen? Although he still adheres to orthodoxy, at least he is one economist who acknowledges that financial debt is a major problem and that the academic subject of economics leaves a lot to be desired. Are there any other economist or businessmen like Irish investor Christopher Quigley, who question current economic thinking? There is at least one economist in my country who has called for something similar to a National Dividend for all adults - although not quite as Douglas proposed. (You still get people who ask very loudly, "Where will the money come from?")

Thank you very much for your time. All the best.

Anonymous said...

Dear Socred,

Posted a number of questions on about April the 10th, but no response. I'm not sure, but perhaps some of my questions/viewpoints may have upset you?

If so, please accept my apology. As I have written before, I have been very grateful for your answers.

Thank you.

Socred said...

Hi:
Sorry, I've been very busy over the last few weeks. Nothing you said upset me, I just haven't had time to look at this blog, and now I won't have time to respond to your questions until next week.

Sorry for the delay, and don't ever feel that you've offended me if I don't respond right away. I actually feel bad that I haven't had time to respond to your thoughtful questions.

Take care.

Socred said...

Hi again,

I'll respond to your questions below:

1)

foreign banks and the IMF? How would it deal with foreign currency exchange rates etc?
“Theoretically, exchange works in this way. The price of exchange
of the currency of a community is inversely proportional to the
price level of the country to which it relates.
Supposing you have the exchange level between francs and pounds
this week, [of] one-hundred to one. This means that the Frenchman
will pay one-hundred francs for every pound sterling. He can buy
of English goods for one pound what he can buy in French goods
for one-hundred francs. He will not pay for the pound, more or less
than this amount.

Then suppose that by some process, next week, I reduce the general
price level from a price level of one-hundred to a price level of
fifty. Immediately, the Frenchman is prepared to pay two-hundred
francs for every pound because with one pound he can buy in
England what he can buy in France for two-hundred francs.
The fly in the ointment of this theory is that the Exchange
Brokerage is a closed corporation. If you want to buy a large
number of francs you will come ultimately to six or seven people
all of whom are international brokers and have control of the
exchange. They can raise or lower exchange, or refuse it altogether
in which case an impasse is reached very shortly.
If they raise the exchange of a country, e.g., England—if they put a
premium on sterling, they would penalise our products, but at the
same time it enables this country to buy a great many imports much
cheaper. These two things off-set each other to the extent that we
make the necessary arrangement to absorb imports without creating
an internal economic situation.

If they take the opposite line—to hammer the exchange down—
immediately they create a tremendous pressure on export and if any
change in the economic system occurs at all we are put in a very
advantageous position to capture foreign imports. People can buy
sterling at a low rate and therefore can buy British products at a low
rate. This is a very serious problem to exchange brokers.”
http://douglassocialcredit.com/resources/resources/major_douglas_to_the_council_4th_oct_1933.pdf

2)

All exports should be a form of barter. The problem is that countries are forced to pursue a policy where they export more than they import. This is due to the accounting flaw Douglas recognized in his A+B theorem. I would suspect that nations would become more “self-sufficient” in a Social Credit system, but there would still be international trade.

3)

I don’t consider politicians to necessarily be part of the “educated class”. Anyone who believes that banks loan other people’s deposits, or that deposits have anything to do with savings does not know enough about banking to comment on it intelligently.

Socred said...

4)

There are two accounts for trade – the current account and a capital account. Both must balance. In other words, if the current account is in deficit (i.e. the country imports more than they export), then the capital account must be in surplus (i.e. there is net foreign investment into the country by that exact same amount).
If the current account balanced, or at least there was a policy of a balancing of the current account, then foreign investment would become unnecessary as it should. We do not need to borrow money from another country when we can create our own.

5)

I would ask them to be more specific. How is Social Credit too “idealistic”? Why is it not “viable”? These are just ridiculous comments to dismiss the subject without any thought.

6)

I have heard of the economist Steve Keen. I like his differential equation modeling of the banking system (although he assumes that banks always loan out to their maximum given their reserve requirements, which isn’t always true). I would like to take the time to incorporate that type of modeling into a Social Credit system. I just haven’t found the time to understand it correctly, and then apply it.
If you’re looking for another economist who’s thinking is pretty similar to Social Credit, check out Mark Anielski. http://www.genuinewealth.net/
Also, don’t forget that Frances Hutchinson, the chairperson for the Social Credit Secretariat, holds a PhD in Economics.

Take care.

Socred said...

I forgot to add that Steve Keen also worships the false god of "full employment" and has not considered that purchasing power needs to be distributed in ever increasing quantity in such a way that it's not tied to work as captial and technology replace labour in production.

This is too bad, because I believe he would be a powerful ally, but at this point in time, the philosophical differnces are to vast to overcome.

Until he realizes that this dilemma is the cause of increasing debt, he cannot see the correct solution

Anonymous said...

Hullo, Socred.

Many thanks for your reply.

Questions:

1.In this part of the world, we are told constantly that we need to be more "competitive", to have a more cmpetitive economy and a more globally successful economy. What would you say to those who hold such a stance?

I write this as I remember C H Douglas writing something along the lines co-operation is the key - as opposed to competition. This I believe has something to do with what Douglas described as the increment of association. In other words, we achieve more through co-operation than competition. Again, putting it another way, the emphasis on competition (with other economies) has more to do with flawed concepts within the academic discipline of economics? (Ironically, our government's fixation with free trade agreements sort of gives the thumbs up to 'co-operation'. True?)

2. There has been one economist in this country who has called for a National Basic Income for all (adults). Naturally, people criticize this because they think such an income must come from taxation. But to clarify: a) Any industrialised country can create its own financial credit - just in the same manner as the banking system. Correct? b) If people don't work - to some degree, and we know the West could operate on a 25 hour working week - or organise themselves re automation, then no national dividend. Correct? In other words, there must be production for there to be a national dividend or national basic income.

(These questions may seem a little childish but you would be amazed at the type of opposition against social credit; hence this clarification of some basics.)

3. In this part of the world, in the boom/bust cycle we currently do not see massive unemployment or bankruptcies; but we do see the calls for more production and economic growth. Therefore, I take it the demand for economic growth is nothing more than an attempt to restore purchasing power due to the gap between income and prices?

4. If Canada, as a country, were to adopt social credit policies; how would it pay its overseas debts? (Re-negotiate them, more exports?)

5. In all English speaking countries, is it true the central banks deliberately under-report the rate of inflation?

6. In the likes of Australia, New Zealand, Canada, Britain and the USA, the Official Cash Rate is very low. Why? I mean economically, things are humming along in the first three countries. Banks are now lending at low interest rates for mortgages, thus fuelling another housing bubble (at least in this part of the world).

7. In a political sense, what does "the power to contract out", as spoken of by Douglas, mean to you?

Thank you for your time.

Socred said...

Hi:

My apologies for the delayed response.

I'll respond to your questions below:

1) I don't think that Douglas was opposed to competition, in fact, he speaks of it as an essential aspect of the private enterprise system. He did say that people working together were far more productive than people working all by themselves. He called this the "unearned increments of association". Cooperation is an important element of a private enterprise system. Any corporation involves people working in association with each other.

2. Potential production at current prices must be greater than the income distributed to all individuals in the same cycle of production. No dividend or price rebate would be distributed if total prices were equal to total incomes. The dividend or price rebate would not be distributed based upon monies collected through taxation. The crux of the A+B theorem and Douglas' analysis is that the economy is not in equilibrium. The price rebate and dividend are designed to increase consumers' income in order to bring the economy into equilibrium.

3) Yes, the call for "growth" is the futile attempt to distribute income in order to purchase the goods and services already in existence. The problem with this policy is that eventually the production associated with this growth shows up in the cost of some future consumer goods, and the income necessary to purchase these future goods no longer exists. This is the Keynesian solution to the problem, but even Keynes recognized the the absurdity of his own solutions when he said the following in his "The General Theory of Employment, Interest, and Money".

“Thus the problem of providing that new capital-investment shall always outrun capital-disinvestment sufficiently to fill the gap between net income and consumption, presents a problem which is increasingly difficult as capital increases. New capital-investment can only take place in excess of current capital-disinvestment if future expenditure on consumption is expected to increase. Each time we secure to-day’s equilibrium by increased investment we are aggravating the difficulty of securing equilibrium tomorrow.”

4. If Canada were to adopt Social Credit it would pay for overseas debts the same way it does now- with its own currency. However, with the advent of a Social Credit price discount, Canada's currency would buy more than it does currently.

5. Inflation in all countries is underestimated because most companies do not increase their price, but decrease the size of their packaging. For instance, a company can reduce the size of their shampoo from 100ml to 90 ml without increasing the price of the shampoo. Although inflation would not report this as an increase in price, the price actually rose by 10% because the amount of shampoo people receive for the same price is 10% less.

6. Interest rates are low because countries around the world are trying to stimulate production through the use of low interest rates. The problem is the liquidity trap. People simply do not want to take on more debt.

7. The power to "contract out" means the freedom to choose to associate with others in economic activities. While this power is not "absolute", it is essential to give this freedom increasingly to individuals as capital replaces labour in production. Ultimately, if capital totally replace labour in production, all citizens should be able to "contract out" permanently. We aren't at that point in production yet, and may never be fully, but science and technology are increasingly moving us towards that ideal.

Anonymous said...

Thank you for your response, Socred. Much appreciated.

Further questions:

1. Our government has embarked on a policy of partial selling of Crown assets i.e. power companies etc They call it a mixed-ownership model. (In the UK there is the similar Public-Private Partnership model.)

Anyhow, the locals are told, "Mixed ownership is a smart policy that will strengthen the...economy. And a stronger economy is the only way we will create jobs, boost incomes, and provide the high-quality public services the people of [this] electorate need".

Could you please give a comment on the quotation above. That is, any thoughts as to a counter -argument?

(Furthermore we are told the government has to tightenup its spending and stop increasing public debt,hence the partial selling of crown assets.)

2. In social credit literature, Douglas speaks of "A works system must have a definite objective". Exactly what is meant by this? And in relation to our daily living? (Excuse my ignorance on the matter.)

3. In writing about the surrender to materialism, Douglas wrote, "If you can keep the business of getting a living the dominant factor of life, and so keep your control of politics - just that long, and no longer". Could you perhaps expand on this quote and especially the last bit? I am not quite sure what Douglas meant with "just that long, and no longer".

Many thanks.

Anonymous said...

Continuing...

Further questions:

4. I read a recent political article which quoted comments from our Ambassador to the USA.

The article also centred on an OECD life satisfaction survey of my country. Essentially the survey concluded that we are one of the happiest countries in the OECD. That is, the vast majority of people are happy and healthy and are satisfied with their lot.

Thus, the writer of the article wrote, "The reality is that the world is a far better place today than it was 50 years ago...and it will be better in the years to come. The technological [and industrial] innovations that we are currently experiencing are only the starting point of a revolution that is now underway and is transforming our lives on a daily basis".

The article also stated that in 1820 85% of the world's population lived in poverty, today it is less than 20%. And (thanks to science and technology) 1 hours of work today delivers more than 25 times the value than it did in 1850.

Therefore this is the question: If people in the Western world today are happy with their lot in life, and contend with their standard of living, and the industrial system is working satisfactorily - where does this leave social credit and the Douglas analysis? Do we waste our time speaking to people on economic matters etc because I remember once being told by Victor Bridger something along the lines that if people prefer the life of a well-fed slave then the system will continue as usual.

5. Further to the question and article above, "We should", [said the Ambassador to the USA] "celebrate our success, the great ideas of freedom, representative democracy, freedom of religion, freedom from religion...labour rights, women's rights, the virtue of social mobility."

And, "...more wealth has been created over the past 60 years than the rest of human history put together...The darkest places on the planet...are the closed economies".

"Those...who predicted the end of democratic capitalism...will be disappointed..." as apparently the global trading system has held (re the recent global credit crisis).

Now this Ambassador is a great one for free trade agreements and the WTO. etc (Despite originally being a member of a socilist political party.)

Anyhow, this is typical of the economic and political ideology that is parroted in my country constantly. Again, how does one counter this in light of social credit and christian economics? (Rightly or wrongly,I would describe social credit as christian economics, and besides I doubt if the average individual has as much genuine freedom as the Ambassador thinks they do.)

Once again, thank you for your patience.

Anonymous said...

Socred,

Question 4, 5th paragraph, May 31 comment above: "...and contend with their standard of living...". This, of course, should be "...and content with their standard of living...". Sorry.

Socred said...

1) 1) I’m not sure what you’re getting at with the mixed ownership model? Certainly there is no necessity to create employment in order to disburse incomes. Certain services are best delivered by the government (for instance police, military etc…), but I think that if something can be delivered by private industry or the government, I personally believe it should be delivered by private industry, because it’s more efficient.

2) I think what Douglas was referring to in terms of a works system must have a definitive objective is something along the lines of goal setting. In order for any system to function efficiently it must have a clearly defined objective (goal). I’m not exactly sure what is meant by this either, because I’d have to see the context. Do you have the exact quote?

3)
I think that Douglas was saying that so long as “making a living” is a dominant factor in most peoples’ lives, then there will be those who will be able to control and manipulate politics. But as soon as this factor is no longer dominant in most peoples’ lives, and their attention is drawn more towards their political situation, then these people will no longer be able to manipulate politics.

4) I’m sure that if a prisoner only knew his cell, he would be happy with his lot in life as well, because he wouldn’t know any better. I think it’s incumbent upon us to show people that life could be much better, and we all could be much happier. There is not shortcut in all this. We are going to hit resistance all along the way. People are afraid of change, and Victor was correct in his assessment.

5) I would counter this argument by stating: “Man does not live by bread alone”.

Anonymous said...

Greetings Socred:

1. The mixed ownership model is the description given by our ruling political party to the partial selling of crown assets. That is, the government owns a public power company. They now want 49 per cent of the shares in that company to be sold to private investors; thus 'mixed ownership'.

It is nothing but the old privatisation policies of the 1980s that occurred in Britain and in this part of the world; and which are still peddled by the World Bank, IMF et al. In other words, our government wants money to "invest" in to the economy - for example, they wish to increase spending on bio-tech and scientific innovation in order for us to export value added product to the world market.

So economic orthodoxy tells the government politicians they must either tax to the hilt - or sell what they have. With your knowledge of both economics and social credit, I am sure you would see the nonsense in the argument (just presented) of orthodox economists - who inhabit the halls of government treasury and the IMF!!

2. Our local Member of Parliament is a member of the ruling party. Anyhow, in light of government privatisation and taxation policies (refer above), I asked if these policies - designed to create a 'stronger economy' - would a)lead to a much lower cost of living; b)result in the retirement age being lowered from 65 years to 60; c)reduce the average 40 hour working week to, say, 35 hours; d)significantly lower private-sector debt etc to a total of 8 questions. I also asked the question: Could our local MP please explain why we must "boost incomes"?

Not one of my questions received an actual or specific answer. I was simply brushed off with "Mr...has outlined his wishlist of hoped-for results of a stronger economy. I would like a stronger economy to result a higher wages...lower unemployment, more money for education and health provision, more money for infrastructure development...". The MP then waffled on about their Budget 2012.

See what one is up against?!

Interestingly the same stonewalling and inablility to see the economic facts were apparent in the days of C H Douglas.

The theme behind my questions was simply that if the prevailing economic policies do not make life easier and better, with increasing leisure time, for the individual; what then is the point of all this economic frenzy, and industrial production and urgency for full employment? Where are we going?

But no, can't get a straight answer from any politician!

Anonymous said...

continuing...

3. In his book 'Economic Democracy', page 121, Douglas writes, "Now, it must be perfectly obvious to anyone who seriously considers the matter that the State should lend, not borrow, and that in this respect...the financier usurps the function of the State". Could you please explain what Douglas meant here by "The State", because sometimes he used the word to descrobe 'the people' and sometimes to describe the official government.

To me the context centres on the National Debt (of Britain) and, I suspect, this little gem on p.120, "...who obtained the money to buy by means of the creation...of credits at the expense of the community, through the agency of industrial accounting and bank finance".

Am I on the right track? Because when 'the State' is used most folk jump to the conclusion the government (under the control of politicians) should create a country's money supply, which, I believe, Douglas did not support.

4. Douglas wrote something along the lines that at the rate things are going we will end up with a Global slave state. Personally, I believe that as of the year 2012 we are already there - a Global slave state. What are your thoughts on the matter?

5. I take it you consider the philosophy of Social Credit is Christian? When Douglas writes of SC being practical Christianity, does this mean an affirmation that the philosophy of Social Credit is Christian? And how does this practical Christianity affect the life of the individual in our very materialistic environment?

6. In light of the above, should it not be argued that the Douglas analysis and Social Credit should be actively promoted by the clergy of the Christian Church? Why hasn't the church taken up the social credit proposals?

7. Would you say that with all the opposition to Douglas and to social credit, Social Credit policies represent a threat to someone? To the money-power? In that SC, being interwoven with Christianity, represents increasing economic and political freedom for the individual; but full employment, export war and hyper-production represent increasing centralised control over the individual and the community?

8. Does it constantly amaze you that people - even the well-to-do - simply don't understand the difference between real credit and financial credit? That money in itself is nothing; that money (and therefore modern accounting) are inventions of man? I write this as one reads reports "Europe has no money!", "The country is bankrupt", "China has all the money, therefore we must beg them to lend..." and so forth.

Whoops, I have asked and written too much. Sorry. All the best.

Socred said...

Hi Anon:

Thanks again for your excellent questions and comments.

Banks create credit based upon their ability to monetize the assets of society. Their ability to do this is limited by the demand for credit, and their ability to access reserves. In a Social Credit society financial credit would only be limited by the real credit of society.

What Douglas is saying in the quote you reproduce from “Economic Democracy” is exactly what you suggest. Automation SHOULD reduce the amount of effort required to purchase goods and services; however, due to the fact that income is only derived from work, and the fact that the consumer pays all the costs of production, and increasing amount of goods and services are produced which are not necessary, but are ultimately charged to the consumer, even if they are waste.

I respond to Christians who quote Paul where he says ““if any will not work, neither should he eat” (Thessalonians 3:10). “ by saying, that this was certainly true at the time and place it was written, but that does not mean that this is a universal truth that holds for all time and all places. Just as Jesus said, “go sell what thou hast, and give it to the poor” (Matthew 19:21), he did not mean that everyone has to sell all they have and give it to the poor. This statement was true for the intended recipient, who valued his material possessions above all else. It was not meant as a universal truth to applicable to everyone.